OGC Opinion No. 05-05-27

The Office of General Counsel issued the following opinion on May 26, 2005, representing the position of the New York State Insurance Department.

Re: Application of excess line premium tax to policies sold to Indian tribes

Question Presented:

Does the tax-exempt status of an Indian tribe exempt an excess line broker from paying the excess line premium tax on an excess line insurance policy insuring the tribe or a member of the tribe?


No, the tax-exempt status of an Indian tribe does not exempt an excess line broker from paying the excess line premium tax on an excess line insurance policy insuring the tribe or a member of the tribe.


No specific facts were provided. It was requested that the Department reconsider its April 16, 2003 opinion, in which we stated that an excess line broker was not exempt from the excess line premium tax on an excess line insurance policy sold to Indian tribes.


N.Y. Ins. Law § 2118(d)(1) (McKinney 2000 & Supp. 2005) imposes a premium tax on an excess line broker in the amount of 3.6% of the gross premium charged the insured for insurance procured by such licensee from an unauthorized insurer on an excess line basis. In our April 16, 2003 letter, with respect to whether the excess line broker was exempt from paying the tax on a policy procured for an Indian tribe, we responded:

As to the second question presented, it is well established that the tax-exempt status of an Indian tribe does not extend to unrelated third parties. Specifically, the Supreme Court has made clear that "under current doctrine…a State can impose a non discriminatory tax on private parties with whom...an Indian tribe does business, even though the financial burden of the tax may fall on the...tribe." Cotton Petroleum v. New Mexico, 490 U.S. 163, 175 (1989). See also South Carolina v. Baker, 485 U.S. 505, 522 (1989); Oklahoma Tax Comm'n. v. Magnolia Petroleum Co., 336 U.S. 342, 365 (1949). Accordingly, the excess line broker is not exempt from paying the excess line premium tax on the policy.

It's been argued that the critical analysis in cases involving taxation of Indians"...is who bears the legal incidence of the tax. If the legal incidence of an excise tax rests on a tribe or tribal members for sales made inside Indian country, the tax cannot be enforced absent clear congressional authorization." Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 458-459 (1995).

It’s been further argued that § 27.12 of 11 NYCRR 27 (Regulation 41) is a pass-through provision that essentially imposes the tax on the insured and therefore, under the legal incidence test, the tribe bears the burden of the tax. Section 27.12 states:

No producing broker or excess line broker shall charge the insured any amount (including reimbursement for premium taxes or stamping fees), other than the premiums for the policy or insurer’s policy fee, if any, unless the broker obtains a written memorandum, signed by the insured, specifying the amount and purpose in accordance with section 2119 of the Insurance Law.

Under the legal incidence test, the question is who has the legal burden to pay the tax. In Chickasaw, the Court noted that "...if the legal incidence of the tax rests on non-Indians, no categorical bar prevents enforcement of the tax; if the balance of federal, state, and tribal interests favors the State, and federal law is not to the contrary, the State may impose its levy..." Chickasaw, supra, at p. 459. In Chickasaw, the issue was whether the legal incidence of Oklahoma's fuels tax rested on the Tribe as retailer or on some other transactor, such as the wholesaler who sold to the Tribe, or the consumers who bought from the Tribe. While a tax may not be imposed on tribal members and tribes, tribal retailers can be required to collect the tax on sales to non-Indians. Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 U.S. 463 (1976).

Unlike the cases cited in support of the argument above, Section 2118(d)(1) imposes the tax burden upon the excess line broker only, not the insured. Failure to pay the tax is a violation of the law by the broker, not the insured.

Section 27.12 of Regulation 41 does not shift the legal incidence of the tax from the broker to the insured. Under N.Y. Ins. Law § 2119(c) (McKinney 2000), an insurance broker, including an excess line broker, may charge a service fee for insurance related services, provided that the broker obtain a signed written agreement from the party to be charged (usually the insured). The Insurance Law does not either prescribe or proscribe the services for which the broker may charge. A broker's service fee typically includes amounts intended to reimburse the broker for its expenses. The sole purpose of § 27.12 of the Regulation is to serve as a reminder to an excess line broker of its obligation to obtain the written agreement if the broker wants to be reimbursed by the insured for the tax. The regulation neither authorizes nor requires the broker to charge the insured for the amount of the tax. Even if the section of the regulation was repealed, it would not change the broker's ability to be recompensed, subject to the insured's written consent. The service agreement is purely a contractual arrangement between insured and broker and the insured need not agree to such an arrangement. If the insured does sign a service fee agreement, the broker's only remedy is in contract if the insured does not pay.

The Department's position with respect to policies covering Indian tribes is consistent with our opinions covering policies issued to other tax-exempt entities, such as governmental or not-for-profit entities. In each case, the Department has opined that the tax burden is on the broker and not the insured and whether the broker is to be reimbursed for the tax amount is purely a contractual arrangement between the insured and the broker.

Accordingly, the April 16, 2003 opinion remains unchanged.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.