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    Potential New York Legislation to Introduce Tax Changes With Respect To Captive Insurers

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    Earlier in 2014, Governor Andrew Cuomo introduced a series of tax reforms in his budget bill (the “Bill”) which is currently being addressed by the state legislature.  If the Bill is passed, all “combinable” captive insurance companies (that is, generally licensed captive insurers where more than 50% of the voting stock is controlled, directly or indirectly, by a single entity that is treated as an association taxable as a corporation) will be treated as general business corporations for purposes of taxation.

    This new proposal represents an expansion of the 2009 New York law change which subjected certain “overcapitalized” captive insurance companies (that is, captive insurance companies that receive 50% or less of their gross receipts from premiums) to similar combined reporting requirements, in lieu of the more limited Article 33 tax on premiums.  As with such overcapitalized captives, the new law would require that “combinable” captive insurance companies be treated as general business corporations subject to the corporate franchise tax, and thus be included on an appropriate combined return, and would exempt them from the Article 33 premium tax.  Because intercompany transactions within a combined group are eliminated, the result of this combined reporting would generally be that premium deductions for the group’s insureds would be eliminated (along with the related premium income of the subject captive), and that the investment income of the captive would be included in the combined return.  These changes would be expected in many cases to result in an increase in overall tax for the group.

    Under the new Bill, all “combinable” captive insurers would be considered general business corporations for taxation purposes.  Furthermore, such combinable captive insurers may also include alien insurers as there is no restriction on where the captive insurer must be domiciled.  We will be following the legislature’s review of the Bill and will provide an update once it has been voted on.

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