HBA-TYH, ATS H.B. 1837 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1837 By: Brimer Insurance 7/22/1999 Enrolled BACKGROUND AND PURPOSE Prior to the 76th Legislature, all insurance companies, except nonprofit cooperatives, farm mutual companies, and fraternal organizations, were subject to the premium tax. The premium tax rate varied depending on several factors, including the type of insurance the insurer sells, the insurer's place of domicile, and, in some cases, the level of investment a company has made in Texas-backed securities. Under the varying tax rate scheme, also called a tiered tax system, all property and casualty insurers were required to pay at a rate of 3.5 percent, and all title insurers at a rate of two percent. However, the Insurance Code permitted these companies to qualify for a lower tax rate if they maintain certain investment levels in Texas-backed securities. For a property and casualty insurer, ownership of Texas investments with a value between 85 and 90 percent of those investments owned in a comparison state (the state where the company has made the next greatest amount of similar investments) reduced the rate from 3.5 percent to 2.4 percent. If the property and casualty insurer owned Texas investments with a greater value than 90 percent of the value of investments owned in a comparison state, the rate was reduced to 1.6 percent. For a title insurer, ownership of Texas investments with a value greater than 90 percent of those investments owned in a comparison state reduced the rate from two percent to 1.3 percent. H.B. 1837 sets the tax rate for casualty insurers at 1.6 percent. A rate of 1.35 percent is fixed for title insurers. This bill deletes the two investment options under which a casualty insurer is authorized to qualify for a tax rate lower than 3.5 percent and the one investment option under which a title insurer is authorized to qualify for a tax rate lower than two percent. Additionally, this bill includes maintenance or similar regulatory fees among those taxes, fees, or other obligations (obligations) that the comptroller of public accounts (comptroller), whenever any obligations are imposed upon an insurer in this state that is doing business or may do business, rather than actually doing business, in another state whose obligations, in the aggregate, are in excess of the obligations directly imposed upon a similar insurance company to impose upon and collect from any similar insurance company of the other state in the same manner and for the same purposes, the same obligations. The aggregate of the obligations imposed by this state is prohibited from exceeding the aggregate of such obligations imposed by the other state on a similar insurance company of this state that may be licensed and doing business in the other state. This bill also sets forth that Section 12(f), Article 1.14-1, Insurance Code, as added by this Act and Section 1(a), Article 21.46, Insurance Code, as amended by this Act clarify the law as it existed immediately before the effective date of this Act and prohibits their interpretation from implying that the law as it existed immediately before the effective date of this Act is inconsistent with the law as amended by this Act. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the comptroller of public accounts in SECTION 4 (Article 21.46, Insurance Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 12, Article 1.14-1, Insurance Code, by adding Subsection (f), to define "premium." SECTION 2. Amends Section 10, Article 4.10, Insurance Code, to lower the rate of the annual tax imposed on the gross premiums of each insurance carrier subject to this article, rather than an insurance carrier, from 3.5 percent to 1.6 percent. Deletes the two investment options under which an insurance carrier is authorized to qualify for a tax rate lower than 3.5 percent. Makes a nonsubstantive change. SECTION 3. Amends Section 4, Article 9.59, Insurance Code, to lower the rate of the annual tax imposed on all premiums on title insurance from two percent to 1.35 percent. Deletes the one investment option under which a title insurer is authorized to qualify for a tax rate lower than two percent. SECTION 4. Amends Article 21.46, Insurance Code, as follows: Sec. 1. RETALIATORY TAX. (a) Makes conforming and nonsubstantive changes. (b) Provides that whenever under the law of any state or territory the rate of taxation is reduced or a tax credit is granted to any such company making investments in the state or territory, having maintained offices in the state or territory, or meeting some other similar requirements of the state or territory, those laws are required to be applied in the same manner in this state in the determination of the aggregate obligations under this article. (b-1) Provides that this subsection expires December 31,1999. Makes a nonsubstantive change. (c) Makes nonsubstantive changes. (d) Authorize the comptroller to adopt rules concerning the administration and collection of taxes under this article. (e) Exempts sales taxes or surcharges that insurers may recoup directly from policy holders from this section. (f) Created from existing text. (g) Prohibits the provisions of this section from applying to special purpose assessments, such as guaranty association assessments, high risk health pool assessments, joint underwriting association (JUA) assessments, windstorm association assessments, or other similar assessments, both under the laws of this state and under the laws of any other state or territory. Requires any tax offset or credit related to such assessments that is offset or credited in computing aggregate taxes under this section for this state and any other state or territory, for purposes of this section, to be treated as a tax paid both under the laws of this state and under the laws of any other state or territory. Sec. 2 New Title: OTHER RETALIATORY PROVISIONS. Makes a conforming format change. The text of this section is redesignated from existing Section B, which has no title. SECTION 5. Repealers: Sections 7 (Amount of Tax), 8 (Texas Investments Defined), and 9 (Similar Investments Defined), Article 4.10 (Insurance Companies Other Than Life, Other Than Fraternal Benefit Associations, and Other Than Nonprofit Group Hospital Service Plans; Tax on Gross Premiums), Insurance Code; and Sections 13 (Texas Investments Defined) and 14 (Similar Investments Defined), Article 9.59 (Title Insurance Companies; Tax on Premiums), Insurance Code. SECTION 6. Provides that Section 12(f), Article 1.14-1, Insurance Code, as added by this Act, and Section 1(a), Article 21.46, Insurance Code, as amended and redesignated by this Act, clarify the law as it existed immediately before the effective date of this Act and prohibits their interpretation from implying that the law as it existed immediately before the effective date of this Act is inconsistent with the law as amended by this Act. SECTION 7. (a) Makes application of Sections 2, 3, and 5 of this Act prospective, beginning January 1, 2000. (b) Provides that the change in law made by Section 1(b), Article 21.46, Insurance Code, as added by this Act, and by the expiration of Section 1(b-1), Insurance Code, as amended and redesignated by this Act, applies only beginning with the tax year that begins on January 1, 2000. SECTION 8. Emergency clause. Effective date: upon passage.