After 2003 law changes, can a non-life insurance company taxed on premiums still claim the QEZE tax reduction credit, and how is the tax factor computed?

Plain-English summary

Utica Mutual Insurance Company, a non-life insurance corporation taxable under Article 33, became subject (for years beginning on or after January 1, 2003) to the premiums-based tax of section 1502-a instead of the income/capital tax of section 1501. It asked whether non-life insurers remain eligible for the QEZE tax reduction credit (sections 16 and 1511(s)) after Chapter 62 of the Laws of 2003.

The Department held yes:

• Section 16(a) allows a QEZE that is an Article 33 taxpayer the tax reduction credit, and amended section 1511(s)(2) says the credit may not reduce the tax below the minimum fixed by section 1502(a)(4) or 1502-a, whichever applies. Read together, these confirm the credit remains available to non-life insurers no longer paying the section 1501 tax.
• Tax factor. Because the credit's tax factor (section 16(f)) is based on section 1502(a), a premiums-taxed insurer computes a pro forma amount under section 1502(a)(1) and (3) as if it were subject to 1502(a), and uses the larger of the two.
• Floor. The credit may not reduce the insurer's section 1502-a tax below the $250 fixed minimum.

What this means for you

Switching to a premiums tax did not cost insurers the QEZE credit

When Chapter 62 of the Laws of 2003 moved non-life insurers to the section 1502-a premiums tax, it did not strip them of the QEZE tax reduction credit. The credit still applies under sections 16 and 1511(s).

You still compute a pro forma income-based tax factor

The credit's tax factor is tied to section 1502(a). A premiums-taxed insurer must compute a pro forma 1502(a)(1) and (3) amount as if it were subject to that section, and use the larger figure.

The $250 minimum is a hard floor

No matter how large the credit, it cannot reduce the insurer's section 1502-a tax below $250.

Common questions

Q: Can a premiums-taxed non-life insurer still claim the QEZE tax reduction credit?
A: Yes. Sections 16 and 1511(s), as amended by Chapter 62 of the Laws of 2003, keep the credit available.

Q: How is the credit's tax factor computed?
A: On a pro forma basis under section 1502(a)(1) and (3), using the larger of the two amounts as if the insurer were subject to section 1502(a).

Q: Is there a floor on the credit?
A: Yes. The credit cannot reduce the section 1502-a tax below the $250 fixed minimum.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 16 (QEZE tax reduction credit; tax factor)
- Tax Law section 1511(s) (QEZE tax reduction credit under Article 33)
- Tax Law section 1502-a (premiums-based tax on non-life insurance corporations)
- Tax Law section 1502(a) (Article 33 tax on entire net income or alternative bases)
- Chapter 62 of the Laws of 2003
- Utica Mutual Insurance Company, TSB-A-03(9)C (Oct. 9, 2003)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a03_9c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(9)C
Corporation Tax
October 9, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C030709A

On July 9, 2003, a Petition for Advisory Opinion was received from Utica Mutual Insurance
Company, 180 Genesee Street, New Hartford, New York 13413.
The issue raised by Petitioner, Utica Mutual Insurance Company, is whether non-life
insurance corporations are eligible for the qualified empire zone enterprise (QEZE) tax reduction
credit pursuant to sections 16 and 1511(s) of the Tax Law after the enactment of Chapter 62 of the
Laws of 2003.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a non-life insurance corporation taxable under Article 33 of the Tax Law. For
taxable years beginning on or after January 1, 2003, Petitioner is subject to the tax imposed under
section 1502-a of the Tax Law based on its gross direct premiums, less returns, in lieu of the tax
imposed under section 1501 of the Tax Law which is based on income or capital plus subsidiary
capital.
Applicable law
Section 14 of the Tax Law contains the empire zones program, and provides, in part:
(a) Qualified empire zone enterprise. A business enterprise which is certified
under article eighteen-B of the general municipal law prior to July first, two thousand
five shall be a “qualified empire zone enterprise”:
(1) for purposes of articles ... thirty-three of this chapter, for each of the
taxable years within the “business tax benefit period,” which period shall consist of
(A) in the case of a business enterprise with a test date occurring on or before
December thirty-first, two thousand one, the first fifteen taxable years beginning on
or after January first, two thousand one, and (B) in the case of a business enterprise
with a test date occurring on or after January first, two thousand two, the fifteen
taxable years next following the business enterprise’s test year, but only with respect
to each of such fifteen years for which the employment test is met, and
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(b) Employment test. (1) General. The employment test shall be met with
respect to a taxable year if the business enterprise’s employment number in empire

