HOUSE BILL NO. 327

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H0327...............................................by REVENUE AND TAXATION
MUTUAL INSURANCE HOLDING COMPANIES - Amends existing law to provide that
the formation of mutual insurance holding companies should not increase the
tax burden of the mutual insurance holding company system; to provide that
dividends or distributions may be issued by a stock insurance subsidiary to
the mutual insurance holding company or intermediate holding company; and
to provide that such dividends or distributions shall be excluded from
Idaho taxable income in certain circumstances.
                                                                        
03/04    House intro - 1st rdg - to printing
03/05    Rpt prt - to Rev/Tax
03/12    Rpt out - rec d/p - to 2nd rdg
03/13    2nd rdg - to 3rd rdg
03/17    3rd rdg - PASSED - 70-0-0
      AYES -- Andersen, Barraclough, Barrett, Bauer, Bedke, Bell, Bieter,
      Black, Block, Boe, Bolz, Bradford, Campbell, Cannon, Clark, Collins,
      Crow, Cuddy, Deal, Denney, Douglas, Eberle, Edmunson, Ellsworth,
      Eskridge, Field(18), Field(23), Gagner, Garrett, Harwood, Henbest,
      Jaquet, Jones, Kellogg, Kulczyk, Lake, Langford, Langhorst, Martinez,
      McGeachin, McKague, Meyer, Miller, Mitchell, Moyle, Naccarato,
      Nielsen, Raybould, Ridinger, Ring, Ringo, Roberts, Robison, Rydalch,
      Sali, Sayler, Schaefer, Shepherd, Shirley, Skippen, Smith(30),
      Smith(24), Smylie, Snodgrass, Stevenson, Tilman, Trail, Wills, Wood,
      Mr. Speaker
      NAYS -- None
      Absent and excused -- None
    Floor Sponsor - Collins
    Title apvd - to Senate
03/19    Senate intro - 1st rdg - to Loc Gov
03/25    Rpt out - rec d/p - to 2nd rdg
03/26    2nd rdg - to 3rd rdg
03/31    3rd rdg - PASSED - 34-0-1
      AYES -- Andreason, Bailey, Brandt, Burkett(Roberts), Bunderson,
      Burtenshaw, Calabretta, Cameron, Compton, Darrington, Davis, Gannon,
      Geddes, Goedde, Hill, Ingram, Kennedy, Keough, Little, Lodge,
      Malepeai, Marley, McKenzie, Noble, Noh, Pearce, Richardson,
      Schroeder, Sorensen, Stegner, Stennett, Sweet, Werk, Williams
      NAYS -- None
      Absent and excused -- McWilliams
    Floor Sponsors - Sweet, Ingram & Werk
    Title apvd - to House
04/01    To enrol
04/02    Rpt enrol - Sp signed
04/03    Pres signed
04/04    To Governor
04/08    Governor signed
         Session Law Chapter 271
         Effective: 01/01/04

Bill Text


                                                                        
                                                                        
  ||||              LEGISLATURE OF THE STATE OF IDAHO             ||||
 Fifty-seventh Legislature                 First Regular Session - 2003
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 327
                                                                        
                             BY REVENUE AND TAXATION COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO MUTUAL INSURANCE  HOLDING  COMPANIES;  AMENDING  SECTION  41-3821,
  3        IDAHO CODE, TO PROVIDE THAT THE FORMATION OF MUTUAL INSURANCE HOLDING COM-
  4        PANIES  SHOULD NOT INCREASE THE TAX BURDEN OF THE MUTUAL INSURANCE HOLDING
  5        COMPANY SYSTEM, TO PROVIDE THAT STOCK INSURANCE  SUBSIDIARIES  SHALL  CON-
  6        TINUE  TO  BE  SUBJECT  TO PREMIUM TAXATION AND REAL PROPERTY TAXATION, TO
  7        PROVIDE THAT SUBJECT TO THE APPROVAL OF THE DIRECTOR DIVIDENDS OR  DISTRI-
  8        BUTIONS  MAY  BE ISSUED BY A STOCK INSURANCE SUBSIDIARY TO A MUTUAL INSUR-
  9        ANCE HOLDING COMPANY OR INTERMEDIATE HOLDING COMPANY, TO PROVIDE THAT SUCH
 10        DIVIDENDS OR DISTRIBUTIONS SHALL BE EXCLUDED FROM IDAHO TAXABLE INCOME AND
 11        TO PROVIDE THAT THE EXCLUSION SHALL NOT APPLY  IN  CERTAIN  CIRCUMSTANCES;
 12        AND PROVIDING AN EFFECTIVE DATE.
                                                                        
