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Does your organization take advantage of the New Jersey taxable premium limitation (tax cap)?


What is the New Jersey tax cap?


New Jersey has a taxable premium limitation that has the intent of incentivizing insurance companies to make a substantial commitment to New Jersey and contribution to its economy.[1] It does not apply to health service corporations.[2]


The limitation is applied in one of two ways, depending on when a company was first licensed in New Jersey:


1) Companies licensed in New Jersey prior to June 30, 1984


Taxable premiums “shall not” exceed 12.5% of the total premiums collected by the company, without regard to its affiliates during the year.


This is the preferable calculation because you can still take advantage of it even if your insurance group as a whole does not write more than 12.5% of premiums in New Jersey. Companies could create a New Jersey domiciled company within their group that writes premiums only in New Jersey, thereby taking advantage of the tax cap even though their group, as a whole, writes less than 12.5% of its premiums in New Jersey. The state responded to this by amending the tax cap in 1985 as described in the next point.


2) Companies licensed in New Jersey on or after June 30, 1984


Taxable premiums “shall not” exceed 12.5% of the total premiums collected by the company and all its affiliates during the year. For the purposes of the tax cap, a property & casualty insurance company is not considered an affiliate of a life insurance company.



If I write fire premiums in New Jersey and also pay the New Jersey Foreign Fire Insurance Company tax (NJFT), how will that affect the tax cap?


Only foreign companies pay the NJFT, which is credited against premium taxes. New Jersey has addressed this in a notice clarifying that the NJ Division of Insurance will apply the 12.5% cap to the premiums on which the NJFT is calculated.



What if my company doesn’t write a lot of premiums in New Jersey?


Have you considered the retaliatory implications of this provision for companies domiciled in New Jersey? Let’s say one of your companies writes more than 12.5% of premiums in Iowa. There is an argument that the New Jersey tax cap can and should be utilized on the New Jersey retaliatory return to lower the retaliatory taxes you would pay in Iowa. I am not aware of any limitation that would prevent this (comments/feedback to the contrary are welcome).



How can PremaTax℠ assist with the New Jersey tax cap?


In PremaTax℠, the New Jersey tax cap is automatically calculated and compared in the majority of cases. Specifically, it will automatically calculate the tax cap for property & casualty filers that don’t write individual accident & health insurance and that were licensed in New Jersey prior to June 30, 1984. For other cases, the tax cap will automatically be calculated after a bit of manual input from data that can typically be found on your annual statement(s). The same is done on the retaliatory return for companies domiciled in New Jersey.



Nicholas English

Cofounder and Vice President at Terabitten Technologies


Interested in learning more about how PremaTax℠ can help you with premium tax filings? Request a demo here and we’ll be happy to share more information.


 

[1] American Fire and Cas. Co. v. NJ Div. Of Taxation, 912 A.2d 126, 129 (N.J. 2006); N.J. Rev. Stat. § 54:18A-6.


[2] N.J. Rev. Stat. § 54:18A-6(b); see N.J. Rev. Stat. § 17:48E-1(e).



 

PremaTax℠ is a product of Terabitten Technologies Inc., a technology development firm dedicated to serving underserved markets by providing innovative software solutions.

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