2016 -- H 8058 SUBSTITUTE A

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LC005667/SUB A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2016

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A N   A C T

RELATING TO TAXATION - TAXATION OF INSURANCE COMPANIES

     

     Introduced By: Representatives Shekarchi, Kennedy, Keable, Blazejewski, and

     Date Introduced: April 08, 2016

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

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     SECTION 1. Section 44-17-1 of the General Laws entitled "Taxation of Insurance

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Companies" is hereby amended to read as follows:

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     44-17-1. Companies required to file – Payment of tax – Retaliatory rates. -- (a) Every

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domestic, foreign, or alien insurance company, mutual association, organization, or other insurer,

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including any health maintenance organization, as defined in § 27-41-1, any medical malpractice

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insurance joint underwriters association as defined in § 42-14.1-1, any nonprofit dental service

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corporation as defined in § 27-20.1-2 and any nonprofit hospital or medical service corporation,

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as defined in chapters 27-19 and 27-20, except companies mentioned in § 44-17-6, and

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organizations defined in § 27-25-1, transacting business in this state, shall, on or before March 1

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in each year, file with the tax administrator, in the form that he or she may prescribe, a return

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under oath or affirmation signed by a duly authorized officer or agent of the company, containing

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information that may be deemed necessary for the determination of the tax imposed by this

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chapter, and shall at the same time pay an annual tax to the tax administrator of two percent (2%)

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of the gross premiums on contracts of insurance, except for ocean marine insurance, as referred to

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in § 44-17-6, covering property and risks within the state, written during the calendar year ending

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December 31st next preceding.

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     (b) Qualifying insurers for purposes of this subsection means every domestic, foreign, or

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alien insurance company, mutual association, organization, or other insurer and excludes:

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     (1) Health maintenance organizations, as defined in §27-41-2;

 

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     (2) Nonprofit dental service corporations as defined in §27-20.1-2; and

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     (3) Nonprofit hospital or medical service corporations, as defined in §§27-19-1 and 27-

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20-1.

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     (c) For tax years 2018 and thereafter, the rate of taxation may be reduced as set forth

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below and, if so reduced, shall be fully applicable to qualifying insurers instead of the two percent

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(2%) rate listed in subsection (a) above. but in In the case of foreign or alien companies, except as

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provided in § 27-2-17(d), the tax is shall not be less in amount than is imposed by the laws of the

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state or country under which the companies are organized upon like companies incorporated in

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this state or upon its agents, if doing business to the same extent in the state or country. The tax

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rate shall not be reduced for gross premiums written on contracts of health insurance as defined in

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§42-14-5(c) but shall remain at two percent (2%) or the appropriate retaliatory tax rate, whichever

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is higher.

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     (d) For qualifying insurers the premium tax rate may be decreased based upon Rhode

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Island jobs added by the industry as detailed below:

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     (1) A committee shall be established for the purpose of implementing tax rates using the

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framework established herein. The committee shall be comprised of the following persons or their

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designees: the secretary of commerce, the director of the department of business regulation, the

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director of the department of revenue, and the director of the office of management and budget.

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No rule may be issued pursuant to this section without the prior, unanimous approval of the

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committee.

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     (2) On the timetable listed below the committee shall determine whether qualifying

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insurers have added new qualifying jobs in this state in the preceding calendar year. A qualifying

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job for purposes of this section is one in which a person is employed for consideration for at least

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thirty-five (35) hours a week earning no less than the median hourly wage as reported by the

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United States Bureau of Labor Statistics for the state of Rhode Island.

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     (3) If the committee determines that there has been a sufficient net increase in qualifying

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jobs in the preceding calendar year(s) to offset a material reduction in the premium tax, it shall

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calculate a reduced premium tax rate. Such rate shall be determined via a method selected by the

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committee and designed such that the estimated personal income tax generated by the increase in

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qualifying jobs is at least one-hundred and twenty-five percent (125%) of the anticipated

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reduction in premium tax receipts resulting from the new rate. For purposes of this calculation,

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the committee may consider personal income tax withholdings or receipts, but in no event may

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the committee include for the purposes of determining revenue neutrality income taxes that are

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subject to segregation pursuant to section 44-48.3-8(f) of the general laws or that are otherwise

 

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available to the general fund.

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     (4) Any reduced rate established pursuant to this section must be established in a

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rulemaking proceeding pursuant to chapter 35 of title 42, subject to the following conditions:

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     (i) Any net increase in qualifying jobs and the resultant premium tax reduction and

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revenue impact shall be determined in any rulemaking proceeding conducted under this section

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and shall be set forth in a report included in the rulemaking record, which report shall also include

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a description of the data sources and calculation methods used. The first such report shall also

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include a calculation of the baseline level of employment of qualifying insurers for the calendar

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year 2015.

