Did Kentucky's local life-insurance premium tax include advance payments collected in a policy's first year?

Plain-English summary

In 1997, Kentucky's Attorney General said a city, county, or urban-county government that based its life-insurance tax on first-year premiums could include every premium collected during that year. A payment made in the first year for coverage extending into later years was still part of the first-year amount collected.

The AG read the statutory phrase “premiums actually collected” to resolve uncertainty in “first year's premiums.” It rejected a rule that would allocate a first-year lump-sum payment only to the coverage furnished in that year.

Currency note

This opinion was issued in 1997. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

Local tax authorities and life insurers

KRS 91A.080 authorized a local tax on the privilege of engaging in insurance business, measured by premiums collected. For life policies, the quoted subsection allowed a tax based on first-year premiums and referred to premiums actually collected within each calendar quarter on local residents' lives. The AG said the statute did not distinguish premiums by the years of coverage they funded.

Advance payments

For a policyholder who made one lump-sum payment covering several years, the opinion treated the entire amount collected in the first year as subject to a first-year-premium tax. It reasoned that excluding amounts attributable to later coverage would add words absent from the statute.

Common questions

Was only the first year's coverage portion of an advance payment taxed?

No, under the AG's reading of KRS 91A.080(2). The relevant amount was the premium actually collected in the first year, even if it funded coverage beyond that year.

Did the opinion require every local government to impose this tax?

No. It described statutory authority to impose a local insurance tax and answered how the first-year premium measure worked when used.

Background and statutory framework

Ernie Sampson asked whether “first year's premiums” meant amounts received in the first year or only payments attributable to first-year coverage. The AG relied on the next sentence of KRS 91A.080(2), requiring application to premiums actually collected. It cited KRS 446.080 and Inter-County Rural Electric Co-op Corporation v Reeves for reading the statute's words according to their plain meaning.

Citations and references

• KRS 91A.080(2): local tax based on first-year life-insurance premiums actually collected.
• KRS 446.080: interpretation provision cited by the AG.
• Inter-County Rural Electric Co-op Corporation v Reeves, 294 Ky 458, 171 SW 2d 978 (1943): plain-meaning authority cited by the AG.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_219294fe-7ec4-4878-ae43-81544608a676/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_219294fe-7ec4-4878-ae43-81544608a676

Original opinion text

OAG 97-33
September 11, 1997
Subject:

Municipal taxation of life insurance premiums

Requested by:

Ernie Sampson

Written by:

Ross T. Carter

Syllabus:

Tax authorized by KRS 91A.080 applies to all premiums paid in first year, including amounts paid in advance

Statutes construed:
OAGs cited:

KRS 91A.080(2)

None.

Opinion of the Attorney General
KRS 91A.080 authorizes cities, counties, and urban-county governments to impose a tax on the privilege of engaging in the business of insurance. The tax is levied against the insurance premiums collected. For life insurance policies, the tax may be levied against the first year premium only. We have been asked whether the tax on life insurance premiums applies to all premiums collected in the first year, or only to premiums collected during the first year and attributable to policy coverage for the first year. We conclude that the tax applies to all premiums collected during the first year regardless of how the premiums are applied.

OAG 97-33
Page 2

KRS 91A.080(2) says:
Any license fee or tax imposed by a city, county, or urbancounty government upon an insurance company with respect to life insurance policies, may be based upon the first year’s premiums, and if so based shall be applied to the amount of the premiums actually collected within each calendar quarter upon the lives of persons residing within the corporate limits of the city, county, or urban-county government. The expression “first year’s premiums,” taken alone, is indeed ambiguous; arguably the expression could refer either to premiums collected during the first year or to premiums paid for one year’s worth of policy coverage. That ambiguity is removed in the next sentence of the statute, which clarifies that the tax “shall be applied to the amount of the premiums actually collected.” We do not believe that “premiums actually collected” can be construed to mean anything other than “premiums actually collected.” Those are the plain words and the plain meaning that must be ascribed to them. KRS 446.080; Inter-County Rural Electric Co-op Corporation v Reeves, 294 Ky 458, 171 SW 2d 978 (1943). The statute makes no distinction as to the purpose for which the premium is collected. If an insured make one lump sum payment to provide coverage for a period of years, that entire lump sum is subject to tax. Any other interpretation would require us to read into the statute words that are not there. Albert B. Chandler III Attorney General

Ross T. Carter
Assistant Attorney General