Calendar-year 2019 continues the recent trend of few state and local tax developments having significant effects on the insurance industry. However, some legislation has passed in the first half of the year that contains potential tax ramifications for insurers. Below is a summary of these items.
- Illinois Governor J.B. Pritzker’s “fair tax proposal” includes an increase to the corporate income tax rate from 7 percent to 7.99 percent as of January 1, 2021. Note that this rate increase will only be effective if a constitutional amendment related to tax limitations in the state is subsequently passed in the November 2020 Illinois general election.
- Minnesota passed a technical correction to its 2017 tax reform to clarify the imposition of direct or combined income tax on insurance companies, effective retroactively for tax years beginning January 1, 2017. Specifically, the correction clarifies that only disqualified captive insurance companies are subject to the income tax and reinforces the exemption for insurers domiciled in states that don’t impose retaliatory tax or are domiciled in a reciprocal tax state.
- Nevada has removed the requirement for business entities to file a commerce tax return if their Nevada gross revenue for a fiscal year is under the $4,000,000 exemption, effective June 3, 2019.
- New Mexico has implemented mandatory unitary combined reporting for corporate income taxes beginning in 2020. While insurance companies generally are exempt from direct imposition of the income tax and inclusion in a combined group in New Mexico, insurers not licensed in the state aren’t exempt.
- Oregon will impose a new corporate activity tax (CAT) on a unitary combined basis as of January 1, 2020. Taxpayers will include C and S corporations, partnerships, sole proprietorships and other business entity types with taxable Oregon commercial activity in excess of $1 million. The CAT is imposed at a rate of 0.57 percent on Oregon-sourced commercial activity in excess of $1 million, plus a $250 flat fee. The CAT is a separate return and in addition to all other Oregon tax liabilities/filings for taxpayers.
- West Virginia will repeal the premium tax on annuity considerations collected and/or received by an insurer, effective January 1, 2021.
- A number of states have passed legislation over the past year to clarify that travel insurance is to be classified as inland marine insurance and subject to the associated premium tax. The policies are sourced to each state as sold to residents, certain primary certificate holders or certain blanket travel insurance policyholders, excluding any amount received for travel assistance services or cancellation fee waivers.
- Arkansas S. 399 – Passed, effective October 1, 2019
- Louisiana H. 542 [Laws 2017] – Passed, effective January 1, 2018
- Maryland H. 979/S. 652 [Laws 2018] – Passed, effective October 1, 2018
- Mississippi S. 2829 – Session adjourned, failed to pass
- North Carolina H. 755 – Passed, effective January 1, 2020
- Rhode Island H. 5207/S. 356 – Passed, effective October 1, 2019
- Texas H. 2587 – Passed, effective September 1, 2019
- Virginia H. 2186/S. 1565 – Passed, effective July 1, 2019
To learn more about these developments and how they could affect your organization or for assistance with any of these new provisions, contact your BKD trusted advisor or use the Contact Us form below.