 13    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
 14        SECTION  1.  That  Section 41-3821, Idaho Code, be, and the same is hereby
 15    amended to read as follows:
                                                                        
 16        41-3821.  MUTUAL INSURANCE HOLDING COMPANIES.
 17        (1)  (a) A domestic mutual insurer, upon approval  of  the  director,  may
 18        reorganize  by  forming  an  insurance holding company system, "the mutual
 19        insurance holding company," based upon a mutual plan  and  continuing  the
 20        corporate  existence  of  the reorganizing insurer as a stock insurer. The
 21        director, after a public hearing as provided  in  section  41-3805,  Idaho
 22        Code,  if  satisfied  that the interests of the policyholders are properly
 23        protected and that the plan of reorganization is fair and equitable to the
 24        policyholders, may approve the proposed plan  of  reorganization  and  may
 25        require as a condition of approval such modifications of the proposed plan
 26        of  reorganization  as  the director finds necessary for the protection of
 27        the policyholders' interests. The director may retain consultants as  pro-
 28        vided in section 41-3805(4), Idaho Code. A reorganization pursuant to this
 29        subsection  is  subject  to  sections 41-3802 and 41-3803, Idaho Code. The
 30        director shall retain jurisdiction over a mutual insurance holding company
 31        organized pursuant to this section to assure that  policyholder  interests
 32        are protected.
 33        (b)  All  of  the  initial  shares of the capital stock of the reorganized
 34        insurer shall be issued to the mutual insurance holding company. The  mem-
 35        bership  interests  of  the policyholders of the reorganized insurer shall
 36        become membership interests in the mutual insurance holding company. Poli-
 37        cyholders of the reorganized insurer shall be members of the mutual insur-
 38        ance holding company in accordance with the articles of incorporation  and
 39        bylaws of the mutual insurance holding company. The mutual insurance hold-
 40        ing  company shall at all times own a majority of the voting shares of the
 41        capital stock of the reorganized insurer.
 42        (2)  (a) A domestic mutual insurer, upon the approval of the director, may
 43        reorganize by merging  its  policyholders'  membership  interests  into  a
                                                                        
