The American Insurance Association (AIA) issued the following statement in response to the California Department of Insurance’s (Department) decision to redefine deductible payments sent to workers’ compensation insurers under a deductible policy as “gross premiums.” The redefinition would make the payments subject to taxation.
“This program has been in place since 1995 and the Department’s prior decisions have never indicated that these payments were taxable premiums,” Mark Webb, AIA vice president, western region, said. “This decision is incomprehensible. Until yesterday (Feb. 27) no one thought these deductibles were subject to taxation.”
“The California Board of Equalization has never defined these deductibles as taxable,” Webb added. “This decision is an abuse of the process because the Department has acted without any public input or oversight by the Administrative Procedures Act.
The timing of this decision is profound. Seeking taxes retroactively to 1997 will further burden insurers and employers who are already struggling to deal with the permanent benefit increases contained in AB 749-Calderon.”
Webb concluded that California insurers will now face retaliatory taxes in other states because of this decision.