The Office of General Counsel issued the following opinion on December 9, 2003 representing the position of the New York State Insurance Department.
Re: Use of New York State Tax Credits and the New York Retaliatory Tax
Will an Insurance Companys receipt of certain tax incentives from New York State result in the imposition of the retaliatory tax imposed by N.Y. Ins. Law § 1112?
No, the receipt of tax incentives from New York State will not trigger the imposition of the retaliatory tax imposed by N.Y. Ins. Law § 1112.
ABC Insurance Company; DEF Insurance Company; GHO Indemnity Company and JKL Casualty Company (Collectively, "Insurance Company") are domiciled in another state as property and casualty insurance companies. They are in the process of establishing a new location to support the sales, service and claim needs of each company's growing customer base. The new location would be in a designated empire zone in New York State and each company would be certified as an empire zone business. At maturity it is anticipated that Insurance Company would have a combined total employment of 2,5000 and a capital investment of over $33 million dollars.
The State of New York has made certain incentives available to companies who locate in empire zones and receive certification as an empire zone business. The Insurance Company is establishing a location in the empire zone and obtaining certification as an empire zone business in order to receive the benefits of some of these incentives. The Insurance Company would qualify to receive the benefit of the EZ wage credit, the QEZE credit for real property taxes.
The premium tax rate in the Insurance Companys domiciled state is 2% and the New York premium tax rate is 2%. However, if the companies receive the benefits of the EZ wage credit, the QEZE tax reduction credit and the QEZE credit for real property taxes as credits against the 2% premium tax, this would reduce the tax rate to below 2%. The Insurance Company is concerned that this could subject it to the retaliatory tax imposed by the New York Insurance Department. If the credits were included in the retaliatory tax computation, the Insurance Company would lose the entire benefit of the incentives.
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) (emphasis supplied).
As indicated by the above-quoted provision, New Yorks retaliatory tax is triggered only when " the laws, or the action of any public official, of any other state " result in a New York insurer being taxed by another state at a rate exceeding the rate imposed by New York on that states domestic insurers. The inquirer is concerned that the Insurance Companys receipt of New York tax incentives might subject it to the New York retaliatory tax because its receipt of these benefits will reduce its effective tax rate below that imposed upon New York insurers doing business outside of New York.
Although the Insurance Companys use of the above-mentioned tax incentives may indeed result in a differential in tax rates, this in itself is not a ground for the imposition of New Yorks retaliatory tax upon the Insurance Company. As indicated by the relevant statute, only a differential in tax rates resulting from the actions of another state will trigger the imposition of the New York retaliatory tax. In the instant case, the differential in tax rates is solely due to the actions of New York State. Accordingly, the New York retaliatory tax would not apply.
For further information you may contact Supervising Attorney Michael Campanelli in the New York City Office.