Request By:
Ms. Donna H. Terry
Attorney at Law
209 West Main Street
P.O. Box 644
Princeton, Kentucky 42445
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: William S. Riley, Assistant Attorney General
In your recent letter to the Attorney General, you state that the City of Princeton has an ordinance levying the license tax allowed under KRS 92.285. Subsection (5) of that statute provides that a reasonable collection fee may be collected and retained by each insurance company. It has become apparent, however, that many insurance companies have retained an amount in excess of the statutory collection fee allowed by KRS 92.285(5) and these insurance companies have neither refunded the excess to their policyholders nor have they given this money to the City of Princeton.
You ask who is entitled to these excess license taxes: the insurance companies, their policyholders, or the City of Princeton.
KRS 92.285(5) states in relevant part:
(5) The Department of Insurance shall, by regulation, provide for a reasonable collection fee to be retained by the insurance company or its agent as compensation for collecting such tax; provided, however that the collection fee shall not be more than thirty percent (30%) of the fee or tax collected and remitted to the city or urban-county government or two percent (2%) of the premiums subject to the tax, whichever is less. . . .
The Department of Insurance adopted this statutory collection a in Regulation 806 KAR 2:090.
Each insurance company is thus entitled to a collection fee of 30% of the license tax collected or 2% of the premiums subject to the license tax, whichever is less. The Department of Insurance in Regulation 806 KAR 2:090 requires each insurance company subject to license tax in KRS 92.285 to maintain adequate accounting records "which shall include all premiums collected for which the tax or license fee is payable together with the amount of such tax or license fee collected and remitted to each city or urban-county government." It should thus be very easy to calculate the amount of license tax due the City of Princeton.
The statutory collection fee is not subtracted from the amount of tax collected but is in addition to the tax collected. See Department of Insurance Bulletin dated June 28, 1978, a copy of which is attached. Two examples will make this clear. In Example 1, assume the insurance premium is $100 and the insurance premium tax rate is 3 1/2%. The insurance company will charge the policyholder $100 for the premium and $3.50 for the tax plus an "add on" $1.05 for its 30% collection fee. Thus, the total cost to the policyholder is $104.55. In Example No. 2, assume the same facts as in Exple No. 1 Except that the collection is 2% of the gross premium ($2.00) and thus the charge to the policyholder would be the $100 premium plus $3.50 for the insurance premium tax plus $2.00 for the insurance company's collection fee for a total of $105.50. Since the insurance company is entitled to the lesser collection fee, it has obviously collected 95 too much from its policyholders in Example No. 2.
While your letter is not entirely clear as to what the "excess collection fees" consist of the insurance companies should refund to their policyholders any collection fees which were greater than those the companies were legally entitled to collect under KRS 92.285(5) and 806 KAR 2:090.