HBA-ATS C.S.H.B. 1837 76(R)BILL ANALYSIS
Office of House Bill AnalysisC.S.H.B. 1837
By: Brimer
Insurance
4/13/1999
Committee Report (Substituted)
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.
C.S.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 requires the comptroller of public accounts
(comptroller), whenever any mandatory provisions are imposed upon an
insurer in this state that might theoretically be licensed and doing
business in another state whose mandatory provisions, in the aggregate, are
in excess of the mandatory provisions directly imposed upon a similar type
insurance company, to impose upon and collect from any similar type
insurance company of the other state in the same manner and for the same
purposes, the same mandatory provisions. The aggregate of the mandatory
provisions imposed by this state is prohibited from exceeding the aggregate
of such charges imposed by the other state on a similar type insurance
company of this state that might theoretically be licensed and doing
business in the other state.
This bill also authorizes the comptroller, by rule, to prescribe procedures
for a method of comparing the highest aggregate rate of taxation that would
be imposed on a Texas insurer to the highest aggregate rate imposed on
similar type insurance companies organized in other jurisdictions. This
bill also sets forth that Sections 1 and 4 of 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. Redesignated from Section A. (a) Adds this
subsection to define "similar type insurance company" and "basic rate of
taxation."
(b) Requires the comptroller of public accounts (comptroller), whenever any
mandatory provisions, rather than taxes, including income and corporate
franchise, licenses, fees, penalties, deposit requirements or other
obligations, prohibitions or restrictions, are imposed upon an insurer in
this state that might theoretically be licensed, rather than licensed, and
doing business, rather than actually doing business, in another state whose
mandatory provisions, in the aggregate, are in excess of the mandatory
provisions directly imposed upon a similar type insurance company, rather
than a similar insurance company, to impose upon and collect from any
similar type insurance company of the other state in the same manner and
for the same purposes, the same mandatory provisions. Prohibits the
aggregate of the mandatory provisions imposed by this state from exceeding
the aggregate of such charges imposed by the other state on a similar type
insurance company of this state that might theoretically be licensed and
doing business in the other state. Defines "mandatory provisions." Makes
conforming changes.
(c) Makes nonsubstantive changes.
(d) Adds this subsection to authorize the comptroller, by rule, to
prescribe procedures for administering this article, including a method of
comparing the highest aggregate rate of taxation that would be imposed on a
Texas insurer to the highest aggregate rate imposed on similar type
insurance companies organized in other jurisdictions.
(e) Makes nonsubstantive changes.
(f) Requires the tax to be collected by the comptroller under this section,
rather than under this article, to be deposited in the State Treasury to
the credit of the general revenue fund. Makes a conforming change.
(g) Created from existing text.
(h) Prohibits the provisions of this section, rather than of this act, from
applying to an insurer of another state doing business in this state if 15
percent of more of the voting stock of the other insurer is owned by a
Texas corporation.
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. Sets forth that Sections 1 and 4 of 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. Makes application of this Act prospective, beginning January 1,
2000.
SECTION 8. Emergency clause.
COMPARISON OF ORIGINAL TO SUBSTITUTE
C.S.H.B. 1837 modifies the original bill by adding a new SECTION 1 that
amends Section 12, Article 1.14-1, Insurance Code, by adding Subsection
(f), to define "premium."
C.S.H.B. 1837 modifies the original bill by redesignating SECTION 1 of the
original as SECTION 2 and by decreasing the rate of the annual tax imposed
on the gross premiums of each insurance carrier subject to this article
from 3.5 percent to 1.6 percent, rather than to 1.725 percent.
C.S.H.B. 1837 modifies the original bill by deleting the text of SECTION 2
of the original, which would have amended existing Sections 2, 5, 5G, and
5H, Article 4.11, Insurance Code. The original would have amended existing
Section 2 by deleting the definitions of "comparison state," "similar
investments," and "Texas investments." The original also made conforming
changes and a nonsubstantive change in existing Section 2.
