The New York City Tax Appeals Tribunal reversed an administrative law judge (ALJ) and determined that a health maintenance organization (HMO) was subject to the New York City general corporation tax.

In Aetna, the parties stipulated that all the requirements for combination had been satisfied, so the sole issue was whether the New York City preclusion for insurance companies applied. If the HMOs were doing an insurance business in the state, the HMOs could not be included in the combined group for general corporation tax purposes. At the ALJ level, the ALJ looked to various sources to analyze whether the HMO was doing an insurance business, including a U.S. Supreme Court case, and ultimately determined that the HMO was doing an insurance business and could not be included in the combined group. Notably, however, the Tax Appeals Tribunal relied heavily on New York State’s regulatory structure. The Tribunal determined that HMOs were regulated almost entirely under the Public Health Law, not the Insurance Law, and therefore were not doing an insurance business in the state (although the Tribunal disregarded two Insurance Department opinions that arguably treated HMOs as insurance companies). The Tribunal also looked to a 2009 New York Tax Law amendment that stated that HMOs are subject to insurance franchise tax (Article 33), not corporate franchise tax (Article 9-A). The Tribunal rejected Aetna’s argument that the amendment was a clarification, and instead considered it a reclassification based on legislative history. The Tribunal reversed the ALJ and determined that the HMO was not doing an insurance business in the state and was properly included in the combined general corporation tax return. In The Matter of Aetna, Inc., TAT(E)12-3(GC), TAT(E)12-4(GC) (NYC Tax App. Trib. June 3, 2016).