Tax reform remains an issue of major interest and concern to NAIFA on both the state and federal levels. State legislatures continue to consider proposals that could impact the tax treatment of life insurers, producers, and insurance products. NAIFA generally believes new efforts to expand or increase state-level taxation in the insurance industry would be excessive, and we will strong oppose efforts to increase or impose taxation of insurers, producers, products, and financial services.
State-level efforts to tax insurance products and services fall into three main categories:
In April 2022, the Kentucky General Assembly introduced HB 8, a sweeping tax reform bill, with broad bipartisan support, that called for a 6% sales tax on financial planning and investment management services. While coalition partners contracted lobbyists and consultants on the ground to express concerns. NAIFA-KY grassroots spearheaded the effort in allowing legislators to hear directly from financial planners themselves. The financial planning and investment management provision was ultimately taken out and the bill passed both chambers. The Kentucky Legislature overrode Democratic Governor Andy Beshear’s veto of HB 8.
NAIFA opposes federal and state efforts to increase life insurance and annuity products taxes. NAIFA believes that life insurance--being a mixture of property and indemnity--should not be taxed differently from other forms of property or indemnity. Therefore, NAIFA opposes efforts to single out life insurance for favorable tax treatment or subject life insurance to tax discrimination.
NAIFA supports federal tax law that permits certainty in estate planning for the orderly transfer of assets to heirs after an individual's death. Further, NAIFA believes federal estate tax provisions should also include provisions for portability of exemptions between spouses, avoid being burdensome, avoid multiple tax incidents, and recognize the impact of inflation. In addition, NAIFA believes that when evaluating federal estate and gift tax laws, any change must be sustained politically over a long period and the updated rules are specific, predictable, and permanent.
NAIFA strongly supports The Main Street Tax Certainty Act and any similar legislation which would make permanent Sec. 199A, the 20% qualified business income deduction. Section 199A of the Internal Revenue Code provides a 20% deduction for qualified business income to foster greater parity between the tax rates levied on pass-through businesses (individual rates up to 37%) and C corporations (top rate of 21%), but it is currently scheduled to sunset at the end of 2025. The 199A deduction is both complex and limited. Certain businesses, including financial services, consulting, accounting, and other service businesses, are excluded from taking the deduction.
Treasury’s final rule implementing the pass-through deduction reflects NAIFA’s efforts to ensure insurance services are eligible. However, NAIFA members who provide insurance services but receive more than 10% of their revenue from investment advice and/or financial planning services may not be eligible.