Document Number
95-18
Tax Type
Corporation Income Tax
Description
Exempt organizations; Health maintenance organizations
Topic
Taxpayers' Remedies
Date Issued
02-08-1995

February 8, 1995



Re: §58.1-1821 Application: Corporate income tax


Dear****************

This will reply to your letter of January 25, 1995, in which you contest the department's denial of refund claims for the 1991 and 1992 taxable years, and the department's assessment of additional corporate income tax for the 1993 taxable year, ************ (the"Taxpayer").

FACTS


The Taxpayer filed 1991 and 1992 Virginia corporate income tax returns, and paid the income taxes due. In February 1994, the Taxpayer filed amended tax returns for 1991 and 1992 claiming to be exempt from the corporate income tax, and requested a full refund of the corporate income taxes paid for such years. The department denied these requests on August 19, 1994. In October 1994, the Taxpayer filed its 1993 tax return claiming to be exempt from taxation. The department assessed corporate income tax on the Taxpayer's 1993 Virginia taxable income. You contest the assessment and denial of the refunds, and believe that pursuant to Code of Virginia §58.1-2508 B, the department is prohibited from imposing the corporate income tax because the Taxpayer pays a $300 fee pursuant to Code of Virginia §38.2-400.

DETERMINATION


The Taxpayer is a Health Maintenance Organization ("HMO"). The department has previously ruled that an HMO is not an insurance company subject to the license tax on gross premiums, is not exempt from taxation pursuant to Code of Virginia §58.1-401 2., and therefore is subject to the corporate income tax. See Public Document (P.D.) 91-67 (412/91), copy attached.

An HMO is subject to Chapter 43 of Title 38.2 of the Code of Virginia. This body of law was originally adopted as Chapter 26 of Title 38.1 of the Code of Virginia, pursuant to Chapter 720 of the 1980 Acts of Assembly. (the "Act") copy attached.

At the time that the Act became law, Title 58 of the Code of Virginia contained the following sections pertaining to the taxation of insurance companies (copies attached):
    • §58-499. Real estate and tangible personal property of insurance companies to be taxed as other such property. -- The real estate and tangible personal property, situated or located in this State, of every such company and every fraternal benefit society transacting insurance in this State shall be listed and assessed on the land and property books of the commissioner of the revenue in the same manner as other real estate and tangible personal property are assessed, and shall be taxed at the same rates as other like property is taxed. (1928, p. 168; Tax Code, 239; 1952, c. 190.)

      §58-500. Taxes herein imposed to be in lieu of all other taxes except agent's license tax. -- The license tax on gross premium income as provided in this chapter and the tax on real estate and tangible personal property provided for in §58-499 to be paid by insurance companies shall be in lieu of all fees, licenses, taxes and levies whatsoever, State, county, or municipal, which as to licenses shall be construed to include their agents, except that the license fee required of each such agent shall be paid to the State Corporation Commission. (1928, p. 168; Tax Code, §239; 1952, c. 190.)

      § 58-151.03. Imposition of Tax.

      (c) Corporations. -- A tax determined in accordance with the rate set forth in 58.1-131.031 is hereby annually imposed on the Virginia taxable income for each taxable year of every corporation ...(except... insurance companies which pay a State license tax on gross premiums...) (1971, Ex. Sess., c. 171; 1972, c. 310; 1978, cc. 159, 796.)
At the time that the Act became law, it can be concluded that the Code of Virginia clearly provided the following:
    • 1. HMO's are not considered to be insurance companies, and are not subject to the license tax on gross premiums.

      2. Insurance companies subject to the license tax on gross premiums are not subject to the corporate income tax. The structure and title of §58-500 make it clear that the license tax is the basis for the exemption (i.e. because an insurance company pays the license tax on gross premiums, it does not also pay the income tax).

      3. HMO's organized as corporations are subject to the corporate income tax.

      At the time of enactment, the Act contained §38.1-883, which provided in pertinent part:

      §38.1-883. Fees.

      D. §§38.1-44 through 38.1-48 of this Code shall apply to the operation of a health maintenance organization.
§38.1-44, copy attached, required an assessment for the administration of insurance laws by the State Corporation Commission. This section provides for a fee based on one tenth of one percent of gross premium income of an insurance company, with a minimum fee of $300. Although an HMO has never been classified as an insurance company, and was clearly subject to the corporate income tax at the time that the Act became! law, it was subjected to the $300 minimum fee imposed by 38.1 44 by virtue of 38.1-883 D of the Act.

