What do I need to know about Insurance Premium Taxes?

What do I need to know about insurance premium taxes?

KRS 91A.080 authorizes cities to impose an insurance premium tax to be effective on July 1 each year, on a prospective basis only.

The tax will not be effective unless the city sends the Commissioner of Insurance a copy of the ordinance and any amendments at least 100 days before the proposed effective date.

The Commissioner of Insurance is required to notify each insurance company engaged in the business of insurance in the Commonwealth of those cities that have imposed the tax and the current tax rate. This notification is to be sent 85 days prior to the July 1 effective date.

The license fee or tax imposed on any insurance company with respect to life insurance policies may be based on first-year premiums actually collected in each calendar quarter, upon the lives of persons residing within the city. The license tax imposed on insurance companies with respect to any type of policy other than a life insurance policy must be based on a percentage of the premiums actually collected in each calendar quarter on risks located within the city, less all premiums returned to policyholders.

The tax is due 30 days after the end of each calendar quarter. Insurance companies subject to the tax are required to file annually by March 31 a breakdown of all collections for six specified lines of insurance with the city. License fees not timely paid bear interest at the tax interest rate as defined in KRS 131.010(6). The local government may also impose a 10% penalty on a fee or tax not paid within 30 days of its due date.

Insurance companies that pay the tax are required to credit city insurance premium taxes against the same taxes levied by the county. The credit requirement applies to all county taxes levied for the first time after July 13, 1990.

The collection and administration of the local insurance premium tax was significantly amended in the 2008 General Assembly. The law requires insurance companies subject to the tax to accurately locate risks to the appropriate taxing jurisdiction and imposes new penalties on insurance companies for failure to comply with the law. In dealing with disputes regarding the insurance premium tax, KRS 91A.0804 provides the sole and exclusive remedy for cities, insurance companies and policyholders. The law limits refund requests to a two year statute of limitations and requires any insurance company requesting a refund to provide policy-specific information to the city in its request.

For a full discussion of insurance premium taxes, including circumstances in which the tax may not be imposed, see Chapter 16 of the 2015 City Officials Legal Handbook. In addition, a model ordinance may be obtained by contacting the KLC Legal Department at 800-876-4552.