In existing Section 5(a), the original would have lowered 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. The
original would have also deleted references to the year 1989 and deleted
the two investment options under which an insurance carrier is authorized
to qualify for a tax rate lower than 2.5 percent. In existing Section
5(b), the original would have imposed 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. The original would have also made
conforming changes.
In existing Section 5G, the original would have made conforming changes.
In existing Section 5H, the original would have made conforming changes.
SECTION 4 of the original bill is redesignated, with changes, as SECTION 5.
In new SECTION 4 of the substitute, the substitute amends Article 21.46,
Insurance Code, as follows:
Sec 1. RETALIATORY TAX. Redesignated from existing Section A. (a) Adds
this subsection to define "similar type insurance company" and "basic rate
of taxation." Redesignated from Section A.
(b) Requires the comptroller of public accounts (comptroller), whenever any
mandatory provisions, rather than taxes, including income and corporate
franchise, licenses, fees, penalties, deposit requirements or other
obligations, prohibitions or restrictions, are imposed upon an insurer in
this state that might theoretically be licensed, rather than licensed, and
doing business in another state whose mandatory provisions, in the
aggregate, are in excess of the mandatory provisions directly imposed upon
a similar type insurance company, to impose upon and collect from any
similar type insurance company of the other state in the same manner and
for the same purposes, the same mandatory provisions. Prohibits the
aggregate of the mandatory provisions imposed by this state from exceeding
the aggregate of such charges imposed by the other state on a similar type
insurance company of this state that might theoretically be licensed and
doing business in the other state. Defines "mandatory provisions." Makes
nonsubstantive and conforming changes.
(c) Makes nonsubstantive changes.
(d) Adds this subsection to authorize the comptroller, by rule, to
prescribe procedures for administering this article, including a method of
comparing the highest aggregate rate of taxation that would be imposed on a
Texas insurer to the highest aggregate rate imposed on similar type
insurance companies organized in other jurisdictions.
(e) Makes nonsubstantive changes.
(f) Requires the tax to be collected by the comptroller under this section,
rather than under this article, to be deposited in the State Treasury to
the credit of the general revenue fund. Makes a conforming change.
(g) Created from existing text.
(h) Prohibits the provisions of this section, rather than of this act, from
applying to an doing of another state doing business in this state if 15
percent of more of the voting stock of the other insurer is owned by a
Texas corporation.
Sec. 2: OTHER RETALIATORY PROVISIONS. The text of this section is
redesignated from existing section B, which has no title.
C.S.H.B. 1837 modifies the original bill by deleting the text of SECTION 5
of the original, which would have made application of this Act prospective,
beginning January 1, 2000. In SECTION 5 of the substitute, as redesignated
from SECTION 4 of the original, the substitute repeals Sections 7, 8, and
9, Article 4.10, Insurance Code, and Sections 13 and 14, Article 9.59,
Insurance Code. Unlike the original, the substitute does not repeal Section
4 (Allocation of Investments) and Sections 5A-5F (relating to tax rates in
the years 1990-1995, and afterwards).
C.S.H.B. 1837 modifies the original bill by deleting the text of SECTION 6
of the original, which was the emergency clause. In SECTION 6 of the
substitute, the substitute sets forth that Sections 1 and 4 of 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.
C.S.H.B. 1837 modifies the original bill by redesignating SECTION 5 of the
original as SECTION 7 and modifying it to provide that the change in law
made by Sections 2, 3, and 5 of this Act applies only to a premium tax
imposed under Articles 4.10 and 9.59, Insurance Code, beginning with the
tax year that begins January 1, 2000. Under the original, the change in
law made by this Act applied only to a premium tax imposed under Articles
4.10, 4.11, and 9.59, Insurance Code.
C.S.H.B. 1837 modifies the original bill by redesignating SECTION 6 of the
original as SECTION 8.