PA Corporate Tax Notes: Computation of Insurance Retaliatory Charges

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In Selective Way Insurance Co. v. Commonwealth, No. 429 F.R. 2008 (November 30, 2010), the Commonwealth Court overruled Exceptions filed by the Commonwealth to its decision that the Pennsylvania Department of Revenue was required to apply the New Jersey premium cap (capping the amount of taxable premiums at 12.5% of worldwide premiums) when calculating the amount, if any, of Pennsylvania retaliatory charges to be paid by a New Jersey insurance company doing business in Pennsylvania. The Court determined that calculation of the retalia-tory charge requires more than simply a comparison of New Jersey and Pennsylvania premiums tax rates. The Department must determine what amount of tax would be paid to New Jersey by a Pennsylvania insurance company doing the same amount of business in New Jersey that the New Jersey insurance company has done in Pennsylvania. By ignoring the New Jersey premium cap, the Department assessed a retaliatory charge on Selective Way "based on a fictional, much higher New Jersey premium tax than what a similarly-situated Pennsylvania company would actually pay in New Jersey."

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