State and local tax and insurance tax update

22nd Annual Health Sciences Tax Conference State and local tax and insurance tax update December 5, 2012

State and local tax and insurance tax update

Disclaimer

► Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


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Presenters

► Kelvin Ault Sr. Vice President of Tax Vanguard Health Systems Nashville, TN

► Troy Deason Sr. Manager, State Income Tax HCA Inc. Nashville, TN

► Brad Withrow Ernst & Young LLP Nashville, TN +1 615 252 2050 [email protected]

► Kevin Owens Ernst & Young LLP Washington, DC

+1 202 327 8828 [email protected]

Post-election state and local tax implications


Election 2012 — federal races

► Why is federal outcome important for state taxes? ► Presidential, Senate and House Races

► Head of the ticket — effect on state races ► Federal tax reform and tax law changes affect state taxes ► Federal legislation to limit state taxes

► Remote seller sales tax; nonresident withholding ► Supreme Court appointments

► Constitutional issues on state tax cases


► Proposition 30 (Governor Brown) ► ¼¢ increase in sales tax rate ► Up to 2.5% increase in personal income tax rates

on those making US$250k or more ► California’s highest marginal rate is now

13.3% (NYC: 12.696%) ► Retroactive to January 1, 2012

► Business share of temporary CA sales tax increase may be as high as US$650m per year for four years

► CA personal income tax increase on business income

Election 2012 — state races Ballot initiatives — tax

California

Yes 53.9% No 46.1% Precincts reporting: 98.5%


Election 2012 — state races Ballot initiatives — tax

► Proposition 39 (co-chair Tom Steyer) ► Mandatory single-sales factor ► Incremental monies raised dedicated to funding

clean energy investments ► Estimated cost to business of mandatory single

sales factor apportionment = +US$1b/yr. ► Questions:

► Complications with respect to Gillette Co. and Multistate Tax Compact election. (Can taxpayers still elect three-factor?)

► Alternative sales sourcing? ► Can California reduce rates if revenues are greater

than anticipated?

Yes 60.1% No 39.9% Precincts Reporting: 98.5%

California


Election 2012 — state races Governors races

► Governors races ► Only 12 state governors races in 2012

► Most states have governors races in “off-Presidential” year to avoid influence at top of the ticket (Wisconsin Governor Walker (R) survived recall)

► North Carolina ► Only state with a party change

► Governor, Senate and House now in Republican control

► Key retirements in the Department of Revenue (DOR) in the past month or so

► Strong possibility for tax reform, including potentially: ► Broadened base, lower tax rate, simplified franchise tax/business license fee, push to

eliminate personal and corporate income taxes

► Looking ahead to 2013 elections ► New Jersey — Chris Christie (R) and Virginia — Bob McDonnell (R)


Pre-2012 election: who controls state governments?

HI

NY

KY

WA

OR

VA

NJ

DE

VT

MD

RI

CT

AK

MA

ME

PA OH IN

MI WI

MT

AL

CO

IA

Republicans Split Democrats

FL

ND

SD

KS

OK

TX

TN

GA SC

NC AZ

UT

ID

WY

CA

NM

LA

AR

MS

IL WV

MO

Source: Multistate Associates.

NH

MN

NE NV


Post-2012 election: who controls state governments?

HI

NY

KY

WA

OR

VA

NJ

DE

VT

MD

RI

CT

AK

MA

ME

PA OH IN

MI WI

MT

AL

CO

IA

Republicans Split Democrats

FL

ND

SD

KS

OK

TX

TN

GA SC

NC AZ

UT

ID

WY

CA

NM

LA

AR

MS

IL WV

MO

Source: Multistate Associates.

NH

MN

NE NV

Democrats gain Republicans gain

Only 12 legislative houses changed from 2012


2010 composition of state legislatures

HI

NY

KY

NE*

WA

OR

VA

NJ

DE

VT

MD

NH

RI

CT

AK

MA

ME

PA OH IN

MI WI

MN

MT

AL

CO

IA

Republicans held both houses

Control is split

Democrats held both houses

* Nebraska has a non-partisan state legislature.

FL

ND

SD

KS

OK

TX

TN

GA SC

NC AZ

UT

ID

WY

NV

CA

NM

LA

AR

MS

IL WV

MO

Source: National Conference of State Legislatures (NCSL).


