Calif. Retroactive Comp Tax Gets Review

Calif. Retroactive Comp Tax Gets Review

By Caroline McDonald

NU Online News Service, March 22, 11:13 p.m. EST?California's Office of Administrative Law has agreed to review the state's decision to tax insurers retroactively on workers' compensation deductible payments, the American Insurance Association said.

AIA filed the request for review last week. The Washington-based organization estimates the retroactive taxes back to 1987 could potentially cost insurers more than $100 million.

"We asked the OAL to look at the notice and decide whether it should have been a regulation and if it should have followed the administrative procedures act," explained Nicole Mahrt, director, public affairs, with the AIA Sacramento office.

"We've gotten a notice of acceptance from the OAL, which means they have agreed to look at the issue. We think this is a good first step," Ms. Mahrt commented.

The OAL, she said, could instead have issued a "summary determination, which would mean they wouldn't further examine the issue."

The next step, she said, is that the OAL will issue a public notice in the California Regulatory Notice register, which will trigger the start of a 30-day period for "people to submit comments on our request."

The public notice will also trigger a 45-day period for the insurance department to respond to the request, she said. The OAL will make a ruling following comments and the department's response.

"The ruling means they could say the notice should have been a regulation and should have gone though the Administrative Procedures Act," Ms. Mahrt said. "This means the department could potentially have to go through the normal rule-making process, which would stay it for a while."

In the meantime, she said, insurance company taxes are due on April 1. "We have a sense that most companies are not going to pay the taxes," she said.

Companies that don't pay the taxes, she said, will be issued a "deficiency notice" by the insurance department. Those companies will then protest with the Board of Equalization.

"We have also hired counsel and we will work with the Board of Equalization protesting those deficiency notices," Ms. Mahrt said.