Bill Text: OH SB326 | 2011-2012 | 129th General Assembly | Introduced

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Bill Title: To authorize the Director of Budget and Management to arrange for the sale of prepaid insurance premium tax certificates to insurers in exchange for offsets against future tax payments and use revenue so generated on projects to increase efficiency or reduce costs of state or local government. [Track Bill]

Status: 2012-04-05 - To Insurance, Commerce, & Labor [SB326 Detail]

Download: Ohio-2011-SB326-Introduced.html

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As Introduced

129th General Assembly Regular Session 2011-2012

S. B. No. 326

Senator Coley 

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A BILL

To amend sections 5725.18 and 5729.03 and to enact

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sections 126.51 and 126.52 of the Revised Code to

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authorize the Director of Budget and Management to

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arrange for the sale of prepaid insurance premium

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tax certificates to insurers in exchange for

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offsets against future tax payments and use

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revenue so generated on projects to increase

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efficiency or reduce costs of state or local

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government.

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BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That sections 5725.18 and 5729.03 be amended and	10
sections 126.51 and 126.52 of the Revised Code be enacted to read	11
as follows:	12

Sec. 126.51. (A) As used in this section and section 126.52	13
of the Revised Code:	14

(1) A person is an "affiliate" of another person if:

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(a) The person, directly or indirectly, beneficially owns ten	16
per cent or more of the outstanding voting securities or other	17
ownership interests of the other person, whether through rights,	18
options, or convertible interests or directly or indirectly	19
controls or is empowered to vote ten per cent or more of the	20
outstanding voting securities or other ownership interests of the	21
other person.	22

(b) The person is a partner in a partnership in which the	23
other person is a general partner.	24

(c) The person is an officer, employee, or agent of the other	25
person, or an immediate family member of the officer, employee, or	26
agent.	27

(2) "Insurance premium tax" means the tax levied pursuant to	28
section 5725.18 or Chapter 5729. of the Revised Code.	29

(3) "Manager" means a person, including its principals,	30
partners, subsidiaries, affiliates, or subcontractors designated	31
by the director of budget and management pursuant to division (D)	32
of this section.	33

(4) "Purchaser" means any insurer authorized to conduct	34
business in this state and subject to the insurance premium tax	35
that prepays its insurance premium tax pursuant to this section.	36

(5) "Fund allocation date" means the date on which the	37
manager receives the tax prepayments from purchasers and sells tax	38
prepayment certificates.	39

(6) "Tax prepayment certificate" means an instrument	40
authorized by the director of budget and management and issued by	41
the manager in exchange for the purchaser's prepayment of	42
insurance premium tax that has a final maturity date of ten years	43
from the date on which the instrument is first used by the	44
purchaser and is amortized at ten per cent of the amount of the	45
certificate.	46

(7) "Person" means any natural person, corporation, limited	47
liability company, partnership, joint venture, trust, incorporated	48
or unincorporated association, joint stock company, the state or	49
any of its agencies or instrumentalities, or a political	50
subdivision.	51

(8) "Principal" means any of the following:

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(a) An officer or director of a corporation;

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(b) An individual manager of a limited liability company or a	54
principal of any entity that serves as a manager;	55

(c) An individual general partner of a partnership or limited	56
partnership or a principal of any entity that serves as a general	57
partner;	58

(d) An individual in a position of similar authority involved	59
in any entity.	60

(9) "Manager costs" means a fee of one hundred fifty basis	61
points of the face amount of tax prepayment certificates sold by	62
the manager as compensation for the manager configuring and	63
selling the tax prepayment certificates, which includes all costs	64
related to configuring and selling the certificates.	65

(10) "Offset" means an offset or credit against a purchaser's	66
insurance premium tax liability arising from the purchaser's	67
prepayment of the tax.	68

(B) The director of budget and management, in consultation	69
with the treasurer of state, may authorize up to one billion two	70
hundred fifty million dollars in tax prepayment certificates to	71
purchasers that prepay, in cash, the purchasers' insurance premium	72
tax. A certificate holder is eligible to offset an amount of the	73
purchaser's future insurance premium tax in accordance with the	74
procedures and requirements of this section. A tax prepayment	75
certificate shall not grant offsets in excess of ten years,	76
beginning with the first year the purchaser is able to claim an	77
offset.	78

