Was a certified Louisiana health maintenance organization exempt from corporation income and franchise taxes because it paid the annual HMO license tax instead?

Plain-English summary

The health maintenance organization was exempt from Louisiana corporation income tax and corporation franchise tax because the HMO annual license tax applied instead.

The company was organized and domiciled in Louisiana to arrange and provide health-care services, held the Commissioner's certificate of authority, obtained most of its revenue from member health-maintenance services, and paid the annual premiums tax.

Those facts placed it within the statutory HMO definition.

Tax result

La. R.S. 22:2025(A) required an authorized and certified HMO to pay an annual license tax on gross receipts from coverage contracts at the referenced life-insurance-company rate.

That tax was imposed in lieu of Louisiana corporation income and franchise taxes.

Common questions

Q: Was the HMO subject to corporation income tax?

A: No, on the stated facts.

Q: Was it subject to corporation franchise tax?

A: No.

Q: Did it owe no Louisiana entity-level tax at all?

A: No. The annual HMO license tax applied instead.

Q: What facts supported HMO status?

A: Louisiana organization and domicile, health-service operations, insurance certification, predominantly HMO revenue, and annual premiums-tax payments.

Citations and references

• La. R.S. 22:2002(7) — HMO definition
• La. R.S. 22:2025(A) — annual license tax in lieu of income and franchise tax
• La. R.S. 22:1062 and 22:1067 — referenced license-tax rates
• LAC 61:III.101.C — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 04-001

Original ruling text

Private Letter Ruling 04-001
Redacted Version
June 30, 2004

A Private Letter Ruling concerning whether a health maintenance organization is exempt from
Louisiana corporation income tax and Louisiana corporation franchise tax in accordance with La.
Rev. Stat. Ann. § 22:2025(A) has been requested.
Facts:
The following is a summary of the facts as supplied by the taxpayer requesting the Private Letter
Ruling (Health Maintenance Organization A):

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Health Maintenance Organization A was incorporated with the stated purpose of
arranging, managing, and furnishing health care services through a health maintenance
organization.
Health Maintenance Organization A was organized and is domiciled in Louisiana.
According to its Articles of Incorporation, Health Maintenance Organization A was
formed:
o To arrange, manage, and furnish health care services through providers
who are under contract with or employed by this corporation in its
capacity as a licensed health maintenance organization, pursuant to the
Louisiana Health Maintenance Organization Act, and to contract with self
insured businesses to provide such services as a preferred provider
organization.
As a health maintenance organization, Health Maintenance Organization A provides
comprehensive medical services to employer groups, primarily through contractual
arrangements with a network of hospitals and physicians located in northern Louisiana.
Some of the benefits that Health Maintenance Organization A provides to its members
include: medical benefits, maternity services, mental health services, outpatient services,
inpatient services, prescription drugs, and ambulance services.

617 North Third Street
P. O. Box 44098
Baton Rouge, Louisiana 70804-4098
225-219-2780 ‚ 225-219-2759 Fax
TDD 225-219-2114 ‚ www.revenue.louisiana.gov

Private Letter Ruling 04-001
Page 2 of 3
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Health Maintenance Organization A received its Certificate of Authority to act as a health
maintenance organization from the Commissioner of Insurance.
Over the past five years, the vast majority of Health Maintenance Organization A’s total
revenues were brought about through the provision of health maintenance services to its
members.
Health Maintenance Organization A pays the Louisiana annual premiums tax each year
as a health maintenance organization.

Discussion:
La. Rev. Stat. Ann. § 22:2002(7) defines “health maintenance organization” to include:
any corporation organized and domiciled in this state which undertakes to provide
or arrange for the provision of basic health care services to enrollees in return for
a prepaid charge. The health maintenance organization may also provide or
arrange for the provision of health care services to enrollees on a prepayment or
other financial basis.
La. Rev. Stat. Ann. § 22:2025(A) provides that:
In lieu of the state income tax and the corporate franchise tax levied in Title 47 of
the Louisiana Revised Statutes of 1950, every health maintenance organization
authorized and certified to engage in the business of issuing contracts or other
evidences or similar forms of coverage to enrollees for health care services or
prepaid medical services in this state, including Louisiana partnerships authorized
under R.S. 22:2004(B), shall pay an annual license tax for the year 1986, and each
subsequent year, on the gross amount of its receipts from contracts and other
evidences of coverage at the same rate as the license tax on life insurance
companies provided in R.S. 22:1062 and R.S. 22:1067.
Ruling:

Health Maintenance Organization A was organized and is domiciled in Louisiana. Health
Maintenance Organization A provides comprehensive medical services to its members. In
addition, Health Maintenance Organization A received its Certificate of Authority to operate as a
health maintenance organization from the Commissioner of Insurance. Finally, over the past five
years, the vast majority of Health Maintenance Organization A’s total revenues were brought
about through the provision of health maintenance services to its members. As such, Health
Maintenance Organization A may properly be considered a health maintenance organization
under the definition of La. Rev. Stat. Ann. § 22:2002(7).

Private Letter Ruling 04-001
Page 3 of 3
Since Health Maintenance Organization A is a health maintenance organization, under La. Rev.
Stat. Ann. § 2025(A) it is required to pay the annual license tax in lieu of the Louisiana
corporation income tax and Louisiana corporation franchise tax. As such, Health Maintenance
Organization A is exempt from Louisiana corporation income tax and Louisiana corporation
franchise tax in accordance with La. Rev. Stat. Ann. 22:2025(A)
Sincerely,

Cynthia Bridges
Secretary
By:

William (Mac) E. Little
Attorney
Policy Services Division

A Private Letter Ruling (PLR) is issued under the authority of LAC 61:III.101( C ). A PLR provides
guidance to a specific taxpayer at the taxpayer’s request. It is a written statement issued to apply
principles of law to a specific set of facts or a particular tax situation and is limited to the matters
specifically addressed. A PLR does not have the force and effect of law and may not be used or cited
as precedent. A PLR is binding on the Department only as to the taxpayer making the request and only
if the facts provided with the request were truthful and complete and the transaction was carried out as
proposed. The Department’s position concerning the particular tax situation addressed remains in
effect for the requesting taxpayer until a subsequent declaratory ruling, rule, court case, or statute
supersedes it.