Taxes and Fees: Frequently Asked Questions

Last updated March 24, 2011 at 1:18 PM

This page contains information in response to questions we have received concerning various forms and instructions from our "Tax Forms and Instructions" web page. If you have any questions that are addressed on this web page, send an e-mail to Scott Greenberg at sgreenberg@azinsurance.gov.


Form E-TAX

Filing Due Date; Extension

Arizona Revised Statutes ("ARS") § 20-224 requires premiums to be reported and taxes to be paid on or before March 1. Arizona law does not have a provision for filing an extension for insurance premium tax reporting or payment.

If, for whatever reason, you are unable determine actual amounts for all lines on your tax return prior to the March 1 due date, you should file a return containing estimated amounts and then file an amended return as soon as practicable. If providing estimates, keep in mind that Arizona law imposes penalties and interest for underpayments of tax.

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Tax Refund

The Department of Insurance will issue tax refunds within three months after the March 1 tax report due date. ARS § 20–224.02.

The Department of Insurance issues tax refunds after the tax report has been reviewed. The Department has up to 3 months after the March 1 tax report due date to complete its review and issue refunds.

You cannot use a tax overpayment/refund reported on your tax report to offset any other amount due.

 

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Lines D1, D2, E1, E2, J1 and J2

Lines D1, E1 and J1 are NOT part of your tax calculation.

Report lines D1, E1 and J1 to tell us what you have reported in your annual statement. Include finance and service charges in with premiums.

 

Lines D2, E2 and J2 ARE part of your tax calculation.

Lines D2, E2 and J2 EITHER

WILL BE THE SAME AS D1, E1 and J1 if the amounts that you report in your annual statement reflect premiums "...on account of policies and contracts covering property, subjects or risks located, resident or to be performed in [Arizona]...." Arizona Revised Statutes ("ARS") § 20–224(A).

OR

WILL BE DIFFERENT FROM D1, E1 and J1. For example, in the annual statement, you might have reported premiums based on situs of contracts, which does not conform to the tax reporting requirement in ARS § 20–224(A). In this case, you will report in D1, E1 and J1 the amounts from your annual statement and for D2, E2 and J2, you will have to compute the premiums you collected on account of policies and contracts covering property, subjects or risks located, resident or to be performed in [Arizona]...."

NOTE: If an insurer does not have sufficient information immediately available to accurately report premiums in accordance with Arizona's premium tax requirements, the insurers may, for Calendar Year 2010,

1. Report estimated premiums and pay estimated taxes based on those premiums. An insurer should be liberal when estimating their premiums and tax liabilities. Arizona will impose a civil penalty and interest for an underpayment of fees, insurance premium tax or retaliation. However, Arizona will not impose a penalty or interest for an overpayment, and will refund an overpayment after receiving a request for a refund.

2. Promptly obtain information necessary to accurately report premiums and tax liability, and file an amended tax report.

Insurers are expected to develop systems and processes to accurately report premiums and tax liability without the need for amended tax reports.

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Lines D3, E3, F99, G99, J3, and E-TAX-PAM

Complete and attach Form E-TAX-PAM showing the method you used to determine the premiums you are reporting in your annual statement (D1, E1 and J1) and for tax purposes (D2, E2 and J2). Explain differences in your approach an any departure from the accepted (non-greyed) methods shown on E-TAX-PAM.

Do not complete E-TAX-PAM if you only transacted workers' compensation insurance or if you had no premium in any US state. Otherwise, you must complete E-TAX-PAM.

Historically, the Department expected premiums reported in the annual statement to exactly match premiums reported in tax reports. Recently adopted NAIC annual statement reporting guidelines allow insurers more latitude when determining how to allocate premiums among states. For example, using the Rule of 500, certain health insurers may have the choice of allocating premiums to jurisdictions based on where covered members reside, based on where covered members are employed, or based on where the contract was issued or delivered (the "situs of the contract").

Not all the NAIC annual statement reporting guidelines satisfy Arizona's tax reporting requirements. Specifically, ARS § 20–224(A) requires the tax report to reflect

"total direct premium income including policy membership and other fees and all other considerations for insurance from all classes of business whether designated as premium or otherwise received by it during the preceding calendar year on account of policies and contracts covering property, subjects or risks located, resident or to be performed in this state, after deducting from such total direct premium income applicable cancellations, returned premiums, the amount of reduction in or refund of premiums allowed to industrial life policyholders for payment of premium direct to an office of the insurer and all policy dividends, refunds, savings coupons and other similar returns paid or credited to policyholders within this state and not reapplied as premiums for new, additional or extended insurance...."