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zones for such taxable year equals or exceeds its employment number in such zones
for the base period, and its employment number in the state outside of such zones for
such taxable year equals or exceeds its employment number in the state outside of
such zones for the base period....
Section 16 of the Tax Law provides for a QEZE tax reduction credit, in part, as follows:
(a) Allowance of credit. A taxpayer which is a ... QEZE ... and which is
subject to tax under article ... thirty-three of this chapter, shall be allowed a credit
against such tax, pursuant to the provisions referenced in subdivision (g) of this
section, to be computed as hereinafter provided.
(b) Amount of credit. The amount of the credit shall be the product of (i) the
benefit period factor, (ii) the employment increase factor, (iii) the zone allocation
factor and (iv) the tax factor.
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(f) Tax factor. (1) General ... The tax factor shall be, in the case of article
thirty-three of this chapter, the larger of the amounts of tax determined for the
taxable year under paragraphs one and three of subdivision (a) of section fifteen
hundred two of such article.
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(g) Definitions and cross-references. For definitions of terms used in this
section see sections fourteen and fifteen of this article. For application of the credit
provided for in this section, see the following provisions of this chapter:
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(4) Article 33: Section 1511: subdivision (s).
Section 1502(a)of the Tax Law provides, in part:
The tax imposed under section fifteen hundred one shall be the greatest of:
(1) ... for taxable years beginning after June thirtieth, two thousand two,
seven and one-half percent of the taxpayer’s entire net income, or portion thereof
allocated within this state, for the taxable year, or part thereof; or
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(3) nine percent on thirty percent of the taxpayer’s entire net income plus
salaries and other compensation paid to the taxpayer’s elected or appointed officers
and to every stockholder owning in excess of five percent of its issued capital stock
minus fifteen thousand dollars and any net loss for the reported year, or the portion
of such sum allocated within the state as hereinafter provided... or
(4) two hundred fifty dollars;...
For taxable years beginning on or after January 1, 2003, section 1502-a of the Tax Law,
enacted in Chapter 62 of the Laws of 2003, contains the imposition of tax on non-life insurance
corporations, and provides, in part:
In lieu of the tax imposed by section fifteen hundred one of this article, every
domestic insurance corporation, every foreign insurance corporation and every alien
insurance corporation, other than such corporations transacting the business of life
insurance, (1) authorized to transact business in this state under a certificate of
authority from the superintendent of insurance or (2) which is a risk retention group
as defined in subsection (n) of section five thousand nine hundred two of the
insurance law, shall, for the privilege of exercising corporate franchises or for
carrying on business in a corporate or organized capacity within this state, and in
addition to any other taxes imposed for such privilege, pay a tax on all gross direct
premiums, less return premiums thereon, written on risks located or resident in this
state. The tax imposed by this section shall be computed in the manner set forth in
subdivision (a) of section fifteen hundred ten of this article as such subdivision
applied to taxable years beginning before January first, two thousand three, except
that the rate of tax imposed by this section shall be one and seventy-five hundredths
percent on all gross direct premiums, less return premiums thereon, for accident and
health insurance contracts, and two percent on all other such premiums. All the other
provisions in section fifteen hundred ten of this article, other than subdivision (b) of
such section, shall apply to the tax imposed by this section. In no event shall the tax
imposed under this section be less than two hundred fifty dollars.
Section 1503 of the Tax Law contains the computation of entire net income and provides,
in part:
(a) The entire net income of a taxpayer shall be its total net income from all
sources which shall be presumably the same as the ... taxable income, but not
alternative minimum taxable income, as the case may be, which the taxpayer is
required to report to the United States treasury department, for the taxable year ...
except as hereinafter provided.

