SALTY Talk: 2018 SALT Insurance Tax Update DECEMBER 18, 2018 TO RECEIVE CPE CREDIT Individuals Participate in entire webinar Answer polls when they are provided Groups Group leader is the person who registered & logged on to the webinar Answer polls when they are provided Complete group attendance form Group leader sign bottom of form Submit group attendance form to training@bkd.com within 24 hours of webinar If all eligibility requirements are met, each participant will be emailed their CPE certificate within 15 business days of webinar 1
Presenters Michael Palm, CPA, CGMA Managing Director mpalm@bkd.com Melissa Gasior Director mgasior@bkd.com Federal H 1393/S 540: Income Tax Mobile Workforce State Income Tax Simplification Act would set a 30-day threshold before states could tax income earned by nonresidents In session, still pending 2
Federal South Dakota v. Wayfair, Inc., U.S. S. Ct., Dkt. No. 17-494, 06/21/2018 U.S. Supreme Court overturned the physical presence standard espoused in Quill Corp. v. North Dakota & National Bellas Hess v. Department of Revenue of Illinois The Court also implied that minimum economic nexus for sales/use tax would likely be met using South Dakota s standard of sales of $100,000 or transaction volume of 200 or more in a calendar year Amnesty Programs Alabama [H 137] Runs July 1, 2018, through September 30, 2018 20% failure to use penalty New Jersey [A 3438 / S 1841] Runs November 15, 2018, through January 15, 2019 5% failure to use penalty Texas Runs May 1 through June 29, 2018 3
Domestic Surplus Lines Insurers States implementing statutes to permit domestic insurers that meet the qualifications of a surplus lines insurer to be treated the same as a surplus lines insurer domiciled in other another state Georgia S 381 Passed, effective 07/01/2018 North Carolina S 382 Passed, effective 06/28/2018 Virginia S 542 Passed, effective 07/01/2018 Unsuccessful Annuity Tax Repeals Maine H 223 (LD 290) West Virginia H 4266 West Virginia S 464 (2017 carryover) 4
Alaska H 79: Insurance Assessment Increases the annual service fee from 1.82% to 2.5% of workers' compensation premium for administration of workers' safety & compensation programs Passed, effective 08/28/2018 H 97: Premium Tax Repeals the premium tax credit for donations to the Alaska fire standards council Credits accrued before January 1, 2019, may be claimed in the tax year the taxpayer accrues the credit Passed, effective 01/01/2019 California San Francisco: Payroll Tax Proposition C impose a new tax on businesses (a person or combined group) with more than $50 million of annual San Francisco gross receipts to fund homelessness services The tax rates vary by industry from a low of 0.175% to a top rate of 0.69%. Note that the city s gross receipts tax applies to insurance activities not subject to the state premium tax at 0.6% for such activities Passed the general November ballot & effective 01/01/2019 5
Colorado Revenue Bulletin No. 18-01: General Tax DOR has rescinded all prior revenue bulletins & policy positions previously published DOR emphasizes that these prior documents do not represent its official position & that taxpayers should not rely on them for any purpose as they are not binding with respect to any tax matter Issued 02/28/2018 Connecticut H 5209: Insurance Assessment Imposes a $12 surcharge on each homeowners policy & must be remitted to the state by April 30 each year Passed, applicable to policies delivered, issued or renewed on & after 01/01/2019 until 12/31/2029 S 11: Income Tax State response to the federal tax reform, including a new 6.99% income tax on most pass-through entities & a corresponding income tax credit of 93.01% of the tax Passed, effective 05/31/2018 6
Delaware H 303: Insurance Assessment Increases annual Insurance Fraud Prevention Bureau assessment to $900 (previously $750) Increase applies beginning with the 2018 annual fee, which will be a line item on the annual premium tax & fees report due in March 2019 Passed, effective 07/23/2018 Also see DOI Domestic/Foreign Insurers Bulletin No. 102 (09/11/2018) Florida HJR 7001: General Tax Provides that no state tax or fee may be imposed, authorized or raised by the legislature except through legislation approved by two-thirds of each house Also requires that any tax or fee imposed be contained in a separate bill that contains no other subject Passed 03/16/2018 & reaffirmed in November ballot S 1354: Premium Tax Would repeal the salary credit against premium tax Session adjourned, failed to pass 7
