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On April 6, 2015 the Arizona state legislature enacted into law two bills that place limits on the existing policy by which the state can impose taxes on out-of-state and foreign insurance companies.
The Arizona Insurance Code requires foreign insurance companies to pay a retaliatory tax that is based on a comparison of the burdens imposed by Arizona and the hypothetical burdens that would be imposed on the foreign insurance company's Arizona activities by the state where the insurance company is domiciled. The Arizona burdens are calculated based on 'the total amount of taxes (net of credits), fees, assessments and other obligations that Arizona levied on 'the foreign insurance company',' and the state of domicile burdens are calculated based on 'the total amount of taxes (net of credits), fees, assessments and other obligations that 'the foreign insurance company's' domicile would have levied on an Arizona insurer based on the business 'it' transacted in Arizona.'
The states of Massachusetts, Minnesota, New York, and Rhode Island have been the only four 'Reciprocal Non-Retaliation' states that have similar legislative language providing that their own respective retaliatory tax provisions do not apply to an insurer domiciled in another state that exempts insurers from their own state from retaliatory taxation.
One bill (H.B. 2440) provides that Arizona's retaliatory tax provisions do not apply to an insurer domiciled in a state or foreign country that does not impose a retaliatory tax or that exempts companies domiciled in Arizona from retaliatory tax on a reciprocal basis.
The other bill (H.B. 2568) provides for a phased reduction of Arizona's general premium tax rate to 1.7% over ten years. The general tax rate reduction does not apply to fire insurance premiums, disability insurance premiums, or to health care service plans.
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