Is an out-of-state life insurer that invests in New York mortgages through a partnership and receives orphan premiums subject to Article 33 instead of Article 9-A, and what is its tax?

Plain-English summary

Conseco Senior Health Insurance Company is a Pennsylvania corporation licensed as a life insurance company in every state but Connecticut, New York, Rhode Island and Vermont. It does not solicit insurance business in New York and is not authorized to transact insurance here. It receives "orphan premiums" -- premiums from policyholders who were nonresidents when they bought but later moved to New York. It (or a related entity) invests, for investment purposes, in mortgages secured by New York real estate, purchased through a large investment partnership that is doing business in New York.

The Department held:

• Article 33, not Article 9-A. Through the investment partnership that invests in New York-secured mortgages, the insurer is doing business / employing capital / owning property in New York (Royal Indemnity). As an insurance corporation, it is taxed under section 1501 and is excluded from Article 9-A by section 209.4.
• Tax is zero, but a return is due. Because the insurer has no New York certificate of authority, it has no premiums taxable under section 1510 (the orphan premiums are not taxed), so under section 1505 its Article 33 tax liability is zero. But it is still a taxpayer under section 1500(e) and must annually file a return under section 1515.

What this means for you

Investing in New York mortgages through a partnership creates Article 33 nexus

An out-of-state life insurer that invests in New York-secured mortgages through a partnership doing business in New York is doing business here (Royal Indemnity). As an insurance corporation, that pulls it into Article 33 -- not Article 9-A (section 209.4).

Orphan premiums are not taxed without a certificate of authority

"Orphan premiums" -- from policyholders who moved to New York after buying -- are not premiums taxable under section 1510 when the insurer has no New York certificate of authority. With no taxable premiums, the section 1505 Article 33 tax computes to zero.

Zero tax still means an annual return

A zero Article 33 liability does not end the obligation. As a section 1500(e) taxpayer, the insurer must still file an annual return under section 1515. (Compare TSB-A-05(16)C, the disregarded-LLC variant of this same structure.)

Common questions

Q: Is an unauthorized out-of-state life insurer with New York mortgage investments taxed under Article 9-A or Article 33?
A: Article 33. Investing in New York-secured mortgages through a partnership doing business in New York makes it doing business here, and as an insurance corporation it is excluded from Article 9-A by section 209.4.

Q: Are its orphan premiums taxed?
A: No. Without a New York certificate of authority, the insurer has no premiums taxable under section 1510, so its section 1505 tax is zero.

Q: If the tax is zero, does it have to file?
A: Yes. As a section 1500(e) taxpayer it must annually file an Article 33 return under section 1515.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 1501 (Article 33 franchise tax on insurance corporations)
- Tax Law section 209.4 (Article 9-A exemption for corporations subject to Article 33)
- Tax Law section 1505 (computation/limitation of Article 33 tax)
- Tax Law section 1510 (premiums tax) and section 1515 (return requirement)
- Tax Law section 1500(e) (definition of taxpayer)
- Royal Indemnity Co. v. NYS Tax Appeals Tribunal, 75 NY2d 75
- Conseco Senior Health Insurance Company, TSB-A-04(4)C (Apr. 1, 2004)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a04_4c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(4)C
Corporation Tax
April 1, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C031114C

