State board overrules staff, OKs break for workers compensation companies

Thursday December 19, 2002

SACRAMENTO (AP) Rejecting the advice of its staff, a state board has unanimously approved a $220 million-plus tax break for workers' compensation insurance companies.

The Board of Equalization overturned a decision by Insurance Commissioner Harry Low to tax reimbursements paid by businesses to workers comp carriers.

Wednesday's decision came the same day that Gov. Gray Davis announced the state was facing a $34.8 billion budget deficit.

Low said he would urge Commissioner-elect John Garamendi to ask the board to reconsider the decision after he takes office Jan. 6, when the board will get three new members.

The decision involves a 1995 law that allows workers compensation carriers that provide coverage for workplace injuries to offer cheaper policies to businesses that agree to reimburse them for claims up to a specified amount.

Former Commissioner Chuck Quackenbush rejected the advice of Insurance Department attorneys that the reimbursements were subject to the gross insurance premiums tax.

But Low, a former appeals court judge who succeeded Quackenbush, decided that the reimbursements should be taxed and advised insurers that the tax would be imposed retroactively to 1997.

The department estimated that the retroactive portion of the tax would generate $220 million and that in future years the levies would raise about $50 million.

Members of the Board of Equalization, which hears tax appeals, said they couldn't support a tax that was being imposed retroactively and without a public hearing.

``They should not be hit with this cold,'' said board member Johan Klehs, who of three board members who could not run for re-election because of term limits. ``It seems there is something inherently unfair about that.''

(Copyright 2002 by The Associated Press. All Rights Reserved.)