Salary Tax Credit Survives
The status of the salary tax credit against insurers’ premium tax obligations became one of the highest profile insurance issues of the 2013 legislative session. The salary tax credit allows insurers to deduct 15% of the compensation they pay to Florida-based employees against the premium tax obligations they otherwise would pay. The credit is designed to encourage insurers to hire employees in Florida, bringing jobs to this state that otherwise might end up elsewhere.
The potential repeal of the salary tax credit was not on the industry’s radar screen at the beginning of the legislative session. However, Senator Joe Negron proposed the repeal in an effort to raise about $220 million in revenue that would be used to reduce motor vehicle registration fees. The fees would have been reduced by $12 per registration.
Opposing the proposed repeal, insurers provided numerous examples of service centers being opened or expanded in Florida since the adoption of the credit. The industry was able to show the beneficial effect of these jobs, consistent with Florida’s emphasis on job creation over the last few years. Of course, some observers also pointed out that if insurers’ costs increase, those costs ultimately are passed on to consumers in the form of higher rates. The net effect of the proposed repeal of the salary tax credit therefore might have been to tell consumers they are receiving a fee reduction in one area while causing them to pay more in another area, meanwhile establishing a disincentive to clean-industry job growth.
The full Senate supported the repeal. However, the House of Representatives was not persuaded. The House proposed an alternative approach that would gradually reduce the vehicle registration fees over the next few years while leaving the salary tax credit in place.
The Senate and the House jockeyed back and forth on this issue over the last few days of the legislative session. Ultimately, the Senate tacked the repeal onto an insurance bill that was supposed to contain predominantly non-controversial statutory changes and clean-ups. Because this occurred late in the session, the House then was faced with either passing the bill with the salary tax credit repeal or letting the whole bill (HB 635) die. The House did not take up the bill and it died on the last day of the session. The salary tax credit therefore survived the session, although at the cost of many unrelated changes that for the most part were non-controversial and traveled through the session without opposition.