GEICO insurance companies can’t dismiss a South Carolina lawsuit that demands they pay almost $70 milli
on in back taxes and penalties, a federal judge ruled in a case that could ultimately affect how insurance taxes are collected by cities in that state and others.
“…Municipalities clearly have the authority to enact ordinances authorizing MASC (the Municipal Association of South Carolina) to act as their administrato
r for the purpose of administrating and collecting business license taxes from insurance companies,” U.S. District Judge Joseph Anderson wrote in his Nov. 12 order.
The Municipal Association contracts with almost all South Carolina municipalities to collect annual business lice
nse taxes equaling 2% of property-casualty insurers’ gross premi
ums. For the past seven years, six GEICO companies have paid at least a portion of that tax. But the insurance companies have not provided reconciliation r
eports that would verify the premiums and taxes per city, the Municipal Association said in its lawsuit.
MASC contends that GEICO companies failed to pay the full amount of taxes for 2021, 2022, 2023 and 2024, and now
owe more than $30 million in taxes and $39 million in penalties.
The association concluded that GEICO has underpaid its taxes because most other carriers that write simila
r numbers of policies in the state remit a larger amount of taxes each year, Robert Tyson Jr., the lawyer for MASC, told Insurance Journal.
“We could be wrong about it,” he said. “But until we get documentation from GEICO, we won’t know for certain.”
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In September, GEICO attorneys asked the court to dismiss the suit, arguing that the association is not authorized by l
aw to collect delinquent taxes and penalties, nor to demand reconciliation data.
“Defendants do not challenge the broad powers of municipalities in
this State, including the power to contract out certain functions to t
hird parties,” the judge explained. “Rather, Defendants dispute the scope of the powers which can be contracted out under Plaintiff’s cited statutory authority.”
After reviewing arguments in the case, though, the judge found that South Carolina’s constitution and statutes do no
t appear to prohibit contracted third parties from taking steps to enforce their tax collections.
“Defendants’ contention that Subsection (E) limits the contracting authority to collecting taxes is not compelling,” the judge noted. “The mere mention of the authority to contract for collection of taxes does not mean t
he General Assembly intended to limit the definition of such services to exclude delinquent taxes and penalties.”
The MASC has contracted with South Carolina cities for more than two decades to provide the tax service, Tyson said.
“It’s a benefit for the insurance companies and for the cities, because there are 270 municipalities in the state and mo
st have different deadlines on tax payments,” he said. “It’s difficult for insurance companies to keep up with that.”
Judge Anderson also noted that the statute of limitations on the litigation has not expired—because the clock n
ever started ticking: GEICO companies repeatedly assured MASC that they would submit the documents.
“A defendant may be estopped from claiming the statute of limitations as a defense if some conduct or representation by the defendant has induced the plainti
f to delay in filing suit,” the judge wrote, citing a 2001 court ruling.
The judge said GEICO may be right about one point: The Municipal Association may have failed to exhaust its administrative remedies. But he noted that it’s
premature to dismiss the suit at this stage on those grounds. No evidence so far has shown that MASC did not follow the rules or that GEICO asked for an assessment that would trigger an appeal process.
Most property-casualty insurance companies in South Carolina are good about paying their taxes, MASC attorney Tyson said. He noted that many carriers will make it easy on themselves by simply paying 2% of total gross premiums in the state to the association, instead of the more tedious and time-consuming method of determining which city each policyholder lives in, or where insurance agents offices are located.