Opinion ID: 894999
Heading Depth: 2
Heading Rank: 1

Heading: The Premium Tax Provision

Text: Article 9.59 of the Insurance Code requires that [e]ach title insurance company receiving premiums from the business of title insurance shall pay to the comptroller a tax on those premiums as provided in this article. [29] This tax applies to all amounts defined to be premium in this Chapter, whether paid to the title insurance company or retained by the title insurance agent. [30] The Chapter defines a premium as the total amount of premiums received for the taxable year on title insurance written on property located in this state. [31] Title insurers doing business in Texas are required to file an annual tax return and remit the total amount of tax due directly to the Comptroller. [32] Title insurance agents do not file returns or pay premium taxes directly: The State of Texas facilitates the collection of the premium tax on the premium retained by the agent by setting the division of the premium between insurer and agent so that the insurer receives the premium tax due on the agent's portion of the premium and remits it to the State. [33] The parties agree that Article 9.59 taxes all premiums earned from the provision of title insurance, whether earned by an insurance company or an insurance agent, but the parties disagree on whom the tax is imposed. The insurers argue that they are the only parties obligated by Article 9.59 to pay the premium tax, so the full amount of their payment should be included in the retaliatory tax calculation. The Comptroller responds that although the insurance company remits the entire premium tax, the insurer merely acts as a conduit for 85% of the premium tax, which is actually paid by the insurance agent. According to the Comptroller, because the insurance company remits 85% of the premium tax to the State as an administrative mechanism and in economic reality bears only 15% of the tax burden, the insurer can only include 15% of the tax in its calculation of taxes directly imposed. Thus, the dispute hinges on whether the full premium tax is directly imposed on title insurance companies under the retaliatory tax provision. The Comptroller's application of the premium tax to insurance agents is reasonable and in harmony with the statute's plain meaning. As the insurers point out, Article 9.59 requires the insurance company, not the insurance agent, to report [34] and pay [35] the premium tax on all premiums earned from the provision of title insurance. [36] But the statute also recognizes that agents receive premiums, and it explicitly taxes those premiums: The premium tax is levied on all amounts defined to be premium in this Chapter, whether paid to the title insurance company or retained by the title insurance agent. [37] Nevertheless, the insurers contend that the premium tax, while applied to all premiums earned, is not imposed on the agent because [t]he premium tax is levied on all amounts defined to be premium ... such tax being in lieu of the tax on the premium retained by the agent. [38] Taken in isolation, this phrase arguably exempts insurance agents from paying the premium tax. But the full context of Subsection 8(b) yields a different understanding. The very next sentence provides that the State facilitates the collection of the premium tax on the premium retained by the agent by dividing the premium between insurer and agent so that the insurer receives the premium tax due on the agent's portion of the premium. [39] The State would have no need to ensure that insurance companies receive the agent's portion of the premium tax if the tax were not imposed on the agents. Rather, in lieu of creating a separate tax collection system for insurance agents, the Legislature implemented an integrated system of taxation with the insurance company acting as the central collection point. [40] The premium tax applies to the premium earned by the agent, and Article 9.59 requires the agent to bear the burden for the agent's portion of the taxes: the insurer receives the premium tax due on the agent's portion of the premium and remits it to the State. [41] Article 9.59 describes the insurer's role as a pass-through entity relied on by the State to facilitate[ ] the collection of the premium tax [42] from the insurance agent. At most, the only compulsion or obligation required of the insurer with regard to 85% of the premium tax is to write a check drawn on money remitted by the agent  at the end of the day, the insurer's bank account is not negatively impacted. This administrative burden of acting as a conduit for the agents' tax payments does not rise to the level of a direct imposition and therefore cannot be counted as a burden meriting inclusion in the retaliatory tax calculation.