Insurance tax: Tax expenditure estimates

Insurance tax: Tax expenditure estimates

This section of the report provides tax expenditure estimates for 57 separate provisions of the corporate franchise tax on insurance companies. The list of tax expenditures contained in Table 3 is based on the tax law as of January 1, 2025. The estimates are based on data from the 2021 tax year, the latest year for which Article 33 tax return data are available. They are also extrapolated to the 2025 tax year. The tax years refer to both the 2021 and 2025 calendar years and fiscal tax years beginning in 2021 and 2025. Total insurance tax liability for the 2021 tax year has been included to provide some perspective to the tax expenditure estimates.

Description of tax

Article 33 imposes a franchise tax on insurance companies. The structure of the tax depends on the type of insurer as well as if the insurance corporation is authorized to do an insurance business in New York.

Life insurance corporations

Life insurance corporations compute tax on the highest of four bases and then add to the result both a subsidiary capital tax and a premiums tax.

The four alternative bases are:

• 7.1 percent of allocated entire net income; or
• 0.16 percent on allocated business and investment capital; or
• 9 percent of 30 percent of allocated entire net income plus officers’ salaries less specified deductions; or
• a fixed dollar minimum tax of $250.

Life insurance corporations doing business within and without the State allocate entire net income, business and investment capital, and entire net income plus officers’ salaries to New York based on weighted ratios of premiums and wages earned or paid in New York to those earned or paid everywhere.

Added to the highest of the four bases are:

• 0.08 percent tax on subsidiary capital allocated to New York; and
• 0.7 percent tax on gross premiums, less return premiums thereon, written on risks located or resident in New York.

The total tax liability, less Empire Zone credits, cannot be less than 1.5 percent of taxable premiums (the tax floor) or greater than 2 percent of taxable premiums (the cap on tax). Taxpayers may then claim other credits against the total tax liability.

Nonlife insurance corporations

Nonlife insurance corporations are subject to the larger of a tax on premiums or a flat $250 fixed dollar minimum. Accident and health insurance premiums are taxed at 2.0 percent and other nonlife insurance premiums are taxed at 1.75 percent.

Captive insurance corporations

Captive insurance corporations are subject to tax on gross direct premiums and assumed reinsurance premiums but cannot be less than a $5,000 minimum tax. Captives cannot use credits to reduce tax and are generally not included in a combined report.

Unauthorized insurance corporations

An unauthorized nonlife insurance corporation, as well as an unauthorized life insurance corporation, doing business, employing capital, owning or leasing property in New York State in a corporate or organized capacity, or maintaining an office in New York State is subject to a franchise tax computed under the four bases plus the subsidiary capital base. However, an unauthorized insurance corporation is not subject to the additional premiums tax, or the limitations based on premiums.

Data sources

The major sources of data used to compute the tax expenditure estimates under Article 33 Insurance Tax include:

• 2021 Article 33 Insurance Tax study file—This file, compiled by the Department of Taxation and Finance, includes the tax returns of all insurance companies filing under Article 33.
• New York State Department of Financial Services aggregate data.

Methodology

The projections of the tax expenditures from 2021 to 2025 use a variety of economic forecast variables.

Tax expenditures whose values are less than $0.1 million are considered minimal and are designated by an asterisk.

Certain federal tax expenditure provisions flow through and impact the New York insurance tax. The tax begins with definitions of income that are derived from provisions of the federal Internal Revenue Code. As a result of this coupling of state definitions of the income base to federal definitions, exclusions or deductions from income at the federal level become exclusions or deductions at the State level. Therefore, these provisions automatically become tax expenditures at the State level. The U.S. Congressional Joint Committee on Taxation publishes an annual report (Estimates of Federal Tax Expenditures) that estimates federal tax expenditure items. Many items generally flow through to New York, but since state-level data for federal exclusion or deduction items are not available, state-specific estimates are not possible. Furthermore, it should be noted that New York does not conform to all federal tax expenditure provisions. States can decide to not follow (or decouple from) federal provisions. For example, in 2003 New York decoupled from federal bonus depreciation provisions under Internal Revenue Code § 168(k).

New York modifications to federal taxable income

In computing New York entire net income, modifications to federal taxable income are provided for under Tax Law Article 33. These modifications apply only to life insurance corporations.

1. Exclusion of income from subsidiary capital

Citation: Tax Law §§ 1503(b)(1)(A) and 1503(b)(2)(H)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: In computing New York entire net income, taxpayers may subtract dividends, interest, and gains derived from subsidiary corporations that are not part of the combined group.

Taxpayers may also deduct global intangible low-taxed income (GILTI) as defined in Internal Revenue Code § 951A and the GILTI-related Internal Revenue Code § 78 dividends (less attributable interest and noninterest deductions) received from subsidiary corporations that are not part of the combined group. The related deductions under Internal Revenue Code § 250 must also be added back in computing entire net income.

