Property/casualty insurance companies are subject to state premium taxes. Since at least the mid-19th century, premiums have been subject to state taxation in the United States. In addition to premium taxes, insurance companies are obligated to pay certain statutory fees for services performed by state insurance departments. Insurers are also subject to assessments because they are mandated to participate in guaranty associations, wind pools, FAIR plans, and other residual market mechanisms.
Some states subject insurers to state income tax in addition to premium tax; in many of these states an off-set is set up either allowing credit for income tax payments against premium taxes or vice versa. Other states require premium tax in place of income and franchise tax because premium tax is based on a gross measure, not profit or earnings.
Insurance companies who do business in states other than their domiciliary state are subject to retaliatory taxes from those non-domiciliary states. The purpose of a retaliatory tax is to require foreign (non-domiciliary state) insurers to pay an equal amount of tax to the retaliatory state which would be imposed by the foreign insurer’s state of domicile on foreign insurers.
Many states allow for the off-set of assessments paid to guaranty funds and other residual market mechanisms. Insurers are allowed to deduct a percentage of the assessment, which varies state-to-state, from the premium taxes payable. It is important that laws which provide offsets or credits against premium taxes specifically recognize that such offsets or credits will be granted by the taxing authority after application of premium tax retaliatory laws.
Property/casualty insurance companies are heavily taxed; therefore, NAMIC opposes efforts by state legislators to raise premium taxes on property/casualty insurance companies, and supports efforts to reduce the taxes paid by insurers in a given state.