Parallel bills proposing to reduce the current two-percent Rhode Island insurance premium tax are before both the Rhode Island House and Senate. Working with the Rhode Island Department of Business Regulation, Representative Joseph Shekarchi (who is the primary author of the House bill) and Senator William Walaska (who is the author of the Senate bill)have developed an innovative approach to reducing the state’s premium tax rate, designed to be revenue neutral to the state. Under their proposal, future reductions in the premium tax rate would be directly tied to future increases in the work force created by the insurance industry as a whole (either through existing companies or new companies moving into the state).
Designed to encourage existing and/or new insurers to grow their work force within Rhode Island, the premium rate reduction would be calculated to have a negative revenue effect equal to the increased tax revenue expected to be derived from the increased work force. A committee comprised of members from four separate state agencies would determine whether the requisite increase in work force has occurred, and then calculate the appropriate premium tax rate reduction to achieve this goal. The potential adjustment in the tax rate would be calculated periodically, initially on an annual basis beginning for the 2018 tax year, and then every three years beginning with the 2020 tax year.
As with all legislation, there is some fine print. No reduction in the premium tax rate would occur until the committee determines that qualifying insurers have added at least 350 new, full-time qualifying jobs above a 2015 baseline level of employment. In addition, the premium rate could not be reduced below one percent, and reductions in the work force could create subsequent increases in the premium tax rate (but not above the current two percent rate).
The authors of the bills have stated that passage of this proposal would have Rhode Island “leading the country as the first state to do this.” In addition to the direct tax savings for insurers within Rhode Island, the authors also note that “by lowering our own premium tax rate, we can effectively force other states to tax our insurers at a lower rate as well, driving savings for the business they do all across the country.” Summing up their proposal, the authors state that “the more jobs insurers create, the lower the rate the insurance industry pays.”
We will be monitoring the progress of these bills through the various legislative bodies, and will report here on further developments.
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