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State Tax Considerations for Insurance Companies

Jan 22, 2024

Insurance companies are part of a specialized industry with uniquely complex regulations and requirements, especially regarding taxation. Just as the federal tax code includes specific provisions for insurance companies, state tax codes often follow suit with their unique rules.

State Corporate Income Tax and Insurance Companies

Corporate income taxation is a significant revenue generator in many states. However, most states do not impose a corporate income tax on insurance companies. Instead, they impose a premium tax as an alternative. This approach helps in avoiding the burden of double taxation. In states that do tax insurance companies' income, mechanisms like credits for premium taxes paid are common. These credits are intended to offset either the corporate income tax or the premium tax, further ensuring that double taxation is avoided. Below is a summary of states that impose an income tax on insurance companies:

States That Impose a Corporate Income Tax

State Additional Comment
Florida
Illinois
Indiana If election to pay gross premiums tax not made. Foreign insurers are not assessed a corporate income tax.
Louisiana
Mississippi
Nebraska
New Hampshire
New York Insurance franchise (income) tax of Article 33
Oregon Limited exemptions apply
Wisconsin Except domestic life insurers, foreign insurers, and certain other exempt insurers

Additionally, in states where income tax is imposed on insurance companies, the method to calculate their taxable income often differs from the federal approach. To address these unique calculations, some states provide specialized income tax forms that are specifically designed for insurance companies.

State Franchise Tax

Franchise taxes is another state tax with varying treatment for insurance companies. Some states impose a franchise tax on a corporation’s capital while other states do not impose franchise taxes on any type of entities. Of those that impose a franchise tax, many do not assess such on insurance companies. The states that do not assess the franchise tax include the following:

States That Do Not Impose a Franchise Tax

State Additional Comment
Georgia
Illinois
Louisiana Exempt if subject to premium tax
Mississippi
Missouri Exempt if subject to premium tax
Nebraska
New Mexico Exempt if subject to premium tax
North Carolina Exempt if subject to premium tax
Oklahoma
Pennsylvania
South Carolina
Tennessee
Wyoming

Paid Taxes You Shouldn’t Have?

If a company finds it has been incorrectly remitting taxes in a state where it’s not obligated to do so, an assessment needs to be made regarding the best course of action. Contacting the state’s tax authority for guidance on the situation can be prudent. Generally, as long as the statute of limitations has not passed, the company should be able to seek a refund for the erroneously paid taxes by filing an amended tax return. Additionally, setting the state’s expectation that no additional tax returns are expected will be important; filing a “final” return may be necessary.

Careful review of a state’s rules and regulations regarding corporate income and franchise taxation for insurance companies is essential to ensure compliance. Tax compliance is complicated and often varies depending on the type of insurance company. Many companies may be unaware of the specific rules each state has for insurance companies. Accordingly, to ensure they are properly complying with state tax requirements, companies should consult with experienced tax professionals. Your CRI advisor is available to provide tailored guidance and support, helping you effectively navigate the complexities of insurance company taxation.

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