New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on February 3, 2004, representing the position of the New York State Insurance Department.

Re: Use of Missouri Low Income Housing Tax Credits and the New York Retaliatory Tax

Question

For the purpose of calculation of retaliatory taxes, would New York State recognize an insurer’s purchase of Missouri Low Income Housing Tax Credits (LIHTC) in lieu of the payment of premium taxes as the equivalent of premium taxes paid?

Conclusion

The New York retaliatory tax statute does not address the question presented. However, it is the Department’s view that any payments made to the state of Missouri in lieu of premium taxes, if treated by the state of Missouri as the equivalent of premium taxes, should be regarded as such by the state of New York. This analysis presumes that Missouri’s treatment of the use of LIHTC is the same for both domestic and non-domestic insurers.

Facts

The inquirer is requesting clarification regarding the Missouri Low Income Housing Tax Credits (LIHTC); specifically in relation to use of LIHTC to reduce state premium taxes paid by insurance companies that write premiums in the state of Missouri.

Often companies that write premiums in the state of Missouri choose to offset part of their premium tax with the purchase of LIHTC. The state of Missouri endorses such methods of lowering the tax payments by insurance companies because it provides investment in quality housing for its residents. As shown in Table 1, the state of Missouri treats the LIHTC in lieu of payment, so a company can offset up to 100% of its premium tax liability by purchasing LIHTC.

Table 1

 

Taxes in MO

 

Premiums written

2,000,000

Missouri Premium Tax Rate

2%

Taxes owed on premiums written

40,000

LIHTC purchased

20,000

Total cash payment to MO Department of Revenue

20,000

If an insurance company is domiciled in a state with higher premium taxes, such as New York, it will be subject to retaliatory tax calculation for the balance between the taxes paid in the state the premiums were written, in this case Missouri, and the home state of the company, in this case New York. There are two possible scenarios for the retaliatory tax calculation that the inquirer has considered and the inquirer is requesting the Department’s view as to which one would be endorsed by New York.

The first case, illustrated in Table 2, outlines a situation where the state of New York does not recognize the LIHTC as payment of premium taxes and calculates the NY premium taxes owed from the total premiums written amount.

Table 2

   

Taxes in NY Case 1-retaliatory tax assessed after LIHTC deduction

 

Premiums written

2,000,000

 

Missouri Premium Tax Rate

2%

 

Taxes owed on premiums written

40,000

 

MO LIHTC purchased

20,000

 

Total cash payment to MO Department of Revenue

20,000

 
     

NY premium tax assessment rate

2.6%

 
     

NY Premium Taxes out

52,000

 

Missouri Premium Tax Payment

20,000

 

Retaliatory tax to Insurance Company

32,000

 

The second case, illustrated in Table 3, outlines the situation where the state of New York recognizes the LIHTC amount as a payment and a reduction in State Premium Tax liability and calculates the total retaliatory New York State Premium Tax owed by considering the total Missouri Premium Tax Liability before the LIHTC deduction.

Table 3

   

Taxes in NY Case 2-retaliatory tax assessed before LIHTC deduction

 

Premiums written

2,000,000

 

Missouri Premium Tax Rate

2%

 

Taxes owed on premiums written

40,000

 

LIHTC purchased

20,000

 

Total cash payment to MO Department of Revenue

20,000

 
     

NY premium tax assessment rate

2.6%

 
     

NY Premium Taxes out

52,000

 

Missouri Premium Tax Payment

40,000

 

Retaliatory tax to Insurance Company

12,000

 

Analysis

New York State imposes its retaliatory tax on the following basis: if a foreign state imposes taxes, fines or fees upon New York domiciled insurers and such taxes exceed those imposed by New York State upon the insurers of that jurisdiction, the Superintendent is empowered to impose a "retaliatory tax" upon the insurers of that jurisdiction. The purpose of the retaliatory tax is to ensure that New York domiciled insurers doing business in other states are not burdened with excessive or discriminatory taxes, fees, or penalties in those jurisdictions. The imposition of a retaliatory tax upon foreign domiciled insurers is governed by Section 1112 of the Insurance Law. That section 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 … 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 … 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 matter prescribed by such other state, and shall be subjected to such greater requirements imposed by such other state upon similar insurers of this state… .

N. Y. Ins. Law § 1112(a)(McKinney Supp. 2003).

As indicated by the above-referenced statute, New York law is concerned with the enactments of other state legislatures only insofar as they adversely affect the New York domiciled insurers. Thus, if another state imposes taxes or fees upon New York domiciled insurers that exceed the taxes or fees imposed by New York state upon insurers domiciled in that state, then New York will impose the retaliatory tax. The inquiry addresses a different issue, namely, whether New York will regard Missouri LIHTC purchased by an insurer in lieu of the payment of Missouri premium taxes as the equivalent of premium taxes paid to Missouri.

New York will not dispute Missouri’s treatment of LIHTC payments as constituting the equivalent of Missouri premium taxes paid. Such a characterization of LIHTC is purely a matter of Missouri law. A retaliatory tax issue would exist only in the event that Missouri somehow discriminated against New York domiciled insurers in the application of the LIHTC law.

For further information one may contact Supervising Attorney Michael Campanelli at the New York City office.