98-03: Calculation of Workers' Compensation Premium Tax
To: Missouri Workers' Compensation Insurers
From: Susan Schulte, Supervisor, Property & Casualty Section
Re: Calculation of Workers' Compensation Premium Tax and Second Injury Fund Surcharge
Date: March 3, 1998
The Department has been asked by various insurance companies, agents and employers about several aspects of the calculation and reporting of the Workers' Compensation Premium Tax (also referred to as the Workers' Compensation Administrative Tax) and the Second Injury Fund Surcharge. These questions are understandable, given that the procedures for these "assessments" have been made more complicated since 1993 due to legislative changes to two Missouri statutes, Sections 287.690 and 287.715, RSMo. These statutes give the Division of Workers' Compensation the authority to determine the appropriate level of the two assessments which are needed to fund the Division of Workers' Compensation and the Second Injury Fund. The following chart outlines the recent changes to the assessments:
|WC Premium Tax||2%||0%||0%||1%||1%||2%|
Assessment Base for the Workers' Compensation Premium Tax and Second Injury Fund Surcharge:
Sections 287.690 and 287.715, RSMo require that the two assessments be levied against the "net premiums, net deposits, or net assessments received, in lieu of all other taxes." Section 287.690, RSMo defines "net premiums, net deposits or net assessments" as "gross premiums, gross deposits or gross assessments less canceled or returned premiums, premium deposits or assessments and less dividends or savings, actually paid or credited." However, Section 287.310, RSMo provides that the definition of premium for purposes of assessing policies that contain deductible options shall be "premiums which would have been paid in the absence of the deductible option." The Department interprets these provisions to mean that the two assessments are calculated on the final premium, after the application of the experience modification factor, schedule credits/debits, premium discounts and expense constants, but before any deductible credits.
It should be noted that these assessments are only applicable to primary workers' compensation insurance premiums. They do not apply to any reinsurance, retrocessional, or excess workers' compensation transactions.
- Workers' Compensation Premium Tax:
Missouri regulation 20 CSR 500-6.950 provides for the inclusion of the premium tax as an expense component of an insurer's loss cost multiplier. Insurance companies should treat the premium tax as part of the expense component of their rates by including a "premium tax" factor on the appropriate line of Exhibit B, item D of regulation 20 CSR 500-6.950 (copy attached) when filing rates. It should be noted that if an insurance company fails to contemplate the tax in this exhibit, the Department will presume that the insurer will absorb the additional expense. Under no circumstances is it acceptable to assess the premium tax as a "separate" item on the declaration page.
Remittance of the premium tax assessments is done through the annual tax packets mailed at the end of each calendar year to insurers by the Financial Regulation Division of the Department of Insurance. Any questions regarding the remittance of this tax may be directed to Jane Happy, Insurance Tax Audit Specialist, (573) 751-1929.
- Second Injury Fund Surcharge:
The surcharge shall be collected at the same time and in the same manner as premium, premium deposits or premium installments. Any overpayment or underpayment of the surcharge shall be credited or billed to the insured in the same manner as premium, premium deposits or premium installments. It is not acceptable to bill the insured for the Second Injury Fund Surcharge for the entire estimated annual premium at the inception date of the policy if the insured is making installment payments throughout the year.
Unlike the Workers' Compensation Premium Tax, the Second Injury Fund Surcharge is to be assessed as a separate item on the declaration page as a direct pass-through to the policyholder. This direct assessment is allowed because the statute requires that it be assessed on each individual policyholder. Neither the insurer nor its agent shall be entitled to any portion of the surcharge as either a fee or a commission for its collection. (Section 287.715.2, RSMo.)
The Second Injury Fund Surcharge assessment shall be remitted within 30 days after the end of each quarter, i.e., not later than April 30, July 30, October 30, and January 30. Using the attached form, insurance companies should mail one copy with their remittance to the Missouri Department of Revenue and another copy of the form to the Missouri Division of Workers' Compensation at the addresses shown. Additional copies of the form can be obtained by accessing the Missouri Department of Insurance's web site at insurance.mo.gov. If you are unable to access the web site, additional forms may be requested either in electronic form or paper form from the Missouri Division of Workers' Compensation, P.O. Box 58, Jefferson City, Missouri 65102, (573) 751-4231.
Please note that the forms have been enhanced to help clarify procedures to be used for premium revisions, i.e., audits, corrections, adjustments, etc. The Second Injury Fund Surcharge is a "calendar year" assessment but is applied to "policy year" premiums. Policies written in any given year may have additional premiums collected or returned in subsequent years. Therefore, it is important to track premium transactions to determine the correct Second Injury Fund Surcharge assessment to remit in any given quarter.
For example, a policy with an effective date of July 15, 1997, would be assessed at the 1997 calendar year assessment rate of 1.5%. Any additional premium, (i.e. audit premium) collected during 1998 on this policy would also be assessed at the 1997 assessment rate of 1.5%, and remitted to the state of Missouri at this same rate even though it is collected in 1998. Of course, any premiums collected for policies written on or after January 1, 1998, will be assessed at the 1998 assessment rate of 3%.
The guidelines in this bulletin apply to all new and renewal business with an effective
date on or after January 1, 1998. The Missouri Department of Insurance recognizes
the fact that many new and renewal policies have already been assessed under previous
guidelines. We suggest that these policies be adjusted upon audit to reflect the changes
required by this bulletin.
Any questions or comments regarding this issue should be directed to David Murray of the Missouri Department of Insurance's P&C Section, (573) 751-3365.
It is presumed that retrocessional transactions are defined as reinsurance transactions of reinsurers. Therefore, retrospective policies issued by the workers' compensation carrier are considered primary workers' compensation insurance, and are assessed in the same manner as "guaranteed cost" insurance policies.
Excess workers' compensation insurance is not considered primary workers' compensation insurance because it is a reimbursement mechanism for self-insurers.