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H. 3362
STATUS INFORMATION
General Bill
Sponsors: Rep. Tripp
Document Path: l:\council\bills\bbm\9338zw03.doc
Introduced in the House on January 21, 2003
Currently residing in the House Committee on Ways and Means
Summary: Life and health insurers
HISTORY OF LEGISLATIVE ACTIONS
Date Body Action Description with journal page number ------------------------------------------------------------------------------- 1/21/2003 House Introduced and read first time HJ-6 1/21/2003 House Referred to Committee on Ways and Means HJ-6
View the latest legislative information at the LPITS web site
VERSIONS OF THIS BILL
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 38-7-15 SO AS TO ALLOW LIFE AND HEALTH INSURERS TO ELECT TO PAY THE GENERAL CORPORATE TAX ON NET INCOME INSTEAD OF THE PREMIUM TAX; BY ADDING SECTION 38-7-95 SO AS TO CREATE A LIMITED EMPLOYMENT TAX CREDIT AGAINST EITHER THE PREMIUM TAX OF THE INCOME TAX FOR ALL INSURANCE COMPANIES BASED UPON A PERCENTAGE OF NONCOMMISSION COMPENSATION PAID TO SOUTH CAROLINA EMPLOYEES; BY ADDING SECTION 38-7-97 SO AS TO PROVIDE A CREDIT FOR MUNICIPAL LICENSE FEES AND TAXES FOR INSURANCE COMPANIES ORGANIZED AS LIFE AND HEALTH INSURERS; TO AMEND SECTION 12-6-50, RELATING TO INTERNAL REVENUE CODE SECTIONS SPECIFICALLY NOT ADOPTED BY THE STATE, SO AS TO PRESERVE INTERNAL REVENUE CODE SECTIONS 801 THROUGH 845 FROM EXCLUSION IN THE CASE OF LIFE AND HEALTH INSURERS ELECTING TO PAY THE INCOME TAX; TO AMEND SECTION 12-6-550, RELATING TO CORPORATIONS EXEMPT FROM TAXES IMPOSED BY SECTIONS 12-6-530 AND 12-6-540, SO AS TO EXCLUDE LIFE AND HEALTH INSURERS ELECTING TO PAY THE INCOME TAX FROM THE EXEMPTION; TO AMEND SECTION 12-6-2290, RELATING TO THE APPORTIONMENT OF REMAINING NET INCOME WHERE PRINCIPAL PROFITS OR INCOME DERIVED FROM SOURCES NOT OTHERWISE DESCRIBED, SO AS TO PROVIDE FOR THE APPORTIONMENT OF LIFE AND HEALTH INSURER INCOME ALLOCATED TO SOUTH CAROLINA ACCORDING TO A ONE-FACTOR FORMULA BASED ON PREMIUMS; TO AMEND SECTION 12-6-5020, RELATING TO THE AUTHORIZED FILING OF A CONSOLIDATED CORPORATE INCOME TAX RETURN, SO AS TO PROVIDE RULES PERTAINING TO CONSOLIDATED RETURNS FOR LIFE AND HEALTH INSURERS ELECTING TO PAY THE INCOME TAX; TO AMEND SECTION 38-7-90, RELATING TO RETALIATORY TAXES, SO AS TO PROVIDE AN EXEMPTION UNDER CERTAIN CIRCUMSTANCES FOR LIFE AND HEALTH INSURERS DOMICILED IN ANOTHER STATE; TO AMEND SECTION 38-7-190, RELATING TO TAX CREDITS, SO AS TO PROVIDE THAT SPECIFIED TAX CREDITS MAY NOT BE RECAPTURED FROM FOREIGN INSURANCE COMPANIES THROUGH THE RETALIATORY TAX PROVIDED PURSUANT TO SECTION 38-7-90; AND TO AMEND SECTION 38-29-160, RELATING TO PRODUCTION OF THE CERTIFICATE OF CONTRIBUTIONS, THE OFFSET OF A WRITE-OFF AGAINST TAX LIABILITY, AND THE PAYMENT OF CERTAIN REFUNDS TO THE STATE, SO AS TO EXTEND THE PREMIUM TAX OFFSET FOR LIFE AND HEALTH GUARANTY ASSOCIATION ASSESSMENTS TO THE INCOME TAX.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 7, Title 38 of the 1976 Code is amended by adding:
"Section 38-7-15. (A) An insurance company organized as a life and health insurer may elect to be taxed either on the basis of premiums pursuant to Section 38-7-20 or on the basis of income pursuant to Section 12-6-530.
