Calif. WC Deductibles Not Taxable

By Caroline McDonald

NU Online News Service, Dec. 20, 10:00 a.m.EST?The California Board of Equalization ruled this weekthat workers' compensation deductibles are not subject to aproposed retroactive state premium tax.

In an appeal brought by three companies--Employers InsuranceCompany of Wausau, Wausau Business Insurance Company, and WausauUnderwriters Insurance Company--the BOE voted unanimously to barthe California Department of Insurance from taxing workers' compdeductibles.

While the appellants brought this action as a result of DOIassessments made for the 1997 tax year, it is expected the rulingwill be extended to all insurers for all tax years, according tothe Alliance of American Insurers in Downers Grove, Ill.

"The California Board of Equalization has put principle overpolitics," said Lamar Whitman, director of state and federaltaxation for the Alliance. "This is a great victory forCalifornia."

Nicole Mahrt, director of public affairs for the AmericanInsurance Association's Western branch in Sacramento, said, "theboard made the right decision. This vote upholds the notion thatpolicyholders assume the workers' compensation risk below thedeductible amount and that this risk is not transferred to theinsurer."

She continued that this type of workers' comp policy "reducesthe costs of insurance, offers more product choices forpolicyholders and provides incentives for employers to haveeffective worker safety programs."

Mr. Whitman said the action "sends a powerful message thatinsurers are entitled to fair treatment, due process and equalprotection under the law."

Leading up to the hearing, the Alliance and its members wereactive in efforts to convince BOE members that neither Californialaw nor regulations supported the actions of the Department ofInsurance, according to the Alliance.

In a Dec. 12 letter to each BOE member, the Alliance said itargued strongly against the imposition of a retroactive tax: "TheAlliance believes it is economically and fiscally disruptive forany administrative agency to announce the assessment of a new taxfor periods and tax years that have already ended. Incredibly, thisprofoundly far-reaching tax policy was not open to public debate inthe legislative or administrative hearing, but was adopted in a'black box' unilaterally, without prior notice or publicinput?Allowing retroactive taxation will destabilize businesses andmake certainty in financial and business planning impossible."

The Alliance said it would continue to oppose any legislationthat runs counter to the original intent of AB 3075, whichauthorized deductible workers' comp plans.