You believe that language contained in Code of Virginia §58.1-2508 B prevents the imposition of the corporate income tax on an HMO. However, a review of the history of this section reveals the following:
      • 1. Title 58 was recodified as Title 58.1 pursuant to Chapter 675 of the 1984 Acts of Assembly. The structure of Title 58.1 was based on 1984 House Document No. 16, Report of the Virginia Code Commission on The Revision of Title 58 of the Code of Virginia. Pursuant to this report, pertinent copies attached, the "structure" of new §58.1-2508 was derived as follows:

        §58-499 58.1-2508. Real estate and tangible personal property of insurance companies to be taxed as other such property Taxes applicable to insurance companies. -- A. The real estate and tangible personal property, situated or located in this State the Commonwealth, of every such company and every fraternal benefit society transacting insurance in this State the Commonwealth shall be listed and assessed on the land and property books of the commissioner of the revenue in the same manner as other real estate and tangible personal property are assessed, and shall be taxed at the same rates as other like property is taxed.
      • §58-500 Taxes herein imposed to be in lieu of all other taxes except agent's license tax. B.The license tax as provided in this chapter, the tax on real estate and tangible personal property provided for in § 58.499 to be paid by insurance companies subsection A, and the fee assessed by the Commission for the administration of the insurance laws pursuant to §38.1-44 et seq. shall be in lieu of all fees, licenses, taxes and levies whatsoever, State state, county, or municipality, or town which as to licenses shall be construed to include their agents, except that the licenses fee required of each such agent shall be paid to the State Corporation commission.. No additional fee or license tax shall be applicable to an agent of an insurance company other than the annual license fee on agents required pursuant to 38.1-327.41.

        Source: §§ 58-499 and 58-500 Comment: Combines two closely related sections. Clarifies taxable subjects specifically to include fees assessed by the Commission to cover administration costs associated with the insurance laws. The new language relative to agents is intended only to relieve agents of insurance companies from the requirement of paying other forms of license taxes and fee for the privilege of conducting business. (Underscore added.)

        2. The recodification of Title 58 created new §58.1-401, copy attached, which removed the exemptions previously contained in §58-151.03 and placed them in a new section. Thus, the statutory exemption from the corporate income tax remained for "insurance companies to the extent such company is subject to the license tax on gross premiums.
Prior to the recodification in 1984, an HMO was clearly subject to the corporate income tax. Therefore, your protest would require the department to conclude that the recodification of Title 58 in 1984 created an exemption from the corporate income tax for an HMO that pays the $300 annual fee imposed by Code of Virginia §38.2400 (previously §38.144) but not the license tax on gross premiums.

The language in Code of Virginia §58.1-2808 B, copy attached, upon which you have based your protest, was the direct result Chapter 675 of the 1984 Acts of Assembly (the recodification of Title 58). This act was a recodification, not a substantive legislative change. The notes in 1984 House Document No. 16 state that the intent was to clarify that the imposition of the administrative fee pursuant to §38.144 was in addition to other taxes imposed on insurance companies. The recodification did not expand the statutory exemptions from the corporate income tax, now contained in Code of Virginia §58.1-401, to include an HMO.

Assuming, arguendo, that the present language of Code of Virginia §58.1-2808 B could be interpreted as creating an exemption to income tax for an HMO, the language of Code of Virginia §§58.1-400 and 58.401 clearly provide for the imposition of tax. In the case of general recodification of this type, it is a well established rule of Virginia statutory construction that "the old law was not intended to be changed unless a contrary intention appears in the new." 17 Michies Jurisprudence, Statutes, 47.

In this case, such a contrary intention is not plainly indicated with respect to HMO's. When reading Code of Virginia §58.1-2808 B and 58.1-401 in harmony, it is evident that to gain an exemption from the corporate income tax, a firm must be an insurance company which is subject to the gross premiums tax. As stated in P.D. 9167, an HMO meets neither of these tests.

In review of the facts and evidence as provided, and based on the department's research as detailed herein, we conclude that an HMO remains subject to the corporate income tax. We do not find that the language of Code of Virginia §58.1-2508 B creates an exemption from taxation for an HMO, or that it prevents the assessment of tax to an HMO pursuant to Code of Virginia §58.1-400. Accordingly, the 1993 assessment is upheld, and the Taxpayer's refund claims for 1991 and 1992 are hereby denied. The balance due per the attached schedule, should be paid within 30 days to prevent the accrual of additional interest and penalties.

Because the determination contained in this letter reflects the department's existing written policy, which was previously provided to you on September 14, 1994, it has been issued without a conference. If you would like to schedule a meeting to discuss the department's ruling, please contact***********arrange a convenient time.
                        • Sincerely,



                          Danny M. Payne
                          Tax Commissioner


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Rulings of the Tax Commissioner

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