(1) The election must be for an initial period of three years, except as provided in item (2) of this subsection. The election remains effective unless notice of a method change is given as provided in subsection (B). If the notice is given, the change is effective for a period of not less than three years except as provided in item (2) and remains in force until the time the insurance company gives notice pursuant to subsection (B) of an additional change.
(2) Upon request, an insurance company having made an election pursuant to this section, at the discretion of the department, may be permitted to change its basis of taxation from income tax to premium tax, or from premium tax to income tax, during the three-year period prescribed in items (1) and (3) if any of the following occurs:
(a) a material change of law affecting the insurance company;
(b) a significant merger, acquisition, or reorganization involving the insurance company; or
(c) a material change of fact relating to the insurance company's business.
(3) Elections after an initial election are subject to the same three-year restriction placed upon changing an initial election.
(B) An insurance company must make its initial election pursuant to this section, in writing, before the end of the calendar year preceding the year for which the election takes effect. Later elections to change the method of taxation must be made by an insurance company, in writing, before the end of the calendar year preceding the year for which the election is to take effect. Each election pursuant to this section applies to full calendar years and not to partial years.
(C) Until an initial election is made pursuant to item (1) of subsection (A), an insurance company organized as a life and health insurer remains subject to the premium tax pursuant to Section 38-7-20.
(D) Elections pursuant to this section are governed by regulations promulgated by the department."
SECTION 2. Chapter 7, Title 38 of the 1976 Code is amended by adding:
"Section 38-7-95. (A) Except as provided in subsection (E), for tax years beginning after December 31, 2003, each insurance company required to pay a tax on premiums pursuant to Section 38-7-20, or electing pursuant to Section 38-7-15 to pay the income tax pursuant to Section 12-6-530, must be allowed as a credit against the tax five percent of the salaries paid to South Carolina employees who are replacement hires and ten percent of the salaries paid to South Carolina employees who are not replacement hires. The credit allowed pursuant to this section may not exceed one-half of one percent of the premiums that are, or in the case of an insurance company electing to pay the income tax pursuant to Section 12-6-530 would be, taxable pursuant to Section 38-7-20.
(B) As used in this section, unless the context otherwise requires:
(1) 'Affiliate' means an insurance company which, directly or indirectly, through one or more intermediaries, controls, is controlled by or is pursuant to common control with another insurance company. 'Affiliate' also includes any company or business entity other than an insurance company which, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with an insurance company and which performs insurance company operations for an insurance company. For purposes of this definition, control exists if a company or business entity, directly or indirectly, owns, holds with the power to vote, or holds proxies representing, eighty percent of the voting stock or other voting securities of any other company or business entity. Control is considered to exist between two or more mutual insurance companies, and the companies are considered to be under common control, if at least eighty percent of the directors of the companies are the same individuals.
(2) 'South Carolina employees' means persons who reside in this State, who are common law employees of an insurance company or its affiliate, and who are first employed by the insurance company or its affiliate in South Carolina after December 31, 2003. 'South Carolina employees' does not include independent contractors or a person to the extent the person's compensation is based on commissions.
(3) 'Insurance company' or 'company' means an entity subject to the tax on premiums pursuant to Section 38-7-20 or electing pursuant to Section 38-7-15 to pay the income tax pursuant to Section 12-6-530.
(4) 'Insurance company operations' means one or more or a combination of the following functions or services performed in connection with the development, sale and administration of products giving rise to receipts that are, or in the case of a company electing pursuant to Section 38-7-15 to pay the income tax imposed pursuant to Section 12-6-530 would be, subject to the tax on premiums pursuant to Section 38-7-20: actuarial, medical, legal, investments, accounting, auditing, underwriting, policy issuance, information, policyholder services, premium collection, claims, advertising and publications, public relations, human resources, marketing, sales office staff, training of sales and service personnel, and clerical, managerial, and other support for those functions or services.
