Is the New York Insurance Exchange exempt from New York State and local sales and use tax?

Plain-English summary

The New York Insurance Exchange, Inc. — a not-for-profit corporation the legislature created under Insurance Law § 425-a to provide a facility for reinsurance, direct insurance on risks entirely outside the U.S., and certain otherwise-uninsurable risks — asked whether it is exempt from New York State and local sales and use tax.

The answer: no. Being a not-for-profit created by statute isn't enough; the Exchange has to fit one of the specific exemption categories, and it fits none.

• Not a government agency or public corporation (§ 1116(a)(1), (2)). It isn't a federal or state agency and isn't state-owned or state-operated. It exists to run a board of trade, its membership is solely insurance companies, and its board of governors is elected by its members. No statute declares it a public corporation (which is how the legislature usually signals that status).
• Not a charitable/educational organization (§ 1116(a)(4)). It is not organized exclusively for religious, charitable, scientific, public-safety-testing, literary, or educational purposes — it operates a commercial establishment.
• Its Insurance Law exemption doesn't reach sales tax. § 425-a(4) exempts the Exchange from state and local taxes measured by income, premiums, or gross receipts — and the Department read that as not including the sales tax.

Because none of these fit, the Exchange is liable for New York State and local sales and use taxes on its purchases.

What this means for you

"Not-for-profit" is not a sales-tax exemption by itself. New York exempts specific kinds of purchasers (governments, and organizations operated exclusively for charitable/educational/similar purposes). A nonprofit that runs a commercial operation for its members doesn't qualify just because it lacks a profit motive.

A statutory tax exemption is only as broad as its words. The Exchange had a real exemption — but one limited to taxes "measured by income, premiums, or gross receipts." Sales tax is a transactions tax on purchases, not a tax on those measures, so it fell outside the carve-out.

Read the enabling statute for what tax it actually exempts. Entities created by special legislation often get targeted exemptions (franchise, premium, gross-receipts taxes) that deliberately leave sales and use tax in place.

Common questions

Q: Does being organized as a not-for-profit make an organization sales-tax exempt in New York?
A: No. Exemption under § 1116(a)(4) requires being organized and operated exclusively for charitable, educational, or similar purposes. An organization running a commercial facility for its members doesn't meet that test.

Q: Why didn't the Insurance Law § 425-a exemption cover sales tax?
A: Because § 425-a(4) exempts only taxes measured by income, premiums, or gross receipts. The Department concluded that does not include the sales tax, which is imposed on purchases.

Q: Could a different insurance-industry entity be exempt?
A: Only if it independently qualifies — for example as a genuine government instrumentality/public corporation, or as an organization operated exclusively for exempt purposes. The Exchange's board-of-trade, member-run structure kept it out of those categories.

Citations and references

Statutes:

• Tax Law § 1116(a)(1) — exempts New York State and its agencies, instrumentalities, public corporations, and political subdivisions as purchasers
• Tax Law § 1116(a)(2) — exempts the United States and its agencies and instrumentalities
• Tax Law § 1116(a)(4) — exempts organizations operated exclusively for religious, charitable, scientific, public-safety-testing, literary, or educational purposes
• Insurance Law § 425-a — establishes the New York Insurance Exchange; subdivision 4 exempts it only from taxes measured by income, premiums, or gross receipts
• Tax Law Articles 28 and 29 — impose the State and local sales and use taxes at issue

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_103s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80(103)S
Sales Tax
June 16, 1980

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

Petition No. S800319A

On March 19, 1980, a Petition for Advisory Opinion was received from the
New York Insurance Exchange, Inc., 99 John Street, New York, NY 10005.
The issue raised is whether or not the Insurance Exchange is exempt from
the payment of sales and use tax imposed under Articles 28 and 29 of the Tax Law.
The Insurance Exchange was established pursuant to Section 425-a of the
Insurance Law of the State of New York.
The purpose of the Insurance Exchange is to provide a facility for the
underwriting of all kinds of reinsurance, direct insurance on risks located
entirely outside the United States, and insurance of certain otherwise
uninsurable risks.
As mandated by the legislature of the State of New York, the Insurance
Exchange was organized as a Not-for-Profit Corporation.
Subdivision 4 of Section 425-a of the Insurance Law explicitly exempts the
Insurance Exchange from all ". . . taxes and fees measured by income, premiums
or gross receipts ...."
Section 1116(a) of the Tax Law provides an exemption for "(1)The state of
New York, or any of its agencies, instrumentalities, public corporations
(including a public corporation created pursuant to agreement or compact with
another state or Canada) or political subdivisions where it is the purchaser,
user or consumer....(2) The United States of America, and any of its agencies and
instrumentalities .... (4) Any corporation, association, trust, or community
chest, fund or foundation, organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary or educational
purposes, or for the prevention of cruelty to children or animals...."
To be exempt from payment of sales and use tax, the Insurance Exchange
would have to qualify under one of the above sections of the Tax Law or by a
specific provision of the Insurance Law.
The Insurance Exchange does not fall into one of the following categories:
1.

Governmental Agency

The Exchange is not a Federal agency. Nor does it appear to be a State
agency or public corporation.

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-80(103)S
Sales Tax
June 16, 1980

The Exchange is not owned or operated by the State. It is organized for the
purpose of operating a board of trade rather than for some public purpose as is
usually the case with public corporations. Furthermore, membership in the
Exchange is made up solely of insurance companies and its board of governors is
elected by its members.
Finally, the implementing statute usually specifies that an entity is a
governmental agency or public corporation if it is intended to be one by the
legislature. No such provision is found in the applicable statutes.
2.

Charitable, Educational, Etc.

The Insurance Exchange is not formed for exclusively religious, charitable,
scientific, testing for public safety, literary or educational purposes. It is
formed to operate a commercial establishment.
3.

Specific Provision of Law

The Exchange is exempt from certain taxes pursuant to the provisions of
§425-a(4) of the Insurance Law. These taxes include all state or local taxes
measured by income, premiums or gross receipts. They do not include the Sales
Tax.
Accordingly, the Insurance Exchange is not eligible for exemption from
paying New York State and Local Sales and Use Taxes.

Dated: May 30, 1980

s/MICHAEL ALEXANDER
Deputy Director
Technical Services Bureau