Companies are responsible for collecting taxes on behalf of state and local governments, but some industries face more complex rules than others. The insurance industry is one such example.
While all states levy a statewide tax on most forms of casualty, property and health insurance premiums, several states go a step further and allow local governments to apply a separate “local government premium tax” ranging from 2 to 10% on insurance policies to help finance local government services.
Keeping track of state, local and municipal tax jurisdictions can be a challenge-13 insurance companies doing business in Kentucky discovered that the hard way when they found themselves subject to a class-action lawsuit that cited tax overcharges and violations of state laws.
Many insurance companies rely on ZIP CodesTM to assign applicable tax jurisdictions, however most state and local premium tax assignments in the U.S. are based on specially defined boundaries that don’t necessarily match municipal or ZIP Codes. Complicating this matter, hundreds of thousands of Zip Codes experience changes in names and boundaries each month.
Some states are taking action. Under a recent change in state legislation, Kentucky now requires that insurance carriers use a verified geo-spatial database that appends the correct state, county, township municipality and premium tax district information to each customer record. Any insurance provider selling policies in Kentucky must begin using a verified system by January 1, 2010.
To learn more about these issues-including how you can leverage location intelligence technology for accurate, up-to-date premium tax assignments-read the in-depth Pitney Bowes Business Insight white paper on this topic.