Did an insurer qualify for Florida's annuity premium-tax waiver by passing the tax savings to annuity holders?

Plain-English summary

Florida imposed premium tax on annuities but allowed a waiver when an insurer could show that the tax savings from not paying Florida tax were passed to annuity holders.

The insurer submitted an actuary's statement that its pricing took premium taxes into account in states that imposed them, did not include a Florida premium tax, and otherwise treated annuity holders identically. Florida found that the represented method met section 624.509(8).

The waiver was not unconditional: the TAA expressly made the conclusion subject to verification through audit.

What this means for you

An insurer needs evidence connecting the Florida tax savings to policyholder economics. Actuarial pricing records, comparisons with taxing and non-taxing states, and consistent holder treatment support the waiver but remain auditable.

Common questions

Did the insurer qualify for the waiver? Yes, subject to audit.

What evidence supported qualification? An actuary's statement about premium-tax treatment in the pricing and rate calculation.

Was the TAA final proof against an audit adjustment? No.

Citations and references

• Fla. Stat. § 624.509(8) and Fla. Admin. Code r. 12B-8.001, as listed or discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10B8-001

Original ruling text

TAX: Insurance Premium Tax
TAA NUMBER: 10B8-001
ISSUE: Annuity Premiums
STATUTE CITE(S)
624.509(8), F.S.
RULE CITE(S): 12B-8.001, F.A.C.
QUESTION: Whether Taxpayer is eligible for the waiver of tax provided for in 624.509(8), Florida
Statutes
ANSWER: Yes – subject to verification through audit. Taxpayer has provided a statement from actuary that
indicates that Taxpayer is in compliance with section 624.509(8), F.S.

August 19, 2010
XXX
XXX
XXX
Re:

Technical Assistance Advisement 10B8-001
Insurance Premium Tax – Premium Tax Savings Derived and
Credited to the Holders
Section 624.509(8), Florida Statutes
XXX, hereinafter referred to as “Taxpayer”

Dear XXX:
Your letter dated XXX, requests a Technical Assistance Advisement concerning whether the
Taxpayer is eligible for the waiver of tax provided for in section 624.509(8), F.S. This
response to your request constitutes a Technical Assistance Advisement under Chapter 1211, Florida Administrative Code, and is issued to you under the authority of section 213.22,
Florida Statutes.
FACTS
Taxpayer is licensed in Florida to provide life, accident, and health insurance, as well as
XXX annuities. Taxpayer has been licensed in Florida since XXX.
Taxpayer’s Request for Technical Assistance provides the following:
It is the taxpayer’s understanding that either of the following situations
would allow the taxpayer to receive the waiver of tax in s. 624.509, F.S.
•

If the taxpayer charges the premium tax for those states that
currently have a front-end tax (Maine, South Dakota, and
Wyoming), but not Florida

•

If when the taxpayer computes the rate of return required by the
company, the expenses include premium taxes for those states
that have a front-end tax, but not Florida

In addition, Taxpayer has provided a letter from its XXX actuary XXX, attesting to the
following, in pertinent part.:
I certify that we are in compliance with the state of Florida requirement.
We charge policyholders who purchase immediate annuities a premium
load to cover the front-end tax in each of the 3 states listed, consistent with

Technical Assistance Advisement 10B8-001
Page 2
the first bullet. There is a convenient method of applying the charge to
only consumers of those states when it is an immediate annuity sale.
…[W]e do not pass directly the cost of deferred annuity taxation, but
rather spread the costs amongst deferred annuity owners in all states. We
do this by assessing the adequacy of margins in covering all expenses,
included premium taxes not covered by the premium loads on immediate
annuities, before declaring new and/or renewal credited rates in order to
meet the rate of return required by the company on deferred annuities.
This is consistent with the second bullet.
…[W]e do not build into our expense assumptions a Florida premium tax,
and it does not figure into our rate of return calculations. We also have
never charged Florida policyholders directly or indirectly through the
crediting rate. Again, this is [in] compliance with the second bullet.
QUESTION
Is Taxpayer eligible for the waiver of tax provided in section 624.509(8), Florida Statutes?
APPLICABLE LAW
Section 624.509, F.S., states in part:
(1) In addition to the license taxes provided for in this chapter, each
insurer shall also annually, and on or before March 1 in each year, except
as to wet marine and transportation insurance taxed under s. 624.510, pay
to the Department of Revenue a tax on insurance premiums, premiums for
title insurance, or assessments, including membership fees and policy fees
and gross deposits received from subscribers to reciprocal or
interinsurance agreements, and on annuity premiums or considerations,
received during the preceding calendar year, the amounts thereof to be
determined as set forth in this section, to wit:
(a) An amount equal to 1.75 percent of the gross amount of such receipts
on account of life and health insurance policies covering persons resident
in this state and on account of all other types of policies and contracts
(except annuity policies or contracts taxable under paragraph (b))
covering property, subjects, or risks located, resident, or to be performed
in this state, omitting premiums on reinsurance accepted, and less return
premiums or assessments, but without deductions:

1. For reinsurance ceded to other insurers;
2. For moneys paid upon surrender of policies or certificates for cash
   surrender value;
3. For discounts or refunds for direct or prompt payment of premiums or
   assessments; and
4. On account of dividends of any nature or amount paid and credited or
   allowed to holders of insurance policies; certificates; or surety, indemnity,
   reciprocal, or interinsurance contracts or agreements; and