This modification does not include mandatory deemed repatriation income from subsidiary corporations (described in item #11 below).

2. Deduction of 50 percent of dividends from non-subsidiary corporations

Citation: Tax Law § 1503(b)(1)(B)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: Life insurance corporations may deduct 50 percent of the company’s share of dividend income received from non-subsidiary corporations. This modification does not include mandatory deemed repatriation income from non-subsidiary corporations (described in item #11 below).

3. Taxable refunds or credits of state tax

Citation: Tax Law § 1503(b)(1)(C)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: A taxpayer may exclude any refund or credit of a tax imposed under Tax Law Article 9 §§ 183, 183-a, 184, and 184-a, or Article 9-A, 23, or 33 that was properly included as income for federal income tax purposes, and for which no exclusion or deduction was allowed in determining the taxpayer’s entire net income for any prior year.

4. Wage and salary expense allowed as federal credits but not as federal expenses

Citation: Tax Law § 1503(b)(1)(D)

Effective date: Effective for tax years beginning on or after January 1, 1977

Description: In computing New York entire net income, a taxpayer may exclude the amount of wages disallowed under Internal Revenue Code § 280C in the computation of their applicable federal income.

5. Unearned premiums

Citation: Tax Law § 1503(b)(1)(L)

Effective date: Effective for tax years beginning after December 31, 1986

Description: A taxpayer may exclude from entire net income the amount of unearned premiums on outstanding business at the end of the tax year included in premiums earned as a result of Internal Revenue Code § 832(b)(4)(B), 832(b)(7)(B)(i) and 832(b)(8)(A)(i).

6. Discounted unpaid losses

Citation: Tax Law §1503(b)(1)(N)

Effective date: Effective for tax years beginning after December 31, 1986

Description: A taxpayer may exclude from entire net income the difference between the amount of discounted unpaid losses at the end of the tax year used in the computation of losses incurred as a result of Internal Revenue Code § 832(b)(5)(A), and the amount of unpaid losses at the end of the tax year that would have been used in such computation if such losses were not discounted for federal income tax purposes.

7. Reduction of loss deduction under Internal Revenue Code § 832(b)(5)(B)

Citation: Tax Law § 1503(b)(1)(O)

Effective date: Effective for tax years beginning after December 31, 1986

Description: A taxpayer may exclude from entire net income the amount by which losses incurred were reduced as a result of Internal Revenue Code § 832(b)(5)(B).

8. Internal Revenue Code §§ 847(5) and 847(6)

Citation: Tax Law § 1503(b)(1)(P)

Effective date: Effective for tax years beginning on or after January 1, 1993

Description: A taxpayer may exclude from entire net income the amount included in federal gross income as a result of Internal Revenue Code §§ 847(5) and 847(6).

9. Qualified emerging technology investments

Citation: Tax Law § 1503(b)(1)(Q)

Effective date: Effective for investments sold on or after March 12, 1998

Description: A deferral of gain on the sale of a qualified emerging technology investment is available to taxpayers for a qualified emerging technology investment that is (1) held for more than 36 months and (2) rolled over into the purchase of a replacement qualified emerging technology investment within 365 days. Gain deferred under this provision must be recognized when the replacement qualified emerging technology investment is sold. However, gain on the sale of the replacement qualified emerging technology investment can be deferred if another replacement qualified emerging technology investment is acquired within 365 days.

10. Deduction of distributions made to victims or targets of Nazi persecution

Citation: Tax Law § 13

Description: A taxpayer may exclude the amount received (including accumulated interest) from an eligible settlement fund, or from an eligible grantor trust established for the benefit of the victims or targets of Nazi persecution when computing New York entire net income.

11. Mandatory deemed repatriation

Citation: Tax Law §§ 1503(b)(1)(S), 1503(b)(2)(H)

Effective date: Effective for tax years beginning on or after January 1, 2017

Description: In computing New York entire net income, a taxpayer may subtract from federal taxable income the Internal Revenue Code § 965(a) inclusion amount, less interest and noninterest deductions attributable to it, received from foreign corporations that are not included in a combined report with the taxpayer. The related deduction allowed under Internal Revenue Code § 965(c) must be added back when computing entire net income.

12. Contributions to capital of a corporation

Citation: Tax Law § 1503(b)(1)(T)

Effective date: Effective for tax years beginning on or after January 1, 2018

Description: In computing New York entire net income, a taxpayer may subtract contributions to a corporation’s capital made by any governmental entity or civic group (other than a contribution made by a shareholder) that are included in gross income under Internal Revenue Code § 118(b)(2).