                                           2
                                                                        
  1        mutual insurance holding company formed pursuant to subsection (1) of this
  2        section and continuing the corporate existence of the reorganizing insurer
  3        as a stock insurer subsidiary of the mutual insurance holding company. The
  4        director,  after  a  public hearing as provided in section 41-3805,  Idaho
  5        Code, if satisfied that the interests of the  policyholders  are  properly
  6        protected  and that the merger is fair and equitable to the policyholders,
  7        may approve the proposed merger and may require as a condition of approval
  8        such modifications of the proposed merger as the director finds  necessary
  9        for  the  protection  of  the  policyholders'  interests. The director may
 10        retain consultants as provided in section 41-3805(4), Idaho Code. A merger
 11        pursuant to this subsection is subject to sections  41-3802  and  41-3803,
 12        Idaho  Code. The director shall retain jurisdiction over the mutual insur-
 13        ance holding company organized pursuant to this  section  to  assure  that
 14        policyholder interests are protected.
 15        (b)  All  of  the  initial  shares of the capital stock of the reorganized
 16        insurer shall be issued to the mutual insurance holding company. The  mem-
 17        bership  interests  of the policyholders of the reorganized insurance com-
 18        pany shall become membership interests in  the  mutual  insurance  holding
 19        company.  Policyholders of the reorganized insurer shall be members of the
 20        mutual insurance holding company in accordance with the articles of incor-
 21        poration and bylaws of the mutual insurance holding  company.  The  mutual
 22        insurance  holding company shall at all times own a majority of the voting
 23        shares of the capital stock of the reorganized insurer. A merger of  poli-
 24        cyholders'  membership  interests in a mutual insurer into a mutual insur-
 25        ance holding company shall be deemed to be a merger of insurance companies
 26        pursuant to section 41-2857, Idaho Code, and section 41-2857, Idaho  Code,
 27        is also applicable.
 28        (c)  A  foreign  mutual  insurer, which if a domestic corporation would be
 29        organized under chapter 3, title 41, Idaho Code, may reorganize  upon  the
 30        approval  of  the  director and in compliance with the requirements of any
 31        law or rule which is applicable to the foreign mutual insurer  by  merging
 32        its  policyholders'  membership  interests into a mutual insurance holding
 33        company formed pursuant to subsection (1) of this section  and  continuing
 34        the  corporate  existence  of the reorganizing foreign mutual insurer as a
 35        foreign stock insurer subsidiary of the mutual insurance holding  company.
 36        The director, after a public hearing as provided in section 41-3805, Idaho
 37        Code, may approve the proposed merger. The director may retain consultants
 38        as  provided  in section 41-3805(4), Idaho Code. A merger pursuant to this
 39        paragraph is subject to sections 41-3802  and  41-3803,  Idaho  Code.  The
 40        reorganizing  foreign  mutual insurer may remain a foreign company or for-
 41        eign corporation after the merger, and may be admitted to do  business  in
 42        this state. A foreign mutual insurer which is a party to the merger may at
 43        the same time redomesticate in this state by complying with the applicable
 44        requirements  of  this  state and its state of domicile. The provisions of
 45        subsection (2)(b) shall apply to a merger authorized under this paragraph.
 46        (3)  A mutual insurance holding company resulting from the  reorganization
 47    of  a domestic mutual insurer organized under chapter 1, title 30, Idaho Code,
 48    shall be incorporated pursuant to  chapter  1,  title  30,  Idaho  Code.  This
 49    requirement shall supersede any conflicting provisions of chapter 1, title 30,
 50    Idaho  Code. The articles of incorporation and any amendments to such articles
 51    of the mutual insurance holding company shall be subject to  approval  of  the
 52    director in the same manner as those of an insurance company.
 53        (4)  A mutual insurance holding company is deemed to be an insurer subject
 54    to chapter 33, title 41, Idaho Code, and shall automatically be a party to any
 55    proceeding  under chapter 33, title 41, Idaho Code, involving an insurer which
                                                                        
                                           3
                                                                        
  1    as a result of a reorganization pursuant to subsection (1) or (2) of this sec-
  2    tion is a subsidiary of the mutual insurance holding company. In any  proceed-
  3    ing  under  chapter  33,  title  41,  Idaho  Code,  involving  the reorganized
  4    insurer, the assets of the mutual insurance holding company are deemed  to  be
  5    assets of the estate of the reorganized insurer for purposes of satisfying the
  6    claims  of the reorganized insurer's policyholders. A mutual insurance holding
  7    company shall not dissolve or liquidate without the approval of  the  director
  8    or  as  ordered  by the district court pursuant to chapter 33, title 41, Idaho
  9    Code.
 10        (5)  (a) Section 41-2855, Idaho Code, is not applicable to  a  reorganiza-
 11        tion or merger pursuant to this section.
 12        (b)  Section  41-2855,  Idaho  Code, is applicable to demutualization of a
 13        mutual insurance holding company which resulted from the reorganization of
 14        a domestic mutual insurer organized under chapter 3, title 41, Idaho Code,
 15        as if it were a mutual life insurer.
 16        (6)  A membership interest in a domestic mutual insurance holding  company
 17    shall not constitute a security as defined in section 30-1402(12), Idaho Code.
 18        (7)  The majority of the voting shares of the capital stock of the reorga-
 19    nized insurer, which is required by this section to be at all times owned by a
 20    mutual   insurance  holding  company,  shall  not  be  conveyed,  transferred,
 21    assigned, pledged, subject to a security  interest  or  lien,  encumbered,  or
 22    otherwise hypothecated or alienated by the mutual insurance holding company or
 23    intermediate  holding  company.  Any conveyance, transfer, assignment, pledge,
 24    security interest, lien, encumbrance, or hypothecation or alienation of, in or
 25    on the majority of the voting shares  of  the  reorganized  insurer  which  is
 26    required  by this section to be at all times owned by a mutual insurance hold-
 27    ing company, is in violation of this section and  shall  be  void  in  inverse
 28    chronological  order  of  the  date  of such conveyance, transfer, assignment,
 29    pledge, security interest, lien, encumbrance, or hypothecation or  alienation,
 30    as to the shares necessary to constitute a majority of such voting shares. The
 31    majority  of the voting shares of the capital stock of the reorganized insurer
 32    which is required by this section to be at all times owned by a mutual  insur-
 33    ance holding company shall not be subject to execution and levy as provided in
 34    title  11, Idaho Code. The shares of the capital stock of the surviving or new
 35    company resulting from a merger or consolidation of two (2)  or  more  reorga-
 36    nized  insurers  or  two (2) or more intermediate holding companies which were
 37    subsidiaries of the same mutual insurance holding company are subject  to  the
 38    same  requirements,  restrictions, and limitations as provided in this section
 39    to which the shares of the merging or consolidating  reorganized  insurers  or
 40    intermediate  holding  companies  were  subject  by  this section prior to the
 41    merger or consolidation.
 42        As used in this section, "majority of the voting  shares  of  the  capital
 43    stock  of  the  reorganized  insurer" means shares of the capital stock of the
 44    reorganized insurer which carry the right to cast  a  majority  of  the  votes
 45    entitled  to  be cast by all of the outstanding shares of the capital stock of
 46    the reorganized insurer for the election of directors and on all other matters
 47    submitted to a vote of the shareholders of the reorganized insurer. The owner-
 48    ship of a majority of the voting shares of the capital stock  of  the  reorga-
 49    nized insurer which are required by this section to be at all times owned by a
 50    parent  mutual  insurance  holding company includes indirect ownership through
 51    one (1) or more  intermediate  holding  companies  in  a  corporate  structure
 52    approved  by the director. However, indirect ownership through one (1) or more
 53    intermediate holding companies shall not result in the mutual insurance  hold-
 54    ing company owning less than the equivalent of a majority of the voting shares
 55    of  the  capital  stock  of  the  reorganized insurer. The director shall have
                                                                        