2012 post-election composition of state legislatures

HI

NY

KY

NE*

WA

OR

VA

NJ

DE

VT

MD

NH

RI

CT

AK

MA

ME

PA OH IN

MI WI

MN

MT

AL

CO

IA


FL

ND

SD

KS

OK

TX

TN

GA SC

NC AZ

UT

ID

WY

NV

CA

NM

LA

AR

MS

IL WV

MO

Source: NCSL.

Dems. pick up four states; GOP picks up three states

Republicans held both houses

Control is split

Democrats held both houses


2012 post-election supermajorities

NY

KY

NE*

WA

OR

VA

NJ

DE

VT

MD

NH

RI

CT

AK

MA

ME

PA OH IN

MI WI

MN

MT

AL

CO

IA

Republicans supermajority both houses Democrats supermajority both houses


FL

ND

SD

KS

OK

TX

TN

GA SC

NC AZ

UT

ID

WY

NV

CA

NM

LA

AR

MS

IL WV

MO

Republicans supermajority one house Democrats supermajority one house

HI

Supermajority — more than 2/3rds vote of a legislative house


States where one party has “supermajority” legislative control ► 2/3 Republican control of both

chambers: ► Indiana ► Idaho ► Kansas ► Missouri ► North Dakota ► Oklahoma ► South Dakota ► Tennessee ► Utah ► Wyoming

► 2/3 Republican control of one chamber: ► Alabama ► Michigan ► Ohio ► Virginia

► 2/3 Democratic control of both chambers ► California ► Hawaii ► Massachusetts ► Rhode Island

► 2/3 Democratic control of one chamber ► Illinois ► New York ► Vermont ► West Virginia

► Why is a supermajority significant? ► Satisfy constitutional requirements for

2/3rds vote of tax bills ► Amend state constitutions ► Pass legislation without debate

► Supermajorities don’t last forever


Business tax issues being addressed

► Sales tax on business inputs ► Taxation of tangible personal property ► Growing importance of intangibles: property factor,

sourcing, property tax base ► Business tax competitiveness

► Effectiveness of incentives: transparency and targeting ► Effective tax rates for combined state-local business taxes,

including corporate income taxes


States considering tax reform

► Connecticut ► Business tax task force recommends phase-out of

corporate income tax (CIT) surcharge, minimum CIT and business-entity tax

► North Carolina ► Lower the corporate tax rate and expand the sales/use

tax base to include various services ► New York

► Governor Cuomo (D) is set to announce members of NY State Tax Reform and Fairness Commission

► Governor wants “revenue-neutral” tax reform that increases economic growth


States considering tax reform

► Iowa ► Governor Branstad (D) proposing income and property tax cuts for

businesses and individuals — 2012 revenues exceeded forecasts by US$260m

► Wants to use revenue to make Iowa “more competitive” and reduce “job killing” property taxes

► Kentucky (Blue Ribbon Commission) ► Goal: shift taxes from business capital and labor income to

consumption ► Broaden sales tax base, but “tax B-to-B less and tax consumption

more”; option of local sales tax ► Major reform option: replace CIT with gross receipts tax ► Other: eliminate tangible personal property (TPP) tax, adopt single

sales factor (SSF) with destination sales

Blurring lines between tax-exempt and taxable health care providers


Recent events

► Ascension Health forms joint venture with Oak Hill Capital Partners to acquire hospitals in a taxable platform.

► Ascension Health partners with India-based Narayana Hrudayalaya Hospitals to build US$2 billion health campus in Grand Cayman.

► Mayo Clinic, NYU Hospitals and Dignity Health have issued US$1.1 billion in taxable bonds.

► Caritas Christi converts to investor-owned status via acquisition by Cerberus Capital.

► Detroit Medical Center is acquired by Vanguard.


Related articles

► “Illinois hospital tax break costs $10M, could help MetroSouth,” Southland News, November 9, 2012

► “State may put non-profit hospitals on tax rolls, with incentives,” ChicagoBusiness.com, November 29, 2011

► “Non-profits no better on charity care,” ChicagoBusiness.com, October 19, 2009

► “Much is given by hospitals, more is asked,” Boston Sunday Globe, May 31, 2009

► “Real Property Tax Exemptions at Risk,” Taxation of Exempts (WG&L Journals), 2008


2006 Congressional Budget Office study


Illinois charity care credit

► Income tax credit equal to the lesser of ► Property taxes on hospital parcel Or ► Cost of charity care provided

► Effective for tax years ending on or after December 31, 2012 ► Credit may be transferred or carried forward for five years ► Initially discussed as an offset to 2007 gross receipts tax proposal, then

ultimately enacted as part of grand compromise with hospitals on Medicaid and non-profit hospital tax exemption in 2012 spring legislative session ► Some legislators were initially proposing to tax all hospitals ► Possible constitutional challenges to legislation in light of

Provena decision ► Charity care credit is also subject to a sunset clause as are all Illinois tax credits

State tax implications: electronic health records


Medicare and Medicaid electronic health record incentive programs

► Medicare incentive payments ► The American Recovery and Reinvestment Act of 2009 (ARRA), Pub. L. No.

