About 600 small mutual property/casualty insurers serving rural communities would get a tax break under federal legislation filed last week in Congress.
Introduced by Reps. Erik Paulsen, R-Minn., Ron Kind, D- Wis., and Aaron Schock, R-Ill., the legislation would update the alternative tax liability limitation for small property/casualty insurance companies to account for inflation and tie it to the inflation rate going forward.
According to the National Association of Mutual Insurance Companies (NAMIC), which supports the legislation, the provision, which has been in existence for close to 100 years, was last updated in the 1986 major tax reform.
Under Section 831(b) of the Internal Revenue Code, small property/casualty insurers with direct or net written annual premiums not exceeding $1.2 million may elect to be taxed on their net investment income as opposed to their premium income. To account for inflation over the past 28 years, the legislation raises the investment income election threshold to $2.12 million.
NAMIC welcomed the bill that would lessen a tax burden that has been growing over the past three decades.
“During nearly three decades of economic growth, the eligibility cap for the tax election has become increasingly difficult for companies to stay under, meaning funds that could be used to pay claims to their local members are instead being sent to Washington,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC. “This legislation eases that burden to allow these companies to continue protecting the farms and families they have served for more than 100 years.”
Companion legislation was introduced in the Senate as S. 1346 in July 2013 by Sens. Tom Harkin, D-Iowa, Charles Grassley, R-Iowa, Jay Rockefeller, D-W.Va., Amy Klobuchar, D-Minn., and Roy Blunt, R-Mo.
“These small mutual companies are owned by their policyholders, often in rural communities with fewer options for coverage available to them, and exist solely to serve the insurance needs of their members,” Grande said. “Congress recognized the vital role these companies play in their communities when it last set the threshold for the tax alternative in 1986, and today’s legislation simply updates it to ensure these small companies can compete in the 21st century.”
NAMIC’s members include regional and local mutual insurance companies.