Does a corporate insurance general agency owe New York franchise tax merely because it's licensed by the New York Insurance Department, licenses independent agents in New York, reviews insurance applications from New York residents, or has its issuing insurers accept and sell policies in New York?

Subject

Whether any of five specified activities of a corporate insurance agent — New York licensing, licensing/appointing independent agents, reviewing applications from New York residents, selling policies in New York, or the issuing company accepting applications in New York — establish Article 9-A nexus, and if so, how income should be apportioned.

Plain-English summary

X Corporation, a Delaware corporation based in Iowa, operates as a general insurance agency — it doesn't sell insurance directly to consumers but instead appoints independent-contractor licensed agents who sell products from several unrelated insurance companies. X Corporation reviews the applications those agents generate, forwards them (with the initial premium) to the actual issuing insurers, who make all underwriting decisions and pay X Corporation a share of the commissions; X Corporation then passes the agent's portion of the commission through and keeps the rest as its own income. X Corporation has no employees and owns no property in New York, but is licensed there, appoints independent agents there, and — presumably — some of the applications it reviews come from New York residents whose policies are sold and accepted by the issuing companies within the state. It asked whether any of five specific activities create New York nexus.

The Department found no nexus on any of the five activities. Being licensed by the New York Insurance Department doesn't by itself trigger Article 9-A tax — authorization to do business under state licensing law is a separate question from "doing business" for franchise tax purposes. The residence of the applicant/insured is irrelevant to the doing-business analysis. Reviewing insurance applications outside New York (which X Corporation did — its own review happened at its Iowa office) is plainly not New York activity. And critically, the Department found that licensing/appointing independent agents in New York, and those agents selling policies in New York on behalf of the issuing insurance companies, does not itself constitute "doing business" by X Corporation — because the actual selling and underwriting activity belongs to the independent agents and the issuing insurers, not to X Corporation directly. With no employees, capital employment, or property ownership/leasing in New York, X Corporation had no basis for Article 9-A nexus under any of the § 1-3.2(b)-(d) tests.

What this means for you

Insurance general agencies operating through independent licensed agents

Being licensed to do business as an insurance agency in New York, and appointing independent-contractor agents who sell policies there, does not by itself create New York corporate franchise tax nexus for the general agency — as long as the agency itself has no employees, property, or capital employment in the state and its own application-review work happens elsewhere.

Businesses whose in-state presence runs entirely through independent contractors

This ruling is notable for finding no nexus even though independent agents were actively selling in New York on the company's behalf — a more favorable outcome than the sales-tax nexus analysis in the same-year Giftmaster ruling (TSB-A-88(50)S/(23)C), where an independent contractor's in-state solicitation activity did create sales tax nexus. The two rulings underscore that franchise tax "doing business" and sales tax nexus tests can produce different results on similar independent-contractor fact patterns.

Accountants and tax professionals

State regulatory licensing (here, insurance licensing) is a distinct question from Article 9-A "doing business" nexus — don't conflate the two. The multi-factor test in 20 NYCRR § 1-3.2(b) still requires weighing the nature/continuity/frequency of actual New York activities, and here none of the substantive insurance work (selling, underwriting) was performed by the petitioner itself in New York.

Common questions

Q: Does being licensed as an insurance agency in New York create franchise tax nexus?
A: No. Licensing/authorization under insurance or business corporation law is separate from the "doing business" test for Article 9-A tax.

Q: Does having independent agents sell policies in New York create nexus for the general agency that appointed them?
A: Not under these facts — the agents are independent contractors conducting their own sales activity, and X Corporation itself had no employees, property, or capital employment in New York.

Q: Does the residence of the insurance applicant or policyholder matter for this analysis?
A: No. The Department stated the residence of the applicant/insured is not considered in determining whether the general agency is doing business in New York.

Q: Can another insurance general agency rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax on doing business, employing capital, owning/leasing property, or maintaining an office in New York)
• 20 NYCRR § 1-3.2(b) ("doing business" defined; multi-factor test)
• 20 NYCRR § 1-3.2(c) (employing capital)
• 20 NYCRR § 1-3.2(d) (owning or leasing property)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a88_22c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (22)C
Corporation Tax
September 29, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C880121B

