Excess Line Tax: Tax-Exempt Insureds

ELANY receives numerous phone calls regarding the payment of the excess line premium tax by tax-exempt organizations.  Members state that notwithstanding a signed total cost form indicating the insured has agreed to pay the excess line tax, the tax-exempt organization balks and claims it is exempt from the excess line tax.  The short answer is the insured, even a tax-exempt one, is obligated to pay the excess line tax if they signed a total cost form. Department of Financial Services’ OGC Opinion of October 7, 2002 makes this clear.

Legally, the 3.6% excess line tax is a tax payable by the excess line broker. However, the excess line broker  is legally allowed to pass the tax, among other costs, on to an insured provided the insured signs a written memorandum consenting to the payment in accordance with Insurance Law §2119.  Therefore, the tax-exempt organization’s status is not relevant to the transaction since the tax is not imposed on the insured per se, but is payable by the insured as a matter of a voluntary contract. The signed Total Cost Form makes it clear that payment of the tax by the insured was a precondition for the excess line broker to bind coverage.

Department of Financial Services’ OGC Opinion of April 16, 2003 opines that an Indian reservation within New York’s borders is subject to paying excess line tax that is properly passed on to it by an excess line broker.

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ELANY DISCLAIMER:
This is not intended to be nor should it be construed as legal advice. Consult with your own legal counsel.
Last Reviewed/Revised: October 13, 2020