While the world may not be fully back to a pre-pandemic “normal,” 2022 sure did move the needle a long way back toward that standard. With state revenue collections exceeding estimates and continued federal COVID-19 funding, it was no surprise that state budgets were generally strong for 2022. As such, no states enacted major tax reform but instead focused their legislative efforts on tax relief and targeted tax credits and incentives to support business development and retain or increase taxpayers in the state.
The overwhelmingly most significant state and local tax (SALT) concern for taxpayers (including insurance companies) continues to be those issues related to remote employees. Like most other service organizations, most employee functions in the insurance industry are well suited to remote employee arrangements. Our discussions within the insurance industry reflect that most insurance groups have embraced either a work-from-home or hybrid work schedule as their new norm. As pointed out in our 2020 FORsights™ article, “Nomads Can Make You Go Mad – Tax Insights for Remote Workers,” remote work environments can potentially expose business entities and employees to many complex SALT issues. Taxing jurisdictions also are coming to terms with these same issues around nexus exposure, payroll withholding, employee-based incentives, and individual income tax filing requirements.
Unfortunately, no federal guidance has developed as the U.S. Supreme Court declined to hear New Hampshire v. Massachusetts and federal legislators failed to pass any of the clarification bills during the 117th Congress. This leaves each state to determine its own requirements via a mix of current statutes, legislation, and/or local-level case law. FORVIS recommends that impacted business entities consider proactive measures to help reduce potential tax and penalty exposure. These measures may include such things as the development of effective work-from-home HR policies, the implementation of robust payroll systems that can track time and locations for employees, addressing proper withholding for remote employees, and validating any existing or future employee-based credits or incentives.
Due to the unique premium tax regime, the insurance industry remained isolated from most of the general state developments for 2022. However, below are the most significant state tax developments from 2022 that are unique to or could impact insurers:
- Alabama House Bill (HB) 391 phases out the minimum privilege tax for the tax year beginning January 1, 2023, reducing the minimum tax to $50 (from $100), and beginning January 1, 2024, taxpayers who would be subject to the minimum business privilege tax are exempted from the tax and the associated filing requirement.
- The special provisions in Florida HB 7093 (Laws 2018) that provided for a temporary annual decrease in the Florida corporate income tax rate for taxable years beginning January 1, 2019 and before January 1, 2022 have expired. The Florida corporate income tax rate reverted back to the standard statutory rate of 5.5% as of January 1, 2022.
- The Indiana Department of Insurance Bulletin No. 264 mandates electronic filings for insurance premium tax filings, annual renewal fees, and payments through the National Association of Insurance Commissioners’ online premium tax filing system (OPTins), effective April 1, 2022.
- Kentucky HB 8 phases out the personal income tax beginning in 2023 and replaces the lost revenue with an expansion of the sales tax base to various services, which will negatively impact claim expenses (such as sales tax on rental vehicles). The bill also authorizes a tax amnesty program during 2023 for most taxes administered by the Department of Revenue, including premium tax. The amnesty will abate any civil penalties and interest otherwise due.
- Louisiana HB 292 consolidated the current five-bracket corporate income tax system into three: 3.5% on the first $50,000 of net income; 5.5% on $50,000 through $150,000 of net income; and 7.5% on income exceeding $150,000. The bill also repealed the income tax deduction for federal income taxes paid. All changes are effective January 1, 2022.
- The Michigan Department of Treasury issued a notice explaining that the Michigan Catastrophic Claims Association surplus refunds received by insurers in March 2022 are subject to the state’s premium tax.
- New Hampshire HB 1221 reduces the Business Profits Tax rate from 7.6% to 7.5% for tax periods ending on or after December 31, 2023.
- A Radnor, Pennsylvania, administrative hearing upheld the local business privilege tax on Lincoln National Life Insurance Company’s annuity considerations and other “non-insurance” operational income.
- Washington Tax Decision Det. No. 20-0325, 41 WTD 243, held that a pharmacy benefit management service provider wasn’t eligible for a Business and Occupation (B&O) tax exemption for insurance because the amounts received from its affiliated insurance entities weren’t tax exempt because they didn’t pay the gross premiums tax directly. This decision was followed by the release of a draft Excise Tax Advisory from the Department of Revenue addressing its interpretation of the insurance exemption to the B&O tax and defining activities that do and do not qualify as insurance business.
To learn more about these and other developments for 2022, along with how they could affect your organization, or for assistance with any of these new provisions, please reach out to a professional at FORVIS or submit the Contact Us form below.