New York City imposes a two percent tax on the gross premiums of foreign insurance companies for the use and benefit of the city's fire department. The fire premiums tax, sometimes referred to as the Foreign Fire Tax, is in addition to insurance taxes imposed by New York State, and often gets overlooked due to the fire-specific and local nature of the tax. Non-compliant taxpayers are subject to hefty assessments for unpaid taxes, plus penalties and interest, for all years in which the tax was due. There may be an opportunity, however, for insurers to minimize exposure by proactively approaching the Department of Finance.
What is the Fire Premiums Tax?
New York City requires every foreign and alien fire insurance corporation, association, or individual to pay to the department of finance a two percent tax on all gross direct premiums, less return premiums, for any insurance against loss or damage by fire in New York City. Foreign and alien insurers include insurers, except mutual insurance companies subject to state-level fire premiums tax, incorporated or organized in any state or territory other than New York or in a foreign country.
The tax applies to a wide variety of policies including fire, auto, homeowners, and any other type of insurance that covers loss or damage by fire, lightning, smoke or anything used to combat fire, regardless of whether such risks or the premiums are stated or charged separately and apart from any other risk or premium.
The tax often gets overlooked for a variety of reasons. While most states impose an insurance premiums tax on insurers, not many cities impose their own tax in addition to the state. Moreover, the State of New York administers a fire premiums tax on behalf of all cities in the state other than New York and Buffalo, so foreign insurers may think the state-level tax is all-inclusive.
Failure to file a fire premiums tax return and/or pay the fire premiums tax carries severe economic consequences. The interest rate on unpaid liabilities is 11% compounded daily. The city also imposes three different types of delinquency penalties, each equal to 25% of the tax due. The total "damage" can add up quickly and there is no limit on how far back the city can investigate if returns have never been filed.
How Can Insurers Minimize Exposure?
New York City offers a voluntary disclosure program that allows taxpayers to minimize their exposure. In exchange for taxpayers identifying and paying some past-due taxes and agreeing to comply on a go-forward basis, the city will forego taxes for older years (i.e., apply a limited lookback period) and waive penalties. Although the program is available for all taxes administered by the NYC Department of Finance, the Commissioner recently acknowledged the unique nature of the fire premiums tax and committed to helping foreign insurers come into compliance without facing harsh penalties.
Foreign insurers who may be exposed to past-due fire premiums tax liabilities should consider a voluntary disclosure to minimize the risk. Foley's New York City tax attorneys can liaise with the Department of Finance anonymously on your behalf to secure an agreement and help you come into compliance.
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