AIA Urges Lawmakers to Defeat Maine Premium Tax Increase

May 5, 2005

The American Insurance Association (AIA) is urging Maine lawmakers to reject a proposal (LD 1021) that would increase the premium tax by 25 percent.

“This tax increase would damage the state’s economy by making it much harder for Maine domestic insurers to compete, and it will increase insurance costs for drivers, homeowners and other insurance policyholders,” said Paul Moran, AIA vice president, northeast region.

The bill was reported out of the Senate Labor Committee by an 8-5 vote and is awaiting action in the House. This measure would reportedly increase the tax on gross premiums from two percent to 2.5 percent.

“Maine already has one of the highest tax rates on insurers in the nation. In addition to the two percent gross premium tax, the state imposes an additional 1.4 percent premium tax to fund fire investigation and prevention. These taxes are imposed on the gross premiums, so even if an insurer has no net income they must pay the tax,” said Moran.

Insurance is unique in that states impose “retaliatory taxes” on insurers domiciled in other states. This system ensures that an insurer pays the greater of its home state tax burden or its market state tax burden. Maine’s domestic insurers will reportedly be liable for retaliatory taxes whenever they do business in states with lower aggregate insurance tax burdens. This will reportedly make it difficult for Maine’s domestic insurers to compete in other states.

According to AIA, the purpose of the tax increase is to subsidize health benefits for some retired municipal police officers and firefighters. Funding the health benefits is a worthy goal, but this funding mechanism is the wrong one.

“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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