After a 2012 policy change, does the section 1505(a)(2) premiums-based limitation still cap the Article 33 tax of an unauthorized life insurance corporation that has no New York premiums?

Plain-English summary

This opinion is a modification of an earlier one (TSB-A-08(3)C) issued to the same insurer. The original 2008 opinion held that a foreign life insurance corporation with no New York premiums could still be subject to New York's Article 33 insurance franchise tax through its partnership investment, but that the tax was effectively limited to zero by Tax Law § 1505(a)(2), because that limitation is computed from taxable premiums and the insurer had none.

In 2012, the Department changed its interpretation. By technical memorandum TSB-M-12(4)C, it concluded that because an unauthorized life insurance corporation is not subject to the additional premiums tax under section 1510(b)(1), the section 1505(a)(2) limitation simply does not apply to it. So the tax is not capped; instead it is computed normally under section 1502 — i.e., on the highest of the four Article 33 bases, plus any tax on allocated subsidiary capital.

Because an advisory opinion binds the Department as to the named petitioner and can be modified only prospectively (Tax Law § 171.Twenty-fourth), the Department issued this modified opinion so the new interpretation would reach this insurer going forward. Starting with the insurer's first taxable year beginning after this modified opinion was issued (July 2, 2014), its Article 33 tax is computed under section 1502 and is not limited by section 1505.

What this means for you

Unauthorized (non-admitted) life insurers with New York nexus

If you are a life insurance corporation that is taxable under Article 33 in New York but not authorized by the Superintendent of Insurance and have no New York premiums, do not assume the section 1505 premiums limitation zeroes out your tax. Under the current interpretation, the limitation does not apply, and you compute tax under section 1502.

Anyone relying on an older advisory opinion

This is a clean example of how a favorable advisory opinion can be overtaken by a later policy change — but only prospectively, and only after the Department formally modifies the opinion. An opinion reflects the law and policy in effect when issued; verify it has not been superseded.

Accountants and tax professionals

Tie the analysis together with TSB-A-08(3)C (the original) and the broader insurer-partnership-nexus line (for example TSB-A-09(2)C). The mechanical point: no section 1510(b)(1) premiums tax means no section 1505(a)(2) limitation, so the Article 33 tax stands at the section 1502 amount.

Common questions

Q: What changed between the 2008 opinion and this 2014 modification?
A: The Department's interpretation of the section 1505 limitation. It now reads the limitation as inapplicable to unauthorized life insurers (who owe no section 1510(b)(1) premiums tax), so their tax is the full section 1502 amount rather than zero.

Q: When does the change take effect for this insurer?
A: Prospectively — beginning with the insurer's first taxable year that starts after this modified opinion was issued on July 2, 2014.

Q: Why was a formal modification needed at all?
A: Because an advisory opinion is binding on the Department as to the petitioner and can be changed only prospectively (Tax Law § 171.Twenty-fourth); the modification is how the new interpretation is applied to the original petitioner.

Citations and references

Statutes, regulations, and authorities:
- Tax Law § 1505(a)(2) (limitation on tax for life insurance corporations)
- Tax Law § 1502 (computation of Article 33 franchise tax)
- Tax Law § 1510(b)(1) (additional franchise tax on premiums)
- Tax Law § 171.Twenty-fourth (advisory opinion binding; modified prospectively only)
- TSB-M-12(4)C (changed interpretation of the section 1505 limitation)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a08_3_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-08(3.1)C
Corporation Tax
July 2, 2014

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. C080122A

An Advisory Opinion was issued to REDACT REDACT REDACT REDACT REDACT
REDACT REDACT REDACT REDACT REDACT on April 29, 2008, with respect to Petition
No. REDACTION. Petitioner asked whether it was subject to tax in New York State under
Article 33 or Article 9-A of the Tax Law. That Advisory Opinion, published as TSB-A-08(3)C,
is modified to conclude that, while Petitioner is subject to tax under Article 33, the limitation on
tax in § 1505 (a)(2) does not apply and Petitioner’s tax should be calculated under Tax Law §
1502.
Facts
The applicable facts are those stated in TSB-A-08(3)C.
Analysis
The Advisory Opinion issued in 2008 to Petitioner concluded that Petitioner would be
subject to tax under Article 33 of the Tax Law, provided that the partnership in which it was a
limited partner was not a portfolio investment partnership. This conclusion is correct. The
Advisory Opinion also concluded that, because Petitioner did not have a certificate of authority
from the Superintendent of Insurance to conduct an insurance business in New York, Petitioner
did not have taxable premiums under § 1510 of the Tax Law and the limitation computed under
§ 1505 was zero. In 2012, the Department of Taxation and Finance issued a technical
memorandum, TSB-M-12(4)C, to announce, in part, that the Department was changing its
interpretation of the limitations in § 1505 as they applied to unauthorized life insurance
companies. The TSB-M concluded that, since unauthorized life insurance corporations are not
subject to the additional premiums tax imposed under § 1510(b)(1), the tax on these corporations
is not limited by § 1505(a)(2). The Department determined that this was a better interpretation
of the statutory provisions. Because this was a change from an earlier interpretation, contained
in advisory opinions, the Department applied this change to taxable years beginning on or after
January 1, 2012. However, under Tax Law § 171 (24th), an Advisory Opinion is binding on the
Department with respect to the person to whom the opinion is rendered and may be modified
prospectively only. Therefore, this modification of TSB-A-08(3)C is necessary to apply the
Department’s changed interpretation of the statute to the Petitioner. Commencing with the
Petitioner’s taxable year beginning after this modified Advisory Opinion is issued, Petitioner, as
an unauthorized life insurance corporation subject to tax under Article 33 of the Tax Law, is

-2-

TSB-A-08(3.1)C
Corporation Tax
July 2, 2014

required to pay the tax on the highest of the four Article 33 tax bases, plus any applicable tax on
allocated subsidiary capital computed pursuant to § 1502 of the Tax Law, and these taxes are not
limited pursuant to § 1505 of the Tax Law.

DATED: July 2, 2014

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.