Blue Shield of California’s State Tax-Exempt Status Revoked

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The California Franchise Tax Board quietly stripped Blue Shield of its exemption from state income taxes in August. The company, which is protesting the decision, held that exemption since its founding in 1939. Above, Blue Shield's office in El Segundo. (Credit: Los Angeles Times)

Authorities have revoked the tax-exempt status of nonprofit Blue Shield of California, potentially putting it on the hook for tens of millions of dollars in state taxes each year.

The move by the California Franchise Tax Board comes as the state’s third-largest health insurer faces fresh criticism over its rate hikes, executive pay and $4.2 billion in financial reserves.

The state quietly stripped the San Francisco insurer of its exemption from California income taxes in August. The company held that since its founding in 1939.

A spokeswoman for the tax agency declined to comment on the reasons for revocation. The highly unusual action comes after a lengthy state audit that looked at the justification for Blue Shield’s taxpayer subsidy. The insurer has paid federal taxes for years.

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