Legislative Memo

Ken Pokalsky
Director of Government Affairs
T 518.465.7517 x05


S.6236 (Diaz, Hassel-Thompson, Huntley, Onorato) / A.9439 (Crespo, Benjamin)



Imposes a fifty-percent franchise tax on business-owned life insurance benefits



March 8, 2010


The Business Council strongly opposes this bill, which would impose a fifty-percent franchise tax on business-owned life insurance benefits.  

Many businesses purchase what is commonly known as corporate owned life insurance (COLI) on their most highly compensated employees for a variety of reasons.  The purpose of COLI is to protect businesses from the loss of an owner or key employee whose talents are essential to the success of the company.  The benefits from the life insurance policy assist the business to meet its future obligations including retirees' health care benefits, retirement plans and other costs. 

The bill amends the tax law and adds a new section 182-b that proposes a fifty-percent tax upon every company receiving benefits from life insurance policies it has obtained on its employees.  Additionally, the bill requires that every company subject to tax under this section shall keep records of its business for a minimum of three years in such form as the commissioner may require. 

The sponsor's justification for this bill is to find sources of revenue, better known as taxes, to mitigate New York State's dire fiscal circumstances.  An important factor of any decision by business to remain or relocate to New York State is the tax climate.  The 2010 State Business Tax Climate published by the non-partisan Tax Foundation, ranks New York 49th worst.   States with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth.

The Business Council strongly opposes this bill because it is a tax hike that would threaten the long-term financial security of small and large companies, which purchase life insurance to compensate against loss of an owner or key employee, as well as, short-term and long-term obligations.  This bill would likely render New York's market for COLI policies virtually non-existent, contributing to job-losses on Wall Street and in back office operations in upstate New York. Life insurers account for approximately 60,000 jobs and over 70,000 non-insurance jobs in New York.  In addition, the reduction of premium taxes collected on COLI policies would increase the projected $8.2 billion deficit in FY 2010-11 and beyond.   

The sponsor's memorandum of support cites a false assumption that COLI policies are purchased for low-level employees, often without the knowledge or consent of the employee.   These claims are simply not valid.  In 2006, Congress enacted the Pension Protection Act which included a new section to the Internal Revenue Code, Section 101-j creating the COLI Best Practices Act. Under the COLI Best Practices Act, employers are subject to notice and consent requirements mandating that the employee must be notified in writing that the applicable policyholder intends to insure the employee, provide written consent to being insured, and written information that the applicable policyholder is the beneficiary.  Furthermore, New York law requires notice and consent of the insured for COLI policies.

For these reasons, The Business Council OPPOSES the enactment of S.6236 (Diaz) / S.9439 (Crespo).