As AI-powered InsurTech startups continue to scale across California, many are entering regulated insurance business models issuing digital policies, underwriting risk through licensed carriers, or acting as MGAs. But one California-specific tax often gets missed in early planning: the Gross Premiums Tax (GPT) under California Constitution Article XIII, Section 28.
Unlike income tax, this tax is imposed regardless of profitability, and failing to understand it early can lead to penalties, double taxation, or delays in carrier approvals.
This blog outlines how GPT works, who’s subject to it, and how AI-driven insurance platforms must structure themselves to remain compliant .
What Is the California Gross Premiums Tax?
California imposes a 2.35% tax on gross premiums received by insurance companies in lieu of income and franchise tax. This tax is constitutionally required and applies whether or not the insurance company earns a profit.
Key features:
- Calculated on total premiums written in California
- Applies to insurance companies, surplus line brokers, and some risk-bearing entities
- Administered by the California Department of Insurance (CDI)
Why It Matters for AI InsurTech Startups
Many AI startups in the insurance space are:
- Building embedded insurance offerings
- Operating as digital MGAs (managing general agents)
- Partnering with or forming captive insurance carriers
- Underwriting coverage through algorithms or third-party APIs
If you’re collecting or underwriting premiums, you may be:
- Subject to GPT instead of corporate income tax, or
- Operating in a structure that pushes GPT obligations to a partner, which must be disclosed
Example: AI Startup With Premium-Based GPT Liability
Scenario:
An AI startup licensed as a California domestic insurer begins offering embedded travel insurance through its SaaS platform. It earns $3 million in premiums .
- No income tax due to GPT rule
- Owes $3M × 2.35% = $70,500 in GPT
- Files reports with the CDI, not the FTB
If the startup isn’t aware of the GPT and mistakenly files Form 100 with FTB, it risks double taxation and future audit issues.
Are You Subject to GPT?
You may be subject to the Gross Premiums Tax if:
- You operate as a licensed insurer in California
- You are part of a reciprocal, risk retention group, or surplus lines broker
- You receive direct or indirect premium payments from California policyholders
You are not subject to GPT if you are:
- A pure MGA or broker with no underwriting authority
- Earning commissions only
- Structuring services as pure SaaS or data platform, not tied to policy value
Structuring Tip: Separate SaaS From Underwriting
AI startups offering insurance + software should consider:
- Structuring the AI/SaaS arm as a separate LLC or C-Corp
- Housing risk-bearing activity (e.g., underwriting, premium receipt) in a regulated carrier or MGA
- Documenting intercompany transactions to ensure GPT is only applied to premiums, not SaaS revenue
Step-by-Step: Staying GPT-Compliant
- Identify Gross Premium Revenue
Review your contracts and platform activity to identify any premium-based income. - Check Licensing Status
If you’re licensed through the CDI or writing on behalf of a licensed carrier, GPT likely applies. - Avoid Dual Filing
GPT is imposed in lieu of CA income/franchise tax so you may not need to file Form 100, unless operating other CA-taxable lines. - File GPT Reports with CDI
Submit Quarterly and Annual Statements via NAIC format, including GPT calculation and remittance. - Segment SaaS or Tech Revenue
Clearly separate tech platform income from policy-linked revenues in your accounting and disclosures.
Key References and Requirements
| Item | Requirement |
|---|---|
| GPT Rate | 2.35% on gross premiums in CA |
| Administered by | California Department of Insurance (CDI) |
| In Lieu of | CA Franchise Tax (Form 100) |
| Statute | CA Constitution Article XIII, Section 28 |
| Reporting | NAIC Quarterly & Annual Statements |
Conclusion: GPT Can’t Be Ignored in California
If you’re an AI or InsurTech startup issuing, managing, or underwriting policies even digitally and operating in California, you’re in GPT territory. Misclassifying income, failing to segment revenue, or incorrectly filing with the Franchise Tax Board can trigger compliance issues or audits.
The key is to plan ahead especially before your next funding round or licensing application.
Speak With an InsurTech CPA
Anshul Goyal, CPA EA FCA is a U.S. licensed CPA and California tax advisor for AI and InsurTech startups. He works with clients on:
- GPT vs. franchise tax structuring
- Segregating SaaS vs. insurance revenues
- CDI filings and premium tax compliance
- Cross-state licensing & multi-entity structuring
Schedule a Compliance Planning Session
Disclaimer
This article is for informational purposes only and does not constitute legal or tax advice. Consult with a qualified CPA and/or insurance regulatory attorney before making structuring decisions. Rules are current for the 2025 tax year.
FAQs: California GPT for InsurTech Startups
- Do all InsurTech startups owe GPT?
No only those directly earning premium revenue or licensed as insurers in CA are subject. - Can I be taxed under both GPT and corporate income tax?
Not usually. GPT is assessed in lieu of income/franchise tax, but only for entities subject to it. - How do I report GPT?
You file reports with the California Department of Insurance, not the Franchise Tax Board. - Are commissions or SaaS revenue subject to GPT?
Only gross premiums are taxed. Commissions and SaaS income are not, but must be clearly separated. - What if I’m operating through a surplus lines broker?
Surplus line premiums may also be subject to GPT or surplus lines tax, depending on structure.
About Our CPA
Anshul Goyal, CPA EA FCA is a U.S.-licensed Certified Public Accountant, IRS Enrolled Agent, and Fellow Chartered Accountant. He works with startups at the intersection of AI, fintech, and insurance, helping them navigate complex California and multi-state tax compliance, structuring, and regulatory reporting.