BILL ANALYSIS �
AB 2734
Page A
Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2734 (Committee on Insurance) - As Amended: March 18, 2014
Majority vote. Fiscal committee.
SUBJECT : Insurance: omnibus
SUMMARY : Contains numerous technical and noncontroversial
provisions related to insurance law. Specifically, the
tax-related provisions of this bill :
1)Raise, from $5,000 to $20,000, the annual tax threshold that
triggers an obligation on the part of a surplus line broker to
make monthly installment payments. Specifically, every
surplus line broker whose annual tax for the preceding
calendar year was $20,000 or more (instead of $5,000 or more)
shall be required to make monthly installment payments on
account of the annual tax on business done during the current
calendar year.
2)Make a conforming threshold change to the provisions
authorizing the Insurance Commissioner (Commissioner) to
relieve a surplus line broker of his or her obligation to make
monthly payments. Specifically, such relief may be granted if
the broker establishes to the Commissioner's satisfaction that
either the broker has ceased to transact business in this
state, or that his or her annual tax for the current year will
be less than $20,000 (instead of $5,000 per current law).
3)Raise, from $5,000 to $20,000, the annual tax threshold that
triggers an obligation on the part of insurers transacting
insurance in this state to make prepayments of the annual tax
for the current calendar year. Specifically, every insurer
transacting insurance in this state whose annual tax for the
preceding calendar year was $20,000 or more (instead of $5,000
or more) shall make prepayments of the annual tax for the
current calendar year.
4)Make a conforming threshold change to the provisions
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authorizing the Commissioner to relieve an insurer of its
obligation to make prepayments. Specifically, such relief may
be granted if the insurer establishes to the Commissioner's
satisfaction that either the insurer has ceased to transact
insurance in this state, or that the insurer's annual tax for
the current year will be less than $20,000 (instead of $5,000
per current law).
EXISTING LAW :
1)Requires every surplus line<1> broker to pay a tax of 3% of
the gross premiums charged, less return premiums upon business
done under the authority of his or her license during the
preceding calendar year, as specified.
2)Requires every surplus line broker whose annual tax for the
preceding calendar year was $5,000 or more to make monthly
installment payments on account of the annual tax on business
done during the calendar year.
3)Authorizes the Commissioner to relieve a surplus line broker
of his or her obligation to make monthly payments if the
broker establishes to the Commissioner's satisfaction that he
or she has ceased to transact business in this state, or that
his or her annual tax for the current year will be less than
$5,000.
4)Imposes an annual tax on each insurer doing business in this
state. The tax rate applied to the basis of the annual tax is
2.35%. The tax imposed on insurers is in lieu of all other
taxes and licenses, except as specified.
5)Requires insurers transacting insurance in this state whose
annual tax for the preceding calendar year was $5,000 or more
to make prepayments of the annual tax for the current calendar
year, as specified.
6)Authorizes the Commissioner to relieve an insurer of its
obligation to make prepayments if the insurer establishes to
the Commissioner's satisfaction that either the insurer has
ceased to transact insurance in this state, or that the
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<1> According to the California Department of Insurance, a
"surplus line broker" is a person who places insurance with
non-admitted insurers, covering risks other than aircraft and
certain marine and transportation risks.
AB 2734
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insurer's annual tax for the current year will be less than
$5,000.
FISCAL EFFECT : The California Department of Insurance (CDI)
estimates annual revenue losses of slightly more than $40,000
attributable to this bill's tax-related provisions.
COMMENTS :
1)The Assembly Committee on Insurance notes, "This bill remedies
several issues identified and vetted by CDI to clarify and
[clean up] various Insurance Code sections."
2)This bill is sponsored by Insurance Commissioner Dave Jones,
who notes the following with respect to this bill's tax
provisions:
CDI's Premium Tax Audit Bureau performs tax collection,
accounting, and tax audits of insurance companies and
surplus lines brokers. This includes reviewing and
granting relief from penalties and collecting prepayments.
Additionally, they assist the Board of Equalization and the
State Controller's Office with various refunds,
assessments, and accounting matters relative to various
taxpayers. This proposal increases efficiency by making
the monthly, quarterly, and Electronic Fund Transfer
requirements for Surplus Lines Brokers and Insurers at the
same amount of $20,000. The current situation causes
confusion resulting in an increased workload for CDI, the
State Controller, and taxpayers. The number of surplus
line brokers and insurers below the $20,000 threshold is
small and the amount of penalty and interest collected does
not cover the costs associated with collecting, reviewing,
and processing payments and granting relief from penalties.
3)Committee Staff Comments:
a) Cleaning up the code : For the sake of administrative
efficiency, this bill increases the tax threshold that
triggers surplus line brokers to make monthly installment
payments. Specifically, this bill changes the $5,000
threshold contained in Insurance Code Section 1775.1 to
$20,000. Nevertheless, for reasons unknown to Committee
Staff, this bill retains the language in Insurance Code
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Section 1775.1 that makes its provisions applicable to
calendar year 1995 and each calendar year thereafter.
This bill makes a similar threshold change to Revenue and
Taxation Code Section 12251, which governs the prepayment
obligations of insurers. CDI staff notes that this change
is being undertaken for the sake of internal consistency.
This statutory section, however, makes reference to
calendar year 1970 and each calendar year thereafter.
Absent a compelling justification to the contrary, the
Committee on Insurance may wish to take appropriate
amendments deleting these now-antiquated references to
prior calendar years.
b) Double-referral : This bill was heard by the Committee
on Insurance on April 2, 2014, and passed out of that
committee by a vote of 12 to 0. For additional discussion
of this bill's provisions, please refer to that committee's
analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
Insurance Commissioner Dave Jones
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098