INSURANCE PREMIUMS TAX

48.14.020 TITLE INSURANCE

Description: Title insurance companies are exempt from the 2.0 percent premiums tax. However, they do pay B&O tax under the retailing classification (0.471 percent rate), as well as collect retail sales tax.

Purpose: To reflect the fact that title insurance is subject to retail sales tax.

Category/Year Enacted: Not intended in the tax base (i.e., subject instead to sales tax); 1947.

Primary Beneficiaries: Approximately 13 title insurance companies.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 4,344 4,615 4,904 5,210
Local taxes - - - - - - - -

If the preferential rate were repealed, would the estimated revenue be realized?

Yes; but an overall revenue reduction would occur if retail sales tax was not due.

48.14.020 ANNUITIES

48.14.021 FEDERALLY EXEMPT PENSIONS, ANNUITIES & PROFIT SHARING PLANS

Description: Amounts received by insurance companies for granting annuities are exempt from premiums tax.

Purpose: The presumed purpose of exempting annuities, pensions and profit sharing plans from insurance premiums tax was the recognition that these investments are different than an insurance policy.

Category/Year Enacted: Not intended in the tax base; 1963 (RCW 48.14.020 in 1979).

Primary Beneficiaries: Insurance companies which sell annuities and the individuals who buy annuities.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 32,555 33,368 34,202 35,056
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Unlikely; annuities are different than insurance policies and were not intended to be taxed under the premiums tax.

48.14.020(3) RATE FOR OCEAN MARINE INSURANCE

Description: Insurance premiums tax is levied at a rate of 0.95 percent on the gross underwriting profit of ocean marine and foreign trade insurers, rather than the 2 percent rate paid by other domestic and foreign insurers. Furthermore, these insurers pay premiums tax on much smaller taxable income than do other insurers, because losses can be deducted from premium income in determining gross underwriting profit.

Purpose: The purpose is apparently to support ocean marine commerce and their insurers.

Category/Year Enacted: Economic development; 1947.

Primary Beneficiaries: Insurance companies which sell ocean marine and foreign trade insurance and companies which purchase such insurance.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 1,371 1,405 1,440 1,476
Local taxes - - - - - - - -

If the preferential rate were repealed, would the estimated revenue be realized? Yes.

48.14.0201(6a) MEDICARE RECEIPTS

Description: This exemption allows health maintenance organizations (HMOs) and health care service contractors (HCSCs) to exempt amounts received from the federal government under Medicare from the 2.0 percent tax on premiums and prepayments.

Purpose: The purpose is presumably to provide tax relief for HMOs and HCSCs that provide coverage for Medicare patients.

Category/Year Enacted: Government; 1993.

Primary Beneficiaries: HMOs and HCSCs that provide coverage for Medicare patients.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 17,480 18,354 19,272 20,235
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

48.14.0201(6b) DENTISTRY

Description: This exemption allows health care service contractors (HCSCs) to exempt amounts received from dental plans from the 2.0 percent tax on premiums and prepayments.

Purpose: The purpose is presumably to provide tax relief to HCSCs that offer dental plans.

Category/Year Enacted: Other; 1993.

Primary Beneficiaries: HCSCs that provide dental coverage.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 6,885 7,143 7,411 7,689
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

48.14.022 HEALTH INSURANCE PREMIUMS AND ASSESSMENTS

Description: Premiums for health insurance collected by health maintenance organizations and health care service contractors for policies issued under the Washington State health insurance coverage access act (Chapter 48.41 RCW) are exempt from insurance premiums tax and the premiums "prepayment" tax. Also the statute provides a deduction from premiums tax for any assessments levied by the Insurance Commissioner in order to provide coverage for policy holders whose companies become insolvent.

Purpose: To provide health insurance to persons otherwise unable to obtain coverage because they are considered a high risk.

Category/Year Enacted: Individuals; 1987.

Primary Beneficiaries: Persons who obtain coverage under the health insurance coverage access act.

Conflict With Other Programs: None evident.

Tax Savings ($000)*: FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 175 179 184 188
Local taxes - - - - - - - -

*Impact reflects only assessments made by the Commissioner, not premiums paid to HMOs or HCSCs.

If the exemption were repealed, would the estimated revenue be realized? Yes, but presumably there would be a commensurate reduction in health insurance coverage for persons served by HMOs/HCSCs.

48.14.029 INTERNATIONAL SERVICES CREDIT

Description: Firms which are engaged in providing insurance services to customers located outside of the United States are eligible for a credit against their insurance premiums tax liability. The credit is equal to $3,000 for each new full-time job created by the firm after July 1, 1998 in certain geographic areas. The credit for each new job created may be taken annually up to a maximum of five years. Eligible areas include: (1) community empowerment zones designated under RCW 43.63A.700 and (2) areas comprised of contiguous census tracts in cities (or groups of cities) with at least 80,000 population which meet the unemployment and poverty criteria specified in RCW 43.63A.710.

Purpose: To encourage such firms to locate in community empowerment zones.

Category/Year Enacted: Economic development; 1998.

Primary Beneficiaries: None.

Conflict With Other Programs: None evident.

Tax Savings ($000): There are no known insurance companies that have utilized this tax credit.

48.32.145 PAYMENTS TO GUARANTY ASSOCIATIONS

48.32A.090(3)

Description: Assessments are made by the Insurance Commissioner against property, casualty, life, and disability insurers to pay any claims made against insolvent insurers. The assessments may be taken as a credit against the companies' insurance premiums tax. Thus, in essence, the claims are paid by reduced insurance premiums tax revenue. However, 1997 legislation restricts the credit to amounts assessed prior to April 1, 1993 or after July 27, 1997.

Purpose: The purpose is to ensure that claims against insolvent insurers are paid and that the cost of the claims is not borne by policyholders of the surviving companies.

Category/Year Enacted: Economic development; 1976. (The credit was suspended between April 1, 1993 and July 27, 1997.)

Primary Beneficiaries: Insurance companies' stockholders and policyholders.

Conflict With Other Programs: The state normally does not become involved in payment of debts of private firms.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 3,539 3,994 4,573 5,603
Local taxes - - - - - - - -

If the credit were repealed, would the estimated revenue be realized? Yes.

48.36A.240 FRATERNAL BENEFIT SOCIETIES

Description: According to RCW 48.36A.230, fraternal benefit societies are governed by Chapter 48.36A RCW and are exempt from all Washington State insurance laws. RCW 48.36A.240 exempts the societies from state and local taxation other than taxes on real estate and office equipment. As a result, these societies are exempt from insurance premiums tax.

Purpose: The purpose is apparently to support the programs of these organizations.

Category/Year Enacted: Nonprofit - other; 1947 (recodified in 1987).

Primary Beneficiaries: Approximately 27 nonprofit, mutual organizations and their members.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 2,136 2,190 2,244 2,301
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes; however, a significant portion, e.g., annuities, would be exempt under another statute.