REPLACEMENT INSURANCE PREMIUM TAX PROPOSED

Springfield, IL - Illinois Insurance Director Mark Boozell today announced an agreement with the Illinois insurance industry to establish a replacement premium tax methodology for insurance companies and health maintenance organizations operating in Illinois. The tax replaces the privilege tax on non-Illinois insurers found unconstitutional by the Illinois Supreme Court in October.

"For the past several months, the Department of Insurance has been working closely with both foreign and domestic insurers to find a solution to the state's loss of the privilege tax revenue," Boozell said. "We have now reached a consensus with the vast majority of Illinois insurers for a replacement tax proposal." The new tax methodology includes:

• an across the board premium tax of .4 of 1% for all health insurance companies and HMOs and .5 of 1% for all other insurers;
• elimination of the valuation fee charged Illinois life insurers;
• continuation of the retaliatory tax for those companies whose home states tax Illinois companies at a higher rate;
• clarification of the interrelationships between the Illinois corporate income tax , the premium tax, and the retaliatory tax; and
• correction of any identified constitutional issues.

Boozell said the replacement premium tax proposal calls for all insurers to be taxed at a level which sustains past income to the state. For example, using 1996 premiums, the new methodology would generate approximately $162.5 million, the same amount collected under the privilege tax system. The privilege tax itself accounted for about $125.2 million of that total.

"Our agreement with the insurance industry is good news for Illinois' revenue outlook," Boozell said. "It provides a predictable revenue base for the state and a reasonable arrangement for insurance companies by spreading the taxes more broadly across the industry."

The Department of Insurance plans to have the proposal introduced in the spring legislative session.