Florida Tax Information Publication No. 18ADM-01: General Tax Reflects that the tax credit scholarship program amount allocated for FY 2017 2018 exceeded 90% of the prior tax credit cap. Therefore, the tax credit cap amount will increase to $873,565,674 (125%) for FY 2018 2019 Issued 04/13/2018 Hawaii S 208: Unclaimed Property Tax Enacts the Unclaimed Life Insurance Benefits Act, which provides that benefits from a policy, contract or retained asset account, plus any applicable accrued contractual interest, is first payable to the designated beneficiaries or owners &, in the event said beneficiaries or owners cannot be found, will escheat to the state as unclaimed property An insurer must conduct semiannual comparisons of records against the death masterfile & implement unclaimed property tax procedures as applicable Passed, effective 07/10/2018 8
Illinois Admin. Code Tit. 86 100.3420: Income Tax Guidance on the election for reinsurance companies to determine the sourcing method for reinsurance assumed for purposes of their apportionment factor & allows for a petition to change methods Effective 09/24/2018 Admin. Code Tit. 86 100.3600: Income Tax Proposed regulation regarding apportionment for former noncombination groups, i.e., groups with multiple methods of apportionment Proposed regulation matches the 2017 model draft that was privately released & requires entities using special apportionment to gross up a numerator for total sales to match their special apportionment factor Released for comment on 11/09/2018 (Ill. Reg.) Kentucky H 388: Insurance Assessment Beginning on January 1, 2020, all workers compensation assessments must be electronically remitted quarterly Clarifies that assessments on policies with deductibles are to be computed on gross premium received basis Passed, effective 07/12/2018 H 402: Municipal Premium Tax Requires municipalities to provide notice within 90 days of whether a refund claim will be accepted or not Limits municipalities to a one-year period to require a credit carryforward instead of a cash refund Passed, effective 07/14/2018 9
Louisiana Admin. Code Tit. 61, 1501 et al: General Tax Amended regulations on the mandatory electronic filing of tax returns & payments Corporate income/franchise tax returns are required to be e-filed For 2018, if the corporate assets > $500,000 For 2019+, if corporate assets > $250,000 Effective 09/20/2018 Maryland H 979/S 652: Premium Tax Clarifies that travel insurance is classified as inland marine insurance & imposes the premium tax on insurance on travel insurance sold to Maryland residents, certain primary certificate holders or certain blanket travel insurance policyholders, excluding any amount received for travel assistance services or cancellation fee waivers Passed, effective 10/01/2018 10
Massachusetts Dental Services of Massachusetts v. Commissioner of Revenue, Mass. S. Jud. Ct., Dkt. No. SJC-12346, 943 N.E. 3d 802, 479 Mass. 304, 04/13/2018 The Massachusetts Supreme Judicial Court affirmed the Appellate Tax Board s holding that the term gross premiums received during the preceding calendar year for covered persons residing in the commonwealth (which is the basis of the excise tax on preferred providers) refers to individual plan subscribers who live in Massachusetts, & not the employers with whom the insurer contracted to provide coverage Also see Technical Information Release No. 18-7 (09/10/2018) Michigan S 994: Insurance Assessment Enacts Insurance Provider Assessment Act, which imposes an annual assessment on each insurance provider under a tiered system: 1) for tier 1, a Medicaid contracted health plan, is $1.20 per member month & 2) for tier 2, a health insurer not supported with federal Medicaid funds, $2.40 per member month; & 3) for tier 3, a specialty prepaid health plan s member months supported with federal Medicaid funds, $1.20 per member month Initial assessment is payable in two equal installments, with payments due to the Department by January 30, 2019, & April 30, 2019. The assessment is payable on a quarterly basis, submitted to the Department on July 30, October 30, January 30 & April 30 Passed, effective 06/11/2018 11
