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Salary Credit Against Premium Tax Remains Intact

Salary Credit Against Premium Tax Remains Intact

The 2017 legislative session might be best remembered for key initiatives that did not pass–  the legislature did not address the “assignment of benefits” issue and the increases to workers’ compensation insurance rates following recent Florida Supreme Court opinions.  The legislature also did not act with respect to Florida’s premium tax credit for salaries paid to employees, although the legislature’s inaction in this case results in retaining an important statutory benefit for insurers, employees, and insurance buyers.

Throughout the session, insurers monitored a proposal in the Florida Senate that would have repealed the salary credit against the insurance premium tax.  The Senate looked at the repeal of this credit as a potential method of increasing revenue that could be used to reduce other types of taxes or fees.  The House of Representatives, however, did not seem persuaded–  the House appeared to view the repeal of a tax credit as effectively being a tax increase, and the House was not inclined to pass any tax increases.  This difference of view prevented the chambers from reaching an agreement to repeal the salary credit and ensured it would survive the session.

The salary credit provides a direct benefit not only for insurers but for the broader Florida economy.  Whereas some economic development incentives are based on a hope or belief that recipients will create jobs, the salary credit is based on actual results—  insurers (and certain affiliates) can avail themselves of the credit only for jobs they actually have created and salaries they actually have paid.  There is a clear and direct alignment between the goal of the incentive and the results.

With current technology, insurers increasingly have choices as to whether they hire employees in Florida or elsewhere.  When insurers avail themselves of the salary credit, the jobs are created in Florida and the employees in turn buy homes, purchase goods and services, pay taxes, and otherwise contribute to our communities.  The benefit of the salary credit therefore extends beyond the insurers themselves.

In addition, insurers sometimes confront the notion that the salary credit is a form of “corporate welfare” or somehow favors the insurance industry as compared to other industries that do not receive similar credits.  However, this interpretation fails to take into account that insurers are subject to both the premium tax and the corporate income tax, with the corporate income tax serving as only a partial offset against the premium tax. The end result is that insurers (and ultimately consumers) pay higher effective tax rates in Florida than other businesses even with the existing credit.