Title: An act relating to reporting insurance premiums for tax purposes.

Brief Description: Reporting insurance premiums for tax purposes.

Sponsors: Representative Kirby; by request of Insurance Commissioner.

Brief History: Passed House: 1/28/08, 92-0.

Committee Activity: Financial Institutions & Insurance:2/20/08, 2/27/08 [DP].

SENATE COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

Majority Report: Do pass.Signed by Senators Berkey, Chair; Hobbs, Vice Chair; Benton, Ranking Minority Member; Franklin, Parlette, Prentice and Schoesler.

Staff: Diane Smith (786-7410)

Background: The Office of the Insurance Commissioner (OIC) regulates the business of insurance in Washington. Insurers are required to file financial reports with the OIC to assist in rate and solvency regulation. Each March, insurers file annual statements reporting their financial conditions, transactions, and affairs for the previous year to the OIC. The statement forms are in the general form and context as approved by the National Association of Insurance Commissioners. As part of its annual statement, an insurer must file a statement of premiums that are collected or received on a form prescribed by the OIC. In every statement of premiums, the reporting of premiums for tax purposes must be on a written basis or on a paid-for basis consistent with the basis required by the annual statement.

The OIC also collects taxes on insurance premiums. The premium tax is a receipts tax that is similar to the Business and Occupation tax. This tax is levied against an insurer's premium volume at a rate of 2 percent. Insurers must pay the tax on or before March 1 of each year. All premiums written, procured, or received in Washington are deemed taxable except for those premiums that are properly allocated or apportioned and reported as taxable in another state or states.

"Written premium" is the amount that an insurer charges in return for coverage. Generally, property casualty polices have the term of a year. Rates rarely change within the term of a policy. If a policy term extends over a calendar year into another calendar year but the amount is paid in the first year, it is counted in the first year.

"Paid-for premium" is the amount that an insurer receives in return for coverage. The reporting of this sum is more likely to arise in situations where the contract is a life, health, or disability policy. The contracts may be for an extended period of years or month-to-month. The premium amounts can change over time. If coverage extends over a calendar year into another calendar year, it is possible that part or the entire premium may be earned in the first year.

Summary of Bill: The reporting of premiums for tax purposes must be consistent with the basis required by the annual statement, whether it is on a written or a paid-for basis.

Appropriation: None.

Fiscal Note: Not requested.

Committee/Commission/Task Force Created: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony: PRO: This bill just clarifies the current practice, and makes the language of the code consistent.

Persons Testifying: PRO: Mary Clogston, OIC.