On November 14, 2003, a Petition for Advisory Opinion was received from Conseco Senior
Health Insurance Company, 3220 Tillman Drive, Bensalem, Pennsylvania 19020.
The issues raised by Petitioner, Conseco Senior Health Insurance Company, are:
1. Whether Petitioner is subject to franchise tax under Article 33 of the Tax Law rather than
Article 9-A of the Tax Law.
2. If the answer to issue 1 is yes, what, if any, is Petitioner’s tax liability under Article 33 of
the Tax Law based on the facts presented.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a Pennsylvania corporation that is licensed as a life insurance company in every
state but Connecticut, New York, Rhode Island and Vermont. Petitioner neither solicits insurance
business in New York State nor is it authorized to transact an insurance business under a certificate
of authority issued by the New York State Insurance Department.
Petitioner does not conduct any business in New York and does not plan to conduct any
business activity in New York other than through various investment partnerships similar to the
entity discussed below. Petitioner does not have an office, place of business or telephone listing in
New York, and Petitioner does not have any employees or agents stationed in New York.
Although not registered as a life insurance company in New York, Petitioner receives
premiums (“orphan premiums”) from New York residents on policies which Petitioner sold to
customers who at the time of sale were nonresidents of New York but who later relocated to
New York.
Petitioner has an indirect interest (through various entities treated for federal income tax
purposes as either disregarded entities or partnerships) in 767 Fifth Avenue LLC (“767 LLC”), a
Delaware limited liability company (“LLC”) treated as a partnership for federal income tax
purposes. Petitioner acquired its indirect interest in 767 LLC on May 27, 1998. 767 LLC’s sole
asset was a building located at 767 Fifth Avenue, New York, New York (the “Building”). On
August 28, 2003, 767 LLC entered into an agreement to sell the Building to an unrelated third party.
The sale transaction closed on September 26, 2003. Prior to the sale, 767 LLC recognized only
operating losses for federal income tax purposes from the Building. The sale of the Building
resulted in the recognition by 767 LLC of a gain for federal income tax purposes. Petitioner,

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therefore, will include its distributive share of 767 LLC’s gain from the sale in its federal taxable
income.
Applicable law
Section 209.4 of Article 9-A of the Tax Law provides, in part:
Corporations ... taxable under articles thirty-two and thirty three of this chapter ...
shall not be subject to tax under this article.
Section 1500 of Article 33 of the Tax Law contains general definitions, and provides, in part:
(a) The term “insurance corporation” includes a corporation, association, joint stock
company or association, person, society, aggregation or partnership, by whatever name
known, doing an insurance business....
*

*

*

(c) The term “foreign insurance corporation” means an insurance corporation
incorporated or organized under the laws of any other state of the United States, the District
of Columbia or the Commonwealth of Puerto Rico.
*

*

*

(e) The term “taxpayer” means any insurance corporation subject to the tax imposed
under section fifteen hundred one, fifteen hundred two-a, or fifteen hundred ten or any
captive insurance company subject to the tax imposed under section fifteen hundred two-b
of this article.
Section 1501(a) of the Tax Law provides, in part:
Every domestic insurance corporation and every foreign or alien insurance
corporation, for the privilege of exercising its corporate franchise, or of doing business, or
of employing capital, or of owning or leasing property in this state in a corporate or
organized capacity, or of maintaining an office in this state ... shall annually pay a franchise
tax....
Section 1505 of the Tax Law provides, in part:
(a)(2) Domestic, foreign and alien life insurance corporations. The provisions of this
paragraph shall apply to taxpayers subject to tax under paragraph one of subdivision (b) of
section fifteen hundred ten of this article. Notwithstanding the provisions of sections fifteen

