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 TAA 94B8-001 was withdrawn.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