State Taxation Of Insurance

What Does State Taxation Of Insurance Mean?

Insurance companies in nearly every state are subject to taxation by their state government. The primary tax imposed on insurance companies is called a “premium tax.” This tax is based on the amount of premiums an insurance company collects in a given year. Because insurers treat premium tax as part of their cost of doing business, the rate a state sets can push up what policyholders ultimately pay, which is one reason rates vary so widely between the most expensive states for car insurance and the cheapest.

Insuranceopedia Explains State Taxation Of Insurance

Oregon is the only state that does not impose a premium tax on insurance companies. Washington, D.C. also does not participate in this practice. Additionally, states commonly tax insurance companies through a “retaliatory tax.”

The taxes collected from insurance companies often make up a significant portion of a state’s revenue, totaling hundreds of millions or even billions of dollars in a single tax period. State-level taxes sit alongside underwriting, claims history, and coverage choices among the factors that affect your life insurance premium, and they show up in the same way when you look at how business insurance premiums are calculated.