2006 Legislation
Print Friendly

HOUSE BILL NO. 730 – Premium tax, service corp


View Bill Status

View Bill Text

View Statement of Purpose / Fiscal Impact

Text to be added within a bill has been marked with Bold and
Underline. Text to be removed has been marked with
Strikethrough and Italic. How these codes are actually displayed will
vary based on the browser software you are using.

This sentence is marked with bold and underline to show added text.

This sentence is marked with strikethrough and italic, indicating
text to be removed.

Bill Status

H0730...............................................by REVENUE AND TAXATION
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

Bill Text

  ]]]]              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
  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 10    repealed.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
  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
  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
  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 / Fiscal Impact

                       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

                           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.

Name: Rep. Bob Nonini 
Phone: 332-1000
Rep. Dennis Lake
Senator Stegner

STATEMENT OF PURPOSE/FISCAL NOTE                         H 730