Was insurance premium tax due on city-funded health claims paid by the plan administrator?

Subject

Self-Insured

Plain-English summary

The insurance premium tax did not apply to health claims paid by the administrator from funds the self-insured city supplied. The Department concluded that life and health self-insurers were not "insurers" subject to section 624.509 unless the Legislature specifically made them subject to that provision.

The city also bought specific and aggregate stop-loss coverage from the insurer, but the ruling's issue and conclusion concerned the city-funded claims. This TAA expressly revised and withdrew TAA 94B8-001 dated January 27, 1994.

What this means for you

The ruling distinguished self-insuring an obligation from entering the insurance business. Its result was tied to the city's particular plan, the absence of a separate plan entity, the administrator relationship, and the statutory treatment described in 1994.

Common questions

Did the administrator's payment of claims turn them into taxable insurance premiums? No, because the money came from the city's self-insurance funds.

Did the plan exist as a separate legal entity? No. The ruling states that only the city and insurer were involved.

What happened to the earlier TAA? TAA 94B8-001 was withdrawn.

Citations and references

• Fla. Stat. §§ 624.01, 624.03, 624.04, 624.509, and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94B8-002

Original ruling text

Status: This TAA is a revision to 94(B)8-001 issued January 27, 1994

Aug 18, 1994

Re: Technical Assistance Advisement No. 94(B)8-002 Insurance Premium Tax, Self-Insured City of XXX (hereafter "City")

Dear :

This is regarding an earlier issued Technical Assistance Advisement ("TAA") 94(B)8-001, dated January 27, 1994. The prior response was the department's answer to your request for a technical assistance advisement on municipal self-insurers.

ISSUE

Can the insurance premium tax imposed under s. 624.509, F.S., be assessed on the amount of claims paid by a third-party administrator from funds provided by the City?

STATEMENT OF FACTS

The facts that you have provided are as follows:

1) The City self-insures its employees' health insurance; 2) The City entered into a contract with XXX Insurance Company of Florida, previously XXX Insurance Company, hereafter referred to as "Insurer," to administer the City's selfinsurance health plan and provide specific and aggregate stoploss coverage; 3) The City established an account with a required balance of $40,000 with Insurer for the payment of approved claims. As required, the City transferred funds weekly to maintain the required minimum balance; 4) The Insurer's present proposal estimates the insurance premium tax for the coming year to be $62,376. Last year's tax was $40,478. The Insurer is paying tax on the amount of

premiums paid for stop-loss coverage and the claims they are paying; and, 5) The City and the Insurer are the only two entities involved. The plan is not a separate legal organization having its own existence.

It is the City's position that the insurance premium tax should only be paid on the amount of stop-loss premiums paid.

DISCUSSION OF LAW

Section 624.509, F.S., states:

"(1) In addition to the license taxes provided for in this chapter, each insurer shall... on or before March 1 in each year..., pay to the Department of Revenue a tax on insurance premiums, risk premiums for title insurance, or assessments, including membership fees and policy fees and gross deposits received from subscribers to reciprocal or interinsurance agreements,..." (emphasis added).

The word "insurer" as used in s. 624.509, F.S., does not include self-insurers. Only self-insurers made subject to the insurance premium tax by specific Legislative action are deemed "insurers" within the meaning of that section and thereby become subject to the insurance premium tax.

The Florida Insurance Code, hereafter referred to as "Code," is currently contained in Chapters 624 through 632, 634, 635,(FN 1) 637,(FN 1) 638, 641, 642, 648 and 651 of the Florida Statutes. See s. 624.01, F.S. Sections 624.02 through 624.10 contain general definitions that are applicable to the entire Code except where specifically provided otherwise.

Section 624.03, F.S., defines "insurer" to include "... every person engaged as indemnitor, surety, or contractor in the business of entering into contracts of insurance or annuity." "Person" is broadly defined in s. 624.04, F.S., to include among others, individuals, insurers, organizations, and every legal entity.

The definitions of "insurer" and "person" in Sections 624.03 and 624.04, F.S., are so broad that they appear to included self-insurers within the definition of "insurers" for the purposes of the Code. If included within the definition of "insurer," self-insurers would be subject to the insurance premium tax imposed under s. 624.509, F.S.

An examination of case law and the statutes, however, reveal that self-insurers are not "insurers" in most cases under the Code. The Courts do not apply the Code to self-insurers unless the particular section of the Code at issue has been made specifically applicable to self-insurers by the Legislature. Further, the Legislature has demonstrated their intent that self-insurers are not included within the definition of "insurer" in s. 624.03, F.S. This intent was evidenced by: the enactment of six different provisions specifically making only certain self-insurers subject to the insurance premium tax in s. 624.509, F.S.; when they amended the uninsured motorist coverage provisions to specifically include only certain self-insurers; when they enacted four separate definitions sections applicable to separate parts of the Code providing that self-insurers would be subject to that particular section of the Code.

The Courts have held that the word "insurer" did not include self-insurers for purposes of the Worker's Compensation insurance provisions, the uninsured motorist provisions or the no-fault insurance provisions. The Courts have also held that for purposes of setting priorities between policies and determining litigation defence responsibilities, self-insurers are not "insurers." Thus, since the Courts found that "insurers" did not include self-insurers for those purposes, it is reasonable to conclude that a Court, addressing the issue of the insurance premium tax in s. 624.509, F.S., would use the same reasoning and also conclude that self-insurers are not "insurers" subject to the insurance premium tax.

The Legislature enacted over ten different provisions that specifically include only certain self-insurers within certain provisions of the Code. If self-insurers were included within the definition of "insurer" in s. 624.509, F.S., then the Legislature not only wasted its time doing something totally

useless and unnecessary but it also created conflict between those sections that purport to apply the Code on a limited basis to certain self-insurers and the broad definition in s. 624.03, F.S., which would appear to make the entire Code, not just parts of it, applicable to all self-insurers. A court, unless it has no other alternative, will not find that the Legislature has done a useless thing.

CONCLUSION

For the reasons outlined above, life and health selfinsurers are not subject to the insurance premium tax imposed under s. 624.509, F.S. The previously issued Technical Assistance Advisement, number 94(B)8-001, dated January 27, 1994, is therefore withdrawn.

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 predicated on those facts and the specific situation summarized above. You are advised that subsequent 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 and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the department before disclosure. In an effort to protect confidential information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or this response.

FOOTNOTE 1 Repealed by s. 57, ch. 93-148, L.O.F.

Sincerely,

Paul J. Munyon
Taxpayer Assistant
Technical Assistance Section B