Mutual Life Ins. Co. of New York v. State Tax Comm., 32 N.Y.2d 348 (1973)
A life insurance company’s provision of life and health insurance benefits to its employees on a nonprofit basis, as an incident of the employer-employee relationship, does not constitute the transaction of insurance business subject to a state premium tax.
Summary
Mutual Life Insurance Company of New York challenged a determination by the State Tax Commission that the cost of providing life and health insurance benefits to its employees was subject to a state premium tax. The company argued that these benefits, provided on a nonprofit basis, were not “premiums received” within the meaning of the state’s tax law. The New York Court of Appeals reversed the Appellate Division’s decision, holding that providing such benefits as an employer is distinct from transacting insurance business, and thus not subject to the premium tax. The court emphasized that the program was an incident of the employer-employee relationship, not a commercial insurance activity.
Facts
Mutual Life Insurance Company of New York provided death, illness, and disability benefits to its employees and field agents. The company allocated the cost of these benefits on a nonprofit basis, without any provision for general surplus. The majority of the expense was borne by the company as an employer, with the remainder contributed by employees through deductions from wages and commissions, also calculated on a nonprofit basis. Prior to 1963, the State Tax Commission did not consider these costs to be taxable premiums.
Procedural History
The State Tax Commission determined that the cost of employee insurance coverage constituted taxable premiums and levied additional assessments on Mutual Life in 1963. The Appellate Division confirmed the Tax Commission’s determination, reasoning that because the company stipulated that its plans constituted “insurance contracts,” the costs should be deemed “premiums.” Mutual Life appealed to the New York Court of Appeals.
Issue(s)
Whether the costs incurred by a life insurance company in providing life and health insurance benefits to its employees, on a nonprofit basis, as an incident of the employer-employee relationship, constitute “premiums received” for the privilege of exercising corporate franchises or carrying on business within the state, and thus are subject to state premium tax under Section 187 of the Tax Law.
Holding
No, because the provision of insurance benefits to employees on a nonprofit basis is an incident of the employer-employee relationship and not the transaction of insurance business for the purpose of exercising its corporate franchise, and therefore is not subject to the premium tax under Section 187 of the Tax Law.
Court’s Reasoning
The court reasoned that the state tax law imposes a corporate franchise fee upon insurance companies for the privilege of doing business within the state, measured by premiums “reasonably attributable to business of this State.” The court emphasized that the employee-benefit program was not the result of solicitation of business or of the petitioner’s holding itself out or doing business as a commercial insurer. The expense of the program is calculated without provision for profit, confirming that it is not part of its ordinary course of business as a franchise insurer.
The court distinguished this arrangement from a commercial transaction, likening it to any other employer-employee relationship where insurance benefits are provided. The court stated that what constitutes a nontaxable employer-employee relationship for noninsurers is not transformed into a taxable insurance business simply because the employer happens to be licensed to conduct such a business.
The court also noted that other jurisdictions have similarly held that an insurer’s maintenance of a benefit program for its employees, on a nonprofit basis and solely as an incident of its role as employer, does not constitute the doing of an insurance business so as to subject it to a tax. The court rejected the argument that the cost of the program is equivalent to a premium, stating: “The premium on any commercially sold insurance would necessarily include an amount attributable to profit or to a contribution to surplus, the element lacking in the petitioner’s employee benefit program.”
Finally, the court gave significant weight to the long-standing interpretation by the Insurance Department and the Department of Taxation and Finance that the cost of insurers’ employee benefit programs was not a taxable premium. Citing Matter of Inter-County Tit. Guar. & Mtge. Co. v. State Tax Comm., 28 Y 2d 179, 182, the court noted that such a long-standing interpretation by the agencies charged with regulation of insurance companies is entitled to great weight.