State taxation of insurance companies: Testing the impact of a tax on net income on the statutory results of property/liability insurance companies.

摘要

Premium taxation of insurance companies at the state level has been questioned in the past due to evidence that the use of premiums written as a tax base unfairly burdens the insurance industry with state tax revenue to the benefit of other industries. It has also been suggested that applying an income tax to insurance companies might be a more appropriate form of state taxation for economic and cross-industry equity reasons. It is the purpose of this study to determine if an income tax is a viable tax system for property/liability insurance companies by answering two questions: Is state revenue adversely affected, and is insurance company solvency enhanced? The results indicate that the level of state revenue raised by an income tax rate similar to that paid by other industries is lower than that raised by the premium tax. At the same time the insurance companies' financial position is benefitted by an income tax system which allows insurance companies to retain a tax expense factor which includes the current tax dollars in rate development.