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hundred one and fifteen hundred ten of this article, the amount of taxes imposed under such
sections for taxable years beginning on or after January first, nineteen hundred
seventy-seven ... shall not exceed an amount computed as if such taxes were determined
solely under section fifteen hundred ten, except that for purposes of the limitation provided
herein, the rate of tax under such section shall be deemed to be ... two percent for taxable
years beginning on or after January first, nineteen hundred ninety eight.
(b) Notwithstanding the provisions of sections fifteen hundred one and fifteen
hundred ten of this article, in the case of taxpayers subject to tax under subdivision (b) of
section fifteen hundred ten, the total amount of tax imposed under this article ... shall in no
event be less than the amount computed as if such tax was determined solely under section
fifteen hundred ten, except that the rate of tax under section fifteen hundred ten shall be
deemed to be one and five-tenths percent.
Section 1510(b)(1) of the Tax Law provides, in part:
Except as hereinafter provided, every domestic life insurance corporation, and every
foreign and alien life insurance corporation authorized to transact business in this state under
a certificate of authority from the superintendent of insurance, 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, received in cash or
otherwise on risks resident in this state....
Section 1515(a) of the Tax Law provides, in part:
Every taxpayer and every other foreign and alien insurance corporation having an
employee, including any officer, in this state or having an agent or representative in this
state, shall annually, on or before the fifteenth day of the third month following the close of
its taxable year, transmit to the [commissioner of taxation and finance] a return in a form
prescribed by [the commissioner] setting forth such information as the [commissioner] may
prescribe....
Section 1-3.2(a) of the Business Corporation Franchise Tax Regulations (Article 9-A
Regulations) provides, in part:
(5) If a partnership is doing business, employing capital, owning or leasing property
or maintaining an office in New York State, then all of its corporate general partners are
subject to the tax imposed by article 9-A of the Tax Law.

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(6)(i) A foreign corporation is doing business, employing capital, owning or leasing
property or maintaining an office in New York State if it is a limited partner of a partnership,
other than a portfolio investment partnership, which is doing business, employing capital,
owning or leasing property or maintaining an office in New York State and if it is engaged,
directly or indirectly, in the participation in or the domination or control of all or any portion
of the business activities or affairs of the partnership....
Opinion
The provisions in Article 33 of the Tax Law should be regarded as being in pari materia and
construed in a like manner as substantially identical provisions contained in Article 9-A of the Tax
Law. (Royal Indemnity Co. v NYS Tax App Trib, 75 NY2d 75; L 1974, ch 649, §12.) For purposes
of Article 9-A of the Tax Law, section 1-3.2(a)(5) of the Article 9-A Regulations provides that if
a partnership is doing business, employing capital, owning or leasing property or maintaining an
office in New York State, then all of its corporate general partners are subject to the tax imposed by
Article 9-A of the Tax Law. Section 1-3.2(a)(6) of the Article 9-A Regulations provides that a
foreign corporation is doing business, employing capital, owning or leasing property or maintaining
an office in New York State, if it is a limited partner of a partnership, other than a portfolio
investment partnership, which is doing business, employing capital, owning or leasing property or
maintaining an office in New York State and if it is engaged, directly or indirectly, in the
participation in or the domination or control of all or any portion of the business activities or affairs
of the partnership.
Section 209.4 of Article 9-A of the Tax Law provides that a corporation that is taxable under
Article 33 of the Tax Law is not subject to tax under Article 9-A of the Tax Law.
In Mound, Cotton & Wollan, Adv Op Comm T & F, September 16, 1988, TSB-A-88 (20)C,
it was held that a foreign life insurance company not authorized to transact business in New York
State could purchase, for investment purposes, mortgages secured by New York real estate without
incurring franchise tax liability under Article 33 of the Tax Law and, pursuant to section 209.4 of
the Tax Law, was not subject to tax under Article 9-A of the Tax Law because it was an insurance
corporation subject to franchise tax under Article 33 of the Tax Law. The company was not licensed
or qualified to do business in New York State. The company was considering the purchase of
mortgages secured by New York real estate. The mortgages would be purchased through a large
corporate broker licensed in New York. Negotiations would take place both in and out of New York
and the contracts could be signed either in or out of New York. In addition, an agent, either in or
out of New York, would service the mortgages. The company did not incur franchise tax liability
under Article 33 because it did not have a certificate of authority from the Superintendent of
Insurance and had no taxable premiums under section 1510 of the Tax Law. Therefore, the

