Legislature(2015 - 2016)BARNES 124
04/18/2015 09:00 AM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB15 | |
| SB107 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 107 | TELECONFERENCED | |
| + | SB 15 | TELECONFERENCED | |
SB 15-LIFE INSURANCE POLICY PREMIUM TAX
9:12:09 AM
CHAIR OLSON announced that the first order of business would be
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 15, "An Act relating to
the tax on policy year premiums for life insurance policies."
9:12:16 AM
SENATOR JOHN COGHILL, Alaska State Legislature, characterized
the bill as simple in concept, but one with complexities. He
said that SB 15 would reduce the premium taxes for single or
group life insurance polies from 0.1 percent to 0.08. In 1997,
one of his predecessors introduced the trust administration law
that created trusts in Alaska, which was unique. Previously,
the insurance director mentioned offshore investment issues, and
the concept was to attract to the United States that type of
investment. In 2010, Alaska had $208 million in investment for
single or group life insurance as a result of its favorable
trust law, noting other states enacted similar laws, including
South Dakota, which has had the effect of reducing the
investment in Alaska to $79 million. This bill was introduced
to attract additional investment in Alaska.
9:14:09 AM
SENATOR COGHILL pointed out that one concern expressed was that
this is a "race to the bottom," which he acknowledged was a
legitimate concern; however, he hoped to increase the investment
in Alaska, which will improve the workforce, attract investment
to Alaska, and would bring a premium tax benefit. Although the
state may lose volume and lose the tax value, if the volume was
increased, it will also increase the tax value to Alaska. He
hoped this would bring the policy year premium for policies
exceeding $100,000 to a rate competitive to other states, in
particular, South Dakota. He explained that this would bring
Alaska's basic premium tax rate even with South Dakota's rate.
He offered his belief that Alaska's trust administration law was
attractive, but this will entice investors in Alaska. This bill
was brought to the sponsor by the trust administrators in
Alaska.
9:16:19 AM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community, & Economic Development (DCCED), stated that
SSSB 15 would reduce the premium tax from 0.10 to 0.08 on life
insurance policies exceeding $100,000. She referred to a
spreadsheet in members' packets entitled "Prepared by the
Division of Insurance at the request of Senator John Coghill for
SB 15." The amount of tax collected starts at $104 thousand and
if it was reduced to .08 it would be $84,000, which makes a
difference of about $20,000 on about 112 polices. She said the
table goes through 2012 to highlight the number of polices and
the difference in the tax that would be collected at the 0.08
rate. She said South Dakota reported that when it reduced their
tax to 0.08 percent, in 2010 that 29 companies wrote policies
over $100 million with $97 million in premium taxes and in 2014,
South Dakota collected $120 million in premium collected from 32
companies. She recapped that South Dakota did enjoy an increase
in volume from the insurance industry.
9:18:20 AM
MS. WING-HEIER said this was submitted with an indeterminate
fiscal note since it was not possible to determine the overall
effect of the revenue collected; however, she reported that in
2011, the difference was $88,000. She suggested that the amount
was fairly small in terms of the overall revenue for the
division.
9:19:11 AM
REPRESENTATIVE KITO referred to the aforementioned table to
2011, to $443,280 for 105 polices, dropping to $112,535 and 105
polies. He asked for further clarification on the shift in
revenue since it seemed like the division taxed the same number
of policies.
MS. WING-HEIER answered that 2011 was an anomaly since the state
had two large polices over $300 million. In fact, these are the
types of policies the insurance companies hope to attract. She
referred to the total life premium written in 2011 for
$687,043,543 which dropped in 2012 to $352,786,601.
9:21:10 AM
CHAIR OLSON related his understanding the Division of Insurance
supported the bill.
MS. WING-HEIER answered yes; that the division does support the
bill.
9:21:28 AM
REPRESENTATIVE LEDOUX wondered whether the policies in question
were a finite number of potential policies since the language
referred to policies over $100,000 in premium. She asked the
reason that people would move their policies to Alaska.
MS. WING-HEIER answered that there was not a finite number, but
that life insurance is one tool in retirement planning. She
said that the division has seen an increase in this tool being
used in financial planning, especially by young people who are
starting to look at their financial future. She offered her
belief that young people are buying bigger policies. Further,
she advised that people do not need to live in Alaska to take
advantage of this tax structure. The insurance brokers or
producers in the state could sell to people in the Lower 48, but
the state will collect the tax.
9:23:41 AM
REPRESENTATIVE LEDOUX asked whether these policies are used when
someone dies or if the [policies] are cash values since people
use them for retirement planning.
MS. WING-HEIER answered these policies can be used as a
beneficiary for life estate planning purposes or they could have
a cash value that people could draw on, but it would just depend
on how it was structured with the broker.
9:24:09 AM
CHAIR OLSON commented that these policies are also used to cover
taxes after death on large estates.
MS. WING-HEIER agreed that was correct.
9:24:20 AM
REPRESENTATIVE HUGHES asked Ms. Wing-Heier to predict the
additional potential revenue the state might collect.
MS. WING-HEIER said she did not have an answer at this time,
although the committee requested it. Unfortunately her
financial staff was currently on leave so she wasn't able to
access and compile data to predict the overall effect of the
bill; however, the insurance agents and brokers believe this
change will be beneficial.
9:26:31 AM
REPRESENTATIVE HUGHES asked whether she was confident this
change will increase revenue.
MS. WING-HEIER answered that she was optimistic. She said she
has spent time with the sponsor and agents, who are confident it
will.
9:26:56 AM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on SSSB 15.
9:27:12 AM
REPRESENTATIVE HUGHES moved to report SSSB 15 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, SSSB 15 was reported from the
House Labor and Commerce Standing Committee.