Arizona Chamber Foundation Releases Policy Recommendations on Insurance Premium Tax
February 26, 2010Foundation finds that insurance companies bear tax burden higher than other companies
PHOENIX – The Arizona Chamber Foundation today released a Policy Brief on the state’s insurance premium tax. The paper finds that the tax inflicts a tax burden on insurance companies that is considerably higher than other types of business taxes.
Rather than pay the state corporate income tax rate of 6.9% on income, Arizona insurance companies pay a 2% gross receipts tax on premiums written.
“The 2% insurance premium tax at first glance seems low. But since the tax is assessed on revenue and not on income, some Arizona insurance companies end up paying an amount equivalent to an 11%-14% income tax rate,” Arizona Chamber Foundation Executive Director Suzanne Taylor said. “A tax this high results in a significant negative impact on the state’s insurance industry.”
The paper finds that the premium tax results in an overall increase in the cost of insurance, reduces the competitiveness of insurance companies, places a disproportionate share of business tax liability on insurers and fails to incentivize job creation and economic growth.
“Insurers are highly sought after employers. They bring nonpolluting, high wage jobs and offer excellent benefits to their employees,” Taylor said. “But insurance-related employment in Arizona shrank by 5% from 2005-2008, while rest of the nation saw a rise in insurance employment. Addressing the inequities of Arizona’s insurance premium tax is a big part of improving the state’s ability to attract insurance jobs to the state and stimulate job growth.”
The paper recommends a rate reduction or tax credits as possible ways to remedy the disproportionate tax burden facing insurance companies.
“Other states are implementing tools to address their own insurance premium tax challenges,” Taylor said.
“As Arizona policymakers contemplate overall tax system reform, they should include an adjustment to our insurance premium tax in order to foster competitive business environment.”
The Policy Brief can be read in its entirety here.
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The Arizona Chamber Foundation (501 (c) 3) is a non-partisan, objective educational and research foundation. The Foundation produces research studies on Arizona public policy issues such as health care, budget, education, regulation, energy and others in an effort to inform policymakers business leaders and the general public.
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