HBA-ATS H.B. 1837 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1837 By: Brimer Insurance 3/22/1999 Introduced BACKGROUND AND PURPOSE In Texas, all insurance companies, except nonprofit cooperatives, farm mutual companies, and fraternal organizations, are subject to the premium tax. The premium tax rate varies 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 are required to pay at a rate of 3.5 percent, and all title insurers at a rate of two percent. However, the Insurance Code permits 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) reduces the rate from 3.5 percent to 2.4 percent. If the property and casualty insurer owns Texas investments with a greater value than 90 percent of the value of investments owned in a comparison state, the rate is 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 reduces the rate from two percent to 1.3 percent. Although most companies qualify for the lower rate under the Insurance Code, some states do not have comparably tiered systems to calculate the rate of tax for Texas' insurers doing business in these jurisdictions, or they choose not to recognize Texas' tiered tax system. These states automatically apply the highest rate. To equalize the difference between what its insurers must pay and what foreign insurers pay in this state, Texas uses a retaliatory tax rate. These retaliatory measures, as part of a tiered tax system, may be detrimental to the insurance industry. H.B. 1837 eliminates the tiered tax system and replaces it with a flat tax rate. For property and casualty insurers the rate is fixed at 1.725 percent. A rate of 1.9 percent is fixed for title insurers and life, accident, and health insurers. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. 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 1.725 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 2. Amends Sections 2, 5, 5G, and 5H, Article 4.11, Insurance Code, as follows: Sec. 2. DEFINITIONS. Deletes the definitions of "comparison state," "similar investments," and "Texas investments." Makes conforming changes and a nonsubstantive change. Sec. 5. New title: TAX RATE. (a) Lowers the rate of the annual tax imposed on the gross premiums of each insurance carrier, except for the gross premiums on life insurance and the gross revenues of health maintenance organizations (HMO), from 2.5 percent to 1.9 percent. Deletes references to the year 1989. Deletes the two investment options under which an insurance carrier is authorized to qualify for a tax rate lower than 2.5 percent. (b) Imposes a 1.9 percent annual tax on the gross amounts of revenue collected by an HMO operating under Chapter 20A (Health Maintenance Organization Act), Insurance Code, for its issuance of health maintenance certificates or contracts. Makes conforming changes. Sec. 5G. TAX RATE ON CERTAIN LIFE INSURANCE. Makes conforming changes. Sec. 5H. TAX RATE ON CERTAIN GROSS REVENUES OF HEALTH MAINTENANCE ORGANIZATIONS. Makes conforming changes. 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. 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; Sections 4 (Allocation of Investments), 5A (Tax Rate--1990), 5B (Tax Rate--1991), 5C (Tax Rate--1992), 5D (Tax Rate--1993), 5E (Tax Rate--1994), and 5F (Tax Rate-1995 and Afterwards), Article 4.11 (Life, Health, and Accident Insurance Companies; Premium Tax), 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 5. Makes application of this Act prospective, beginning January 1, 2000. SECTION 6. Emergency clause.