PCI, AIA Oppose Mass. Bill Requiring Insurers to Report to Tax Authorities

March 4, 2004

The Property Casualty Insurers Association of America and the American Insurance Association have both gone on record as opposed to a bill being considered by the Joint Committee on Taxation that places insurers in the awkward position of assisting the Massachusetts Department of Revenue with general tax collections.

The proposal, contained in section 58 of House Bill 4485, would require every insurer, before making any claim payment above $500, to determine “whether such claimant owes taxes to the Commonwealth.” If the claimant does owe state taxes, the insurer would then have to report the individual’s name, address, date of birth and Social Security number to the Department of Revenue (DOR) within 10 business days and remit the amount of taxes owed to DOR before paying the claimant.

The AIA called the proposal “costly, unfair and unworkable.” PCI Vice President and New England Regional Manager Frank O’Brien said the bill “has serious flaws and is inconsistent with existing statutes.” He noted that “for more than a decade, insurers have been required to share information with the state to allow for collection of past due child support obligations out of an insurance claim payouts. Insurance companies are also required to work with two other state agencies to allow them to recover public assistance benefits. Now, this bill comes along and requires insurers to collect overdue taxes for the Department of Revenue.”

Paul Moran, AIA vice president, Northeast Region stated that the bill “singles out the insurance industry for a new and wholly unfamiliar, inappropriate role – assisting the state in meeting its tax-collection obligations. This proposal would give rise to serious and potentially damaging costs, burdens, and risks for insurance companies, their policyholders and the Commonwealth of Massachusetts.”

The AIA bulletin added that if the measure were adopted it “would require insurers to spend millions of dollars creating new compliance systems, which would increase insurance costs. It also could delay claims payments and lead to errors in those payments. Often, insurers do not have the data on claimants that the bill would require them to submit to DOR. Obtaining this data would create serious privacy concerns for customers.”

In expressing the PCI’s objections, O’Brien also indicated that, in addition to the legal and operational issues raised by Section 58, the requirements would place additional costs on insurers, and ultimately on policyholders. He urged the committee to remove section 58 so that it does not undermine the broader objectives of House Bill 4485

“There is good reason to question the wisdom of the state requiring insurers to collect and retain an electronic database of confidential data and tax compliance histories for claimants who are not presently their customers,” added Moran. “This is data that the insurance industry neither wants nor needs. Moreover, it is data that, in the most literal sense, is none of the insurance industry’s business.”

O’Brien also indicated that the PCI believes the bill contains “a potential unconstitutional delegation of state power—the power to collect taxes—to a private party. It also smacks of a potential violation of taxpayer privacy rights and may place insurers in the position of violating their privacy obligations under the federal Gramm-Leach-Bliley Act.”

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