Dan-Ellen, Inc. v. New York State Tax Commission ( 1980 )

Proceeding pursuant to CPLR article 78 (transferred to this court by order of the Supreme Court at Special Term, entered in Albany County) to review a determination of the State Tax Commission which sustained a franchise tax assessment against petitioner for the fiscal periods ending on February 28 for the years 1970 through 1973. Petitioner is a domestic corporation which sells ladies’ apparel to retail stores throughout the country. The shareholders of petitioner are also the sole shareholders of two other separate and distinct corporations: Clock Fashions, Inc. (Clock), a New York corporation, and Beth Products, Inc. (Beth), a corporation which has its principal place of business in Lebanon, Pennsylvania. Petitioner and Clock maintain adjoining showrooms at the same address in New York City where samples are kept and customer orders are placed. Petitioner has its employees take the orders in its New York office. After the orders are taken, all the necessary raw materials are purchased by Clock. The fabric is shipped by Clock to Beth where it is manufactured by Beth employees into a finished product and shipped by Beth on behalf of petitioner to its customers. The petitioner filed New York State corporation franchise tax reports for the years at issue. However, respondent disallowed all petitioner’s claims for a business allocation outside the State and, accordingly assessed corporate franchise tax deficiencies. This CPLR article 78 proceeding ensued and the sole issue to be adjudicated is whether there is substantial evidence to support respondent’s finding that petitioner did not have a regular place of business outside of New York State for franchise tax purposes. Section 210 (subd 3, par [a], cl [4]) of the Tax Law requires a corporation doing business in New York to allocate 100% of its net income within New York State unless the taxpayer has “a regular place of business outside the state other than a statutory office” (see Matter of Micro Computer Corp. v State Tax Comm., 65 AD2d 867). A corresponding regulation promulgated by the Department of Taxation and Finance provides that “A regular place