Written by Jesse Brewer, Boone County Commissioner
Most cities in Kentucky have very limited ways to raise revenue. Unlike cities in many other states, Kentucky municipalities do not receive a portion of the sales tax, even though it’s one of the largest and most stable revenue sources available elsewhere. That leaves local governments here with only a few tools: primarily property tax, occupational license fees, and the insurance premium tax.
Across Kentucky, state law (KRS 91A.080) authorizes local governments to levy an insurance premium tax on policies like homeowners, auto, business liability, and more. This tax was originally created to support critical public safety services such as police and fire pensions. Cities and counties rely on it to fund essential services that directly benefit residents.
But here’s the part most people don’t realize: insurance companies are allowed to charge their customers a fee for collecting this tax. In Kentucky, insurers can add on either 5% of the tax collected or 2% of the premium (whichever is less). This means when a family pays $1,000 in premiums and a $50 local tax, the insurer can tack on another $7.50, just for processing a tax payment they’re already obligated to remit. If both your city and county levy the tax, insurers can collect this fee twice.
That is not a city decision. That is state law.
Why this matters for families
The insurance premium tax itself is transparent, it’s on your bill, it goes to your community, and it funds essential services like police, fire, EMS, and infrastructure. The problem is a lot of Kentuckians do not know about the tax that’s on the bill because they escrow their taxes and insurance with their lender, meaning the bills go to the bank and the bank pays the premiums on the homeowner’s behalf due to them collecting them each month. But what isn’t transparent is the “facilitation fee” insurers get to keep. In practice, this fee turns public tax into a private profit stream. Families are paying extra, and cities get no benefit from that fee whatsoever.
Time for legislative change
Kentucky is one of only a handful of states that not only allows local governments to levy insurance premium taxes but also permits insurance companies to skim off the top for simply serving as the pass-through. That system needs to be changed. Cities and counties shouldn’t be the scapegoat for a process that enriches insurers while burdening families.
If Frankfort wants to help Kentucky taxpayers, the answer is simple: reform or eliminate the insurer collection fee. The tax itself is a local choice, subject to open debate, public hearings, and council votes. The fee, however, is hidden, automatic, and out of the hands of both residents and their local governments.
Just how widespread is this tax?
So just how many taxing authorities have an insurance premium tax in Kentucky? According to research from as recently as 2023, 362 cities and 50 counties in Kentucky levy an insurance premium tax.
In Boone County, where I serve as an elected commissioner, we do not have an insurance premium tax of any kind at the county level. If you are interested in seeing a full list of who has a premium tax and what their corresponding rates are, you can visit the Kentucky Department of Insurance website.
The bottom line
This isn’t about whether cities should have taxing authority, they always will, and those revenues are used for vital community services. The real question is why families are being forced to pay an extra premium to private companies just to collect a tax that already belongs to the public. That is where reform is needed, and that’s where attention should be focused.