The office of General Counsel issued the following informal opinion on November 21, 2000, representing the position of the New York State Insurance Department.
Re: New York Taxation of Insurers
Does New York impose a corporation tax on insurance companies? If so, what is the rate of taxation?
2. Does the retaliatory tax imposed by New York on Nebraska insurance companies include the Nebraska corporation income tax in its computation as well as the premium tax?
1. New York imposes a corporate franchise tax on insurance companies. Because of the complexity of the calculations required to determine a companys final tax liability, there is no fixed tax rate. The tax is capped, however, at a maximum of 2.6% of premiums for non-life companies (scheduled to decrease to 2.4% in 2001) and 2.0% for life companies.
2. New York would consider both the Nebraska corporation income tax and the Nebraska premium tax in determining whether to impose the retaliatory tax.
The state of Nebraska imposes a net income tax on corporations ("Corporate Income Tax"). This tax applies to both foreign and domestic insurance companies. Nebraska also imposes on foreign and domestic insurers a tax on premiums received ("Premium Tax"). Insurers are allowed a credit against the Corporate Income Tax for any Premium Tax paid. The practical effect of this credit is that in most instances insurers have a zero Corporate Income Tax liability.
A Nebraska tax statute, Neb. Rev. Stat. §77-2734.02(2) (1995), provides that a foreign insurance company is subject to taxation at the lesser of the Nebraska Corporate Income Tax rate or the rate imposed in its state of domicile if the retaliatory tax imposed by its state of domicile on Nebraska insurance companies would include a tax based on the Nebraska corporation income tax.
Currently, there is a review of a Corporate Income Tax return filed by a New York domiciled insurer. That insurer is invoking the benefit of the above-quoted statute, claiming that New York State imposes a lower rate of tax on insurance companies than that imposed by the State of Nebraska.
The inquiry requires a review of the taxes imposed on insurance companies by New York State as well as the retaliatory tax imposed under the New York Insurance Law. The most significant tax imposed upon insurers by the State of New York is the Franchise Tax imposed under Article 33 of the New York Tax Law [N. Y. Tax Law §§1500 1520 (McKinney 2000)]. It is beyond the purview of this Department to comment extensively upon the tax law, however, a brief description of the operation of this tax reveals that it is impossible to categorically state the actual rate of taxation. This is because only after the tax liability for a given company has been finally determined will it be possible to calculate the actual rate, relative to income, at which the tax was imposed. The amount of Franchise tax is capped, however. Under N.Y. Ins. Law § 1505, the maximum tax that can be imposed may not exceed 2.6% of premiums for non-life companies (scheduled to decrease to 2.4% in 2001) and 2.0% for life companies.
In the instant case, it is impossible to discover in general terms whether the New York rate of taxation exceeds that of Nebraska insofar as the subject company is concerned. Thus, it would appear that the most effective manner for determining the relative tax position of the subject company with respect to Nebraska and New York would be to review the companys New York tax filing for the year in question. Only then would it be possible to ascertain whether or not the New York tax system offers it more favorable treatment than that of Nebraska.
With regard to the retaliatory tax imposed under the New York Insurance Law, Section 1112 of the N.Y. Ins. Law (McKinney 2000) provides, in pertinent part, as follows:
(a)(1) If, by the laws, or the action of any public official, of any other state, any insurer organized or domiciled in this state, or its duly authorized agents, shall be, required to deposit securities in such other state to protect policyholders or for any other purpose, or shall be required to pay taxes, fines, penalties, fees for licenses or certificates of authority or any other sum for the privilege of doing business in such other state, or shall be subjected to any restrictions, obligations, conditions or penalties, imposed for such privilege, and such requirements are greater than those required of similar insurers organized or domiciled in such other state by the laws of this state for the privilege of doing business herein, then all similar insurers organized or domiciled in such other state and their duly authorized agents in this state shall make like deposits for like purposes with the superintendent, and pay him for taxes, fines, penalties, fees for licenses or certificates of authority or for any other requirement for the privilege of doing business in this state, an amount determined in the manner prescribed by such other state, and shall be subjected to such greater requirements imposed by such other state upon similar insurers of this state and their duly authorized agents.
Under N.Y. Ins. Law §1112, a retaliatory tax is imposed on an insurance company domiciled outside of New York State when that companys home state imposes taxes (and fees, penalties and fines) against New York insurers that are higher than those imposed upon that company by New York. Not all taxes imposed upon New York insurers by other states will trigger retaliation. Rather, only those taxes levied for the privilege of doing an insurance business will trigger retaliation. Please note that both the Corporate Income Tax and the Premium Tax are treated by the New York Insurance Department as taxes that would be taken into consideration for calculating any retaliatory tax.
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.