Three recent decisions (March 3, 2016) by a New York State Division of Tax Appeals administrative law judge help to clarify the taxation of unauthorized insurance companies subject to New York State taxation.

New York State has over recent years changed in certain significant regards both the substantive law and its interpretation of such law in respect of the applicable distinctions related to the taxation of authorized and unauthorized insurance companies subject to its jurisdiction. While state law provides specifically for both an insurance franchise type of tax and an insurance premium type of tax, the determination of which of these taxes applies to authorized and/or unauthorized insurers has historically been less than clear. In particular, the potential applicability of a “cap” on an insurer’s aggregate tax liability, calculated as a function of gross premiums received, to unauthorized insurers has been a recurrent issue.

The above-referenced opinions clarify that unauthorized insurance companies subject to New York State taxation (both life and non-life) are subject to the insurance franchise tax rather than the premium tax. Further, the opinions provide that unauthorized non-life insurance companies are not able to avail themselves of the above-described “cap” on their liability calculated under this tax regime. While the administrative law judge determined alternatively that an unauthorized life insurance company would be able to avail itself of this “cap” feature of the law, this was in deference to a Department of Taxation administrative decision which allowed this cap to apply to such companies for pre-2012 tax years. Query whether a similar determination would be made for years beginning on or after January 1, 2012 (to which this Department of Taxation administrative decision would not apply). The rationale applied to the non-life insurance companies by the ALJ would likely indicate that such cap would not apply for post-2011 tax years.

While lending some clarity to the situation, it is nonetheless important to note that these determinations do not serve as precedent, and could be appealed to the New York State Tax Appeals Tribunal.