111, sec. 4102(a) (Feb 17, 2009), amended Section 1886 of the Social Security Act to establish incentive payments for certain eligible professionals and hospitals participating in the Medicare Fee For Service (FFS) program where they demonstrate “meaningful use” of certified electronic health records (EHR) technology, beginning in 2011 and ending in 2016.

► Medicaid incentive payments ► Section 4201 of ARRA amended Section 1903 of the Social Security Act to

establish incentive payments for certain eligible professionals and hospitals participating in the Medicaid program to “purchase, implement, operate (including support services and training for staff) and meaningfully use” certified EHR technology, beginning in 2011 and ending in 2021.

► Eligible hospitals may receive both incentives as long as they meet requirements of each program.


State tax issues: EHR incentives receipts

► State income tax implications of the incentives receipts ► Federal income tax treatment conformity ► Separate entity-level treatment/allocation ► Tax base and apportionment impact

► Receipts factor inclusion ► Receipts factor sourcing ► Receipts from federal government

► State and local receipts-based taxes and related implications of the incentives receipts ► Definition of taxable receipt ► Sourcing ► Offsets, exemptions, receipts from federal government


State tax issues: EHR expenditures

► Sales tax issues related to multistate hardware and software costs

► Credit and incentive opportunities related to EHR expenditures ► Headquarter state opportunities ► Multistate opportunities related to expenditures at the facilities ► Consider any potential negative implications to credit and incentive

programs limited by government funding

► Property tax valuation issues ► Franchise tax implications


State tax nuances

► Texas margins tax ► Health care providers (100% exemption for government revenue) ► Health care institutions (50% exemption for government revenue) ► Administrative guidance

► Comptroller’s Ruling 200810212L (10/27/2008) ► Comptroller’s Ruling 201001990L (01/27/2010)

► Consider how your compliance group accumulates the data

► Others?

Nonresident withholding


Introduction

► More and more states are focusing on nonresident withholding ► States are looking for money and many already have laws on

their books ► Nonresident withholding is becoming more highly scrutinized

► Exemptions/waivers ► Corporation signs waiver, indicating they will file/pay at corporate level ► Corporate owners often meet the exceptions to the requirements, but if

they fail to certify in writing, the states may go after the partnership for failure to withhold

► ASC 740 ► The pass-through entity is not subject to income tax but the entity is liable

for the nonresident withholding ► Consider characterization of income as an income tax at the partnership

level


Nonresident withholding: Georgia

► Georgia audit example ► Notification of audit ► Assessments at the partnership level

► Potential policy change (regarding penalty abatement) ► In this example, Georgia Department of Revenue appears

to be focusing more on this issue from a policy perspective and may be less willing to waive penalties

Working in the clouds: state tax considerations of cloud computing


Background

► Cloud computing is the delivery of shared resources, software and information over a network or the internet which can be accessed by computer or other devices.

► Users are typically not aware of the underlying technologies used to provide the services (e.g., servers), only that the resources they wish to purchase are available over the internet (the backbone of the cloud).

► Cloud revenue growth is forecast to experience a 26% compound annual growth rate between 2011 and 2014 — five times faster than the IT industry as a whole.

► Cloud computing is borderless by nature but tax regulations and compliance are not.

► Cloud computing gives rise to complex and potentially material tax issues.


Cloud computing defined

The three primary service models of cloud computing are: ► Software as a Service (SaaS): applications both general, such as

word processing, email and spreadsheet, and specialized, such as customer relationship management (CRM) and enterprise resource planning (ERP). SaaS is sometimes referred to as hosted or managed software, and the original offerings were from application service providers (ASPs)

► Platform as a Service (PaaS): databases, development tools and other components required to support the delivery of custom applications

► Infrastructure as a Service (IaaS): raw computing power, storage and network bandwidth


What’s happening now in the states?

