Texas Watch—Consumer Protection. Corporate Accountability. Citizen Advocacy.

The insurance industry told the tax-writing House Ways & Means Committee today that the industry should be allowed to keep its special exemption from the state business tax because we have an insurance “premium tax.”  What they didn’t say is that insurance companies don’t actually pay the tax.  You and every other policyholder pays that tax – not the insurance companies.  We sent the committee a letter today setting the record straight.

Texas is looking at a gaping budget shortfall (some say as much as $18 billion) when lawmakers return to Austin in January.  So, the Ways & Means Committee is currently digging into various loopholes that exist within the swiss cheese known as the Texas Tax Code in an effort to ensure that state coffers are getting all of the money it can.  Today they heard testimony about the insurance industry’s unique exemption from the business franchise tax.

The line from the insurance lobby is that since they pay what is called a “premium tax” they shouldn’t be burdened with the tax that virtually all other businesses are required to pay.  The problem with that is they don’t actually pay the premium tax.  You do.

You see, the premium tax is basically a sales tax that you pay when you send in your insurance premium check.  So, it is disingenuous for the insurance industry to claim they have skin in the game when really it is your hide that has been scraped.

We sent the chairman of the committee a letter clarifying the fact that Texas homeowners – who are already struggling to keep up with excessive insurance premiums – are actually the ones bearing the insurance industry’s tax burden.  Check it out:

May 25, 2010

The Honorable Rene Oliveira
Chair, House Ways & Means Committee
Post Office Box 2910
Austin, Texas 78768-2910

Dear Chairman Oliveira:

During the discussion of the insurance industry’s franchise tax exemption during your Ways & Means Committee hearing today, one lobbyist for the insurance industry discussed the payment of the insurance premium tax as evidence of the industry’s contribution to the state’s tax burden.

While Texas Watch does not have a position on whether the industry should continue to enjoy its current franchise tax exemption, I feel compelled to clarify that insurers do not ultimately bear the burden of the current premium tax – policyholders do.  The insurance premium tax is not paid out of industry profits; it is passed through to Texas policyholders.  It operates similar to a retail sales tax whereby the levy is collected but not ultimately paid by the industry.

The insurance industry does not have any real skin in the game.

While Texas consumers are struggling to keep pace with the high cost of insurance, the insurance industry continues to collect profits that state regulators and the Public Insurance Counsel believe are excessive.  As you endeavor to close loopholes that exist in our tax code, I encourage you to hold Texas policyholders harmless.  Any tax burden levied on the insurance industry should actually be paid by the insurance industry – not passed on to Texas families as premium surcharges. This can be accomplished by making additional tax levies a “disallowed expense” as defined by Sec. 2252.002(1), Insurance Code.

Thank you for your attention to this matter.  If I may be of any assistance on this or any other matter, please feel free to contact me.

Sincerely,

N. Alex Winslow
Executive Director

cc: Members, House Ways & Means Committee