S2016

An Act concerning the taxation of certain lines of insurance, dedicating certain additional revenues to the Health Care Subsidy Fund, amending P.L.1945, c.132, P.L.1968, c.305, P.L.1960, c.32 and, supplementing P.L.1992, c.160 (C.26:2H-18.51 et al.).

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 2 of P.L.1945, c.132 (C.54:18A-2) is amended to read as follows:

2. (a) The tax specified in subsection (a) of section 1 of this act, except as to life insurance companies and except as to marine insurance as described by chapter 16 of Title 54 of the Revised Statutes, shall, except as hereinafter provided, be 2% upon the taxable premiums collected by such company during the year ending December 31 next preceding on all business of the company in this State, less the amount of taxes on its property, exclusive of taxes on real estate and of taxes payable pursuant to this section, paid in this State by the company pursuant to any law of this State during the said year. Any taxes paid to the treasurer of any firemen's relief association of this State pursuant to R.S.54:18-1 shall be considered a part of the tax payable under this act. An additional tax of 0.1% upon such taxable premiums of such insurers shall also be paid, which amount shall be dedicated to the Department of Banking and Insurance for payment of administrative costs related to its statutory duties.

(b) Taxable premiums, collected after December 31, 1965 by an insurance company subject to the provisions of subsection (a) hereof under group accident and health insurance policies on residents of this State, and taxable premiums collected under legal insurance policies as defined in section 3 of P.L.1981, c.160 (C.17:46C-3) on residents of this State, shall be subject to tax [only] at the following rates:

As to taxes payable in 1967 1 3/4 %

As to taxes payable in 1968 1 1/2 %

As to taxes payable in 1969 1 1/4 %

As to taxes payable in 1970 [and thereafter] through 2008 1%

As to taxes payable in 2009 and thereafter 2.25%

An additional tax of [0.05%] 0.1% upon such taxable premiums of such insurers shall also be paid, which amount shall be dedicated to the Department of Banking and Insurance for payment of administrative costs related to its statutory duties.

(cf: P.L.1990, c.8, s.82)

2. Section 6 of P.L.1945, c.132 (C.54:18A-6) is amended to read as follows:

6. a. In the event that the taxable premiums collected by any company, as specified in sections 2 and 3 of this act, and all of its affiliates as defined in the chapter entitled "Insurance Holding Company Systems," P.L.1970, c.22 (C.17:27A-1 et seq.), during any year ending December 31, exceed twelve and one-half percentum (12 1/2%) of the total premiums collected by the company and all of its affiliates during the same year on all policies and contracts of insurance, whenever and wherever issued, the taxable premiums of such company shall not exceed a sum equal to twelve and one-half percentum (12 1/2%) of such company's total premiums collected during the same year on all policies and contracts of insurance, whenever and wherever issued, calculated as specified in sections 4 and 5 of this act; provided, however, a company to which section 2 of this act (C.54:18A-2) applies shall in no event be deemed to be an affiliate of a company to which section 3 of this act (C.54:18A-3) applies and provided, further, that as to any company licensed in this State prior to June 30, 1984, the taxable premiums of that company shall be calculated without regard to the premiums collected by any affiliate.

b. On and after January 1, 2005 the provisions of subsection a. of this section shall not apply to a health service corporation established pursuant to the provisions of P.L.1985, c.236 (C.17:48E-1 et [seq.] al.).

c. On and after January 1, 2009 the provisions of subsection a. of this section shall not apply to accident and health insurance premiums.

(cf: P.L.2005, c.128, s.1)

3. Section 16 of P.L.1945, c.132 (C.54:18A-9) is amended to read as follows:

16. a. This act shall not apply to any fraternal beneficiary society. For the purposes of this act, "insurance company" shall include a corporation, and any person, partnership or unincorporated association required as an insurer to procure from the Commissioner of Banking and Insurance the certificate prescribed by section 1 of an act entitled "An act to regulate the transaction of the business of insurance by individuals, partnerships and unincorporated associations in this State" approved July 11, 1939 (P.L.1939, c.188; C.17:49-1), or under any other statute now in force or hereafter enacted, engaging in any kind or kinds of business specified in R.S.17:17-1, subject to the insurance laws of this State; provided, however, that no company or society, which by its act or certificate of incorporation has for its object the assistance of sick, needy or disabled members, the defraying of funeral expenses of deceased members and the provision for the wants of the surviving spouses and families of members after death, shall be deemed an insurance company within the purview of this act.

b. (1) For the purposes of P.L.1945, c.132 (C.54:18A-1 et [seq.] al.), "insurance company" shall include, beginning January 1, 1992, a health service corporation established pursuant to the provisions of P.L.1985, c.236 (C.17:48E-1 et [seq.] al.), with respect to its experience rated health insurance. An "insurance company" shall also include any life, accident, or health insurance company in which a health service corporation owns stock, controls, or otherwise becomes affiliated with, as provided in subsection e. of section 3 of P.L.1985, c.236 (C.17:48E-3).

(2) For the purposes of P.L.1945, c.132 (C.54:18A-1 et [seq.] al.), "insurance company" shall include, beginning January 1, 2005, a health service corporation established pursuant to the provisions of P.L.1985, c.236 (C.17:48E-1 et [seq.] al.), with respect to its experience rated and community rated health insurance. An "insurance company" shall also include any life, accident, or health insurance company in which a health service corporation owns stock, controls, or otherwise becomes affiliated with, as provided in subsection e. of section 3 of P.L.1985, c.236 (C.17:48E-3).

