AIA Says No to Maine Premium Tax Increase

April 5, 2005

The proposal to increase the Maine property/casualty premium tax by 25 percent would make the state less competitive and increase insurance costs for consumers, the American Insurance Association (AIA) said Tuesday in testimony before the Labor Committee of the Maine State Legislature.

The proposal in LD 1021 calls for insurers to pay a subsidy toward the costs of retiree health insurance for some municipal and county law enforcement officers and firefighters. It would raise the revenue by increasing the premium tax on auto, homeowners and fire and liability insurance policies from 2 percent to 2.5 percent.

“Maine already has one of the highest tax rates for insurers with a 1.4 percent fire premium tax in addition to the 2 percent tax. In addition, surcharges on Maine insurance policies fund fire safety, fire training and the state fire marshall,” said Paul Moran, AIA vice president, northeast region. “An increase in the premium tax would be grossly anti-competitive and unfair to Maine’s insurers and their policyholders.”

“The proposal is anti-competitive due to the function of retaliatory taxation on insurers among states. Maine’s domestic insurers are liable for retaliatory taxes whenever they do business in states that impose lesser aggregate insurance tax burdens than Maine. In other words, Maine’s domestic insurers will most likely end up paying the same amount of taxes as they do in Maine in other states where they do business. Most states have lower tax rates for insurers than Maine does already, so adding to the tax burdens imposed on Maine’s domestic insurers, through the operation of retaliatory taxation, will be a significant blow to the ability of Maine insurers to compete in other states,” added Moran.

“Singling out one industry and its Maine policyholders to fund benefits for a specific group of retirees is simply bad public policy,” concluded Moran.

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