Insurance premium tax compliance updates

Daniel J. Kusaila, Leah McQueeney
Insurance premium tax compliance updates

Rate increases, new and discontinued filing requirements, new assessments, and mandates on how to pay and file – state legislatures are continually changing insurance premium tax compliance requirements. This update reflects only some of the most impactful legislative changes to the 2021 compliance season and looks ahead to the 2022 estimated tax payments season.

New premium taxes

As states look for new sources of income to balance their budgets, the insurance industry is not one to be left unscathed. New filings, fees, assessments, and rate and penalty increases are just some of the ways states are bringing in additional revenue from insurers.

New travel insurance tax

Various states have started to pass legislation to make travel insurance taxable under the insurance premium tax laws. This new inclusion requires travel insurers to pay tax on travel insurance premiums paid by certain policy and certificate holders. These are some of the state rates and effective dates:

State Rate Effective
Oklahoma 2.25% April 20, 2021
Georgia 2.25% May 4, 2021
South Carolina 1.25% May 17, 2021
Maine 2% June 23, 2021
Illinois 0.5% July 30, 2021
Wisconsin 0.5% Dec. 3, 2021
Mississippi 3% July 1, 2022
Tennessee 2.5% July 1, 2022
Utah 2.25% July 1, 2023
Massachusetts   Pending

Colorado – new policy fee

A new filing is due annually starting on July 1, 2023. This is a $2 fee per policy to fund the natural disaster mitigation enterprise established in Colorado House Bill 21-1208. This per policy fee is imposed on the following property and casualty lines of business: fire, allied lines, private crop, farmers multiple peril, homeowners multiple peril, and commercial multiple peril.

Illinois – new auto surcharge

A new automobile surcharge in Illinois is now required as part of the Illinois budget bill. Insurers are required to collect and remit a $4 surcharge per private passenger auto policy. This surcharge will fund the new State Police Training and Academy Fund and the Law Enforcement Training Fund. The first surcharge was due April 1, 2022.

New Mexico – rate increase

New Mexico Senate Bill 317 increased the health insurance premium surtax from 1% to 3.75% of gross health insurance premiums and policy fees. This rate increase is effective as of Jan. 1, 2022.

North Dakota – failure-to-file penalty

North Dakota Senate Bill 2077 establishes a $100 per day failure-to-file penalty if the fire premium information return is not filed by March 1. This return is required for the following lines of business: fire, allied lines, homeowners multiple peril, farmowners multiple peril, and commercial multiple peril insurance. The North Dakota Insurance Department also is authorized to revoke a noncompliant certificate of authority or waive the penalty and interest for reasonable cause.

Premium tax legislation clarifications and corrections

Other impacts to the compliance season include additional requirements, clarification, technical corrections, and a rate reduction.

Colorado – reduced rate requirements and annuity taxation exemptions

Colorado House Bill 21-1312 was sent to the governor on May 16, 2022. This bill provides additional requirements to be met in order to use the reduced premium tax rate of 1%. These requirements include the insurer maintaining 2% of its total domestic workforce within the state of Colorado for 2022; this percentage increases each year until 2024. The bill clarifies this percentage should not include agents, brokers, and their staff.

This bill also provides clarification regarding the types of annuities that are exempt from taxation, which include qualified retirement plans, Roth 401(k)s, or individual retirement accounts. Investment type annuities were taxable in 2021.

Oregon – CAT technical correction

Senate Bill 164, an amendment to the current Oregon statute, exempts foreign and alien insurers from the commercial activity tax (CAT) if the insurer is subject to Oregon’s retaliatory tax. This amendment was passed as a technical correction and applies to tax years beginning on or after Jan. 1, 2021. The state also amended its Administrative Rules to define taxable “insurance premiums” as all gross direct life, accident and health, and property and casualty insurance premiums written, as reported in the annual statement or surplus lines report.

Washington – B&O tax changes

As a result of new premium legislation, the state of Washington’s department of revenue issued interim guidance limiting the exemption from the business and occupation (B&O) tax to amounts covered by an insurance business where a gross premium tax was paid to Washington. While “insurance business” is not defined in the statute, the guidance provides a nonexclusive list of activities qualifying as directly relating to an insurance business. This includes policy rate setting, claims inspection and investigation, appraisal of insured property, loss prevention, negotiation and defense of claims, and the issuance of payments to the insured.

West Virginia – annuity premium tax repealed

Effective for tax year 2021, Senate Bill 30 amends the West Virginia Code section on annuities by repealing the premium tax on annuities.

Premium tax filing requirements

With respect to changes surrounding filing requirements and method of payment of taxes, the following might apply:

Hawaii – OPTins requirement

The state of Hawaii passed Senate Bill 1096 that requires authorized insurers and surplus lines brokers to make electronic payments through the National Association of Insurance Commissioners Online Premium Tax for Insurance (OPTins) or equivalent service approved by the insurance commissioner. Effective June 28, 2021, electronic payment is required for both monthly and annual premium tax payments, and the Automated Clearing House (ACH) debit or credit method of payment no longer can be used.

New Mexico – electronic payment requirement

New Mexico House Bill 98 authorizes the department of revenue to require electronic payment of taxes, including premium taxes. This was effective July 1, 2021.

Keep your eyes and ears open

Overall, the individual states are continually changing their premium tax laws and compliance requirements. While some of these changes might provide compliance relief, they generally create more complexity and additional work for the insurers and tax departments. Staying up to date on the current laws and compliance requirements is an ongoing effort needed in the insurance premium tax compliance world.

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Daniel Kusaila
Daniel J. Kusaila
Leah McQueeney