► States try to expand existing law

► Legislative, judicial and regulatory developments occurred at an increasing rate ► Most notably with respect to nexus and tax base ► Primary focus has been on sales and use taxes

► Convenient source of revenue ► Perception that it is less complicated and politically charged than going

after income-based taxes


Why have the issues become so prevalent from a sales-tax perspective?

► Hosted software, “cloud” computing and ASP ► SaaS vs PaaS vs IaaS

► States still coming to grips with IaaS and PaaS ► IaaS as a rental of tangible personal property

► Historical treatment of SaaS ► Electronic delivery? ► Information service or database access? ► Another enumerated taxable/non-taxable service?


Sales tax on software

► Who is the “taxable person”? ► Is the vendor or the hosting company physically present in the

taxing state? ► Where are the data centers located? ► Where is the software housed?

► How are transactions sourced? ► Generally based on destination — where the customer

uses/accesses the software/service ► Customer multistate use exemption ► Difficult for vendor or hosting company to determine where

use occurs ► Streamlined sales tax (SST) sourcing rules


Sales tax on software: classification determines taxability

► First consideration ► Canned

► “Off-the-shelf” ► Designed for multiple users

► Custom ► Designed for specific single user ► Modifications to canned software can be a gray area

► Second consideration: method of delivery ► Tangible format ► Electronic delivery ► ASP — also called SaaS or “in-demand software” or

“cloud computing” ► Load and leave/load and return


Sales tax on software: cloud computing (ASP model)

► Is the transaction taxable? ► Look to state treatment of ASP/SaaS/cloud computing ► What does the customer receive?

► Access to software or access to infrastructure?

► State positions taken (note this is based on various levels of authority and specific facts) ► Not taxable: AL, AR, CO, IL, KS, LA, ME, MS, NE, NV, NJ, OK, PA, RI,

TN, VA, WI ► Taxable: AZ, CT, HI, ID, IN, KY, MA, MI, NM, NY, SC, SD, TX, UT, VT,

WA, WV ► Other states that lack specific guidance may determine taxability by

treating transaction as: ► Sale/license of electronically delivered software ► Provision of “computer” services (e.g., data processing, information

services)


Sales tax on digital goods and services

► How are digital goods/services taxed? ► SST states

► Specified digital products ► Other products “transferred electronically”

► Non-SST states will tax based on classification ► Look to definition of “tangible personal property” ► Consider state sales and use tax treatment of service transactions ► Growing trend toward providing specific guidance and toward taxing

“digital equivalents” ► Is the digital good a software or a service? For example:

► New York — online games are taxable as “pre-written software” ► Texas — online games are taxable: “data processing,” “pre-written

software” or “amusement services”



► What are digital goods/services? ► SST: “specified digital products” means electronically transferred:

► “Digital audio-visual works” ► “Digital audio works” ► “Digital books”

► Non-SST states will often look to agreement to determine characterization of sales as: ► Tangible personal property ► Services ► Mixed transaction ► Something else



► Federal ► The proposed law (The Digital Goods and Services Tax Fairness

Act of 2011, H.R. 1860/S. 971) would establish a national framework for taxation of digital goods and services and prevent retail sales of such products from being taxed by multiple states.

► The bill stops short of prescribing a specific system for how states can tax sales of digital goods.

► It prohibits state and local governments from applying taxes to those products that do not apply to similar tangible goods.


Sales tax sourcing issues

► Should transaction be sourced (i.e., taxing location) based on: ► Location of the seller? ► Where SaaS is used? ► Some other location?

► Once the situs has been determined, a sales tax determination can be made.

Multistate Tax Compact (the Compact) election


California

► S.B. 1015 (enacted June 27, 2012) — repeals all provisions related to the Compact, effective immediately ► California no longer “sovereignty member” of Compact ► Not approved by 2/3rds vote of either house — Prop 26 problem? ► Doctrine of election — Legislative Counsel’s Digest — Legislature

“intended” that any election must be made on an originally filed return

► Gillette (Cal. App. Ct.) — The 1993 law change mandating that the double-weighted sales factor be used did not repeal the Compact election and, therefore, taxpayers were entitled to make the Compact election. ► The Compact is a valid compact that California as a signatory

state is bound by until the state withdraws from the Compact.


Other states

► Michigan ► H.B. 4479 (enacted May 25, 2011) — beginning January 1, 2011,

taxpayers cannot apportion/allocate income in accordance with the Compact, but rather must use the method provided by the Michigan Business Tax (MBT) and CIT.

