A recent advisory opinion of New York State Department of Taxation and Finance (PETITION NO. C120126A) shows us a company (Petitioner X) that was desperately trying to avoid New York State nexus. They sold stuff on line and by mail order catalog. They had this problem though. The stuff that they sold was women’s apparel, accessories and footwear. How can you be selling women’s apparel and not have any of your people ever visit the fashion capital of the world.
It really brings back memories. After the newspaper business and high finance, the fashion industry was my third career.
I was 17, when Lou Mallas, Inc. hired me as a packer in their warehouse in Fairview, NJ. Much easier commute than going toWall Street which in those days required an army of teenagers and old men to deliver paper stock certificates and pick up checks. Once in a great while during my fashion career, I would be commissioned to go into the city and “carry the line”.
The sales rep who went from buyer to buyer showing off the dresses could not be expected to schlep all those samples himself. It was kind of fun, although a bag with a few hundred dollars worth of dresses was much harder to maneuver than a wheeled case with a few million dollars worth of securities.
At any rate Petitioner X had labored mightily to avoid the taxing authority of the state of New York:
Petitioner X does not currently own or operate retail stores in any state and has not operated any in New York
Petitioner X accepted all orders in name of State redacted. Petitioner X fulfilled all orders from points outside New York. Petitioner X shipped all merchandise to customers by common carrier or the United States Postal Service.
For a while Petitioner X was vulnerable to click-through nexus, but they quickly put a stop to that
By May 31, 2008, Petitioner X terminated all contracts with New York-based web affiliates. Since then Petitioner X has not paid any commissions or fees to any New York resident in exchange for website links or referrals.
But they are in the fashion business, so they just have to go to New York specifically:
In fact, Petitioner had no employees in New York, except that, from time to time, Petitioner X’s employees came to New York on a temporary basis to meet with potential merchandise vendors as well as to engage in “inspirational shopping” trips to gather information on fashion trends. In addition, Petitioner X’s employees came to New York from time to time to attend trade shows (as attendees and not as participants/exhibitors). Petitioner X’s employees did not meet with customers in New York and none of the visits related to soliciting sales or distributing products in New York.
I love the idea of the “inspirational shopping” trips. Imagined getting paid to walk up and down Fifth Avenue.
Although it was not mentioned in the ruling, it would probably be a really bad idea for New York to assert that activities like that would create corporate nexus. It would put a serious dent in convention business if sending your people to a trade show would create nexus. Trying to tax corporations because they send people to your state to look at what they might want to buy there would be really dumb. Dumber than New York turned out to be:
While it is a close question, given the limited purposes and duration of Petitioner’s employees’ trips into the State, those trips do not rise to the level of “doing business”.
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