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S.F. No. 1502 - Application of tax to captive insurance companies (revised)
Author: Senator Roger C. Chamberlain
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
Date: March 5, 2019


This bill establishes a two-part test for determining whether an insurance company is a “disqualified captive insurance” company and therefore not exempt from corporate franchise tax. 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 “captive insurance company” for purposes of determining whether the company becomes a disqualified captive insurance company under the bill. A captive insurance company is a company licensed as a captive insurance company or derives 80% or more of its total premiums from its unitary business members. A captive insurance company is a disqualified captive insurance company if it meets the criteria above and receives less than 50% of its gross receipts from premiums, or pays less than .5% of its total premiums under state insurance premium tax or comparable tax in another state.

Section 3. Exempt entities. Excludes disqualified captive insurance companies from the exemption for insurance companies for corporate franchise tax.

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.

Effective retroactively to tax year 2017.

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