Legislature(1997 - 1998)
05/05/1998 02:00 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 490
"An Act relating to insurance premium taxes."
JAMES HORNADAY, STAFF, REPRESENTATIVE PETE KOTT testified in
support of HB 490. He explained that Representative Kott
sponsored the legislation by request. The legislation
exempts premiums paid by employers who participate in the
Public Employees' Retirement System (PERS) or in the
Teachers' Retirement System (TRS) and premiums paid under
contracts purchased under AS 39.30 from the tax levied on
insurers in AS 21.09.310. He maintained that the
legislation would encourage participation in these programs
and assist individual employees.
REPRESENTATIVE JOE RYAN addressed section 3. He noted that
the state of Alaska charges a 2.7 percent yearly premium
tax. No premiums are written in Alaska with a value of $100
hundred thousand dollars or more. There are approximately
12,000 premiums written offshore. Insurance polices are
written for $500 million to several billion dollars with
premiums as high as $200 million dollars a year. The
principle is put into a trust for the beneficiary at the
death of the policyholder. This is considered a gift. The
55 percent state tax is not applicable on the trust. He
noted that the legislation would allow Alaska to be
competitive by reducing the premium tax on policies greater
than $100 thousand dollars a year to one-tenth of one
percent. He noted that offshore jurisdictions have no
premium tax.
JERRY REINWAND, LOBBYIST, BLUE CROSS BLUE SHIELD, JUNEAU
explained in response to a question by Representative Kelly,
that the basic question is whether public entities should be
subject to the tax. He noted that the state of Washington
passed legislation in 1994, which raised their tax to 2
percent. The retaliatory tax was implemented in response to
the state of Washington's tax. The state of Alaska exempted
itself from the tax. The statute remained silent in regards
to the University of Alaska. He believes that the
University is a state entity and is covered by the
exemption. He questioned if school districts and
municipalities would fall under the law. He noted that
there would be a loss in revenue from the repeal of the
retaliatory tax. He noted that Blue Cross is the only
company that is subject to the retaliatory tax, since it is
the only company that sells insurance in the state of
Washington and the state of Alaska. He estimated that the
loss in income would be $250 thousand dollars.
Co-Chair Therriault expressed concern that another state's
legislature is impacting the premiums charged in the state
of Alaska.
Mr. Reinwand noted that there is a question in regards to
the state's taxing authority and taxing of political
subdivisions.
Representative Martin asked if the law should be repealed.
Representative Ryan noted that there are no Alaskan based
health insurance companies.
Representative Davies referred to page 2, line 16. He
questioned if other taxation issues would be affected by the
change from section to chapter. Co-Chair Therriault noted
that both the retaliatory and premium taxes would be
affected. He stated that he would offer an amendment to
make reference specifically to the retaliatory section AS
21.09.027.
Representative Ryan noted that New York Life recently sold
NYLCare. New York Life is considering opening a full owned
subsidiary in Alaska to sell life insurance.
Co-Chair Therriault noted that section 3 pertains to the
retaliatory tax. He observed that there are municipalities
and school districts that would benefit from sections 1 and
2.
ED LINGUIST, ANCHORAGE SCHOOL DISTRICT, ANCHORAGE spoke in
support of the legislation. He noted that the District is
paying the retaliatory tax. Each employee pays approximately
$120 dollars a year. He observed that state employees do
not have to pay the tax.
BARBARA HUFF TUCKNESS, TEAMSTERS UNION spoke in support of
HB 490. She noted that teamster members working for the
Anchorage School District would be impacted by the
legislation.
In response to a question by Representative Martin, Ms. Huff
explained that the tax is charged based on the company's
place of domicile.
MARIANNE BURKE, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT
OF COMMERCE AND ECONOMIC DEVELOPMENT spoke in support of the
legislation. She observed that there is an exemption for
the state of Alaska and insurance purchased under Title 9.
She observed that there are differing attorney general
decisions regarding whom is covered under Title 9. Some
governmental entities and political subdivisions are paying
premium tax. The premium tax is 2.7 percent charged on the
gross. She stressed that it is difficult to enforce. An
attempt has been made to identify who would qualify. Some
political subdivisions cannot afford to belong to PERS. She
noted that the state of Washington changed the tax on
companies headquartered in that state. As a result the
premiums collected under Washington law was higher. The
retaliatory tax was created to protect health insurance
companies headquarter in Alaska. She noted that there are
no health insurance companies domiciled in Alaska. Premiums
collected in the state of Alaska were approximately $1
million dollars in 1995. Blue Cross is the only company
affected since it is the only carrier domiciled in the state
of Washington that is doing business in Alaska. She noted
that Aetna is domiciled in the state of Connecticut. Blue
Cross is at a competitive disadvantage. She urged the
Committee to identify the definition of political
subdivision.
