The Office of General Counsel issued the following informal opinion on April 7, 2003, representing the position of the New York State Insurance Department.
Re: Excess line premium tax allocation
1. Where a corporation has locations in more than one state, how is the excess line premium tax calculated on a policy placed with an unauthorized insurer by an excess line insurance broker?
2. Where a policy covering risks located in New York is placed outside of New York with an insurer not authorized in New York, must the insurer be an eligible insurer in New York for excess line placements and how would the excess line premium tax be computed?
1. Where a corporation has locations in more than one state and a policy is placed in New York by an excess line broker, the excess line premium tax is to be allocated in accordance with the allocation schedules contained in N.Y. Comp. Codes R. & Regs. tit. 11 Part 27 (Regulation 41). The method of allocation varies depending upon the nature of the risk and the type of insurance.
2. Where an insurance policy is principally negotiated, issued and delivered outside of New York, it is not subject to New Yorks excess line laws and the excess line premium tax is not due. However, the insured may be required to pay a tax to New York in regard to New York risks.
No specific facts were provided. This is a general inquiry regarding the operation of New Yorks excess line laws in regard to insureds that have risks in more than one state.
In order to respond to these inquiries, two situations have to be separately discussed. The first is where the policy is negotiated, issued or delivered in New York, and the second is where the policy is negotiated, issued and delivered outside New York.
Where policy is negotiated, issued or delivered in New York
Where an insurer not authorized in New York issues an insurance policy that is negotiated, issued or delivered in New York, a New York licensed excess line broker must be utilized in compliance with New Yorks excess line laws. 1 These requirements are found in N.Y. Ins. Law § § 2105 (McKinney 2000 & Supp. 2003) and 2118 (McKinney 2000 & Supp. 2003), and N.Y. Comp. Codes R. & Regs. tit. 11 Part 27 (Regulation 41).2
Section 2118(d)(1) imposes a tax on the excess line broker in the amount of 3.6% of the gross premiums charged the insureds for insurance procured by the broker pursuant to such license, less the amount of such premiums returned to the insureds. It provides that "[w]here the insurance covers property or risks located or resident both in and out of this state, the sum payable shall be computed on that portion of the gross premiums allocated to this state, pursuant to [N.Y. Ins. Law § 9102(b) (McKinney 2000)] less the amount of gross premiums allocated to this state and returned to the insured." Section 9102(b) states that the sum paid to the Superintendent "shall be computed on that portion of the policy premium that is attributable to property or risks located in this state, as determined by reference to an allocation schedule prescribed by the superintendent in a regulation."
In accordance with § 9102(b), the Superintendent promulgated § 27.9 and Appendix of Regulation 41, which provides the rules for allocating the tax. Rather than summarizing them herein, we have attached copies of the section and the Appendix. Note that the method of allocation varies with the nature of the risk and type of insurance.
Where policy is principally negotiated, issued and delivered outside New York
Where an insurer not authorized in New York issues an insurance policy that is negotiated, issued and delivered outside New York, the New York Insurance Law does not apply to the making of such contract, regardless of the location of the property or risk. N.Y. Ins. Law § 1101 (McKinney 2000 & Supp. 2003) defines the doing of an insurance business in New York to include the making, or proposing to make, as insurer, any insurance contract, effected by mail from outside this state or otherwise, and N.Y. Ins. Law § 1102 (McKinney 2000) prohibits the doing of an insurance business in this state by an unauthorized insurer. In addition, N.Y. Ins. Law § 2102 (McKinney 2000) prohibits any person from acting as an insurance agent or broker in this state (as defined in N.Y. Ins. Law § 2101(a) and (c) (McKinney 2000)) without a license. Since none of the transactions would be occurring in New York, neither the insurer nor the broker involved would have to comply with New Yorks excess line laws and no excess line premium tax would be due in this State.
However, please note that the insured may be obligated to pay a tax to New York, pursuant to N.Y. Tax Law Art. 33-A (McKinney 2000). The so-called "independently procured insurance" tax was enacted in 1990 in conjunction with amendments to §§ 2118 and 9102 adopting excess line premium tax allocation. (Chapter 190 of the Laws of 1990). (Prior to such time, New Yorks position was that the excess line premium tax was due on the entire policy, regardless of the location of the risk or property.) Similar to New Yorks excess line premium tax, the independently procured insurance tax is allocable and due only on risks resident or located within this state, in accordance with rules and regulations promulgated by the Commissioner of Taxation and Finance, after giving due consideration to the rules and regulations promulgated by the Superintendent of Insurance. Note that the tax is imposed on an insured regardless of where the policy was placed, for those kinds of insurance for which an excess line premium tax would have been due if the policy had been placed in New York by a licensed excess line broker.
For further information regarding this tax, one may contact the Department of Taxation and Finance at NYS Tax Department, Taxpayer Assistance Center, W. A. Harriman Campus, Albany, NY 12227 or http://www.tax.state.ny.us/.
For further information you may contact Supervising Attorney Paul A. Zuckerman at the New York City Office.
1 Also relevant is N.Y. Ins. Law § 2130 (McKinney 2000 & Supp. 2003), which provides for the establishment of an Excess Line Association.
2 Section 1101 contains a number of exceptions, under which transactions may be conducted by mail from outside the state, including excess line transactions. The other exceptions do not appear relevant to this inquiry.