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H0730...............................................by REVENUE AND TAXATION
TAXATION - PREMIUM TAX - SERVICE CORPORATIONS - Repeals and adds to
existing law to delete language relating to taxation and annual reports for
professional service corporations; and to set forth provisions for the
payment of premium tax by service corporations.
02/24 House intro - 1st rdg - to printing
02/27 Rpt prt - to Rev/Tax
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]]
Fifty-eighth Legislature Second Regular Session - 2006
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 730
BY REVENUE AND TAXATION COMMITTEE
1 AN ACT
2 RELATING TO INSURANCE; REPEALING SECTION 41-3427, IDAHO CODE, RELATING TO TAX-
3 ATION AND ANNUAL REPORTS; AMENDING CHAPTER 34, TITLE 41, IDAHO CODE, BY
4 THE ADDITION OF A NEW SECTION 41-3427, IDAHO CODE, TO SET FORTH PROVISIONS
5 FOR THE PAYMENT OF PREMIUM TAX BY SERVICE CORPORATIONS; AMENDING SECTION
6 41-2854A, IDAHO CODE, TO REMOVE LANGUAGE REFERENCING SUBSCRIBER CONTRACTS;
7 AND PROVIDING AN EFFECTIVE DATE.
8 Be It Enacted by the Legislature of the State of Idaho:
9 SECTION 1. That Section 41-3427, Idaho Code, be, and the same is hereby
10 repealed.
11 SECTION 2. That Chapter 34, Title 41, Idaho Code, be, and the same is
12 hereby amended by the addition thereto of a NEW SECTION, to be known and des-
13 ignated as Section 41-3427, Idaho Code, and to read as follows:
14 41-3427. PREMIUM TAX. (1) On and after January 1, 2007, a service corpo-
15 ration shall be subject to the payment of premium tax pursuant to section
16 41-402, Idaho Code, provided however, section 41-402(2), Idaho Code, shall not
17 apply to service corporations until January 1, 2010 and thereafter.
18 (2) From January 1, 2007, through December 31, 2009, the rate of tax on
19 service corporations shall be as follows:
20 (a) For calendar year 2007, three-tenths of one percent (.3%);
21 (b) For calendar year 2008, seven-tenths of one percent (.7%);
22 (c) For calendar year 2009, one and two-tenths percent (1.2%).
23 (3) Except as otherwise provided in subsection (1) of this section, on
24 and after January 1, 2007, sections 41-402, 41-402A, 41-404, 41-405 and
25 41-406, Idaho Code, shall be applicable to service corporations.
26 SECTION 3. That Section 41-2854A, Idaho Code, be, and the same is hereby
27 amended to read as follows:
28 41-2854A. MUTUALIZATION OF SERVICE CORPORATIONS. (1) Every corporation
29 organized or existing under chapter 34, title 41, Idaho Code, as a hospital
30 service corporation, a combined professional service and hospital service cor-
31 poration, or a professional service corporation whose articles of incorpora-
32 tion specify participant licensee services are to be provided by physicians or
33 surgeons, of either medicine and surgery or of osteopathic medicine and sur-
34 gery, shall file with the director of the department of insurance a plan of
35 mutualization on or before January 1, 1995. Any other corporation organized
36 under chapter 34, title 41, Idaho Code, may at any time file a plan of mutual-
37 ization. Any corporation organized under chapter 34, title 41, Idaho Code, may
38 hereafter be referred to in this section as a "service corporation." The
39 director of the department of insurance shall approve any plan of mutualiza-
40 tion so filed, and forthwith issue a certificate of authority to the filing
2
1 corporation to transact insurance in this state pursuant thereto, if:
2 (a) Except as herein provided and except as consistent with or implicit
3 in the conversion of the service corporation to a mutual insurer, the plan
4 does not deprive existing corporate members of statutory rights expressly
5 set forth in chapter 34, title 41, Idaho Code;
6 (b) The plan has been approved by the corporation's board of directors;
7 (c) The corporation satisfies the minimum surplus or deposit requirements
8 of this title for the type or types of mutual insurer to which it will
9 convert, as specified by the corporation in its plan; and
10 (d) The plan requires the corporation to honor subscribers' existing con-
11 tractual rights in their subscriber agreements as if the corporation had
12 not been converted to a mutual insurer. Approval by the service
13 corporation's board of directors of the plan of mutualization shall be
14 sufficient and effective without the approval or vote of the service
15 corporation's members, notwithstanding any other provision of law to the
16 contrary or of the service corporation's bylaws or articles of incorpora-
17 tion. The filing of such a board-approved plan, together with the issuance
18 by the director of the department of insurance of a certificate of author-
19 ity, shall constitute legal authority, effective from and after the effec-
20 tive date of the plan, specified in the plan, for the corporation to
21 transact insurance in Idaho as a nonprofit mutual insurer pursuant to such
22 plan.