(3) For the purposes of P.L.1945, c.132 (C.54:18A-1 et al.), “insurance company” shall include, beginning January 1, 2009, a dental service corporation established pursuant to the provisions of P.L.1968, c.305 (C.17:48C-1 et seq.).

(cf: P.L.2005, c.128, s.2)

4. Section 32 of P.L.1968, c.305 (C.17:48C-32) is amended to read as follows:

32. Every dental service corporation is hereby declared to be a charitable and benevolent institution, and its funds and property shall be exempt from taxation by the State or any political subdivision thereof other than taxation on premiums pursuant to P.L.1945, c.132 (C.54:18A-1 et al.) as provided in section 16 of that act (C.54:18A-9).

(cf: P.L.1968, c.305, s.32)

5. Section 25 of P.L.1960, c.32 (C.17:22-6.59) is amended to read as follows:

25. The premiums charged for surplus lines coverages are subject to a premium receipts tax of [3%] 5% of all gross premiums less any return premiums charged for such insurance. The surplus lines agent shall collect from the insured, either directly or through the originating broker, the amount of the tax, in addition to the full amount of the gross premium charged by the insurer for the insurance; provided, however, that the tax on any unearned portion of the premium shall be returned to the policyholder by the surplus lines agent. The surplus lines agent is prohibited from absorbing such tax, or, as an inducement for insurance or for any other reason, rebating all or any part of such tax or of his commission.

The surplus lines agent shall forward to the commissioner together with his quarterly report submitted pursuant to section 24 of P.L.1960, c.32 (C.17:22-6.58) a check in the amount of the premium receipts tax due for that period made out to "the State of New Jersey," except that where the policies cover fire insurance on property in any municipality or portion of a township, or fire district in this State, which now has or may hereafter have, a duly incorporated firemen's relief association, 3% of the premium receipts tax covering such insurance shall be paid to the treasurer of the [association] New Jersey State Firemen’s Association and the remaining 2% of the premium receipts tax shall be forwarded to the commissioner.

The tax imposed hereunder, if delinquent, shall be subject to the provisions of R.S.54:49-3 and R.S.54:49-4.

The check covering taxes paid under the provisions of this act shall be forwarded by the commissioner to the Director of the Division of Taxation and that portion of the premiums representing fire insurance shall be distributed by him in the amount now or hereafter provided by law as to taxes collected by him from fire insurance companies of other states and foreign countries. The commissioner shall ascertain and report to the Director of the Division of Taxation all facts necessary to enable the director to ascertain, fix and collect the amount of the tax to be paid by each licensee subject thereto under this act.

If a surplus lines policy covers risks or exposures only partially in this State, the tax payable shall be computed on the portion of the premium which is properly allocable to the risks or exposures located in this State.

This section does not apply as to insurance of or with respect to insurance of risks of the State Government or its agencies, or of any county or municipality or of any agency thereof.

(cf: P.L.1996, c.69, s.8)

6. (New section) Commencing with fiscal years beginning on and after July 1, 2009, there shall be deposited annually in the Health Care Subsidy Fund established pursuant to section 8 of P.L.1992, c.160 (C.26:2H-18.58): the sum of $74.5 million from the revenue collected annually from the taxation of group accident and health insurance policies pursuant to subsection (b) of section 2 of P.L.1945, c.132 (C.54:18A-2); and the sum of $5 million from the taxation of dental service corporations pursuant to P.L.1945, c.132 (C.54:18A-1 et al.).

7. This act shall take effect immediately.

STATEMENT

This bill revises the tax treatment of certain lines of insurance and dedicates the revenue realized from some of that revised tax treatment to the Health Care Subsidy Fund.

The bill modifies the tax treatment of group accident and health insurance premiums. It increases the rate on those premiums from the current 1% to 2.25%. The bill also increases the additional tax dedicated to the Department of Banking and Insurance for payment of its administrative costs related to its statutory duties from 0.05% to 0.1%. In so doing, the bill creates greater parity in the tax rates imposed on the various types of carriers involved in the accident and health insurance market: health maintenance organizations (HMOs); health service corporations; and insurers.

The bill also eliminates the “1/8 rule” for all accident and health insurance premiums. Currently, taxable premiums of an insurer are “capped” at 12.5% of total premiums for any carrier whose taxable premiums in New Jersey exceed 12.5% of its total worldwide taxable premiums (the so-called “1/8 rule”). This change is being made simultaneously with the increase in the premium tax rate for group accident and health insurance, and for the same reason: to promote consistency in the taxation of different types of accident and health insurance carriers.

This bill also modifies the current tax exemption given to a dental service corporation to make it subject to the insurance premiums tax. Similar action was first taken in 1990 with regard to the exemption provided to health service corporations. See section 2 of P.L.1989, c.295 (amending C.17:48E-41).

This bill increases the premium receipts tax for surplus lines coverage from 3% to 5%. In the case of surplus lines policies that cover fire insurance on property located in a municipality or fire district with a duly incorporated firemen’s relief association, the bill provides that 3% of the premium receipts tax would be paid to the treasurer of the New Jersey State Firemen’s Association, as is current practice, while the remaining 2% would be paid to the State.

Lastly, the bill annually dedicates the sum of $74.5 million from the revenue collected annually from the taxation of group accident and health insurance policy premiums, and the sum of $5 million from the taxation of dental service corporations, to the Health Care Subsidy Fund, commencing with fiscal years beginning on and after July 1, 2009.