Technical Assistance Advisement 10B8-001
Page 3

(b) An amount equal to 1 percent of the gross receipts on annuity policies
or contracts paid by holders thereof in this state.
(2) Payment by the insurer of the license taxes and premium receipts
taxes provided for in this part of this chapter is a condition precedent to
doing business within this state.
(8) From and after July 1, 1980, the premium tax authorized by this
section shall not be imposed upon receipts of annuity premiums or
considerations paid by holders in this state if the tax savings derived
are credited to the annuity holders. Upon request by the Department of
Revenue, any insurer availing itself of this provision shall submit to the
department evidence which establishes that the tax savings derived have
been credited to annuity holders. As used in this subsection, the term
"holders" shall be deemed to include employers contributing to an
employee's pension, annuity, or profit-sharing plan.
(9) As used in this section "insurer" includes any entity subject to the tax
imposed by this section. (Emphasis Supplied)
Rule 12B-8.001, F.A.C., states in part:
(1) A tax is imposed on insurance premiums or assessments, including
membership fees, finance charges, and policy fees and gross deposits received
from subscribers to reciprocal or interinsurance agreements, and on annuity
premiums or considerations, received during the preceding calendar year. Such
tax is imposed no matter whether the insurer possesses a valid Florida certificate
of authority, if the issuing or collecting insurer would have been required to
obtain a certificate of authority prior to issuing these policies and contracts or
collecting premiums on them. The administration, auditing, collection, and
enforcement of the insurance premium taxes and assessments are vested in the
Department of Revenue, with the exception of taxes under Chapters 175 and 185,
F.S., where the Department’s only functions are collection and maintenance of a
database. “Policies and premiums” respectively mean and include those policies
or other contracts or agreements effecting and evidencing insurance, and
premiums and other considerations for such policies as described and
contemplated by the provisions of Sections 624.509 and 624.510, F.S.; or any
other sections subject to the provisions of Section 624.509, F.S. Per-policy fees
charged under Section 626.7451(11), F.S., by licensed managing general agents
fall under the definition of “premiums” as defined in Section 627.403, F.S., and
are subject to premium tax as set forth in Section 624.509, F.S.

(b) Annuity policies or contracts. A tax at the rate of 1 percent shall be applied on
the gross receipts on annuity policies or contracts paid by holders thereof in
Florida.

1. The premium tax authorized by this section shall not be imposed upon receipts
   of annuity premiums or considerations paid by holders in this state if the tax
   savings derived are credited to annuity holders.
2. As used in this subsection, the term “holders” shall include employers
   contributing to an employee’s pension, annuity, or profit sharing plan.

Technical Assistance Advisement 10B8-001
Page 4

3. This tax is assessed and must be accrued by the insurer when the annuity
   premium is received, not when the annuity benefits are due and payable or when
   the annuity is otherwise terminated. For the purposes of this subparagraph,
   annuity premiums are received when consideration is remitted by one wishing to
   purchase an annuity contract and is subsequently accepted by an insurer as
   payment for the issuance of an annuity contract to a named individual annuitant.
   Such remittances may either be in the form of a lump sum payment or a series of
   payments. Each payment is subject to the tax described in this section.
   DISCUSSION
   Florida is one of a few states that impose a premium tax on annuities. Maine, South Dakota,
   and Wyoming are some of the other states that impose a premium tax on annuities.
   Florida’s premium tax on annuities is very similar to the taxes imposed in Maine, South
   Dakota, and Wyoming. However, there is one major difference. Florida law provides for
   an exception or credit to the tax on annuities. If the Taxpayer can show that the tax savings
   derived from not paying the Florida premium tax on annuities, are passed on to the annuity
   holders, then Florida’s annuity premium tax is not imposed. See s. 624.509(8), F.S.
   Taxpayers may demonstrate that the tax savings from not paying the tax on annuities are
   passed on to the annuity holders in three different ways.
4. The taxpayer demonstrates that the rate of return on an annuity for Florida annuity
   holders is greater than the rate of return on an annuity for annuity holders in states that
   impose a premium tax on annuities, and the difference is a direct result of the premium
   tax. The taxpayer must also demonstrate that the rate of return on an annuity for Florida
   annuity holders is the same as the rate of return for annuity holders in states that do not
   impose a premium tax on annuities.
5. The taxpayer demonstrates that Florida annuity holders are credited with a greater
   portion of their initial investment than annuity holders in states that impose a premium
   tax on annuities, and the difference is attributable to the premium tax. The taxpayer
   must also demonstrate that Florida annuity holders are credited with the same portion of
   their initial investments as annuity holders in states that do not impose a premium tax on
   annuities.
6. The taxpayer demonstrates that it’s actuary took into account premium taxes in states
   that impose a premium tax on annuities and no premium tax for Florida and states that
   do not have a premium tax when determining the rate of return and amounts to charge
   annuity holders. The actuary’s determination is only applicable when all annuity
   holders are treated identically (same rate of return and credited with the same portion of
   their initial investment).
   CONCLUSION
   Based on the facts provided, the Taxpayer meets the requirements of section 624.509(8),
   F.S.
   This response constitutes a Technical Assistance Advisement under s. 213.22, F.S.,
   which is binding on the Department only under the facts and circumstances described in
   the request for this advice as specified in s. 213.22, F.S. Our response is based on those
   facts and the specific situation summarized above. You are advised that subsequent

Technical Assistance Advisement 10B8-001
Page 5
statutory or administrative rule changes or judicial interpretations of the statutes or rules
upon which this advice is based may subject similar future transactions to a different
treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are
public records under Chapter 119, F.S., and are subject to disclosure to the public under
the conditions of s. 213.22, F.S. Confidential information must be deleted before public
disclosure. In an effort to protect confidentiality, we request you provide the undersigned
with an edited copy of your request for Technical Assistance Advisement, the backup
material and this response, deleting names, addresses and any other details which might
lead to identification of the taxpayer. Your response should be received by the
Department within 15 days of the date of this letter.
Sincerely,

Terrence (Terry) Branch
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850) 922-4715
Record ID: 86041
TB/tlg