Reciprocal Insurers; Tax

Includes within general excise tax exemption for insurance
companies' gross proceeds, proceeds received by corporate
attorney-in-fact in connection with administrative functions
performed on behalf of reciprocal insurer. (SD1)

THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  Reciprocal insurers generally do business in all
 2 fifty states.  Unlike stock or mutual insurance companies that
 3 have internal management and operations departments and staff to
 4 perform the management and administrative functions required of
 5 an insurer, reciprocal insurers, by law, must operate through an
 6 attorney-in-fact to perform these functions. 
 7      Section 237-29.7, Hawaii Revised Statutes (HRS), exempts
 8 from the general excise tax law the gross income of insurance
 9 companies authorized to do business under chapter 431, HRS,
10 except for gross income received as rents from real property
11 investments in the State.  The law is unclear, however, as to
12 whether attorneys-in-fact for reciprocal insurers authorized to
13 do business under chapter 431, HRS, are included within the
14 meaning of insurance companies for purposes of this exemption.
15 The legislature finds that it did not intend under section
16 237-29.7, HRS, to discriminate against reciprocal insurers and
17 their attorneys-in-fact with respect to the general excise tax
18 exemption.  
19      The purpose of this Act is to clarify that under section

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                                     S.B. NO.           S.D. 1

 1 237-29.7, HRS, insurance companies include reciprocal insurers'
 2 bona fide attorneys-in-fact.
 3      SECTION 2.  Section 237-29.7, Hawaii Revised Statutes, is
 4 amended to read as follows:
 5      "[[]237-29.7[]]  Exemption of insurance companies.  This
 6 chapter shall not apply to the gross income or gross proceeds of
 7 insurance companies authorized to do business under chapter 431;
 8 except this exemption shall not apply to any gross income or
 9 gross proceeds received after December 31, 1991, as rents from
10 investments in real property in this State; provided that gross
11 income or gross proceeds from investments in real property
12 received by insurance companies after December 31, 1991, under
13 written contracts entered into before January 1, 1992, that do
14 not provide for the passing on of taxes or tax increases shall
15 not be taxed until the contracts are renegotiated, renewed, or
16 extended. 
17      For purposes of this section, insurance companies include
18 reciprocal insurers' bona fide attorneys-in-fact with respect to
19 income derived from their principal business as corporate
20 attorneys-in-fact." 
21      SECTION 3.  Statutory material to be repealed is bracketed.
22 New statutory material is underscored.
23      SECTION 4.  This Act, upon its approval, shall apply to any
24 taxable year ending after July 1, 1999.