► Litigation (IBM) is currently before the Court of Appeals on whether the election is allowed under the MBT.

► Oregon ► ORS 314.606 specifically provides that when the Compact

provisions are inconsistent with the Uniform Division of Income for Tax Purposes Act, the Oregon statutory provisions “shall control.”

► Litigation (HealthNet) is currently before the Tax Court.


Texas margins, Compact developments and other updates

► In three recent rulings — Decision Nos. 106,503 (August 10, 2012), 106,298 (September 6, 2012) and 106,149 (September 11, 2012), the Comptroller of Public Accounts continues to reject taxpayers’ use of the three-factor apportionment formula under Article IV of the Compact. ► The Comptroller has determined that when apportioning taxable margin to Texas,

the taxpayer is required to use the single gross receipts factor provided under Tex. Tax Code Ann. § 171.106(a).

► A taxpayer whose attempted use of the Compact’s three-factor formula was rejected by the Comptroller is challenging the rejection and has filed a lawsuit in a Texas district court (Graphic Packaging Corp. v. Combs, Doc. 2012-22096 (Tex. Dist. Ct., Travis County, filed Oct 2012)).

► The Texas Supreme Court has held that the state franchise tax does not violate the Texas Constitution’s Equal and Uniform Clause and the federal Equal Protection, Due Process and Commerce Clauses. As an initial matter, the court determined that it has original jurisdiction over challenges to the constitutionality of the tax. (In re: Nestle USA, Inc., Tex. S. Ct., Dkt. No. 12-0518, 10/19/2012.)

State taxation of premiums paid to captives


State taxation of premiums

► Premium tax ► Assessed against admitted insurance company ► Based on premiums allocable to state

► Surplus lines ► Insurance company not licensed to sell insurance in state ► Insurance placed by lines broker with non-admitted company ► Surplus lines tax assessed against surplus lines broker

► Independently procured insurance ► Insured acquires insurance directly from non-admitted company ► Most states assess tax against insured


Independently procured insurance tax

► Imposed by a majority of states ► Statute varies state by state ► Historically, has not been rigorously enforced by most

states ► California, New York, Texas and Florida have been more active

► Generally applies when insurance is purchased from non-admitted insurance company ► May apply to insurance from captive insurance companies as they

are only licensed in state of domicile


Pre-Dodd–Frank contracts in effect prior to July 21, 2011

► The typical statute applies tax when insurance is procured from an insurance company not admitted to do business in the state. ► NYS: “There is hereby imposed on any person who purchases or

renews a taxable insurance contract from an insurer not authorized to transact business in this state under a certificate of authority from the superintendent of insurance …”

► CA: “Every person who effects insurance with a non-admitted insurance carrier is required to pay a tax of 3% of net premiums.”

► The tax only applies to risks located in that state


Limitation on independently procured insurance tax — Todd Shipyards

► Todd Shipyards 370 U.S. 451 (1962) ► A New York corporation did business and owned property

in Texas. ► All transactions regarding the insurance occurred outside of

Texas; the insurance was purchased, the premiums were paid, and any claims were to be adjusted and paid in New York.

► The insurers were located in London, were not licensed in Texas, had no agents in Texas and did no business in Texas.

► The broad Texas self-procurement statute contained no limitations requiring actions in the state to give rise to the tax.

► The Supreme Court invalidated the tax levied. ► Texas tax may not be constitutionally imposed when the only

connection between the insurance transaction and the state is that the insured risk is located in Texas.


Is Todd Shipyards still valid?

► Associated Electric & Gas Insurance Services, Ltd. 676 A.2d 1357 (RI 1996) AEGIS ► Premium taxes assessed by Rhode Island against Bermuda

insurance company ► Todd Shipyards had been superseded

► Dow Chemical Co. 38 S.W.3d 741 (Tex. Ct. App. 2001) ► Attempt by Texas to impose essentially the same self-procurement

tax statute at issue in Todd Shipyards ► Texas court rejected argument used in AEGIS ► Todd Shipyards still valid


Limitation on Todd Shipyards

► STP Nuclear Operating Company 239 S.W.3d 264 (Tex. App. Austin 2007) ► Application of Texas Independently Procured Tax upheld ► Factual difference with Todd Shipyards

