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Task force weighs repeal of law on Arkansas home-office tax credits

by Michael R. Wickline | October 30, 2018 at 4:30 a.m.

The Legislature's tax-overhaul task force will consider in the next two months whether to pursue repealing a decades-old law that allows life, health and disability insurers to get home-office tax credits against their insurance premium taxes, a task force co-chairman said Monday.

The task force learned about these tax credits but took no action on what to do next. These credits cost the state more than $40 million a year.

Sen. Jim Hendren, R-Sulphur Springs, the co-chairman, said in an interview that the task force's options include recommending either no change; repeal the credit and use the savings to reduce the insurance premium tax rate of 2.5 percent; or repeal the credit to help finance a proposed reduction of the state's top individual income tax rate of 6.9 percent.

"We'll probably present all of those to the task force and see what the will of the group is," said Hendren. He said there also "may be some compromise."

"I think the industry may have some willingness to work some sort of compromise out somewhere between elimination of it and doing nothing," Hendren said.

The home-office tax credits are equal to the noncommissioned salaries and wages of the insurers' Arkansas-based employees who are paid in connection with their insurance operations.

For health and disability insurers, including health maintenance organizations, the home-office credit may not reduce their insurance premium taxes by more than 80 percent, according to the Insurance Department. For life insurers, the credit may not reduce their premium taxes by more than 70 percent.

The home-office tax credits cost the state $32.6 million in 2011, $34.4 million in 2012, $35.6 million in 2013, $38 million in 2014, $36.6 million in 2015, $44 million in 2016 and then $43.4 million in 2017, according to a department report. Insurance companies also are eligible to get $4 million more in home-office tax credits for 2017.

In 2017, the reports shows that USAble Mutual Insurance Co. received the largest amount of home-office tax credits at $21.5 million, while HMO Partners Inc. was granted $5.6 million worth of these tax credits, and Delta Dental Plan of Arkansas Inc. received $2.5 million, the department reported to the Tax Reform and Relief Legislative Task Force.

The number of employees for which the home-office tax credit was granted increased by 474 from from 3,818 in 2013 to 4,292 to 2017, with a 420-employee increase to 2,914 in this period for USAble Mutual Insurance Co., doing business as Arkansas Blue Cross and Blue Shield, the department said in its report.

The number of employees for which the credit was granted dropped by three from 2013 to 143 in 2017 for HMO Partners Inc. doing business as Health Advantage, while they increased by 20 to 174 in this period for Delta Dental, according to the department's report to the task force.

Courtney Traylor, assistant deputy commissioner at the Insurance Department, said the credit was created in 1987 and it might be better for lawmakers to compare the jobs created since 1987 to help determine the credit's benefit.

Traylor provided the task force with projections for what Hendren called "a scenario" to reduce the state's 2.5 percent insurance premium tax to 2.25 percent and remove all home-office tax credits for insurers except for those against life insurance premiums. Insurance Commissioner Allen Kerr said that life insurance companies, unlike other insurance companies, sell life insurance policies with one chance to set their rates and with one chance for a claim, "so they can't go back and change them next year."

Insurance Department spokesman Ryan James said that insurance companies paid $209.5 million in premium taxes to Arkansas in fiscal 2018, which ended June 30, and received credits totaling $62.6 million.

Arkansas' net effective insurance premium tax rate is 1.89 percent compared to:

• 1.32 percent for title insurers, 1.56 percent for property and casualty insurers, and 1.71 percent for life, health and accident insurers in Texas.

• 1.63 percent for life insurers and 2.33 percent for other insurers in Tennessee.

• 1.62 percent for life, accident and health insurers; 2.16 percent for property and casualty insurers; and 3.97 percent for health maintenance organizations in Louisiana.

• 1.64 percent effective rate on policies in Missouri.

• 1.9 percent in Oklahoma, according to the Insurance Department.

James told lawmakers that he wasn't able to get that information for Mississippi for Monday's meeting.

Kerr said it's important for Arkansas to keep its net effective insurance premium tax competitive, adding that Texas has a very low overall rate.

"Plano is a boom of home offices from very large companies, and Liberty Mutual just built a gigantic skyscraper down there and just filled that thing up with jobs," he told the task force.

That area outside of Dallas also is an attractive place to live, he said.

Sen. Larry Teague, D-Nashville, who is an insurance agent, said there are a lot more people to sell insurance policies in Texas than in Arkansas.

Max Greenwood, a spokesman for Blue Cross and Blue Shield of Arkansas, said the insurance company believes the home office tax credit has benefited the state.

"We are trying to make sure we do various modeling so members have accurate information" about the credit, she said.

Metro on 10/30/2018

Print Headline: Task force weighs repeal of law on Arkansas home-office tax credits

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