NC legislator backs away from proposed new tax on car insurance

Insurance Commissioner Wayne Goodwin called on legislators Tuesday to oppose a House bill that would add a new 6.5 percent tax to the annual price of automobile insurance, and the bill sponsor signaled that the tax would be reduced or eliminated.

“This would amount to the highest across-the-board increase for car insurance costs in North Carolina in 30 years,” Goodwin said in an interview.

The new insurance tax is part of a transportation funding package that received its first airing Tuesday in the House Transportation Committee. The bill was drafted by Rep. John Torbett, the committee co-chair.

House Bill 927 would make gasoline cheaper by cutting 6 cents from the state motor fuels tax. But it would increase the overall cost of driving with:

▪ A 50 percent increase in Division of Motor Vehicles fees.

▪ A 1 percentage point increase in the highway use tax on car sales.

▪ The proposed new tax on car insurance premiums.

A legislative fiscal analysis estimated that private and business car and truck owners would pay about $158 million a year in new taxes on their insurance premiums, but Goodwin told Torbett’s committee that the cost would be closer to $400 million.

Torbett, a Gaston County Republican, said the fiscal analysis was in error. He told Goodwin not to worry about the insurance tax.

“It’s a good thing we’re taking that out, commissioner, so all that won’t happen,” Torbett said.

Gas tax cut

Torbett’s bill would cut the gas tax by 6 cents a gallon to 30 cents in July, then allow it to rise slowly again starting in 2017. Motorists would save $300 million in gas taxes during the first year.

The higher DMV fees would cancel out much of the gas tax savings, generating an additional $280 million a year for DOT.

The highway use tax on car sales – lower now in North Carolina than in neighboring states – would rise from 3 percent to 4 percent to generate an additional $214 million a year in revenues.

Committee members praised Torbett’s effort to cut DOT’s heavy dependence on the gas tax and draw on broader sources for transportation funds.

“The good thing is that everybody will be participating,” said Rep. Phil Shepard, an Onslow County Republican. “Everybody will be paying something to support what we’re doing here.”

Most of the new money would be set aside for repaving roads and improving state ports. While other transportation spending usually is apportioned out according to population concentration, traffic congestion and other needs that are greater in more crowded parts of the state, Torbett said the repaving money would be spent in equal amounts in each of North Carolina’s 100 counties.

That would amount to an average $191 million per year over the next four years for road resurfacing statewide. Torbett would direct $1.91 million a year to each county without regard to its population or road needs – from Camden County, with 210 miles of state roads, to Wake County, with 2,338 miles of state roads.

“We’re going to spread that money evenly between all 100 counties, so we can get everyone’s roads back up to par,” Torbett said.

Urban counties would benefit additionally with extra money diverted to towns and cities for street repaving.

Insurance tax uncertain

While Goodwin and an insurance industry lobbyist thanked him profusely for agreeing to cancel the proposed tax on car insurance, Torbett stopped short of saying categorically that he would do that.

In an interview after the meeting, he said the 6.5 percent hike proposal is “gone.” But he would not rule out the possibility of replacing it with a reduced tax rate.

“I don’t know that yet,” Torbett said. “But I don’t see doing that.”

Torbett had started out to design new and increased fees and taxes that could generate an additional $1 billion a year to address state transportation needs. But that goal was cut nearly in half when he and other House members agreed on a sharp cut in the gas tax. Now the proposal is expected to be worth around $530 million a year.

Torbett counted on $158 million of that from the insurance tax. He said he did not know whether he would look for other fees or taxes to replace the money he’d expected from the insurance tax.

Even if the insurance tax is eliminated altogether, along with that $158 million for DOT, Torbett’s legislation still would be expected to bring in new fees and taxes worth more than $370 million a year.

“We’ll still be in the positive,” Torbett said. “It’s just, you know, you’re going to be less in the positive.”

This story was originally published May 5, 2015 at 11:34 AM with the headline "NC legislator backs away from proposed new tax on car insurance."