23 (2) A plan of mutualization shall provide that, from and after its effec-
24 tive date, the corporation's reserves shall not be used for any purpose or
25 distributed in any manner contrary to this title. A plan of mutualization
26 shall also provide for a "transition period" commencing with the plan's effec-
27 tive date and ending with a date identified as the "transition period termina-
28 tion date," which shall be a date not later than the first anniversary of the
29 effective date of such plan. Prior to the expiration of the transition period,
30 the corporation's reserves shall not be used for any purpose or distributed in
31 any manner contrary to section 41-3421, Idaho Code. Following conversion, the
32 corporation shall continue to be a nonprofit corporation; provided however,
33 the board of directors of a mutualized service corporation may from time to
34 time declare, apportion, and pay or credit to the corporation's members divi-
35 dends pursuant to this title if the corporation's articles of incorporation
36 (as amended, if applicable, in conjunction with the filing or after the effec-
37 tive date of its plan of mutualization) expressly so provide. Notwithstanding
38 any other provision of law to the contrary, no corporation (including by way
39 of illustration and not limitation, any direct or indirect successor corpora-
40 tion or entity, by merger or acquisition of substantially all its assets)
41 mutualizing under this section shall, in the event of its dissolution, dis-
42 tribute any of its assets except as provided by its articles of incorporation
43 in effect immediately before the effective date of its plan of mutualization;
44 nor shall any such corporation take or fail to take any action that would pre-
45 vent it from making such distributions at the time of its dissolution.
46 (3) From and after the transition period termination date, the obliga-
47 tions of participant hospitals, participant physicians, and other licensees
48 under sections 41-3415, 41-3415A, 41-3416 and 41-3431, Idaho Code, and all
49 voting rights held by participant hospitals, participant physicians, and any
50 other participant licensees by virtue of participant status under chapter 34,
51 title 41, Idaho Code, shall be extinguished, but until such transition period
52 termination date, they shall retain such voting rights and obligations as they
53 held and for which they were accountable prior to mutualization hereunder,
54 including duties and responsibilities to the corporation and its subscribers.
55 Each policyholder of a policy issued on or after such plan's effective date
3
1 shall have all the rights and liabilities of a member of a mutual insurer
2 under the policy, under the corporation's articles of incorporation and
3 bylaws, and as provided by law. Before such transition period termination
4 date, the corporation shall replace, convert by agreement with subscribers, or
5 allow to lapse pursuant to their express terms all subscriber agreements, so
6 that from and after such transition period termination date the corporation
7 shall have no subscriber agreements in force. From and after the effective
8 date of its plan of mutualization, the corporation shall issue no subscriber
9 agreements, but shall be authorized to accept applications for and to issue
10 insurance policies of the kind or kinds specified by the plan and the corpora-
11 tion is qualified to issue pursuant to law.
12 (4) The service corporation shall file with the director of the depart-
13 ment of insurance, as part of its plan of mutualization, amended bylaws and
14 articles of amendment to articles of incorporation, approved by its board of
15 directors, which articles and bylaws shall conform in all respects with the
16 requirements of this chapter and any applicable rules duly promulgated hereun-
17 der, and shall become effective on the effective date of such plan. Approval
18 by the service corporation's board of directors of such amendments to its
19 articles and bylaws shall be sufficient and effective without the approval or
20 vote of the corporation's members, notwithstanding any contrary provision of
21 law or of the service corporation's bylaws or articles of incorporation. Pur-
22 suant to the Idaho nonprofit corporation act, the service corporation shall
23 also file with the Idaho secretary of state articles of amendment to its arti-
24 cles of incorporation.
25 (5) For the period ending on the transition period termination date, the
26 corporation's plan of mutualization and its articles of incorporation and
27 bylaws may contain provisions the corporation's board of directors, in the
28 exercise of its discretion and in fulfillment of its duties, deems necessary,
29 convenient or prudent to implement the plan of mutualization, including, but
30 not limited to, transition provisions, expressly identified as such, that
31 allocate voting power among policyholder members, participant licensees and
32 participant hospitals, as applicable and as the board of directors may deem
33 reasonably appropriate; provided however, all transition provisions, whether
34 in the corporation's articles of incorporation, bylaws or plan of mutualiza-
35 tion, shall, without further action or filing, expire upon the transition
36 period termination date.