13. Global intangible low-taxed income

Citation: Tax Law §§ 1503(b)(1)(U)-(V), 1503(b)(2)(H)

Effective date: Effective for tax years beginning on or after January 1, 2019

Description: In computing New York entire net income, a taxpayer may subtract from federal taxable income ninety-five percent of the global intangible low-tax income, less the attributable interest and noninterest deductions, from a non-subsidiary corporation that is not included in a combined report with the taxpayer. In addition, a taxpayer may subtract from federal taxable income any global intangible low-tax income-related Internal Revenue Code § 78 dividends, that has not otherwise been deducted, less attributable interest and noninterest deductions. The related deductions under Internal Revenue Code § 250 must be added back in computing entire net income.

For tax years beginning on or after January 1, 2018 and before January 1, 2019, global intangible low-tax income and global intangible low-tax income-related Internal Revenue Code § 78 dividends received from non-subsidiary corporations were subject to tax. As a result, the corresponding deductions allowed under Internal Revenue Code § 250 for global intangible low-tax income and global intangible low-tax income-related Internal Revenue Code § 78 dividends were allowed to flow through from the federal return when computing New York entire net income.

Alternative bases

One tax expenditure item applicable to life insurance corporations is provided for under the alternative tax base measured by business and investment capital.

14. Exclusion of assets held as reserves under New York State Insurance Law §§ 1303, 1304, and 1305

Citation: State Insurance Law §§ 1303, 1304, and 1305; Tax Law § 1500(I)(j)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: Insurance corporations may exclude assets that are held for loss or claim reserves, valuation reserves, and unearned premium reserves (as specified in the insurance law) from the definition of business capital and investment capital for purposes of computing tax liability under the capital base tax.

Exclusions from premiums base tax

The premiums tax base excludes premiums from several types of insurance.

15. Exclusion of annuities from the tax on premiums

Citation: Tax Law § 1510(c)(1)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: The premiums tax base excludes annuities.

16. Exclusion of premiums written on certain joint underwriting policies

Citation: Tax Law § 1510(c)(2)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: The premiums tax base does not include premiums on joint underwriting of group health insurance for persons aged 65 and over.

17. Exclusion of premiums written on marine vessels

Citation: Tax Law § 1510(c)(2)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: The premiums tax base does not include premiums for ocean marine insurance.

18. Exclusion of premiums written on certain reinsurance policies

Citation: Tax Law § 1510(c)(3)(A-B)

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: The premiums tax base does not include premiums received by way of reinsurance from corporations or other insurers authorized to transact business in New York. It also excludes premiums received by way of reinsurance from corporations or other insurers not authorized to transact business in New York if such premiums are subject to the excess line tax imposed under the insurance law.

19. Exclusion for certain non-New York property or individuals

Citation: Tax Law § 1512(b)(1)-(3)

Effective date: Effective for tax years beginning on or after January 1, 1974 [§ 1512(b)(3) effective for tax years beginning on or after January 1, 1978]

Description: The premiums tax base does not include premiums from:

• property, risks, or residents located outside of New York written by nonprofit life or fire insurance companies; and
• insurance risks on residents outside of New York State written by federally exempt life insurance companies organized by nonprofit voluntary employees’ beneficiary associations.

Limitation on tax

Article 33 provides for a maximum tax liability cap for life insurance corporations. The total tax less Empire Zone credits, but before other credits, may not exceed 2 percent of taxable premiums. Taxpayers may apply all other insurance corporation tax credits to reduce the tax as determined under the cap.

20. Limitation on tax liability

Citation: Tax Law § 1505

Effective date: Effective for tax years beginning on or after January 1, 1977

Description: Article 33 limits the total tax liability of a life insurance corporation. Effective for taxable years beginning on or after January 1, 1998, the limitation, or cap, equals 2.0 percent of gross premiums for life insurers. An insurance corporation’s tax liability equals the lower of (1) the tax determined under the cap, or (2) the tax determined on the highest of four alternative bases, plus the taxes on the subsidiary capital and premiums bases, less Empire Zone credits.

Corporate exemptions

Tax Law Article 33 does not apply to several types of entities that may be engaged in an insurance business. Several additional types of entities are exempt only from the premiums tax.

21. Exemption from Article 33 for specific types of entities engaged in an insurance business

Citation: Tax Law § 1512(a)(1)-(8), (c)

Effective date: Effective for tax years beginning on or after January 1, 1974 [§§ 1512(a)(8) and 1512 (c) effective for taxable years beginning on or after January 1, 1978]

Description: Entities exempt from tax under Article 33 include:

• charitable, religious, missionary, educational, and philanthropic non-stock corporations [512(a)(2)];
• retirement systems or pension funds engaged solely in an annuity business [1512(a)(3)];
• nonprofit medical expense indemnity or hospital service corporations [1512(a)(4)];
• incorporated or unincorporated fraternal benefit societies [1512(a)(5)];
• corporations for the insurance of domestic animals on a cooperative plan [1512(a)(6)];
• a town or county cooperative insurance corporation exempt from tax under Tax Law § 187 as it existed prior to 1974 [1512(a)(7)];
• not-for-profit voluntary employees’ beneficiary associations exempted from federal income tax the members of which are employees (or beneficiaries or dependent of employees) of a single employer [1512(a)(8)];
• any nonprofit property/casualty insurance company organized pursuant to Insurance Law § 6703 [1512(a)(9)]; and
• entities conducting insurance business as a member of the New York Insurance Exchange [1512(c)].

