Insurance company’s expansion helped by a unique arrangement of tax credits and job creation rebates
Re-posting today’s story from the Business section:
BY PAUL MONIES
Published: September 13, 2011
One of the state’s largest insurance companies has taken about $20 million in job creation rebates and tax credits in two separate economic development programs using a possible loophole in the law, The Oklahoman has learned.
Farmers Insurance Co. Inc., which is based in Los Angeles, received $9.6 million in Quality Jobs rebate payments from 2002 to 2011, according to Oklahoma Tax Commission records.
- View the Farmers Insurance Quality Jobs contract from 1999
- View the Farmers Insurance home office premium tax credit application for 2010
The company also claimed at least $8.8 million in “home office” tax credits against its insurance premium tax in the last decade, according to data from the Oklahoma Insurance Department. Those credits may be used if insurance companies establish headquarters or regional offices employing at least 200 people.
The Oklahoma Quality Jobs Program Act, which provides quarterly cash rebates for job creation, forbids qualified companies from claiming home office premium tax credits along with Quality Jobs rebates. An annual incentive guide published by the Commerce Department describes the tax credit for insurance companies and states, “This credit is not available to participants in the Quality Jobs Program.”
Farmers Insurance directly employs about 1,400 people in Oklahoma. The company recently opened a new customer service and data center on W Memorial Road in Oklahoma City after leasing space for several years at Shepherd Mall on NW 23. Farmers Insurance has another 750 agents, managers and staff in affiliated offices across the state.
Three state agencies are involved in administering the two incentive programs. The Commerce Department approves applicants for Quality Jobs. The program’s quarterly rebate payments are issued by the Tax Commission. Meanwhile, premium tax credits go through the Insurance Department, which collects premium taxes.
Farmers Insurance applied for Quality Jobs in 1999 and received its first rebates in 2002. It reached a 10-year cap on the program this year after receiving an average of $960,000 in rebates per year. Insurance Department officials said the company has claimed home office premium tax credits since at least 2003.
Company split its operations
Company representatives said the company has been able to claim rebates and tax credits under both incentive programs because it split its operations. Even though employees could be in the same office building, Farmers Insurance assigns their job functions to separate incentive programs.
Tony Morris, vice president of tax strategy for Farmers Insurance in Los Angeles, said most of the discussions on the unique arrangement happened more than a decade ago with Commerce Department officials. At the time, Oklahoma was competing with several neighboring states for placement of a Farmers Insurance regional office.
“For the company, the maximum benefit was to split it up the way we did,” Morris said. “We had a lot of conversations on the front end to basically go over, ‘Here’s the mechanics of what we would need to do and this is how we basically keep (track of) our people.’ We did run through the mechanics of how it was supposed to work and what information and documentation they were expecting from us on a quarterly basis.”
Don Hackler, deputy general counsel for the Commerce Department, said the agency has memos from Farmers Insurance detailing how it was able to use both incentive programs. That documentation is not publicly available because of an exemption in the Oklahoma Open Records Act, he said.
The Commerce Department did provide a copy of Farmers’ 1999 Quality Jobs contract, which is a public record. The contract makes no mention of other arrangements for the premium tax credits.
Hackler compared the department’s economic development incentive guide that tells companies they can’t take both incentives to a “Cliffs Notes” version of the law.
“The law is correct,” Hackler said. “You can’t take both incentives for the same activity, but since you have separate activities, you can take different incentives for each activity.”
Hackler said he wasn’t aware of any other insurance companies taking both Quality Jobs rebates and home office premium tax credits.
In a statement, officials from the Insurance Department said Farmers’ annual paperwork in qualifying for the home office premium tax credit has been in compliance. The department’s application form for the tax credit makes no mention of the Quality Jobs program limitations.
Written by Paul Monies