37 (6) Within forty-two (42) days of the filing date of a corporation's plan
38 of mutualization, the director shall approve the same and issue a certificate
39 of authority to the corporation unless the director finds such plan does not
40 comply with subsection (1) of this section, in which case the director shall
41 within such forty-two (42) day period issue a written order disapproving such
42 plan and specifying the reasons therefor. The corporation may preserve the
43 legal effectiveness and effective date of its plan by curing or otherwise
44 responsibly addressing each asserted deficiency identified by the director and
45 filing within fourteen (14) days of the effective date of the director's order
46 an amended plan of mutualization that reflects corrections and responses made.
47 Within fourteen (14) days of such filing, the director shall issue a certifi-
48 cate of authority or a final order disapproving such amended plan and specify-
49 ing the reasons therefor, which final order may, within forty-two (42) days
50 after its effective date, be appealed to the district court for Ada county,
51 state of Idaho. Notwithstanding the director's final order, the corporation
52 shall be legally authorized to transact business pursuant to its plan of mutu-
53 alization until the forty-second day following the latest of:
54 (a) The effective date of the director's final order;
55 (b) The entry of final judgment by the district court in which review of
4
1 the director's final order has been sought; and
2 (c) The director's compliance and the district court's compliance (by
3 entry of a final judgment) with the opinion issued by the last appellate
4 court to which appeal may be taken that has reviewed the district court's
5 judgment concerning the director's final order. If the director has pre-
6 vailed upon final judgment being entered, the corporation's legal author-
7 ity to transact business pursuant to its plan of mutualization shall
8 expire at the end of such period; however, if the corporation has pre-
9 vailed or corrected all deficiencies identified in the director's final
10 order, the director shall, before or upon the expiration of such period,
11 issue a certificate of authority to the corporation. Issuance of a certif-
12 icate of authority under this section shall not preclude the director from
13 commencing any proceedings for alleged violations of this title. The pro-
14 cedure in this subsection shall apply to corporations existing under chap-
15 ter 34, title 41, Idaho Code, on December 31, 1993.
16 (7) Section 41-2805, Idaho Code, and any other provision of this title
17 dealing with newly organized mutual insurers as such, shall have no applica-
18 tion to a plan of mutualization under this section or to the corporation
19 adopting or implementing such plan.
20 (8) If, pursuant to section 41-3406, Idaho Code, a mutualizing service
21 corporation is also operating as a health maintenance organization immediately
22 prior to the effective date of its plan of mutualization, it shall be legally
23 authorized to continue such operations in the manner provided for in said plan
24 after the effective date thereof as if such service corporation had not become
25 a mutual insurer under this section.
26 (9) From and after the effective date of a plan of mutualization, a cor-
27 poration mutualizing under this section shall be liable for the tax imposed
28 and provided for in section 41-402, Idaho Code, but only with respect to
29 insurance policies (as opposed to subscriber agreements) issued by it, and
30 subject to refunds, reductions and other adjustments applicable to other
31 domestic mutual insurers. Until all subscriber agreements are terminated,
32 expire or are otherwise converted to policies of insurance issued by the cor-
33 poration as a mutual insurer, the corporation shall continue to be liable for
34 and pay the tax on subscriber contracts in the manner provided in section
35 41-3427, Idaho Code, subject to the same exemptions provided in that section,
36 except for premium taxes paid pursuant to this subsection on policies issued
37 as a mutual insurer.
38 (10) Except as modified in this section and other applicable law, after
39 the effective date of a service corporation's plan of mutualization, all con-
40 tracts, rights, powers, privileges, liabilities and obligations of such corpo-
41 ration shall continue unchanged and in effect until repealed, terminated, can-
42 celed, amended, waived, satisfied or otherwise legally extinguished.
43 SECTION 4. This act shall be in full force and effect on and after Janu-
44 ary 1, 2007.
STATEMENT OF PURPOSE
RS 15752
The purpose of this legislation is to change the tax in Title 41,
Chapter 34, Idaho Code, so that companies will be consistent with
the premium tax structure adopted as part of HB 724 in the 2004
Legislative Session. Unlike premium taxes assessed pursuant to
Idaho Code section 41-402, the current method of taxation based
on $.04 cents per subscriber contract per month in Chapter 34 has
not been adjusted for health care inflation rates since 1982. A
single premium tax rate should make Idaho more competitive in its
efforts to attract insurance carriers to market and sell their
products in Idaho. The change to a single premium tax rate for
all dental insurance carriers will also eliminate legal and
financial exposure to th State created by the dual tax rate
system.
FISCAL NOTE
The fiscal impact breakdown by year is a positive $46,000 in
2007; $227,000 in 2008; and $482,000 in year 2009.
Contact
Name: Rep. Bob Nonini
Phone: 332-1000
Rep. Dennis Lake
Senator Stegner
STATEMENT OF PURPOSE/FISCAL NOTE H 730