Michigan S 1016: Premium Tax Reduces premium tax rate on qualified health insurance policies from 1.25% to 0.95% for 2019 & the rate for 2020+ will be determined according to a formula that would cap the total tax reduction per year at $18.0 million Passed, effective 01/01/2019 Priority Health, et al. v. Department of Treasury, Mich. Ct. App., Dkt. No. 341120, 10/30/2018 (unpublished) Appellate Court held that the Tax Tribunal erred in dismissing the taxpayers' action over whether pharmaceutical rebates should be deducted when computing the health insurance claims assessment because the taxpayers showed that there was the existence of a material factual dispute The court said the taxpayers could therefore obtain at least a partial setoff. Accordingly, the court reversed the Tax Tribunal & remanded the case Minnesota H 4385: General Tax The omnibus tax bill includes a technical correction to clarify that the only includible insurance company for purposes of the income tax is a disqualified captive insurance company Governor vetoed, failed to pass 12
Mississippi Reg. Section 35.I.01: General Tax Regulation regarding administrative practices & procedures of DOR was amended to Modify certain definitions Update responsibilities of DOR Revise the procedure for requests for administrative appeal Update the timeline for filing appeals to 60 days (previously, 30 days) Provide that letter rulings issued prior to June 30, 2005, are no longer valid Effective 07/01/2018 New Hampshire H 1292: Income Tax Effective January 1, 2019 (previously, July 1, 2019), BPT rate will be 7.7% for tax periods ending on or after December 31, 2019; & effective January 1, 2021 (previously, July 1, 2021), BPT rate will be 7.5% for tax periods ending on or after December 31, 2021 With corresponding effective date changes, BET rate will be 0.60% for tax periods ending on or after December 31, 2019, & 0.50% for tax periods ending on or after December 31, 2021 Passed, effective 06/19/2018 13
New Jersey A 4202/S 2746: General Tax Makes sweeping changes to the state's corporation business tax, including Mandates water's edge combined reporting for unitary groups Imposes a temporary surtax Imposes the captive premium tax only on noncombinable captive insurance companies Passed, effective 07/01/0218 Pennsylvania Philadelphia Contributionship Ins. Co., Pennsylvania Board of Finance & Revenue, docket no. 1714881, 04/26/2018 The Pennsylvania Board of Finance & Revenue held that the DOR incorrectly taxed federal flood insurance premiums as they are reinsurance premiums not subject to gross premiums tax Michael Erby v. The Allstate Corp., Court of Common Pleas of Philadelphia County, case no. 181001604, pending Allstate Corp. is facing a class claim accusing the insurer of failing to meet its statutory obligation to include sales tax in its calculation of how much it should pay in compensation for totaled vehicles 14
Utah H 39: Surplus Lines Tax Eliminates the provision providing that if an insurance policy covers risks that are only partially located in the state, the premium must be reasonably allocated among the states on the basis of risk locations. However, when Utah is the home state, premiums for surplus lines remain payable in full Passed, effective 05/08/2018 Wisconsin A 773: Unclaimed Property Tax Prohibits DOR from entering into any contingent fee audit agreements involving the administration of unclaimed property laws with regard to Wisconsin-domiciled companies. The department, however, is permitted to enter into such fee agreements for audits involving out-of-state companies (but not more than 12% contingency) Passed, effective 04/05/2018 15
Time for Burning Questions 16
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bkd.com @BKDLLP Michael Palm mpalm@bkd.com 312.288.4667 Melissa Gasior mgasior@bkd.com 312.270.2494 The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered 18