The director may solicit proposals and contract for the	79
services necessary for the configuration, marketing, and sale of	80
such certificates, including designating a manager in accordance	81
with division (D) of this section.	82

Revenue received from the sale of tax prepayment	83
certificates, less any manager costs, shall be deposited in the	84
efficiency and cost reduction fund created under section 126.52 of	85
the Revised Code.	86

(C)(1) Each purchaser that prepays the purchaser's insurance	87
premium tax shall earn vested offsets against future insurance	88
premium taxes equal to the face amount of the tax prepayment	89
certificate purchased by the purchaser and evidencing its	90
prepayment of insurance premium taxes. Tax offsets shall vest on	91
the fund allocation date and shall be available to the purchaser	92
annually.	93

(2) Each purchaser holding a tax prepayment certificate may	94
apply the offset provided in the certificate against the insurance	95
premium tax each year in accordance with the terms of the	96
certificate, beginning with the third annual return filed	97
following the purchase date of the certificate and continuing for	98
the following nine consecutive years.	99

(3) Any offset against a purchaser's insurance premium tax	100
applied in any year shall not exceed the full tax liability of the	101
purchaser for that year.	102

(4) Any offsets against the insurance premium tax that a	103
purchaser is permitted to apply under division (C)(2) of this	104
section, but is unable to apply because of division (C)(3) of this	105
section, may be carried forward up to ten years following the	106
issuance of a tax prepayment certificate. Unused offsets may be	107
used to offset the purchaser's liability in any year, within such	108
limit, in which the purchaser has sufficient tax liability,	109
including in a year in which the purchaser also applies tax	110
offsets that are allocable to that year pursuant to division	111
(C)(2) of this section.	112

(5) A purchaser holding a tax prepayment certificate is not	113
required to reduce the amount of insurance premium tax liability	114
included by the purchaser in connection with the ratemaking for	115
any insurance contract written because of a reduction in the	116
purchaser's assessment derived from offsets granted in tax	117
prepayment certificates.	118

(6) If the insurance premium tax that a purchaser offsets in	119
any year under this section would constitute a credit against	120
another tax or assessment if the full amount of insurance premium	121
tax was paid for that year, the purchaser shall nevertheless earn	122
the credit as though the purchaser had paid the offset insurance	123
premium tax in cash.	124

(7) A purchaser may transfer any amount remaining on a tax	125
prepayment certificate to another purchaser or purchasers provided	126
that the transferor delivers to the director of budget and	127
management, within thirty days after the transfer, a written	128
notice indicating the name of the transferee, the amount being	129
transferred, and the year or years to which any remaining offsets	130
are allowed as provided under this section.	131

(8) A purchaser redeeming an offset granted by a tax	132
prepayment certificate shall not be required to pay any additional	133
insurance premium tax as a result of claiming the offset.	134

(9) For the purposes of this section, a purchaser may treat	135
tax prepayment certificates as an admitted asset, pursuant to the	136
national association of insurance commissioners accounting	137
practices and procedures manual and statement of statutory	138
accounting principle number ninety-four.	139

(10) If the insurance premium tax is repealed or reduced, a	140
tax prepayment certificate may be used to offset any substitute	141
tax liability imposed on a purchaser or other person that had	142
premium tax liability on the date of repeal or reduction.	143

(D)(1) The director of budget and management, in consultation	144
with the treasurer of state, may issue a request for proposals to	145
select a manager to be the exclusive manager for all purposes	146
under this section. The director may include in the director's	147
request for proposals all of the following:	148

(a) A statement of the services sought;

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(b) The time and date for the deadline for the receipt of	150
proposals and the time and date that proposals may begin to be	151
accepted;	152

(c) The terms and conditions applicable to the designation of	153
the manager, including the criteria in division (D)(2) of this	154
section;	155

(d) Any other information or specifications that the director	156
deems necessary.	157

(2) The director may evaluate manager applications and	158
designate a manager. The director may consider whether a	159
prospective manager has the following, in addition to any other	160
factor or quality:	161

(a) Experience structuring, marketing, and preselling	162
insurance premium tax credit obligations and has previously	163
marketed and secured purchase commitment agreements;	164

(b) Experience underwriting and marketing state and local	165
securities;	166

(c) A minimum amount of equity capital, to be determined by	167
the director;	168

(d) Experience managing financing transactions nationwide.