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Section 1511(s) of the Tax Law, as amended by Chapter 62 of the Laws of 2003, provides
for the QEZE tax reduction credit as follows:
(1) Allowance of credit. A taxpayer which is a qualified empire zone
enterprise shall be allowed a QEZE tax reduction credit, to be computed as provided
in section sixteen of this chapter, against the tax imposed by this article.
(2) Application of credit. The credit allowed under this subdivision for any
taxable year shall not reduce the tax due for such year to less than the minimum tax
fixed by paragraph four of subdivision (a) of section fifteen hundred two of this
article or by section fifteen hundred two-a of this article, whichever is applicable.
Opinion
Section 16(a) of the Tax Law provides that a taxpayer which is a QEZE and is subject to tax
under Article 33 of the Tax Law is allowed a QEZE tax reduction credit against the tax imposed,
pursuant to the provisions of section 1511(s) of the Tax Law. Pursuant to section 16(b) of the Tax
Law, the amount of the QEZE tax reduction credit is the product of (i) the benefit period factor, (ii)
the employment increase factor, (iii) the zone allocation factor, and (iv) the tax factor.
Under section 16(f) of the Tax Law, the tax factor for an Article 33 taxpayer is the larger of
the amounts determined for the taxable year under (i) section 1502(a)(1) with respect to the tax
based on the taxpayer’s entire net income allocated within New York State, and (ii) section
1502(a)(3) with respect to the tax based on the taxpayer’s entire net income plus salaries and other
compensation paid to the taxpayer’s elected or appointed officers and to every stockholder owning
in excess of five percent of its issued capital stock minus fifteen thousand dollars and any net loss
for the reported year, allocated within New York State.
For taxable years beginning on or after January 1, 2003, a non-life insurance corporation is
subject to the tax imposed under section 1502-a of the Tax Law based on its gross direct premiums,
less returns, and is not subject to the tax imposed under section 1501 of the Tax Law. Also, for
taxable years beginning on or after January 1, 2003, section 1511(s)(2) of the Tax Law was amended
to provide that the QEZE tax reduction credit allowed for any taxable year shall not reduce the
tax due to less than the minimum tax fixed by section 1502(a)(4) or 1502-a of the Tax Law,
whichever is applicable. Accordingly, the application of these two provisions together, as enacted
in Chapter 62 of the Laws of 2003, supports the interpretation that for taxable years beginning on
or after January 1, 2003, the QEZE tax reduction credit will continue to be available to non-life
insurance corporations that are no longer subject to the tax imposed under section 1501 of the Tax
Law, and that in applying the credit, the amount of credit allowed may not reduce the tax imposed
under section 1502-a of the Tax Law below the fixed minimum amount.

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Assuming that Petitioner is a QEZE pursuant to section 14 of the Tax Law, Petitioner may
be allowed a QEZE tax reduction credit pursuant to sections 16 and 1511(s) of the Tax Law. The
amount of the QEZE tax reduction credit that Petitioner may be allowed pursuant to section
1511(s)(1) of the Tax Law is computed pursuant to section 16(b) of the Tax Law, and is the product
of (i) the benefit period factor, (ii) the employment increase factor, (iii) the zone allocation factor
and (iv) the tax factor. Petitioner’s tax factor pursuant to section 16(f) of the Tax Law is the larger
of the amounts of tax determined for the taxable year under paragraphs (1) and (3) section 1502(a)
of the Tax Law.
Therefore, for purposes of computing the tax factor of the QEZE tax reduction credit under
section 16(f) of the Tax Law for taxable years beginning on or after January 1, 2003, Petitioner must
compute a pro forma amount of tax pursuant to paragraphs (1) and (3) of section 1502(a) of the Tax
Law, determined as if Petitioner were subject to such section 1502(a). The amount of the tax factor
will be the larger of the two pro forma amounts of tax. However, the amount of the QEZE tax
reduction credit allowed may not reduce Petitioner’s tax computed pursuant to section 1502-a of the
Tax Law below the $250 fixed minimum tax.

DATED: October 9, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.