OGC Opinion No. 06-09-18
The Office of General Counsel issued the following opinion on September 26, 2006, representing the position of the New York State Insurance Department.
Re: Exemption from Excess Line Tax and ELANY Stamping Fees
Questions Presented:
1) Based on the facts stated below, is the commercial liability insurance policy at issue subject to New York excess line tax and ELANY stamping fees?
2) Is the insured eligible for tax exemption under N.Y. Tax Law § 1553 from the N.Y. Tax Law Article 33-a tax on independently procured insurance?
Conclusions:
1) No, based on the facts stated below, the commercial liability insurance policy at issue is not subject to New York excess line tax and ELANY stamping fees.
2) The proper authority to respond to this inquiry is the NYS Department of Taxation and Finance, which is the agency responsible for enforcing provisions of the Tax Law.
Facts:
A New Jersey domiciled insurance broker who has a New York nonresident broker's license, and is licensed as an excess line broker in both New York and New Jersey, plans to negotiate and place a commercial liability insurance policy in New Jersey for a New Jersey domiciled insured. The insured is a construction firm with its parent company based in the People's Republic of China. The policy, which will be delivered to the insured in New Jersey, will be written by an insurer that is not authorized to do an insurance business in either New York or New Jersey. The policy will provide liability insurance for risk arising from the insured's construction of a building for the Permanent Mission of the People's Republic of China. The insured has received authorization from the United States Department of State to purchase goods and services tax-free for purchases made in relation to this construction project.
Analysis:
N.Y. Ins. Law § 1102(a) states in relevant part:
No person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter[.]
Based on the facts presented, there is no violation of N.Y. Ins. Law § 1102(a) since the transaction described does not constitute the doing of an insurance business in New York. None of the insurance transactions, such as solicitation, negotiation, issuance or delivery of the policy, will be conducted in New York. Hence, the policy that is to be written by an unauthorized insurer is also not subject to N.Y. Ins. Law §§ 2118 or 2130 regarding the payment of New York excess line taxes or ELANY stamping fees.
Had the transaction constituted the doing of an insurance business in New York, it should be noted that N.Y. Ins. Law §§ 2118(d) and 2130(f) place the responsibility of paying the excess line tax and ELANY stamping fees upon the excess line broker and not the insured.1
New York Tax Law Article 33-a, however, does impose a tax on the insured in the situation that you describe. N.Y. Tax Law § 1551 states:
There is hereby imposed on any person2 who purchases or renews a taxable insurance contract3 from an insurer not authorized to transact business in this state under a certificate of authority from the superintendent of insurance a tax at the rate of three and six-tenths percent of the premiums paid or to be paid, less returns thereon, for such insurance. Nothing in this article modifies or abrogates any provision of the insurance law.
The Tax Law provides exemptions from this requirement in N.Y. Tax Law §1553, which states:
This article shall not apply to:
(a) the government of the United States or any instrumentality thereof;
(b) the state of New York or any political subdivision, as such term is defined for purposes of section one hundred three of the internal revenue code, thereof;
(c) the United Nations or any other international organization of which the United States is a member;
(d) any foreign government;
(e) any taxable insurance contract procured through a New York licensed excess line broker in accordance with section two thousand one hundred eighteen of the insurance law; and
(f) any taxable insurance contract of the type described in subsections (b), (c) and (d) of section two thousand one hundred seventeen of the insurance law.
As to whether the insured in this instance is eligible for tax exemption, please note that the proper authority to respond to such inquiry is the NYS Department of Taxation and Finance, which is the agency responsible for enforcing the provisions of the Tax Law. See http://www.tax.state.ny.us for further assistance.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.
1 The broker may collect these expenses from the insured provided that the broker obtains a written memorandum signed by the insured specifying the amount and the agreement to pay the taxes and fees, in accordance with N.Y. Ins. Law § 2119(c).
2 N.Y. Tax Law § 1550(a) defines the term "person" to mean 'an individual, corporation, partnership, limited liability company, society, association, joint stock company, estate, receiver, trustee, assignee, referee and any other person acting in a fiduciary capacity, whether appointed by a court or otherwise, and any combination of the foregoing.'
3 N.Y. Tax Law § 1550(c) defines the term "taxable insurance contract" as 'a contract of insurance of the type described in paragraphs four through fourteen, sixteen, seventeen, nineteen, twenty and twenty-two of subsection (a) of section one thousand one hundred thirteen of the insurance law that covers risks located or resident within this state.'