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(3) Any manager designated under this division shall receive	170
manager costs in exchange for the manager's services.	171

(E) If the director of budget and management designates a	172
manager, then, not later than thirty days after a purchaser's fund	173
allocation date, the manager shall report to the director the	174
following information:	175

(1) The name of each purchaser from whom prepayment of	176
insurance premium tax was received, including the purchaser's	177
identification number;	178

(2) The amount of each purchaser's prepayment;

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(3) The date on which the prepayment was received.

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Sec. 126.52. (A) As used in this section:

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(1) "Compensation" has the same meaning as in section 5747.01	182
of the Revised Code.	183

(2) "Eligible project" means a project certified by the	184
auditor of state in accordance with division (C) of this section.	185

(3) "Political subdivision" has the same meaning as in	186
section 9.23 of the Revised Code.	187

(4) "Project" means an expense or series of expenses proposed	188
to be made by a state agency or political subdivision.	189

(B) There is hereby created in the state treasury the	190
efficiency and cost reduction fund. Money collected from the sale	191
of tax prepayment certificates under section 126.51 of the Revised	192
Code shall be credited to the fund. Subject to the approval of the	193
controlling board, the director of budget and management shall use	194
money in the fund to provide funding to state agencies and	195
political subdivisions for eligible projects.	196

(C) The auditor of state shall certify a project as an	197
eligible project upon a finding that the project would yield	198
increased efficiency or reduce future costs such that the funding	199
awarded under this section would yield an overall positive	200
monetary return on investment to the state. Projects that the	201
auditor of state may certify include, but are not limited to,	202
purchases of tangible personal property, facilities,	203
infrastructure, or systems, refinancing or repayment of debt, or	204
payment of interest or penalties. The auditor of state shall not	205
certify projects to fund, in whole or in part, compensation,	206
employee benefits, and other personnel costs.	207

(D) The director of budget and management and the auditor of	208
state may adopt rules under Chapter 119. of the Revised Code to	209
administer this section.	210

Sec. 5725.18.  (A) An annual franchise tax on the privilege	211
of being an insurance company is hereby levied on each domestic	212
insurance company. In the month of May, annually, the treasurer of	213
state shall charge for collection from each domestic insurance	214
company a franchise tax in the amount computed in accordance with	215
the following, as applicable:	216

(1) With respect to a domestic insurance company that is a	217
health insuring corporation, one per cent of all premium rate	218
payments received, exclusive of payments received under the	219
medicare program established under Title XVIII of the "Social	220
Security Act," 49 Stat. 620 (1935), 42 U.S.C.A. 301, as amended,	221
and exclusive of payments received pursuant to the medical	222
assistance program established under Chapter 5111. of the Revised	223
Code for the period ending September 30, 2009, as reflected in its	224
annual report for the preceding calendar year;	225

(2) With respect to a domestic insurance company that is not	226
a health insuring corporation, one and four-tenths per cent of the	227
gross amount of premiums received from policies covering risks	228
within this state, exclusive of premiums received under the	229
medicare program established under Title XVIII of the "Social	230
Security Act," 49 Stat. 620 (1935), 42 U.S.C.A. 301, as amended,	231
and exclusive of payments received pursuant to the medical	232
assistance program established under Chapter 5111. of the Revised	233
Code for the period ending September 30, 2009, as reflected in its	234
annual statement for the preceding calendar year, and, if the	235
company operates a health insuring corporation as a line of	236
business, one per cent of all premium rate payments received from	237
that line of business, exclusive of payments received under the	238
medicare program established under Title XVIII of the "Social	239
Security Act," 49 Stat. 620 (1935), 42 U.S.C.A. 301, as amended,	240
and exclusive of payments received pursuant to the medical	241
assistance program established under Chapter 5111. of the Revised	242
Code for the period ending September 30, 2009, as reflected in its	243
annual statement for the preceding calendar year.	244

