Is an unauthorized foreign life insurer that makes New York mortgage loans through a disregarded LLC subject to Article 33 instead of Article 9-A, and what is its tax?

Plain-English summary

State Farm Life Insurance Company, an Illinois life insurer, is not authorized to do an insurance business in New York and does not solicit there. It does receive "orphan premiums" -- premiums from policyholders who were nonresidents when they bought, then moved to New York. It planned to form a single-member Delaware LLC (disregarded for federal tax) to make commercial mortgage loans secured by New York real property, with its parent's employees traveling to New York to inspect properties and do due diligence for the LLC.

Issue 1 -- which article. Because the LLC is disregarded, its New York lending activity is treated as the insurer's own. State Farm Life is therefore doing business / employing capital / owning property in New York for purposes of section 1501 (Article 33). As a life insurance corporation, it is taxed under section 1501 and is excluded from Article 9-A by section 209.4 -- a corporation subject to Article 33 is not subject to Article 9-A.

Issue 2 -- the tax. Following Manufacturers Life and Washington National, because State Farm Life has no New York certificate of authority, it has no premiums taxable under section 1510, 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

A disregarded LLC's activity is the insurer's activity

Forming a single-member, disregarded LLC does not wall off its activity from its insurer-owner. The LLC's New York mortgage lending is attributed to the insurer, pulling the insurer into Article 33 -- even though the LLC's stated purpose excludes conducting an insurance business.

Article 33 displaces Article 9-A for insurers

An insurance corporation subject to Article 33 is not taxed under Article 9-A (section 209.4). A life insurer doing business in New York is an Article 33 taxpayer regardless of the form its New York activity takes.

Zero tax still means a return

Without a New York certificate of authority, an unauthorized insurer has no section 1510 premiums tax, so its section 1505 liability can be zero. But zero tax is not zero obligation -- as a section 1500(e) taxpayer it must file an annual Article 33 return under section 1515. (Note: later guidance, TSB-A-08(3.1)C / TSB-M-12(4)C, revisited how the section 1505(a)(2) limitation applies to unauthorized life insurers on a prospective basis.)

Common questions

Q: Does lending through a disregarded LLC keep a foreign insurer out of New York tax?
A: No. The disregarded LLC's New York lending is treated as the insurer's own activity, making the insurer an Article 33 taxpayer.

Q: Is the insurer taxed under Article 9-A or Article 33?
A: Article 33. A corporation subject to Article 33 is excluded from Article 9-A by section 209.4.

Q: What is the tax if the insurer has no New York certificate of authority?
A: Its section 1505 tax liability is zero because it has no premiums taxable under section 1510, but it must still file an annual 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)
- Washington National Insurance Company, TSB-A-04(5)C; Manufacturers Life Insurance
- State Farm Life Insurance Company, TSB-A-05(16)C (Dec. 2, 2005)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a05_16c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(16)C
Corporation Tax
December 2, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C050331A

On March 31, 2005, a Petition for Advisory Opinion was received from State Farm Life
Insurance Company, One State Farm Plaza, Life Tax, D2, Bloomington, Illinois 61710.
The issues raised by Petitioner, State Farm Life 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 an Illinois corporation that is licensed as a life insurance company in every
state but New York and Wisconsin. 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 and will 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 (Aorphan premiums@) from New York residents on policies which Petitioner sold to
customers who at the time of sale were not residents of New York but who later became
New York State residents.
Petitioner intends to form a single member limited liability company (“SMLLC”) under
the laws of Delaware to make commercial real estate mortgage loans secured by New York real
property. Petitioner will be the sole and managing member of the SMLLC. The purpose of the
SMLLC shall be “to engage in any lawful business permitted under the laws of Delaware or the
laws of any jurisdiction in which the limited liability company may do business, including
specifically the conduct of commercial real estate mortgage lending, but specifically excluding
the conduct of an insurance business.” In the course of considering whether to make a
prospective loan or approve a loan application, employees of State Farm Mutual Automobile
Insurance Company, the parent company of Petitioner, will travel to New York to review, on
behalf of the SMLLC, the prospective property that would secure the loan and may, on occasion,
perform other due diligence activities related to a prospective loan transaction.

-2­
TSB-A-05(16)C
Corporation Tax
December 2, 2005

It is assumed for purposes of this Advisory Opinion that Petitioner will not be required to
hold a certificate of authority to transact an insurance business issued by the New York State
Insurance Department. The SMLLC will register as a foreign limited liability company under the
New York Limited Liability Company Law. For federal income tax purposes, the SMLLC will
be treated as a disregarded entity.
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 Ainsurance 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 Aforeign 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 Ataxpayer@ 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:

-3­
TSB-A-05(16)C
Corporation Tax
December 2, 2005

(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 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.
Opinion
The classification accorded a limited liability company for federal income tax purposes
will be followed for New York State corporate franchise tax purposes. (See McDermott, Will &
Emery, Adv Op Comm T&F, July 24, 1996, TSB-A-96(19)C; FGIC CMRC Corp., Adv Op
Comm T&F, April 1, 1996, TSB-A-96(11)C; and New York State Department of Taxation and

-4­
TSB-A-05(16)C
Corporation Tax
December 2, 2005

Finance Publication 16 (1/03), New York Tax Status of Limited Liability Companies and Limited
Liability Partnerships.) Accordingly, if the SMLLC is considered a branch or division of
Petitioner for federal income tax purposes (i.e., if the SMLLC is a disregarded entity), it will be
considered a branch or division of Petitioner for New York State corporate franchise tax
purposes.
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-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 corporation=s tax liability was zero
because of the provisions of 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 obtained a certificate of authority to conduct business in New York
pursuant to section 1301 of the New York Business Corporation Law, 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 the petitioner 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

-5­
TSB-A-05(16)C
Corporation Tax
December 2, 2005

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.
Issue 1. In this case, Petitioner will be the sole and managing member of the SMLLC, which
will be treated as a disregarded entity for federal income tax purposes. The SMLLC will conduct
business activities in New York. Accordingly, the SMLLC will be considered to be a branch or
division of Petitioner and Petitioner will be considered to be doing business, employing capital,
owning or leasing property or maintaining an office in New York for purposes of section 1501 of
Article 33 of the Tax Law. Since Petitioner is a life insurance corporation, it will be 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 will be a corporation subject to Article 33 of the Tax Law.
See section 209.4 of the Tax Law and Mound, Cotton, & Wollan, supra.
Issue 2. Like the insurance company in Manufacturer's Life Insurance, supra, Petitioner does
not have a certificate of authority to conduct an insurance business in New York State, but will
have Aorphan 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. See Washington National Insurance Company, Adv Op Comm T & F,
April 1, 2004, TSB-A-04(5)C.

DATED: December 2, 2005

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.