According to the American Insurance Association (AIA), the California Office of Administrative Law (OAL) has accepted their request to review the California Department of Insurance’s (CDI) recent retroactive premium tax notice. This notice, sent to workers’ compensation insurers on Feb. 25, attempts to impose taxes on reimbursements of paid losses as far back as 1997 from businesses to insurers under workers’ compensation deductible policies. AIA asked OAL to examine if the CDI violated California’s Administrative Procedures Act (APA) in a request for determination filed on Feb. 28.
“We are very pleased that the OAL accepted our request,” Mark Webb, AIA vice president for state affairs, western region, said. “OAL could have decided not to review CDI’s notice by issuing a summary determination. OAL’s decision demonstrates that CDI’s notice warrants further examination.”
“There are strong legal and policy reasons why the Department of Insurance’s effort to collect taxes going back to 1997 is inappropriate,” Webb commented. “CDI’s notice to carriers effectively changes the definition of ‘premium’ for the purposes of taxing insurers. This new definition should have been proposed as a regulation. If CDI had followed the requirements of the APA, we are confident that OAL would have ruled the Department acted without legal authority.”
OAL’s acceptance of AIA’s request does not stop CDI from continuing to assess insurers. CDI can continue seeking to recover back taxes under its new interpretation until OAL or the Board of Equalization (BOE) makes a final determination.
“The acceptance of AIA’s request for determination is the first step in a potentially lengthy process of challenging the Department’s actions before the OAL,” Webb explained.
In addition to this action, AIA has joined with other insurers to challenge the notice and assessments before the BOE. If CDI’s actions are upheld, the potential cost to business is estimated to be in excess of $100 million.
Topics California
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