                                           4
                                                                        
  1    jurisdiction over an intermediate holding company  as  if  it  were  a  mutual
  2    insurance holding company.
  3        As  used  in  this section, "intermediate holding company" means a holding
  4    company  which is a subsidiary of a  mutual  insurance  holding  company,  and
  5    which either directly or through a subsidiary intermediate holding company has
  6    one  (1)  or  more  subsidiary reorganized insurers of which a majority of the
  7    voting shares of the capital stock would otherwise have been required by  this
  8    section to be at all times owned by the mutual insurance holding company.
  9        (8)  It  is  the  intent of the legislature that the formation of a mutual
 10    insurance holding company should not increase the  Idaho  tax  burden  of  the
 11    mutual  insurance holding company system and that a stock insurance subsidiary
 12    shall continue to be subject to Idaho insurance premium taxation  in  lieu  of
 13    all  other  taxes  except  real  property taxes as provided in section 41-405,
 14    Idaho Code. Subject to approval by the director as required under Idaho law, a
 15    stock insurance subsidiary may issue dividends or distributions to the  mutual
 16    insurance  holding company or any intermediate holding company, and such divi-
 17    dends or distributions shall be excluded from the Idaho taxable income of  the
 18    recipients;  provided  however,  that  such  exclusion  shall not apply to the
 19    extent that, in the year preceding the year in which the dividends or  distri-
 20    butions  were  made,  the subsidiary insurer's liability for Idaho premium tax
 21    was less than the amount of Idaho income tax for which the insurer would  have
 22    been liable in such year had the insurer been subject to Idaho income taxation
 23    rather than premium taxation.
                                                                        
 24        SECTION  2.  This act shall be in full force and effect on and after Janu-
 25    ary 1, 2004.

Statement of Purpose / Fiscal Impact


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                      STATEMENT OF PURPOSE
                                
                            RS 13104

     Domestic insurance companies of Idaho, under the mutual
insurance holding company system, could unintentionally be burdened
with an increased tax liability.
     This legislation would provide that dividends or distributions
may be issued by a subsidiary to a mutual insurance holding
company, or intermediate holding company, and such dividends or
distributions be excluded from taxable income of the recipients;
unless the amount of Idaho premium tax paid was less than the
amount of Idaho income tax for which the insurer would have been
liable.







                          FISCAL IMPACT

There is no fiscal impact to the general fund.











Contact
Name: John Mackey
      United Heritage Financial Group
Phone: 322-2685


STATEMENT OF PURPOSE/FISCAL NOTE                         H 327