New York Advisory Opinion TSB-A-16(4)C: Do unauthorized foreign surplus-lines (non-life) insurers compute their franchise tax under Tax Law section 1502 or section 1502-a, and does the section 1505(a)(1) limitation cap their liability?
Plain-English summary
Two foreign surplus lines insurers — property-and-casualty carriers that are not authorized (no New York certificate of authority) — had been filing Form CT-33-NL and paying the $250 minimum tax under Tax Law § 1502-a. They asked whether they should instead compute their franchise tax under § 1502, and whether the old cap in § 1505(a)(1) limited their liability.
The Department concluded they must use § 1502, not § 1502-a, for tax years beginning on or after January 1, 2003, and that § 1505(a)(1) does not limit their tax. Tax Law § 1501 imposes the franchise tax on all insurers doing business in New York, authorized or not, and § 1502 computes it on the highest of four bases (allocated entire net income; allocated business and investment capital; entire net income plus certain compensation; or a $250 minimum), plus a tax on subsidiary capital. As surplus-lines property/casualty writers they are non-life insurers. The 2003 legislation (Part H3 of Chapter 62 of the Laws of 2003) created § 1502-a, taxing total gross premiums, but it applies only to authorized non-life insurers; it also removed the § 1505(a)(1) limitation for all non-life insurers. Because these petitioners are unauthorized, they fall back to § 1501/§ 1502 and are not capped by § 1505(a)(1). The Department also rejected a double-taxation argument: the excess-line broker's separate liability under Insurance Law § 2118 is measured by premiums, but the insurer's own tax is on income or capital, not premiums.
What this means for you
Surplus lines and unauthorized insurers
Whether you compute tax under § 1502 or § 1502-a turns on one thing: are you authorized in New York? Authorized non-life insurers use the premiums-based § 1502-a; unauthorized non-life insurers use the income/capital-based § 1502 and get no § 1505(a)(1) cap. Paying the $250 minimum on the wrong form does not fix the classification.
Accountants and tax professionals
Confirm authorization status before choosing the computation. The premiums factor used to allocate income or capital is not itself a tax on premiums, so the § 2118 excess-line broker charge does not create double taxation. The conclusion holds for years beginning on or after January 1, 2003.
Common questions
Q: Which section applies to an unauthorized non-life insurer?
A: Tax Law § 1502 (under § 1501), computed on the highest of four bases plus subsidiary capital — not § 1502-a, which is only for authorized non-life insurers.
Q: Does the section 1505(a)(1) limitation cap the tax?
A: No. The 2003 legislation removed that limitation for all non-life insurers.
Q: Isn't this double taxation because the broker also pays on premiums?
A: No. The insurer is taxed on allocated income or capital, not premiums; the broker's Insurance Law § 2118 charge is separate.
Citations and references
- Tax Law § 1501 (franchise tax on insurers doing business in New York, authorized or not)
- Tax Law § 1502 (four alternative bases plus subsidiary capital)
- Tax Law § 1502-a (gross-premiums tax for authorized non-life insurers)
- Tax Law § 1505(a)(1) (former limitation, removed for non-life insurers in 2003)
- Tax Law § 1510(a) (former additional premiums tax); Insurance Law § 2118 (excess-line broker liability); Insurance Law § 4205 (life-insurer definition)
- Part H3 of Chapter 62 of the Laws of 2003; Service Lloyds Ins. Co., TSB-A-09(2)C; TSB-M-12(4)C
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2016.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a16_4c.pdf
Original ruling text
New York State Department of Taxation and Finance
Office of Counsel
TSB-A-16(4)C
Corporation Tax
June 10, 2016
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NOS. C120607B and C120607C
The Department of Taxation and Finance received Petitions for Advisory Opinion from
Redacted Redacted Redacted Redacted Redacted Redacted Redacted Redacted Redacted
Redacted R and REDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTE
“Petitioners”. Petitioners, both foreign surplus lines insurance corporations that are not
authorized to transact business in New York under a certificate of authority (i.e., “unauthorized”
insurers), ask whether their franchise tax should be computed under Tax Law § 1502 or § 1502a. 1 They also ask whether their franchise tax liability is affected by the limitation in Tax Law §
1505(a)(1).
We conclude that each Petitioner, as an unauthorized non-life insurance corporation,
must calculate its tax under Tax Law § 1502, and not § 1502-a, for taxable years beginning on or
after January 1, 2003. Petitioners’ tax liability is not limited by § 1505(a)(1).
