Per the National Association of State Budget Officers1, state budgets are experiencing slower growth since the historic highs in fiscal years 2021 and 2022, when the growth rate exceeded 16% each year. Contrast this to a preliminary 1.5% increase for 2024 and an estimated increase of 1.9% for 2025. Part of this return to normal growth rates correlates with the winding down of federal stimulus monies. Another contributing factor is widespread state tax legislation implementing significant tax reforms, which decreased primary taxes and increased the types and amounts of credit programs.
State legislators generally view insurers as a strong and steady source of tax revenue (state premium tax contributes 2.8% of total state tax revenues on average), as well as taxpayers with “deep pockets.” As such, legislative developments applicable to the insurance industry during 2024 generally mirror overall state tax trends, with an increased concentration on tax credits and insurance-specific assessments. In addition, judicial developments applicable to the insurance industry mostly involved tax credit issues and sales tax litigation related to totaled automobile claims. Outside of the year’s legislative and judicial developments, remote employee issues continue to be the main state tax challenge for most employers, and especially so for insurers who have generally embraced remote or hybrid work arrangements as an industry. The geographic dispersion of workers into states where the business entity had no prior operations creates a wide variety of state tax issues for employers to address, such as nexus exposure, payroll withholding, and employee-based credit complications.
Below are the some of the more significant state tax developments applicable to the insurance industry for 2024. Note that most developments occurred in the first half of the year, so some of these duplicate entries from our mid-year release of developments. Please see that FORsights™ article for a more in-depth list of developments through August: 2024 Midyear SALT Developments for Insurers.
California Department of Insurance Bulletin 2024-8 [Issued September 3, 2024]
Clarifies procedures related to Orders 2024-1 and 2024-2, which amend the Fair Access to Insurance Requirements (FAIR) Plan’s Plan of Operation to protect the FAIR Plan’s financial solvency and promote greater stability in the state’s property insurance market. In the highly unlikely event that the FAIR Plan is substantially threatened with insolvency, the FAIR Plan may levy an assessment on its member insurers with the insurance commissioner’s prior approval, according to a bulletin from Insurance Commissioner Ricardo Lara. In turn, member insurers may request the insurance commissioner’s approval under Proposition 1036 to seek recoupment from their policyholders.
Florida H.B. 7073 [Effective July 1, 2024]
Updates the state’s Internal Revenue Code (IRC) conformity date to January 1, 2024 (currently 2023) and creates or revises a number of tax credit provisions. It also requires insurance companies to provide a 1.75% discount on policies covering flood or residential coverage, as well as a discount for the amount of any respective fire marshal tax on homeowners’ policies. The discounts apply to policies with coverage for a 12-month period with an effective date on or after October 1, 2024 and no later than September 30, 2025. The policyholder discount is to be recouped through a premium tax credit and any excess credit is refunded. The various deductions require disclosure to policyholders and in the insurer’s quarterly and annual statements.
Insight From Forvis Mazars: This bill potentially creates a large administrative burden on insurers and mechanically might not credit through 100% of the discounts, or at the least will create time value of money issues. Note that the homeowners’ policies were limited to dwellings qualified for a homestead exemption (for property tax purposes) and with $750,000 or less of coverage in earlier versions of the bill. Will we see an extension of this credit program to future years?
State Farm Mut. Auto. Ins. Co. v. Dep’t of Revenue, Fla. Dist. Ct. App., 1st Dist., No. 1D2021-2793, January 17, 2024
The Florida First District Court of Appeal held that the Department of Revenue was correct in excluding the proration addback under IRC §832 for purposes of determining the addback for tax-exempt interest. The department’s position is that IRC §103 and Florida Statutes §220.13 do not contain any reference to IRC §832, so no deduction is permitted. The appeals court rejected the insurer’s “in-effect analysis,” i.e., that the 15% addback through reserves in effect should reduce the Florida adjustment to 85% of the tax-exempt interest, criticizing it for not taking a “textual treatment of the law.” It affirmed the trial court’s grant of summary judgment to the state.
Insight From Forvis Mazars: This has been an ongoing audit issue for several property casualty insurers and it would not be surprising if the policyholder share deduction is similarly challenged for life insurers.
Illinois H.B. 4951 [Effective June 7, 2024]
A budget-related tax package bill included a variety of tax provisions, mostly credit related. However, it also caps the corporate income tax net operating loss (NOL) carryover deduction at $500,000, effective for tax years ending on or after December 31, 2024 and before December 31, 2027 (currently the cap is $100,000). Similar to the current provision, taxpayers will not count any year in which the NOL to be used would have exceeded $500,000 as part of the normal 20-year carryforward.
