Tribunal Reverses ALJ and Holds that Department Impermissibly Discriminated Against Foreign Unauthorized Insurance Corporations -

In an issue of first impression in New York, the New York State Tax Appeals Tribunal has issued two decisions, reversing two Administrative Law Judge decisions, holding that the Tax Department’s use of an alternative apportionment formula for insurance franchise tax purposes impermissibly discriminated against a foreign insurer not engaged in an insurance business in the State in violation of both a treaty and the Foreign Commerce Clause. Matter of Bayerische Beamtenkrankenkasse AG, DTA No. 824762 (N.Y.S. Tax App. Trib., Sept. 11, 2017); Matter of Landschaftliche Brandkasse Hanover, DTA No. 825517 (N.Y.S. Tax App. Trib., Sept. 11, 2017).

Facts. The facts in both cases are straightforward and substantially the same. Both cases involved German non-life insurance companies that did not conduct an insurance business in the United States. As such, they were not authorized by the Superintendent of Financial Services (formerly known as the New York Superintendent of Insurance) to transact an insurance business in New York and were considered “unauthorized insurance corporations” under the Tax Law. The insurance companies’ activities in the United States and New York were limited to holding interests in two partnerships that owned and managed real property, including real property located in New York. Neither insurance company wrote insurance premiums in the United States, and for federal income tax purposes their income consisted principally of their distributive shares of partnership income.