Title: An act relating to insurance premiums tax.

Brief Description: Regarding insurance premiums tax.

Sponsors: Senator Pridemore; by request of Department of Revenue.

Brief History:

Committee Activity: Ways & Means: 1/25/06, 1/26/06 [DPS].

SENATE COMMITTEE ON WAYS & MEANS

Majority Report: That Substitute Senate Bill No. 6578 be substituted therefor, and the substitute bill do pass.Signed by Senators Prentice, Chair; Doumit, Vice Chair, Operating Budget; Zarelli, Ranking Minority Member; Brandland, Fairley, Hewitt, Kohl-Welles, Parlette, Pflug, Pridemore, Rasmussen, Regala, Roach, Rockefeller, Schoesler and Thibaudeau.

Staff: Dean Carlson (786-7305)

Background: Persons engaged in the business of making contracts of insurance must pay an insurance premiums tax to the state. The tax is imposed on net premiums received by the insurer, after deduction of premiums that are returned to policyholders. For ocean marine and foreign trade insurers, the tax is imposed on net underwriting profit, which is net premiums less net losses paid. The tax rate is 0.95 percent for ocean marine and foreign trade insurers, and 2 percent for other insurers. Title insurers and fraternal benefit societies are exempt from this tax.

The statute imposing the insurance premiums tax states that the tax is in lieu of all other taxes, except taxes on real and tangible personal property, excise taxes on the sale, purchase, or use of such property, and business & occupation tax imposed on nonprofit hospitals. A question has arisen as to whether the phrase "excise taxes on the sale, purchase or use of such property" means
insurers are liable for retail sales taxes only on the sale of tangible personal property and not on the sale of services or extended warranties.

When the retail sales tax was first adopted in 1935, it applied only to sales of tangible personal property. However, since the late 1930s the Legislature has expanded the retail sales tax base to include some services. For example, in 1939, installation, cleaning, and similar services related to tangible personal property were the first services subjected to retail sales tax. In 1941, construction services were subjected to retail sales tax. Additional services have been subjected to retail sales taxes in more recent years. In 2005, sales tax was applied to sales of extended warranties.

Summary of Substitute Bill: The Legislature finds that the insurance premiums tax is intended to be in lieu of any other tax imposed on the privilege of conducting an insurance business, but not in lieu of property taxes or retail sales taxes. The Legislature further finds that exemption of insurers from retail sales tax on services is unintentional, would be inequitable, and would be inconsistent with other excise tax statutes.

State and local excise taxes on the sale of services and extended warranties are expressly added to the statutory list of taxes that apply to insurers. This provision applies both prospectively and retroactively.

Substitute Bill Compared to Original Bill: Terminology in intent section was amended.

Appropriation: None.

Fiscal Note: Available.

Committee/Commission/Task Force Created: No.

Effective Date: The bill contains an emergency clause and takes effect immediately.

Testimony For: We think of this as a status quo bill. Insurers have been paying sales tax on services for the last 50 years, so this bill does nothing new in reality. This statute was just brought to light recently. We would like to treat insurers just like any other business. We don't have any objection to the purpose of this bill. Our concern is the retroactivity provision, but it is not hostile to the intent of the bill. We are not troubled with the bill, but have an amendment suggestion in the first section to represent existing terminology.

Testimony Against: None.

Who Testified: PRO: Gil Brewer, Department of Revenue; Mel Sorensen, Property Casualty Insurers of America; Gary Strannigan, Safeco.