LOS ANGELES (MarketWatch)—Regulatory officials in California have revoked the tax-exempt status of one of the state’s largest health insurers, Blue Shield of California, exposing the nonprofit entity to millions of dollars in annual tariffs.

The Franchise Tax Board confirmed Wednesday that Blue Shield, operating under the name California Physicians Service, actually lost its tax-exempt status on Aug. 28. But the revocation didn’t become public until the Los Angeles Times reported the move early Wednesday.

The Times said Blue Shield currently has $4.2 billion in financial reserves, and has held at least $3 billion in reserve each year since 2009. But Blue Shield has contributed only a fraction of that to its charitable foundation in that time frame, from $24.9 million to $40.1 million. Its 2013 contribution, the last recorded, was $37.5 million. The Times said the $4.2 billion in reserves is four times the requirement.

State tax officials initially didn’t comment on the Times report, which characterized the board’s action as “quietly” done, but they later confirmed the tax-exempt status reserved for nonprofits was removed.

“We believe we meet the requirements for a state income tax exemption and have challenged the California Franchise Tax Board’s finding to revoke our tax exempt status. We filed California state [income] tax returns beginning in 2013,” Blue Shield said in an emailed statement. “The FTB decision has no bearing on our ability to continue to meet the needs of our members and community and we maintain in strong financial health. Regardless of whether we prevail in our dispute, we will continue to fulfill our not-for-profit mission.”

In a follow-up email, Blue Shield spokesman Sean Barry went on to say that the company would remain a not-for-profit even if it doesn’t prevail in its effort to win back its tax-exempt status. Blue Shield prefers to have the flexibility on overseeing its reserves than would be the case with a public, for-profit entity, he said.

As for Blue Shield’s $4.2 billion in reserves, Barry says helps it to better maintain high financial ratings, manage risk, invest in technology and expand its market reach. With its December acquisition of Care 1st, a Los Angeles County-based managed-care provider, it entered into the state’s Medicaid program, known as Medi-Cal.

“This will draw down a portion of the reserves, but most will remain,” Barry said.

Revocation of the tax-exempt status comes 18 years after Blue Cross of California, now a unit of Anthem Inc. ANTM, +0.45% , lost its exemption in 1997. It joins a growing list—now numbering nearly 83,600—of nonprofits in the state that have lost their tax-exempt status, many of which are medical organizations.

The Times quoted a former Blue Shield insider, Michael Johnson, as saying the entity is operating too much like a for-profit concern. Johnson resigned last week as public policy director after spending 12 years at Blue Shield.