In a recent press release, Governor Dannel P. Malloy announced that the Connecticut budget proposal he will release next week will include a reduction in the tax rate on insurance premiums – dropping from the current rate of 1.75% down to 1.5% The Governor explained that lowering this tax rate will continue his state’s efforts to improve the business climate for insurers located across Connecticut, which account for more than 58,000 jobs in Connecticut.
“There are simple and relatively inexpensive ways we can improve the business climate by making state government more predictable and sustainable,” Governor Malloy said. “The insurance industry has a long and storied history in Connecticut, and we must ensure that we maintain our competitive edge so that they continue to thrive and grow in our state. Restructuring and lowering the premium tax will substantially improve market conditions for Connecticut-based insurance companies. This change will save them millions in taxes paid to other states across the country.”
A total of 49 states and Washington, D.C. have some form of the premium tax, with rates ranging from 0.5% to 4.35%. Insurers pay the higher of the two premium tax rates to the state where they are conducting business. By lowering the insurance premium tax rate to 1.5% in Connecticut, the liability for Connecticut-based insurers conducting business in states with lower tax rates will be significantly reduced. Under the Governor’s proposal, the costs of lowering the tax rate – $22 million – will be covered by limiting use of tax credits that companies may apply against premiums tax liability.
This proposal makes Connecticut a more competitive state for the insurance industry, Governor Malloy’s office said, by moving to match the lower rates in some other states. If an out-of-state insurer is writing a policy in Connecticut and the insurer’s home state has a higher premium tax rate, however, then that insurer will continue to pay the higher premium tax rate to the State of Connecticut.
Governor Malloy will present his full FY18-19 state budget proposal on February 8 during an address to a joint convention of the Connecticut General Assembly.