(5) 'Replacement hire' is a South Carolina employee who is employed to replace another employee who terminates employment in South Carolina, whether or not the terminating employee was a South Carolina employee within the meaning of this section. When a South Carolina employee who is not a replacement hire terminates employment, a person hired to replace that employee is a South Carolina employee who is not a 'replacement hire'.
(6) 'Salaries' means gross compensation paid to South Carolina employees as reported to this State for income tax purposes during the calendar year, but only to the extent compensation is paid for insurance company operations performed in this State for an insurance company or its insurance company affiliates. 'Salaries' does not include compensation based on commissions.
(C) For an insurance company having affiliates:
(1) Salaries paid by a noninsurance company affiliate must be allocated among insurance company affiliates pursuant to the agreement between or among the insurance company and its affiliates.
(2) The total premiums of an insurance company that are, or in the case of an insurance company electing pursuant to Section 38-7-15 to pay the income tax pursuant to Section 12-6-530 would be, subject to tax pursuant to Section 38-7-20 and those of its insurance company affiliates subject to the tax may be aggregated. In addition, all salaries paid to South Carolina employees may be aggregated. Subject to the limitation on the salary credit set forth in subsection (A) of this section, the total allowable salary credit may be determined as if all the aggregated premiums were received and all the aggregated salaries were paid by one insurance company. Once the total allowable salary credit is determined for all insurance company affiliates, the total credit may be allocated among the insurance company and its insurance company affiliates at the discretion of the insurance company on a company by company basis, subject to the limitation on the salary credit as set forth in subsection (A) of this section.
(D) Whether the credit pursuant to this section is claimed against the tax on premiums pursuant to Section 38-7-20 or the income tax pursuant to Section 12-6-530, salaries paid during the taxable year to South Carolina employees who are replacement hires, salaries paid to South Carolina employees who are not replacement hires, the computation of the allowable salary credit, and the allocation of the credit among insurance company affiliates must be reported on forms supplied by the Commissioner of Insurance.
(E) If an insurance company claims an employment or jobs related tax credit pursuant to Section 12-6-3360 or any other provision of law other than this section with respect to a person first employed by the company in South Carolina after December 31, 2003, then a credit must not be allowed pursuant to this section with respect to the employee."
SECTION 3. Chapter 7, Title 38 of the 1976 Code is amended by adding:
"Section 38-7-97. In computing a tax due pursuant to Section 38-7-20 or Section 12-6-530, a credit must be allowed for a municipal license fees and taxes imposed pursuant to the authority of Section 38-7-160 and paid during the taxable year by an insurance company organized as a life and health insurer. The credit pursuant to this section must be applied after all other allowable credits are applied. If the credit pursuant to this section exceeds the amount of tax due after other credits and before application of the credit pursuant to this section, the amount of the credit pursuant to this section shall be limited to the amount of tax due after all other allowable credits are applied. A credit not allowed pursuant to this section must not be carried over to a later taxable year."
SECTION 4. Section 12-6-50(10) of the 1976 Code is amended to read:
"(10) Sections 801 through 845 relating to the taxation of insurance companies, except in the case of insurance companies organized as life and health insurers electing pursuant to Section 38-7-15 to be taxed pursuant to Section 12-6-530;"
SECTION 5. Section 12-6-550(3) of the 1976 Code is amended to read:
"(3) insurance companies other than those organized as life and health insurers electing pursuant Section 38-7-15 to pay the tax imposed by Section 12-6-530;"
SECTION 6. Section 12-6-2290 of the 1976 Code is amended to read:
"Section 12-6-2290. (A) If In general, if the principal profits or income of a taxpayer are derived from sources other than those described in Section 12-6-2250 or Section 12-6-2310, the taxpayer shall apportion its remaining net income using a fraction in which the numerator is gross receipts from within this State during the taxable year and the denominator is total gross receipts from everywhere during the taxable year.