Massachusetts 830 CMR 62C.8.2 [Working draft issued October 21, 2024]
According to the Massachusetts Department of Revenue, a proposed regulation would require motor vehicle insurers who make a payment pursuant to a motor vehicle insurance policy to a motor vehicle repair shop for the servicing or repair of a motor vehicle in Massachusetts during a calendar year to file an annual information return with the commissioner and furnish a copy to the motor vehicle repair shop. Such information returns must report all such payments made to motor vehicle repair shops, and include—among other requirements—identifying information about the motor vehicle repair shop and the amounts attributable to sales and use tax. The information return requirement is effective beginning with payments made by motor vehicle insurers to motor vehicle repair shops on or after January 1, 2024. All information returns must be furnished to the motor vehicle repair shop on or before January 31 following the close of the calendar year and be filed with the commissioner by March 31 following the close of said calendar year.
Insight From Forvis Mazars: As Massachusetts failed to finalize the provision before the January 31, 2025 filing deadline, no reporting for 2024 is expected but it would not be surprising to see this reporting become effective for 2025. Note that failure to comply holds a potential penalty of $25 to $500 per non-filed return. This informational reporting requirement is similar to the New York filing requirement under NY Tax Law §1136(i)(1)(A) [NY A.B. 157, Laws 2009] and TSB-M-09(8)S.
Nationwide Agribusiness Ins. Co. v. Mich. Dep’t of Treasury, Mich. Ct. App., No. 364790, June 20, 2024
The Michigan Court of Appeals reversed the tax tribunal’s ruling and sided with Nationwide Agribusiness Insurance Co. to permit the insurer and its affiliated groups to file combined insurance tax returns to take advantage of certain tax credits. Nationwide Agribusiness and its related companies sought to file combined premiums and retaliatory tax returns in order to use Michigan Automobile Insurance Placement Facility tax credits earned by one entity to offset taxes for another. They argued that as a unitary business group they were required to file all of their tax returns together. Judge Kathleen A. Feeney pushed back on the state treasury department’s argument that insurance companies have to pay premiums and retaliatory taxes and take any credits on an individual level, even if they are part of a unitary business group. She told Assistant Attorney General David W. Thompson, representing the department, that his position seems to conflict with the court’s recent opinion in Soave v. Dep’t of Treasury. There, the court held that members of the same group can and must file combined returns and can share tax credits. Thompson sought to distinguish Soave, saying that case involved a standard taxpayer rather an insurance company, and didn’t focus on the credits as much as a statute of limitations question.
Insight From Forvis Mazars: The Michigan Treasury Department applied for reconsideration at the Appeals Court level and was denied on August 13, 2024. The Treasury Department then filed an appeal on September 24 with the Michigan Supreme Court level to be heard in 2025. Note that this current holding is counter to the universal separate filing standard under state premium tax regimes for all years and all states, which was the insurance industry and Michigan Treasury Department’s interpretation of the Michigan statutes as well.
North Carolina Farm Bureau Insurance Company, Inc. v. NCDOR, No. 20 CVS 10244 (Wake County), April 3, 2023
The Wake County Superior Court ruled in favor of the taxpayer, reversing the administrative hearing opinion from August 17, 2020. This restores the renewable energy property credits purchased through partnership investments that the Department of Revenue (DOR) had disallowed. The DOR’s position was that a person not qualifying as a partner under federal income tax law would not qualify for allocation of a credit and/or some transfers of tax credits may be viewed as disguised sales under IRC §707, which would prevent the credits from being allocated to a taxpayer under IRC §704. The court noted that the department did not seek to affirm the judgment based on the administrative law judge’s reasoning, namely that the Farm Bureau could not claim tax credits because it “did not construct, purchase, or lease renewable energy property” as the department realized the administrative law judge appears to have mistaken the criteria for earning a tax credit with those for allocating one.
Insight From Forvis Mazars: The department had appealed this holding to the North Carolina Supreme Court, but the parties jointly requested to dismiss the appeal as approved on March 21, 2024, which should resolve this long-running argument as a favorable taxpayer win.
Oregon Initiative Petition 2024-17 (aka Measure 118)
The proposed and defeated referendum on the November 5, 2024 ballot would have imposed a new 3% minimum tax on corporations with gross sales exceeding $25 million starting in 2025. The new corporate minimum tax would be in addition to the current minimum tax regime.
Insight From Forvis Mazars: Measure 118 was expected to increase corporation tax revenue by $1.3 billion during the 2023–25 biennium, $14.7 billion in the 2025-27 biennium, and $15.6 billion in the 2027-29 biennium. On the other hand, each Oregon resident would have annually received $1,000-plus from the new revenue generated. While this was soundly defeated on the November 5, 2024 general ballot (79 to 21%), similar referendums have been sponsored in the past and it would not be surprising to see something like this on future ballots. Note that this would have created a significant burden on large insurers doing business in the state, especially for Oregon domestic insurers due to the additional retaliatory tax burden involved.
How Forvis Mazars Can Help
Consulting with and involving your tax professionals can help you keep current with the above and/or other state tax developments, which can potentially save you money and help you remain in compliance with new filing requirements and tax provisions. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.
- 1National Association of State Budget Officers, The Fiscal Survey of States, Fall 2024.