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     (ii) Notwithstanding any provision of the law to the contrary, no rule changing the tax

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rate shall take effect until one hundred and twenty (120) days after notice of the rate change is

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provided to the speaker of the house, the president of the senate, the house and senate fiscal

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advisors, and the auditor general, which notice shall include the report required under the

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preceding provision.

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     (5) For each of the first three (3) rulemaking proceedings required under this section, the

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tax rate may remain unchanged or be decreased consistent with the requirements of this section,

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but may not be increased. These first three (3) rulemaking proceedings shall be conducted by the

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division of taxation and occur in the following manner:

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     (i) The first rulemaking proceeding shall take place in calendar year 2017. This

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proceeding shall establish a rule that sets forth (A) a new premium tax rate, if allowed under the

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requirements of this section, which rate shall take effect in 2018, and (B) a method for calculating

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the number of jobs at qualifying insurers.

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     (ii) The second rulemaking proceeding shall take place in calendar year 2018. This

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proceeding shall establish a rule that sets forth (A) a new premium tax rate, if allowed under the

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requirements of this section, which rate shall take effect in 2019, and (B) the changes, if any, to

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the method for calculating the number of jobs at qualifying insurers.

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     (iii) The third rulemaking proceeding shall take place in calendar year 2019. This

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proceeding shall establish a rule that sets forth (A) a new premium tax rate, if allowed under the

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requirements of this section, which rate shall take effect in 2020, and (B) the changes, if any, to

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the method for calculating the number of jobs at qualifying insurers.

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     (5) The tax rate established in the regulation following regulatory proceedings that take

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place in 2019 shall remain in effect through and including 2023. In calendar year 2023 the

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department of business regulation will conduct a rulemaking proceeding and issue a rule that sets

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forth (A) a new premium tax rate, if allowed under the requirements of this section, which rate

 

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shall take effect in 2024, and (B) the changes, if any, to the method for calculating the number of

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jobs at qualifying insurers. A rule issued by the department of business regulation may decrease

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the tax rate if the requirements for a rate reduction contained in this section are met, or it may

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increase the tax rate to the extent necessary to achieve the overall revenue level sought when the

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then existing tax rate was established. Any rate established shall be no lower than one percent

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(1%) and no higher than two percent (2%). This proceeding shall be repeated every three (3)

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calendar years thereafter, however, the base for determination of job increases or decreases shall

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remain the number of jobs existing during calendar year 2022.

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     (7) No reduction in the premium tax rate pursuant to this section shall be allowed absent a

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determination that qualifying insurers have added in this state at least three hundred fifty (350)

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new, full-time, qualifying jobs above the baseline level of employment of qualifying insurers for

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the calendar year 2015.

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     (8) Notwithstanding any provision of this section to the contrary, the premium tax rate

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shall never be set lower than one percent (1%).

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     (9) The division of taxation may adopt implementation guidelines, directives, criteria,

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rules and regulations pursuant to chapter 35 of title 42 as are necessary to implement this section.

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     (10) The calculation of revenue impacts under this section is at the sole discretion of the

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committee established under subsection (d)(1) of this section. Notwithstanding any provision of

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law to the contrary, any administrative action or rule setting a tax rate pursuant to this section or

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failing or declining to alter a tax rate pursuant to this section shall not be subject to judicial

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review under chapter 35 of title 42.

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     SECTION 2. Chapter 27-1 of the General Laws entitled "Domestic Insurance

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Companies" is hereby amended by adding thereto the following section:

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     27-1-45. Determination of premium tax rate. -- The department of business regulation

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may participate in proceedings under §44-17-1(d) to implement guidelines, directives, criteria,

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and may promulgate additional resulting rules and regulations pursuant to chapter 35 of title 42 as

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are necessary to implement §44-17-1(d).

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     SECTION 3. Chapter 27-2 of the General Laws entitled "Foreign Insurance Companies"

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is hereby amended by adding thereto the following section:

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     27-2-28. Determination of premium tax rate. -- The department of business regulation

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may participate in proceedings under §44-17-1(d) to implement guidelines, directives, criteria,

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and may promulgate additional resulting rules and regulations pursuant to chapter 35 of title 42 as

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are necessary to implement §44-17-1(d).

 

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     SECTION 4. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION - TAXATION OF INSURANCE COMPANIES

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     This act would amend the insurance premium tax statute to provide for a reduction in the

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premium tax paid by insurance companies if sufficient specific insurance related jobs are created

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in Rhode Island to make the reduction revenue positive.

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     This act would take effect upon passage.

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