 

Certain approaches to reporting premiums (such as a contract situs basis) may be acceptable for the annual statement but are unacceptable for Arizona premium tax reports because they do not conform to the premium tax reporting provisions of Arizona law (ARS § 20–224, et al.).

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Line K2

Arizona Guaranty Funds have not assessed insurers since the 1990s. No insurers should be reporting a credit for Guaranty Fund Certificates of Contribution at this time. We have included this line on Form E-TAX as a placeholder for credits to which insurers may be entitled in future years.

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Schedule RT (foreign/alien insurers only)

For Section A, based on the business you had in Arizona, you must complete and attach each tax return required by your domicile state that an Arizona-domiciled would be required to complete. In Section A, EXCLUDE taxes, assessments and fees paid for political subdivisions (counties, cities, towns, districts) in your domicile, even if you paid these obligations through a state agency. The percentages in Section B already include the weighted average amounts that Arizona insurers would have to pay to political subdivisions. For example, some third-party software products include a line item for the New York Metropolitan Transit Authority surcharge. This surcharge is already part of the percentage in Section B so insurers domiciled in New York should exclude the MTA surcharge from Section A.

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Form E-INSTALL (Installment Payment)

An insurer with a tax liability (E-TAX, Section C, Line C10) of $2,000 or more must file E-INSTALL and make payments.

  • Each installment report with payment is 15% of the tax liability (15% of E-TAX, Section C, Line C10).
  • Reports and payments are due the 15th of each month, March through August.
  • You can consolidate reporting and payments by reporting and paying more than one installment at a single time by selecting multiple periods on Form E-INSTALL.

You cannot apply an overpayment/refund from your Annual Tax and Fees Report to reduce your installment payment obligation.

The Department of Insurance issues tax refunds after the tax report has undergone review. The Department has up to 3 months after the March 1 tax report due date to complete its review and issue refunds. You must, in the interim, make installment payments required by ARS § 20-224(E).

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E-LRTF (Local/Regional Taxes and Fees) Workbook

Most Arizona-domiciled insurers (including domestic risk retention groups) must complete this Microsoft Excel workbook and must furnish the completed workbook with attachments either on as OPTins attachments or on a CD-ROM.

Arizona law requires a foreign insurer to pay retaliation of the taxes, fees, assessments and other obligations that the insurer's home state and political subdivisions within the state would impose on an Arizona insurer is greater than the amount that Arizona and imposes for the business the foreign insurer conducted in Arizona. ARS § 20–230. Arizona law prevents political subdivisions (counties, cities, and other municipalities, etc.) from imposing obligations on foreign insurers except for taxes on real and personal property, and except for transaction privilege taxes. ARS § 20–226. Certain other states, however, do not preempt political subdivisions from imposing taxes, fees and other obligations on insurers.

In order to impose retaliation on foreign insurers from states where political subdivisions impose obligations on Arizona insurers, Arizona Administrative Code R20-6-205 requires the Department of Insurance to calculate, for each other state, the ratio of what Arizona domestic insurers paid political subdivisions in the state to the premiums Arizona domestic insurers transacted in the state, called the "addition to the rate of tax."

We developed the E-LRTF Workbook to help Arizona domestic insurers organize and provide the information that the Department needs (1) to calculate the additions to the rates of tax required under AAC and ARS, and (2) to document the types of obligations that political subdivisions in other states impose on Arizona insurers in the event a foreign insurer from another state appeals an addition to the rate of tax.

Only enter information for states where you are authorized to transact insurance.

Arizona Administrative Code R20-6-205 makes the E-LRTF workbook a required part of the annual tax report for Arizona-domiciled insurers. An insurer that is only authorized in Arizona (who may be allowed to offer insurance on a surplus lines basis in other states) must complete general information about itself and the preparer on the SUMMARY worksheet. Do not complete premium information or any information concerning fees, assessments or other obligations for states where you are not authorized.

EXCEPTION: An insurer that is only authorized in Arizona and that does not pay taxes, fees or assessments imposed by political subdivisions in other states may submit a printout of the SUMMARY page of the workbook with a copy of the Schedule T instead of submitting a CD-ROM.

An insurer only authorized in Arizona and that only provides insurance coverage in other states on a surplus lines basis only needs to complete the SUMMARY page of the workbook. The insurer may print the SUMMARY page and send the page with a copy of the Schedule T as part of the tax report submission. This ONLY applies to insurers that are only authorized in Arizona. All other insurers must provide the E-LRTF and additionally required information on a CD-ROM.

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