Dept. of Insurance releases guidance on local government premium taxes

Due to the COVID-19 pandemic and Governor Beshear’s “Healthy at Home” initiative, Kentuckians are driving less. As a result, insurers have re-assessed their risk associated with personal auto policies, and some have made the business decision to return premium or issue dividends to consumers.

New guidance from the Department of Insurance provides some insight on how this might impact collection of local insurance auto premium taxes. See the guidance HERE. 

The guidance states that the Department of Insurance recognizes insurance premium tax revenue is needed by local governments to fund critical services and that the Department “takes the position that a refund of local government premium taxes in relation to the return of premium as a result of altered driving patterns during the COVID-19 pandemic is unwarranted”.

This guidance does not apply to the return of premium associated with a typical policy cancellation, or any other insurance transaction outside the scope of the state of emergency associated with the COVID-19 pandemic.

The guidance provides that while the issuance of dividends would not impact local government premium taxes, KRS 91A.080(3) states that a return of premium as a result of a policy cancellation results in a return of associated local government premium tax.

Should you have further questions regarding this guidance, please direct those to the Local Government Premium Tax Section at DOI.MunicipalTaxes@ky.gov, or call 502.564.1649.