Any tax computed under this section for a domestic insurance	245
company that holds a certificate issued under section 126.51 of	246
the Revised Code shall be reduced by the amount of any offset	247
claimed according to the terms of the certificate, except the	248
offset for any year shall not exceed the amount of the tax due for	249
that year.	250

Domestic insurance companies, including health insuring	251
corporations, receiving payments pursuant to the medical	252
assistance program established under Chapter 5111. of the Revised	253
Code during the period beginning October 1, 2009, and ending	254
December 31, 2009, shall file with the 2009 annual statement to	255
the superintendent a schedule that reflects those payments	256
received pursuant to the medical assistance program for that	257
period. The payments reflected in the schedule, plus all other	258
taxable premiums, are subject to the annual franchise tax due to	259
be paid in 2010.	260

(B) The gross amount of premium rate payments or premiums	261
used to compute the applicable tax in accordance with division (A)	262
of this section is subject to the deductions prescribed by section	263
5729.03 of the Revised Code for foreign insurance companies. The	264
objects of such tax are those declared in section 5725.24 of the	265
Revised Code, to which only such tax shall be applied.	266

(C) In no case shall such tax be less than two hundred fifty	267
dollars.	268

Sec. 5729.03.  (A) If the superintendent of insurance finds	269
the annual statement required by section 5729.02 of the Revised	270
Code to be correct, the superintendent shall compute the following	271
amount, as applicable, of the balance of such gross amount, after	272
deducting such return premiums and considerations received for	273
reinsurance, and charge such amount to such company as a tax upon	274
the business done by it in this state for the period covered by	275
such annual statement:	276

(1) If the company is a health insuring corporation, one per	277
cent of the balance of premium rate payments received, exclusive	278
of payments received under the medicare program established under	279
Title XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42	280
U.S.C.A. 301, as amended, and exclusive of payments received	281
pursuant to the medical assistance program established under	282
Chapter 5111. of the Revised Code for the period ending September	283
30, 2009, as reflected in its annual report;	284

(2) If the company is not a health insuring corporation, one	285
and four-tenths per cent of the balance of premiums received,	286
exclusive of premiums received under the medicare program	287
established under Title XVIII of the "Social Security Act," 49	288
Stat. 620 (1935), 42 U.S.C.A. 301, as amended, and exclusive of	289
payments received pursuant to the medical assistance program	290
established under Chapter 5111. of the Revised Code for the period	291
ending September 30, 2009, as reflected in its annual statement,	292
and, if the company operates a health insuring corporation as a	293
line of business, one per cent of the balance of premium rate	294
payments received from that line of business, exclusive of	295
payments received under the medicare program established under	296
Title XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42	297
U.S.C.A. 301, as amended, and exclusive of payments received	298
pursuant to the medical assistance program established under	299
Chapter 5111. of the Revised Code for the period ending September	300
30, 2009, as reflected in its annual statement.	301

Any tax computed under this section for a foreign insurance	302
company that holds a certificate issued under section 126.51 of	303
the Revised Code shall be reduced by the amount of any offset	304
claimed according to the terms of the certificate, except the	305
offset for any year shall not exceed the amount of the tax due for	306
that year.	307

Each foreign insurance company, including health insuring	308
corporations, receiving payments pursuant to the medical	309
assistance program established under Chapter 5111. of the Revised	310
Code during the period beginning October 1, 2009, and ending	311
December 31, 2009, shall file with the 2009 annual statement to	312
the superintendent a schedule that reflects those payments	313
received pursuant to the medical assistance program for that	314
period. The payments reflected in the schedule, plus all other	315
taxable premiums, are subject to the annual franchise tax due to	316
be paid in 2010.	317

(B) Any insurance policies that were not issued in violation	318
of Title XXXIX of the Revised Code and that were issued prior to	319
April 15, 1967, by a life insurance company organized and operated	320
without profit to any private shareholder or individual,	321
exclusively for the purpose of aiding educational or scientific	322
institutions organized and operated without profit to any private	323
shareholder or individual, are not subject to the tax imposed by	324
this section. All taxes collected pursuant to this section shall	325
be credited to the general revenue fund.	326

(C) In no case shall the tax imposed under this section be	327
less than two hundred fifty dollars.	328

Section 2. That existing sections 5725.18 and 5729.03 of the	329
Revised Code are hereby repealed.	330