Co-Chair Therriault questioned if the retaliatory tax should
be repealed. Ms. Burke noted that if a company was
domiciled in Alaska that the retaliatory tax may need to be
revisited.
In response to a question by Representative Martin, Ms.
Burke stated that any change would have to be initiated by
the state of Alaska. She emphasized that the "playing
field" is uneven and stated that the appropriate place to
address the problem is in the Alaskan legislature.
Representative Mulder asked the fiscal cost of sections 1
and 3. Ms. Burke noted that the fiscal impact for sections
1 and 3 is unknown. The 2.65 million-dollar fiscal note
only pertains to section 2. She explained that some
governmental entities are being taxed that were not intended
to be taxed. She suggested that the tax be evenly applied.
She pointed out that there is no data to quantify the amount
of retaliatory tax being collected on school districts,
municipalities, REAA's and other political subdivisions.
The fiscal note is based on attached assumptions.
(Tape Change, HFC 98 - 153, Side 2)
Ms. Burke explained that the retaliatory tax was first
collected in 1996. Blue Cross filed for a refund based on
the ambiguity of the law. The refund is still pending.
Representative Davies questioned if political subdivision
needs to be clarified. Ms. Burke observed that political
subdivision is defined in AS 01.10.060. However, it
includes municipalities but not boroughs and school
districts. Case law has held that boroughs and school
districts are political subdivisions. Ms. Burke noted that
it is questionable if the Public Employees Retirement System
(PERS) is a political subdivision.
Representative Davies asked if employers that participate in
PERS and TRS would be exempt under this section. Ms. Burke
expressed concern that their exemption would lead other
entities to request exemptions. She noted that there are
governmental entities that are not included under PERS and
TRS.
In response to a question by Representative Davies, Ms.
Burke noted that AS 39.30 is the statute that exempts the
state of Alaska from collecting premium tax on itself.
Representative Davies questioned if the intent is to exempt
political subdivisions. Ms. Burke suggested that political
subdivisions include a city, municipality, borough, public
school district, Rural Education Attendance Area (REAA),
public school, university or community college.
Representative Davies noted that "municipality" is defined
under AS 29.71.800 as a political subdivision incorporated
under state law.
Co-Chair Therriault suggested that the Committee not try to
distinguish between the municipality of Anchorage and the
Parking Authority in regards to the exemption. He thought
that the retaliatory tax should be repealed. He emphasized
that the decision of charging a premium tax on political
subdivisions and the definition of political subdivision
should be held for further discussion. He noted that
sections 1 and 3, which would reduce tax on life insurance
policies could be positive for the state of Alaska.
Co-Chair Therriault proposed that section 2 be deleted and a
new section be added to repeal AS 21.09.270.
Representative Davies suggested that the retaliatory tax in
section 2 would be beneficial if an Alaskan insurance
business were in operation. Co-Chair Therriault noted that
the retaliatory tax has been in existence since 1966. There
have been no Alaskan insurance companies during this time.
In response to a question by Co-Chair Therriault, Ms. Burke
explained that sections 1 and 3 would attract policies
written in the state of Alaska. The insurance companies do
not have to be domiciled in Alaska.
Representative Davies noted that Blue Cross has already paid
the retaliatory tax. Ms. Burke observed that Blue Cross is
one of the largest insurance writers for municipalities,
boroughs, and school districts. She observed that the state
of Alaska pays and collects the tax for these political
subdivisions. Co-Chair Therriault noted that other private
businesses and individuals are also paying the retaliatory
tax. He questioned the cost to the State of repealing the
tax. Ms. Burke observed that Blue Cross pays approximately
$1 million dollars a year. She observed that Blue Cross
requested the legislation. The Division of Insurance agrees
that the retaliatory tax is unfair.
Co-Chair Therriault MOVED to delete section 2 and add a
section repealing AS 21.09.270. There being NO OBJECTION,
it was so ordered. He noted that there would be a revised
fiscal note.
Representative Mulder MOVED to report CSHB 490 (FIN) out of
Committee with the accompanying fiscal note. Co-Chair
Therriault clarified that the immediate effective date would
remain. There being NO OBJECTION, it was so ordered.
CSHB 490 (FIN) was REPORTED out of Committee with "no
recommendation" and with a fiscal impact note by the
Department of Commerce and Economic Development.
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