Tuesday, July 21, 2009

New York State Insurance Department Circular Letter No. 15 (2009)

June 30, 2009
TO: All Insurers and Self-Insurers Authorized to Write Motor Vehicle Liability, Physical Damage and Mechanical Breakdown Insurance in New York State; and the New York Automobile Insurance Plan
RE: Third Party Information Sharing for Sales Tax Compliance Purposes

STATUTORY REFERENCE: New York Tax Law § 1136(i)

The purpose of this Circular Letter is to advise insurers of a recent amendment to the New York Tax Law.  Recently, the legislature amended Section 1136 to require insurers to file an annual informational return with the New York State Department of Taxation and Finance (“DTF”) if the insurer pays consideration or an amount under an insurance contract for the servicing or repair of a motor vehicle on behalf of an insured.  The law also requires insurers to advise recipients of such payments, including motor vehicle body or mechanical repair shops as sales tax vendors, of the information reported to the DTF.  In addition, the law establishes penalties for noncompliance with the required reporting requirements.

The first informational return required under this law is due on September 20, 2009, and will cover the period of March 1, 2009 through August 31, 2009.  DTF is expected to issue written guidance explaining the filing process and clarifying the information required.           

Any questions regarding compliance should be directed to DTF at (518) 457-5342 or (800) 972-1233.

Hat tip to Rhonda Brooker of New York Central Mutual for the heads up on this new reporting requirement, which was buried within this year's budget bill.

"To increase tax compliance and improve [New York State's] ability to enforce the payment of taxes," New York State is now requiring auto insurers annually to report to New York State sales tax paid to auto body and repair shops. Wouldn't be so bad if this new reporting requirement were to begin sometime next year so that insurers could re-program their systems to capture the required information, but New York State needs money NOW, so this legislation requires two interim reports -- one due on September 20, 2009 for the filing period March 1--August 31, 2009, and the second due on March 20, 2010 for the filing period September 1, 2009--February 28, 2010.  After 2010, each annual return for the preceding March 1st--February 28th (29th) period will be due on March 20th. 

In other words, when New York auto insurers opened their mail on July 1st, they discovered that they would be required to capture and report sales tax payment information dating back four months to March 1st of this year.  Some, no doubt, were not already electronically tracking this information in a form that could easily be compiled and produced for a informational return.  Perhaps some college kids got jobs this summer making manual searches of paid auto physical damage files to pull the newly required information.

In New York where over-regulation rules the roost, a simple name, taxpayer ID number and amount paid during the filing period would just not do.  Instead, the information required for these new returns is:
  •  vendor’s name (legal entity name);
  • vendors DBA name (e.g., repair shop name as displayed outside premises, if different from legal entity name);
  • vendor’s address;
  •  total amount paid to each vendor located in New York State, including payments made by checks made out to both the vendor and other parties, such as the insured or a lien holder (multiple payee checks);
  •  total number of individual payments made to each vendor (including multiple payee checks);
  •  vendor’s Federal Employer Identification Number (EIN/Federal ID number) which would be the owner’s Social Security Number if vendor is a sole proprietor;
  • vendor’s New York State Sales Tax Certificate of Authority Number;* and
  • vendor’s New York State Department of Motor Vehicles (DMV) Facility Number.*
If a motor vehicle insurer is unable to provide any of the information listed above that is marked with an asterisk (*) on the first information return required to be filed on or before September 20, 2009, the motor vehicle insurer will not be considered to have failed to provide information that is required on the return, as long as all the other information is provided. However, for all returns due March 20, 2010, and thereafter, the information listed above marked with an asterisk must be provided along with the information that is not marked with an asterisk, in order for the return to be considered to be properly filed.

Although not required for each return, the following information must also be compiled and provided to the New York State Department of Taxation and Finance upon request:
  •  the name of the insured on whose behalf payments were made;
  • deductible amount for each claim;
  • total amount paid for sales tax for each claim;
  • date of each individual payment; and
  • check number of each check issued to the vendor or where applicable, the vendor’s electronic funds transfer (EFT) number.
Of course, what would more regulation be without some monetary penalties for non-compliance?  The DTF's advisory bulletin of July 2nd gives those as:
(1) If a motor vehicle insurer fails to:

• provide any of the information as required on the information return;
• include information on the information return that is true and correct; or 
• provide to each affected vendor, on or before March 20th of each year, the statement as described above; 

the motor vehicle insurer is subject to a penalty of $500 for 10 or fewer failures and up to $50 for each additional failure. 

(2) If a motor vehicle insurer fails to timely file an information return under the new law, in addition to the penalties described above, a penalty of not less than $500 but up to $2000, will apply to each failure. 

The penalties described above cannot exceed a total of $10,000 for any filing period.
If the DTF determines, however, that any failure to comply with the requirements of this new law was entirely due to reasonable cause and not to willful neglect, the penalties as described above will be waived.

If all this weren't enough to ruin auto insurer IT folks' summers, the state made one more thing mandatory -- electronic filing of these information returns.  How?  In what format?  No one knows yet.  For the first return due on September 20th, the DTF promises to provide information regarding the actual filing of the electronic return on the Tax Department’s Web site by September 1st.  Nice.

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