Facts
Petitioners are unauthorized foreign insurance corporations that write surplus lines
policies for property and casualty insurance risks that are not typically insurable through
standard insurance carriers. Their policies are available to New York residents through licensed
excess line brokers, who are each separately liable to the Superintendent of Financial Services
for a sum equal to 3.6% of gross premiums on these surplus lines policies under Insurance Law §
2118(d).
Beginning in 2003, each Petitioner has filed annually a Form CT-33-NL, entitled “NonLife Insurance Corporation Franchise Tax Return,” and paid $250 in tax, the minimum amount
due under Tax Law § 1502-a.
Analysis
Tax Law § 1501 imposes a franchise tax, to be calculated according to Tax Law § 1502,
on all insurance corporations doing business in New York, regardless of whether they have a
certificate of authority from the Superintendent of Financial Services.
Pursuant to § 1502, tax is calculated on the highest amount computed under four
alternative bases: a tax on allocated entire net income (ENI), a tax on allocated business and
investment capital, a tax on a prescribed portion of entire net income plus salaries and other
compensation of elected or appointed officers and certain stockholders, or a fixed dollar
1
For purposes of this advisory opinion, it is assumed that both petitioners are doing an insurance business in New
York and are subject to taxation pursuant to Article 33.
-2-
TSB-A-16(4)C
Corporation Tax
June 10, 2016
minimum tax of $250. In addition to the tax computed under the highest of the four alternative
bases, there is a tax on subsidiary capital. Tax Law § 1502(b).
Petitioners’ status as surplus lines insurers and their issuance of property and casualty
insurance prevent them from qualifying as life insurance corporations according to the
requirements in Insurance Law § 4205. As such, Petitioners are non-life insurance corporations. 2
Prior to January 1, 2003, authorized non-life insurance corporations also paid an
additional franchise tax under Tax Law § 1510(a), calculated at 1.3% of gross premiums written
on risks located in New York. 3 However, Tax Law § 1505(a)(1) limited total tax liability under
Article 33 for all non-life insurance corporations, both authorized and unauthorized, to their tax
liability under Tax Law § 1510, but calculated at a higher rate that varied according to the year.
Part H3 of Chapter 62 of the Laws of 2003 restructured the tax for authorized non-life
insurance corporations, which were no longer subject to the tax imposed by § 1501 or the
additional tax imposed under § 1510(a). Instead, authorized non-life insurance corporations
became subject to the newly enacted Tax Law § 1502-a and taxable on their total gross
premiums, with a minimum tax base of $250. The Legislature did not include a limitation on the
amount of tax for which authorized non-life insurance corporations are liable under § 1502-a. In
addition, under the 2003 legislation, non-life insurance corporations, authorized or unauthorized,
were no longer subject to the limitation on tax in § 1505(a)(1). Because § 1502-a applies only to
authorized non-life insurance corporations, an unauthorized non-life insurance corporation
remains subject to the tax imposed in § 1501, calculated according to § 1502. This is consistent
with the Department’s previous guidance in Service Lloyds Ins. Co., TSB-A-09[2]C (Mar. 2,
2009).
Since Petitioners are unauthorized non-life insurance corporations, they are subject to tax
under § 1501 and have been required to pay tax calculated according to § 1502 since January 1,
2003. They must pay the tax on the highest of the four Tax Law Article 33 tax bases, plus any
applicable tax on allocated subsidiary capital computed pursuant to § 1502(b) of the Tax Law,
and these taxes are not limited by § 1505. See TSB-M-12(4)C.
Petitioners argue that requiring them to pay franchise tax under the Tax Law would result
in double taxation of premiums because the excess lines brokers that sell Petitioners’ policies are
liable for a sum imposed by Insurance Law § 2118 that is measured by gross premiums. Since
we find that Petitioners are taxable under § 1501 and must compute their tax pursuant to section
§ 1502, they are taxable on their allocated income, allocated capital base, or their allocated
2
Petitioners’ past filing of Form CT-33-NL indicates that they concur with this classification.
3
A different rate applied to accident and health insurance premiums, which is not relevant to this discussion.
-3-
TSB-A-16(4)C
Corporation Tax
June 10, 2016
income and salaries, not on their premiums. 4 Therefore, any potential concerns Petitioners might
have regarding double taxation are unfounded.
DATED: June 10, 2016
/S/
DEBORAH R. LIEBMAN
Deputy Counsel
NOTE:
4
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.
The use of a premiums factor to determine the amount of income or capital allocated to New York does not
constitute taxation of these premiums. See Matter of Disney Enter. v Tax Appeals Tribunal, 10 NY2d 392, 399
(2008).