Ky. insurance glitch misdirects million$

COVINGTON, KY -- Over decades, millions of tax dollars culled from insurance premiums in Kentucky have been billed to the wrong residents and sent to the wrong local governments, reports NKY.Com, the on-line edition of the Kentucky Enquirer.

No one knows the exact amount, but many believe it won't happen again when a new law goes into effect Jan. 1, 2010.

Some people who live in a city's mailing address but don't live within the city limits got taxed that city's insurance premium tax.

That means some governments in Northern Kentucky that for years have incorrectly received tax revenue likely will see reduced revenue next year while others will see an increase.

Campbell County officials alone expect that it could receive next year $200,000 more in insurance premium taxes that have been going to the wrong cities for years.

State and municipal officials say the situation is repeated across the state, accounting for millions in misdirected tax dollars, but there has never been a statewide audit of the tax colelctions and payments.

Until state legislation passed in 2008 required insurance companies to show customers exactly where their tax money is going, many people never knew they were paying a tax they didn't owe.

That same legislation, starting on Jan. 1, will require all insurance companies to use state approved software and databases that will use global positioning systems and other technology to ensure only people who live in cities and counties with the insurance premium tax get taxed.

Local governments in Kentucky have been able to impose insurance premium taxes for about 40 years. In Kentucky, more than 350 cities and 37 counties impose a tax usually between 3 percent and 10 percent of the premiums on various kinds of insurance, including auto, home, life insurance and, less commonly, health insurance.

Some insurance companies used mailing addresses to determine where someone lived, reports NKY.Com

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