On January 21, 1988, a Petition for Advisory Opinion was received from Ernst and Whinney,
317 Sixth Avenue, Suite 1100, Des Moines, Iowa 50309.
The issue raised is whether any of the following activities of a corporate insurance agent
establish the nexus required for imposition of the corporate franchise tax under Article 9-A of the
Tax Law. The activities are (1) the licensing of the company in New York State; (2) the licensing
or appointing of independent agents in New York State; (3) the reviewing of insurance applications
from residents of New York State; (4) the selling of the insurance policy for the issuing company in
New York State or (5) the acceptance of the insurance application by the issuing company in New
York State. If nexus is established, on what basis should the income be apportioned.
Facts
X Corporation is incorporated in Delaware, has its principal place of business in Iowa, and
is admitted to do business in all states. X Corporation markets insurance as a general agency. X
Corporation is licensed to do business as a corporate insurance agent in those states in which this is
allowed. In those states that require a statement of business purpose to be filed, X Corporation has
indicated that its purpose is to conduct business related to operation as a corporate insurance agent.
X Corporation has no employees and owns no property in New York State. It appoints
licensed agents as associated independent contractors, who sell the insurance products of several
unrelated insurance companies.
X Corporation reviews the insurance applications generated by the sales activities of its
agents. These applications are remitted by X Corporation to the insurers, along with the initial
premium. All underwriting decisions are made by the issuing company. The issuing company then
sends the policy and the total agreed upon commissions to X Corporation. X Corporation forwards
the policy and the agent's commission to the agent. The agent is responsible for delivery of the policy
to the customer. X Corporation has no other involvement in the direct sales activity, but negotiates
contracts and commission agreements between it (X Corporation) and the issuing insurers, and enters
into contracts, including commission agreements, between it and its marketers (independent
contractor agents). The income of X Corporation consists solely of that portion of the commissions
which is paid to and retained by it.
Discussion
A foreign corporation is authorized to do business in New York State pursuant to Article 13
or Article 15-a of the Business Corporation Law. However, such authorization does not of itself
make a foreign corporation subject to the franchise tax under Article 9-A of the Tax Law. Section
TP-9 (9/88)

-2­
TSB-A-88 (22)C
Corporation Tax
September 29, 1988
209.1 of Article 9-A of the Tax Law imposes the business corporation franchise tax on every foreign
corporation, unless specifically exempt, for the privilege of doing business, or of employing capital,
or of owning or leasing property in New York State in a corporate or organized capacity, or of
maintaining an office in New York State.
Section 1-3.2(b) of the Business Corporation Franchise Tax Regulations (hereinafter "Article
9-A Regulations") provides that:
(1) [t]he term doing business is used in a comprehensive sense and includes all activities
which occupy the time or labor of men for profit. Regardless of the nature of its activities, every
corporation organized for profit and carrying out any of the purposes of its organization is deemed
to be doing business for the purposes of the tax. In determining whether a corporation is doing
business, it is immaterial whether its activities actually result in a profit or a loss.
(2) Whether a corporation is doing business in New York State is determined by the facts in
each case. Consideration is given to such factors as:
(i) the nature, continuity, frequency, and regularity of the activities of the corporation
in New York State, compared with the nature, continuity, frequency, and regularity of its
activities elsewhere;
(ii) the purposes for which the corporation was organized, compared with its
activities in New York State;
(iii)

the location of its offices and other places of business;

(iv) the income of the corporation and the portion thereof derived from activities in
New York State;
(v) the employment in New York State of agents, officers, and employees; and
(vi) the location of the actual seat of management or control of the corporation. 20
NYCRR 1-3.2(b)
Section 1-3.2(c) of the Article 9-A Regulations provides that:
[t]he term employing capital is used in a comprehensive sense. Any of a large variety
of uses, which may overlap other activities, may give rise to taxable status. In general, the
use of assets in maintaining or aiding the corporate enterprise or activity in New York State
will make the corporation subject to tax. Employing capital includes such activities as:
(1)
(2)
1-3.2(c)

maintaining stockpiles of raw materials or inventories; or
owning materials and equipment assembled for construction. 20 NYCRR

-3­
TSB-A-88 (22)C
Corporation Tax
September 29, 1988
Section 1-3.2(d) of the Article 9-A Regulations provides that:
[t]he owning or leasing of real or personal property within New York State constitutes an
activity which subjects a foreign corporation to tax. Property owned by or held for the taxpayer in
New York State, whether or not used in the taxpayer's business, is sufficient to make the corporation
subject to tax. Property held, stored or warehoused in New York State creates taxable status.
Property held as a nominee for the benefit of others creates taxable status. 20 NYCRR 1-3.2(d)
The fact that X Corporation is licensed by the New York State Insurance Department to
conduct an insurance agency business in New York and the fact that the issuing company accepts
insurance applications in New York State are not relevant in determining whether X Corporation is
subject to franchise tax under Article 9-A. It appears from the facts presented, that X Corporation
is not employing capital in New York, does not own or lease property in New York and does not
maintain an office in New York. Therefore, the pertinent question in determining whether X
Corporation is subject to tax under Article 9-A is whether X Corporation is "doing business" in New
York State.
When determining if X Corporation is doing business in New York State, the residence of
the applicant or insured is not considered. Based on the definition of doing business, it is clear that
when the review of insurance applications is conducted outside New York State, such activity does
not constitute "doing business" within New York State. In addition, it is determined that, the
licensing or appointing of independent agents in New York State and the selling of insurance policies
in New York State by such agents for the issuing company do not constitute "doing business" in New
York State by X Corporation for purposes of Article 9-A of the Tax Law.
Accordingly, based on the facts presented, X Corporation does not have nexus in New York
State and, therefore, X Corporation is not subject to the franchise tax imposed under Article 9-A of
the Tax Law.

DATED: September 29, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.