Calif. WC Deductibles Not Taxable

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 week that workers' compensation deductibles are not subject to a proposed retroactive state premium tax.

In an appeal brought by three companies--Employers Insurance Company of Wausau, Wausau Business Insurance Company, and Wausau Underwriters Insurance Company--the BOE voted unanimously to bar the California Department of Insurance from taxing workers' comp deductibles.

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

"The California Board of Equalization has put principle over politics," said Lamar Whitman, director of state and federal taxation for the Alliance. "This is a great victory for California."

Nicole Mahrt, director of public affairs for the American Insurance Association's Western branch in Sacramento, said, "the board made the right decision. This vote upholds the notion that policyholders assume the workers' compensation risk below the deductible amount and that this risk is not transferred to the insurer."

She continued that this type of workers' comp policy "reduces the costs of insurance, offers more product choices for policyholders and provides incentives for employers to have effective worker safety programs."

Mr. Whitman said the action "sends a powerful message that insurers are entitled to fair treatment, due process and equal protection under the law."

Leading up to the hearing, the Alliance and its members were active in efforts to convince BOE members that neither California law nor regulations supported the actions of the Department of Insurance, according to the Alliance.

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

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