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corporation’s tax liability was zero because of the cap computed pursuant to section 1505 of the Tax
Law.
In The Manufacturers Life Insurance Company (USA), Adv Op Comm T & F, September 3,
1997, TSB-A-97(23)C, the petitioner was not authorized to transact an insurance business under a
certificate of authority from the New York State Insurance Department. It received orphan premium
payments from New York residents. It considered making loans that would be secured by
mortgages on commercial real property located in New York. For this purpose, the petitioner was
required to obtain a certificate of authority to conduct business in New York, but not a certificate
of authority from the Superintendent of Insurance to conduct an insurance business in New York.
Its employees were to come into New York to contact potential borrowers, existing borrowers, or
mortgage brokers, to gather market information, to perform due diligence and to negotiate and
monitor the closing of the loans. The petitioner's directors, officers and employees may also have
come into New York to take part in seminars, visit rating agencies, and attend closings of purchases
and sales of securities (other than loans). Also it may have, on occasion, foreclosed or otherwise
taken title to property in New York. It was held that the totality of the petitioner’s proposed
activities in New York would constitute doing business and would subject the petitioner to the tax
imposed under section 1501 of the Tax Law. However, since the petitioner would not have a
certificate of authority from the Superintendent of Insurance to conduct an insurance business in
New York, the petitioner would not have taxable premiums under section 1510 of the Tax Law, and
therefore, pursuant to section 1505 of the Tax Law, the petitioner’s tax liability under Article 33 of
the Tax Law would be zero. Also, the petitioner would not be subject to tax under Article 9-A of
the Tax Law because it was a corporation taxable under Article 33 of the Tax Law.
In Pacific Life Insurance Company, Adv Op Comm T & F, November 10, 1999,
TSB-A-99(28)C, the petitioner had orphan premiums from New York residents and income through
its direct and indirect ownership interest in various general and limited partnerships and LLCs that
conducted business activities in New York, but did not have a certificate of authority from the
Superintendent of Insurance to conduct an insurance business in New York. It was held that the
petitioner’s activities in New York through the partnerships and LLCs would constitute doing
business and would subject the petitioner to the tax imposed under section 1501 of the Tax Law.
However, since the petitioner did not have a certificate of authority from the Superintendent of
Insurance to conduct an insurance business in New York, the petitioner did not have taxable
premiums under section 1510 of the Tax Law. Therefore, pursuant to section 1505 of the Tax Law,
the petitioner’s tax liability under Article 33 of the Tax Law was zero, but pursuant to section 1515
of the Tax Law the petitioner was required to file annual returns.
Issue 1. In this case, Petitioner has ownership interests in various investment partnerships,
including its indirect ownership of 767 LLC which is treated as a partnership for federal income tax
purposes and conducts business activities in New York. Accordingly, through Petitioner’s

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ownership interests in the partnerships and LLCs, Petitioner is considered to be doing business,
employing capital, owning or leasing property or maintaining an office in New York for purposes
of Article 9-A. See Pacific Life, supra. Following Royal, supra, such activity constitutes doing
business, employing capital, owning or leasing property or maintaining an office in New York for
purposes of section 1501 of the Tax Law. Since Petitioner is a life insurance corporation, it is
subject to the tax imposed under section 1501 of the Tax Law. Petitioner will not be subject to tax
under Article 9-A of the Tax Law because it is a corporation subject to Article 33 of the Tax Law.
See Mound, Cotton, & Wollan, supra.
Issue 2. Like the insurance companies in Manufacturer's Life Insurance, supra, and Pacific Life,
supra, Petitioner does not have a certificate of authority to conduct an insurance business in
New York State, but will have “orphan premiums.” Since Petitioner does not have a certificate of
authority from the Superintendent of Insurance to conduct an insurance business in New York,
Petitioner will not have premiums subject to tax under section 1510 of the Tax Law. Pursuant to
section 1505 of the Tax Law, Petitioner's tax liability under Article 33 of the Tax Law will be zero.
However, even though Petitioner’s tax liability will be zero, Petitioner is a taxpayer under
section 1500(e) of the Tax Law, and pursuant to section 1515 of the Tax Law, Petitioner must
annually file a tax return.

DATED: April 1, 2004

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.