Florida Department of Revenue: Bonuses Should Be Excluded from Insurers’ Salary Tax Credit Calculations by Erin Siska, Esq.
Oct 29, 2008
Above: Erin Siska
By Erin T. Siska, Esq., Associate
Recently, during routine audits, the Florida Department of Revenue of Revenue (“DOR”), has found at least a dozen insurers that have been including executive bonuses as part of their salary tax credit calculations.
As a result, these insurers have been assessed for certain past due taxes related to such calculations, inasmuch as it is the DOR’s position that bonuses should be excluded from insurers’ salary tax credit calculations. Insurers that have not yet been audited by DOR this year should be aware of this new DOR practice and plan accordingly.
The DOR’s position on this matter is based on Technical Assistance Advisement (“TAA”) No. 04B8-001, issued on September 9, 2004 which states that bonus payments to Florida employees should not be included in the salary tax credit calculation under Section 624.509(5), F.S., in light of the Florida Legislature’s use of the narrow term “salary” in this statutory provision, as opposed to “wages,” “remuneration,” “compensation” or some other, more general term which might encompass salaries and bonuses.
In addition, 2005 legislative revisions further restrict the amount of salary that can be included in the salary tax credit calculation to “only the portion of an employee’s salary paid for the performance of insurance-related activities . . .”
TAAs are informal rulings issued by the DOR as to its position on the tax consequences of a stated transaction or event under existing statutes, rules or policies. Technically, they have no precedential value except to the taxpayer who requested the TAA, and they are only binding on the taxpayer who requested the TAA, for the transaction described in the TAA. As a practical matter, however, TAAs are persuasive sources of authority and Florida insurers should comply with the DOR position stated in TAA 04B8-001, if the circumstances involved in the insurer’s situation are the same as set forth in the TAA. If an insurer does not comply, it should proceed as required by the Administrative Procedures Act to protect its rights to challenge any assessment or other decisions of the DOR.
Section 624.509 (5), F.S., provides that the standard tax credit should be taken against the net premium tax imposed on the insurer, equal to fifteen percent of the amounts paid by the insurer in salaries to its employees located or based in Florida, and covered by the insurer workers’ compensation insurance.
In 2005, the Florida Legislature clarified that adjusters, managing general agents, and service representatives are considered employees for purposes of this salary credit. Insurers cannot take a salary tax credit for employees located outside of Florida, temporary workers, independent contractors or any licensed persons who are not adjusters, managing general agents or service representatives. Also, commissions cannot be included in the amounts considered as salaries.
The 2005 legislation also clarified when and how insurers are required to file amended premium tax or corporate income tax returns. Specifically, insurers are now required to file an amended premium tax return within 60 days after receipt of a refund of its workers’ compensation administrative assessment paid under Chapter 440, F.S. The premium tax return that is required to be amended is the one which is subject to the refund of the workers’ compensation administrative assessment. In addition, insurers are now required to file an amended premium tax return within 60 days after its corporate income tax return is required to be amended.
With respect to corporate income tax, insurers should only file amended corporate income tax returns and the corresponding premium tax returns when the adjustments result in a net change to their total Florida tax liability (the combined corporate income tax and corresponding insurance premium tax).
Each set of circumstances may be different and should be carefully evaluated based on the applicable statutes, regulations and agency opinions. This article is intended to generally set forth the perimeters of the law and is not intended to constitute advice with respect to any particular matter. An appropriate expert should be consulted based upon all facts involved in order to assure proper application of standards under the law to those facts.
Please do not hesitate to contact Colodny Fass should you have any questions or concerns in this regard.
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