Tax Basis

Tax Basis for Insurers taxed under G.S. 105-228.5 (G.S. 105-228.5)

The tax imposed on an insurer taxed under G.S. 105-228.5 is based on gross premiums from business done in the State during the calendar year. Finance charges are included in gross premiums.

 

In the case of life insurance contracts, including supplemental contracts providing for disability benefits, accidental death benefits, or other special benefits that are not annuities and excluding contracts of reinsurance, gross premiums from business done means all premiums collected in the calendar year. Insurers are allowed to deduct premiums refunded on policies rescinded for fraud or other breach of contract and premiums that were paid in advance on life insurance contracts and subsequently refunded to the insured, premium payer, beneficiary, or estate.

 

For all other contracts of insurance, including contracts of insurance required to be carried by the Workers' Compensation Act and excluding contracts of reinsurance, gross premiums from business done in the State means all premiums written, or the equivalent thereof in the case of self-insurers under the Workers' Compensation Act, for contracts covering property or risks in this State, whether the premiums are designated as premiums, deposits, premium deposits, policy fees, membership fees, or assessments.

 

In allocating premiums to this State, no distinction is made between the allocation of premium income from a group insurance policy and premium income from individual insurance policies. Gross premiums from group policies providing coverage for individuals living in this State are taxable by this State and should be allocated to North Carolina regardless of the address of the policyholder, policy owner, or beneficiary. The determining factor is residence of the insured. The allocation exception in G.S. 105-228.5(b1)(1) does not apply with respect to premium income from insurance policies issued to owners, including trusts, located outside North Carolina but covering North Carolina risks.

 

If, for any tax year, returned premiums exceed gross premiums collected, insurers may reduce taxable premiums to zero. The general statutes do not provide for the carryforward of any unused returned premiums or the refund of premium taxes on any unused return premiums.

 

When insurers are ordered by the Department of Insurance to establish escrow accounts of possible premium overcharges, reductions in gross premiums are allowed after any refunds have been paid to insureds, not when the escrows are established.

 

An insurer taxed under G.S. 105-228.5 may exclude the following in determining gross premiums from business done in this State:

 

  • Premiums properly reported and properly allocated as being received from business done in some other nation, territory, state, or states.

  • Premiums received from policies written in federal areas for persons in military service who pay premiums by assignment of service pay.

  • Premiums received from policies or contracts issued in connection with the funding of a pension, annuity, or profit-sharing plan qualified or exempt under section 401, 403, 404, 408, 457, or 501 of the Internal Revenue Code as defined in G.S. 105-228.90.
  • Premiums or considerations received from annuities, as defined in G.S. 58-7-15.
  • Funds or considerations received in connection with funding agreements, as defined in G.S. 58-7-16.
  • Medicaid or Medicare premiums, to the extent federal law prohibits their taxation.

Tax Basis for Captive Insurers taxed under G.S. 105.228.4A (G.S. 105.228.4A)

The tax imposed on captive insurance companies taxed under G.S. 105-228.4A is based on all direct premiums and assumed reinsurance premiums of a captive insurance company domiciled in the State. In the case of a multiyear policy or contract, the premiums must be prorated among the years covered by the policy or contract.

 

Taxable direct premiums do not include amounts paid to policyholders as return premiums. Return premiums include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders. The premium tax on assumed reinsurance premiums does not apply to premiums for risks or portions of risks that are subject to taxation on a direct basis under G.S. 105-228.4A(e). The tax on assumed reinsurance premiums does not apply in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of one insurer by another insurer if the two insurers are under common control and the Commissioner of Insurance verifies 1) the transaction between the insurers is part of a plan to discontinue the operations of one of the insurers and 2) the intent of the insurers is to renew or maintain business with the captive insurance company.