State and local tax highlights for 2018 were centered on the U.S. Supreme Court’s Wayfair decision and state responses to the federal Tax Cuts and Jobs Act. However, these developments have little effect on the insurance industry and the primary tax regimes imposed on insurers. Continuing the trend over recent years, 2018 was a relatively quiet year for state and local tax developments that affected the insurance industry. Similar to the last few years, noteworthy developments pertaining to insurers involved minor changes to insurance fees, credit provisions, regulation of unauthorized insurance and revisions to the taxation of health insurance. Below is a summary of these items.
- Georgia, North Carolina and Virginia passed legislation to authorize domestic surplus lines insurance companies. Insurers electing to be treated as such are subject to regulation and tax as if they were an unauthorized surplus lines insurer domiciled in another state.
- Alaska increased the annual service fee for the administration of workers’ safety and compensation programs to 2.5 percent (previously 1.82 percent) of workers’ compensation premiums.
- Alaska repealed the premium tax credit for donations to the Alaska Fire Standards Council made after December 31, 2018.
- Connecticut will impose a $12 policyholder surcharge on each homeowners policy issued or renewed on or after January 1, 2019.
- Connecticut implemented a new direct 6.99 percent income tax on pass-through entities and a corresponding income tax credit as of January 1, 2018. As insurance companies generally are exempt from the corporate income tax in Connecticut, the pass-through entity will need to elect (annually) to calculate the tax on an alternative basis to exclude the portion of their income attributable to insurers.
- Delaware increased its annual Insurance Fraud Prevention Bureau assessment to $900 (previously $750).
- Florida made an automatic increase to the total credit allocation for the tax credit scholarship program to $873,565,674 effective for fiscal year 2018 to 2019.
- Hawaii implemented the Unclaimed Life Insurance Benefits Act, which requires insurers to make semiannual comparisons of policyholder records to the death masterfile and comply with unclaimed property tax procedures when beneficiaries can’t be located to pay death benefits.
- Illinois implemented an income tax regulation permitting reinsurers to petition the Department of Revenue to change the method of sourcing reinsurance premiums for apportionment purposes.
- Kentucky requires municipalities to approve/deny refund claims of local premium tax within 90 days of filing and limits municipalities to a one-year period for requiring a tax credit carryforward on overpayments (instead of a cash refund).
- Maryland clarified that travel insurance is to be classified as an inland marine premium for purposes of financial reporting and premium taxation.
- Effective October 1, 2018, Michigan repealed the Health Insurance Claims Assessment and replaced it with the Insurance Provider Assessment. The new annual assessment imposes a $1.20 fee per month for each covered individual under a health plan ($2.40 per member for health insurers not supported with federal Medicaid funding).
- Michigan will reduce the premium tax rate on health insurance policies to 0.95 percent (previously 1.25 percent) as of January 1, 2019.
- The Pennsylvania courts held that the federal flood insurance premium isn’t subject to the standard premium tax, as it should be treated as reinsurance.
- Utah updated its surplus lines tax provisions to conform to the federal Nonadmitted and Reinsurance Reform Act of 2010. As such, Utah will now impose a tax on 100 percent of policy premiums when Utah is the home state of the named insured on a policy issued by a surplus lines carrier.
For more information on how these developments may affect your organization or assistance with these new provisions, contact Michael or your trusted BKD advisor.