Every spring
NAIFA-California faces off against local governments who try to
levy a business license tax on agents.
The good news is that the law and the CDI are on
NAIFA-California's side.
NAIFA-California has
long maintained that California law exempts insurance agents
from municipal business taxes. Specifically, Article XIII,
Section 28(f) of the California Constitution imposes a premium
tax on insurers "in lieu of all other taxes and licenses..." At
least since 1914, this tax exemption has been extended to duly
appointed insurance agents.
Since 1976, the exemption does not extend to insurance brokers; however, the California Insurance Code expressly excludes from the definition of "broker" those individuals who transact life and/or disability insurance on behalf of a life and/or disability insurer. Hence, an agent will not be subject to a business license tax IF they hold an in-force notice of agency appointment and that business involves life or health insurance sales or any other sales for which an agent/insurer relationship exists.
In January 1998, the
California Department of Insurance (CDI) reaffirmed this
position in a letter responding to a joint request from the
Independent Brokers and Agents of the West (IBA West) and the
Oakland city attorney. Specifically, the CDI stated that an
in-force notice of agency appointment "establishes a virtually
irrefutable presumption that a producer is an agent of the
insurer which filed that notice."
In short, as a matter of constitutional law, local governments are prohibited from levying business license taxes. If you are facing such a challenge from a not-so-enlightened municipality, please utilize the Tax Exemption Letter provided. If you have further questions, contact David V. Dellinger, Executive Vice President or our Legislative Advocates.