Preferential tax rates

22. Preferential tax treatment for captive insurance companies

Citation: Tax Law § 1502-b

Effective date: Effective for tax years beginning on or after January 1, 1998

Description: Captive insurers are subject to a special premiums tax at lower rates than the rate that applies to other insurers. The tax imposed on captives equals the greater of the sum of the tax imposed on gross direct premiums and the tax imposed on assumed reinsurance premiums, or $5,000. The tax rates that apply to gross direct premiums and assumed reinsurance premiums decrease as the amount of premiums subject to tax increases, with the highest rate equaling 0.4 percent.

For tax years beginning on or after January 1, 2009, and before January 1, 2015, an overcapitalized captive insurance company must be included in a combined return under either Article 9-A or 32 with the closest corporation that directly or indirectly owns or controls over 50 percent of the voting stock of the overcapitalized captive insurance company. For tax years beginning on or after January 1, 2015, a combinable captive insurance company must be included in a combined return under Article 9-A if it is more than 50 percent owned by an Article 9-A corporation.

Credits

Credits are amounts, enumerated by New York State Tax Law Article 33, which insurance corporations may subtract from their calculated New York tax liability. Article 33 credits are available to both life and nonlife insurance corporations unless otherwise noted.

Insurance tax credits

The credits described below are specific to the insurance tax.

23. Fire insurance premiums tax credit

Citation: Tax Law § 1511(a)

Credit type: Nonrefundable/non-carryforward

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: A credit is allowed for additional taxes on premiums written by foreign or alien corporations for any insurance against loss or damage by fire, paid by foreign and alien fire insurance companies and foreign mutual fire insurance companies. Such taxes are imposed under the insurance law and under the charters of the cities of Buffalo and New York. Taxpayers must have paid or accrued the taxes during the tax year covered by the return.

24. Retaliatory tax credit

Citation: Tax Law § 1511(c), (i)

Credit type: Refundable

Effective date: Effective for tax years beginning on or after January 1, 1974

Description: Taxpayers may claim a credit for up to 90 percent of any retaliatory taxes paid to other states by New York domiciled or organized insurers as a result of New York State imposed taxes on insurers domiciled or organized in those other states.

25. Credit for assessments paid to the life and health insurance company guaranty corporation

Citation: Insurance Law § 7712(a)(b); Tax Law § 1511(f)

Credit type: Nonrefundable/carryforward

Effective date: Effective for tax years beginning after December 31, 1986; expanded to include health insurers for tax years beginning on or after January 1, 2024

Description: For tax years beginning before January 1, 2024, life insurance corporations may claim a tax credit for a portion of the cost of assessments paid to the life insurance company guaranty corporation in prior years. The maximum credit allowed to all life insurance companies for a particular year is limited to the greater of $40 million or 40 percent of the total tax liability of all such companies. To calculate its respective credit amount, an individual corporation multiplies the $40 million/40 percent maximum by the assessments it paid divided by the sum all assessments paid by all corporations.  For tax years beginning on or after January 1, 2024, the nonrefundable Life Insurance Company Guaranty Corporation credit was renamed the Life and Health Insurance Company Guaranty Corporation credit (LHICGC).  The credit is available to eligible life and health insurers and the calculation has been simplified. For assessments issued in 2024 and later, eligible insurers will receive a certificate of tax credit specifying the amount that can be claimed for the year. Transition provisions allow any unused credit related to assessments issued in 2023 and earlier to be claimed in taxable years beginning on or after January 1, 2024.

26. Credit for investment in certified capital companies

Citation: Tax Law § 1511(k)

Credit type: Nonrefundable/carryforward

Effective date: Effective for tax years beginning after 1998, although the credit may be earned before 1999; the credit has been expanded four times since its enactment, to a combined statewide cap for all five programs of $400 million, effective January 1, 2007

Description: Under the five programs, taxpayers may claim a credit for 100 percent of the amount invested in certified capital companies. The credit can be claimed over 10 years, at a rate of 10 percent per year. The combined statewide cap is $400 million on the total amount of investments for which credits may be claimed. The total for all five programs may not exceed $40 million in any year.

Cross-article credits

Descriptions of other tax credits that are available under the insurance tax as well as other tax articles are contained in the Cross-article tax credits section of the report.