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S.F. No. 3201 - Application of tax to captive insurance companies
 
Author: Senator Roger C. Chamberlain
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: March 20, 2018



 

This bill establishes a two-part test for determining whether an insurance company is a “disqualified captive insurance” company and therefore not exempt from income taxes. Generally, insurance companies are exempt from corporate franchise tax but instead pay the insurance premiums tax. If a company is a “disqualified captive insurance company,” it would be subject to the corporate franchise tax. Generally, a captive insurance company is a subsidiary of a parent company that provides insurance to the parent company, and can be used as an income shelter for the parent company to reduce its tax liability.

Section 1. Financial institution. Makes a technical amendment to the definition of “financial institution” to strike an unnecessary reference to the insurance premium tax chapter.

Section 2. Disqualified captive insurance company. Establishes a definition of “disqualified captive insurance company.” A company meets the definition if it is licensed as a captive insurance company or derives 80% or more of its total premiums from its unitary business members, and receives less than 50% of its gross receipts from premiums, or pays less than 0.25% of its total premiums under state insurance premium tax.

Section 3. Exempt entities. Excludes disqualified captive insurance companies from the general income tax exemption for insurance companies.

Section 4. Unitary business principle. Requires that the combined report for unitary businesses exclude the income and apportionment factors of a disqualified captive insurance company. Strikes language providing that insurance companies that are part of a unitary business and not licensed in Minnesota or another state that imposes retaliatory taxes must be included on the combined report.

The bill is effective retroactively beginning in tax year 2017.

 

 
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