Adopt a Semi-Annual Schedule for the Prepayment of the Insurance Premium Tax

The state should adopt a semi-annual schedule for the prepayment of the insurance premium tax.


Background
The insurance premium tax annual reports are due on March 1, based on the previous calendar year s premium volume. Most companies also must file quarterly prepayments on the next year s estimated liability on March 1, May 15, August 15 and November 15. The August 15 collection date occasionally presents a problem because, depending on the calendar and holiday schedule, it has not always been possible for the Departme nt of Insurance (DOI) to clear all of their receipts to the State Treasury by the end of the fiscal year, August 31.


Recommendation
It is recommended that the quarterly prepayment schedule be converted to a semi-annual prepayment schedule. The May 15 pa yment would be accelerated to the March 1 due date; and the August 15 and November 15 quarterly prepayments would be accelerated to August 1. This would reduce paperwork and processing costs for insurers as well as for the Department of Insurance (DOI). Un der a separate recommendation in this report, these functions would be transferred to the Comptroller s office. This would also ensure that all August collections would be processed by the end of the fiscal year. In addition, it would provide a one-time re venue boost by shifting the November payment into the current fiscal year. This change would be implemented in fiscal 1994 with the March 1, 1994, prepayment.


Implications
The advantages include a one-time revenue gain, greater certainty of revenue collections at the end of the fiscal year and the elimination of two tax filings and associated processing.

The chief disadvantage is that insurers, who may already perceive that they are unfairly burdened by the current prepayment scheme, will object to this change in their cash flow.


Fiscal Impact

Gain to the Gain to the Total
Fiscal General Revenue Foundation School Certification Change in
Year Fund 001 Fund 193 Gain FTEs

1994 $71,250,000 $23,750,000 $95,000,000 0
1995 0 0 0 0
1996 0 0 0 0
1997 0 0 0 0
1998 0 0 0 0