► Insured headquartered in Texas ► Supervisor of corporate insurance was located in Texas ► Direct communications via email and letters between the corporation

and the nonadmitted insurer ► Insurance contracts negotiated and approved by the corporation’s

employees in Texas ► Premium payments originated in Texas ► Losses were payable to insureds in Texas


Non-admitted and Reinsurance Reform Act (NRRA) ► NRRA part of Dodd–Frank legislation ► Enacted into law in July 2010, with most provisions

effective July 21, 2011 ► Reforms the taxation and regulation of insurance between

an insured and an insurance company ► Focuses on surplus lines but includes directly procured insurance ► Only the “home state” can tax or regulate insurance with a non-

admitted insurance company

► NRRA provides several key definitions


Key definitions

► Home state ► The state in which an insured maintains its principal place of

business ► If 100% of the insured risk is located out of that state, the state to

which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated (this method of allocation is commonly referred to as the “cost of performance”)

► If there are more than one insureds from an affiliated group identified as named insureds on a single non-admitted insurance contract, the “home state” means the home state of the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract. “Affiliated group” means any group of entities that share common control. An affiliated group may include entities that share parent-subsidiary and/or brother-sister corporate relationships


Key definitions

► Independently procured insurance ► Insurance procured directly by an insured from a non-admitted insurer

► Non-admitted insurance ► Any property and casualty insurance permitted to be placed directly or

through a surplus lines broker with a non-admitted insurer eligible to accept such insurance

► Non-admitted insurer ► An insurer not licensed to engage in the business of insurance in a

particular state. A non-admitted insurer does not include a risk retention group, as defined in the Liability Risk Retention Act of 1986, 15 U.S.C. 3901(a)(4)


States adoption of NRRA

► Adoption of NRRA varies by state ► Generally, states have adopted NRRA definitions and

modified law to use those definitions ► States adopting NRRA definitions also tax 100% of

premiums, e.g., New York and Texas ► Prior to NRRA, generally only premiums allocable to state were

subject to tax

► Current status of tax is very confusing ► For example, Virginia has legislative procedure to collect tax but

has not placed tax on its books ► Not all states have adopted NRRA definitions, e.g., Alabama


States adoption of NRRA — reaction

► Vermont Captive Insurance Association ► White paper concludes that NRRA was not intended to apply to

captive insurance companies ► Does not address changes in state law


What to do

► Benchmark IPT ► Prepare analysis of location of risks being insured and premium

allocable to those locations ► Determine home state under NRRA ► Determine law of home state — does home state impose IPT? ► Determine if any risks are in states that have not adopted NRRA

► Planning considerations ► Re-domesticate captive to home state ► Control determination of home state, e.g., multiple contracts or

contracts with varying coverages ► Move insurance functions in order to invoke Todd Shipyards

► Possible legal arguments ► Contest tax on 100% of premiums on constitutional grounds ► Determine whether arrangement insurance is for IPT purposes


State income tax issues

► Consolidated returns ► Entity included by virtue of inclusion in federal consolidated return ► Consider income classification and possible non-business

treatment (e.g., investment income)

► Unitary returns ► Alaska and Idaho — sales factor based on premiums plus property

factor for investments ► New Hampshire — separate apportionment method and then

combine post-apportioned income with the group ► California — statutory exclusion


State income tax issues

► Partnership investments in insurance subs — NY example ► Aggregate basis — corporate entity combines its income, capital

and factors with its distributive share of the partnership’s income, capital and factors

► Entity basis — corporation reports distributive share of partnership income and capital but apportions based on the corporation’s factors (favorable if the corporate partner’s NY apportionment would be zero)

► Foreign corporate partner election — the corporate partner reports its share of partnership income and capital as apportioned at the partnership level ► Regulations governing this election may or may not apply to insurance

companies that are subject to Article 33. The regulations are ambiguous on this point and the Department has informally granted leeway with similar fact patterns


Partnership investments in insurance subs: aggregate basis

► Aggregate theory must be used if any of the following apply: ► The corporate partner is conducting a unitary business with

the partnership

► The corporate partner is a general partner of the partnership or a managing member of an LLC treated as a partnership

► The corporate partner has a 5% or greater interest in the partnership

► The partnership interest constitutes more than 50% of its total assets

Or

► Any member of the corporate partner’s affiliated group has the information necessary to perform an aggregate computation ► For this test, a corporate partner that receives a complete Form

IT-2-04-CP must file using the aggregate method

State and local tax and insurance tax update

Economy & Finance

Transcript of State and local tax and insurance tax update