(B) For insurance companies organized as life and health insurers, the numerator of the apportionment factor in subsection (A) is premiums received from within the State during the taxable year as reported to the Commissioner of Insurance in Schedule T of the insurance company's annual report filed pursuant to Title 38, excluding annuity and other fund deposits, and the denominator of the factor is total premiums received from everywhere during the taxable year as reported to the Commissioner of Insurance in Schedule T of the insurance company's annual report filed pursuant to Title 38, excluding annuity and other fund deposits."
SECTION 7. Section 12-6-5020 of the 1976 Code is amended by adding new subsections at the end to read:
"(I) An insurance company organized as a life and health insurer electing pursuant to Section 38-7-15 to pay the tax imposed by Section 12-6-530 may join an election to file a consolidated return with one or more other similar insurance companies meeting the common control requirements of subsection (A) of this section. The insurance companies may not elect to file, or be required to file, a consolidated return with another entity that is not an insurance company organized as a life and health insurer.
(J) For purposes of computing a tax due pursuant to Section 38-7-90 from an insurance company not organized under the laws of South Carolina, the total tax determined on a consolidated return must be allocated among the similar insurance companies joined in the consolidated return in order to determine the amount of tax considered paid to South Carolina pursuant to Section 12-6-530 by each of the electing insurance companies. The numerator of the fraction used in the allocation is the total premiums received from within the State during the taxable year as reported by the individual electing insurance company to the Commissioner of Insurance in Schedule T of the insurance company's annual report filed pursuant to Title 38, excluding annuity and other fund deposits, and the denominator of the fraction is the total of all South Carolina premiums for all similar insurance companies joined in the consolidated return."
SECTION 8. Section 38-7-90 of the 1976 Code is amended by adding a new subsection at the end to read:
"(D) This section does not apply to an insurance company organized as a life and health insurer and domiciled in a state that, with respect to similar South Carolina insurance companies,:
(1) does not impose a tax based on premiums; or
(2) has adopted a tax based on net income instead of
a tax based on premiums; or
(3) allows the insurance companies to elect to pay a tax based on net income instead of a tax based on premiums in substantially the same manner as in Section 38-7-15."
SECTION 9. Section 38-7-190(A) of the 1976 Code is amended by adding new items (6), (7) and (8) at the end to read:
"(6) In computing a tax due pursuant to Section 38-7-90 from a taxpayer not organized under the laws of South Carolina, credits allowed pursuant to Section 38-7-95, 38-29-160, and Chapter 6 of Title 12 must be treated as taxes paid to South Carolina.
(7) Except as otherwise provided by statute, credits against insurance company taxes described in this section and in excess of applicable limitations for a taxable year must be carried forward for five years or until used, whichever occurs first.
(8) This section does not apply to the credit pursuant to Section 38-7-97 for municipal taxes allowable to insurance companies organized as life and health insurers."
SECTION 10. Section 38-29-160 of the 1976 Code is amended to read:
"Section 38-29-160. (1) Unless a longer period has been allowed by the director or his designee, a member insurer, at its option, has the right to show a certificate of contribution as an asset in the form approved by the director or his designee pursuant to subsection (8) of Section 38-29-80, at percentages of the original face amount approved by the director or his designee, for calendar years as follows:
(a) one hundred percent for the calendar year of issuance;
(b) eighty percent for the first calendar year after the year of issuance;
(c) sixty percent for the second calendar years after the year of issuance;
(d) forty percent for the third calendar year after the year of issuance;
(e) twenty percent for the fourth calendar year after the year of issuance;
(f) zero percent for the fifth calendar year after the year of issuance and thereafter.
(2) The insurer may offset the amount written off by it in any a calendar year under pursuant to subsection (1) against its premium (or income) or income tax liability to this State accrued with respect to business transacted in that year.
(3) Any sums acquired by refund, pursuant to subsection (6) of Section 38-29-80, from the association which have previously been written off by contributing insurers and offset off set against premium (or income) or income taxes as provided in subsection (2) of this section and are not then needed for purposes of this chapter must be paid by the association to the department and by him deposited by the director with the State Treasurer for credit to the general fund of this State."
SECTION 11. Except as otherwise expressly provided, this act takes effect January 1, 2004.
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