Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Tax on Insurers Law

Chapter 3. All Insurance Other Than Ocean Marine.

Article 1. General*

Section 12204

Text of section operative through June 30, 2012

12204. In lieu of other taxes; exceptions. (a) The tax imposed on insurers by this chapter is in lieu of all other taxes and licenses, state, county, and municipal, upon those insurers and their property, except:

(1) Taxes upon their real estate.

(2) Any retaliatory exactions imposed by paragraph (3) of subdivision (f) of Section 28 of Article XIII of the Constitution.

(3) The tax on ocean marine insurance.

(4) Motor vehicle and other vehicle registration license fees and any other tax or license fee imposed by the state upon vehicles, motor vehicles or the operation thereof.

(5) That each corporate or other attorney-in-fact of a reciprocal or interinsurance exchange shall be subject to all taxes imposed upon corporations or others doing business in the state, other than taxes on income derived from its principal business as attorney-in-fact.

(b) This section shall not apply to any Medi-Cal managed care plan and to any tax imposed on that plan by this chapter.

(c) This section shall become inoperative on July 1, 2012, and, as of January 1, 2013, is repealed, unless a later enacted statute, that becomes operative on or before July 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Stats. 1961, p. 1982, operative January 1, 1962, amended and renumbered former Section 12263 as Section 12204. Subdivisions (a), (b) and (d) correspond to subdivisions (1), (2) and (3) of the former section. Subdivisions (c) and (e) were added by Stats. 1961, p. 1982. Stats. 1967, p. 2600, in effect November 8, 1967, deleted "the Legislature pursuant to" following "imposed by" in (c) and added (f). Stats. 1974, p. 620, operative November 6, 1974, substituted "Section 28" for "Section 144/5." Stats. 1996, Ch. 1063, in effect January 1, 1997, deleted subdivision (b) which read "That an insurer transacting title insurance in this state which has a trust department or does a trust business under the banking laws of this state is subject to taxation with respect to such trust department or trust business to the same extent and in the same manner as trust companies and the trust departments of banks doing business in this state." and relettered former subdivisions (c), (d), (e), and (f) as (b), (c), (d), and (e), respectively. Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, designated first sentence as subdivision (a) and substituted "those" for "such" after "municipal, upon" in subdivision (a); redesignated former subdivisions (a), (b), (c), (d), and (e) as paragraphs (1), (2), (3), (4), and (5), respectively, in subdivision (a); and added subdivisions (b) and (c). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, replaced "attorney in fact" with "attorney-in-fact" two times in paragraph (5) of subdivision (a) and deleted former subdivision (c) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added a new subdivision (c). Stats. 2011, Ch. 11x1 (ABx1 21), in effect September 16, 2011, substituted "2012" for "2011" after "inoperative on July 1,", substituted "2013" for "2012" after "as of January 1," and substituted "July" for "January" after "operative on or before" in subdivision (c).

In lieu tax.—Although in lieu of taxes on personal property, it is not like the former public utility gross receipts tax, a direct tax on property, but is a franchise tax exacted for the privilege of doing business in the State. Thus, ownership by the insurance company, and not the use to which the property is being put, is the factor determining freedom of personal property from local taxation. Consolidated Title Security Co. v. Hopkins (1934) 1 Cal.2d 414.

The "in lieu" provision of Article XIII Section 144/5 (now Article XIII Section 28) does not prevent the application of the state franchise tax to the net income of a corporate insurance agent. The franchise tax is exacted for the privilege of doing business in a corporate capacity. Edward Brown & Sons v. McColgan (1942) 53 Cal.App.2d 504.

A revenue ordinance imposing a tax on a person engaged in the business of soliciting, effecting and negotiating undertakings of bail as an agent of an insurance company is invalid. Groves v. City of Los Angeles (1949) 93 Cal.App.2d 17; Groves v. City of Los Angeles (1953) 40 Cal.2d 751.

The city business license tax applies to commissions received by an insurance broker. Marsh & McClennan of California, Inc. v. City of Los Angeles (1976) 62 Cal.App.3d 108.

The legal incidence of the sales tax is on the retailer even if the retailer passes the amount of the tax through to its customers. The in lieu provisions therefore do not prevent the imposition of sales tax on a retailer with respect to sales to insurance companies. Occidental Life Ins. Co. v. State Board of Equalization (1982) 135 Cal.App.3d 845.

An insurer doing insurance business in California subject to California's gross premiums tax is exempt from all other state and local taxes except those listed in the "in lieu" provision. Mutual Life Ins. Co. v. City of Los Angeles (1990) 50 Cal.3d 402 (disapproving Massachusetts Mutual Life Ins. Co. v. City and County of San Francisco (1982) 129 Cal.App.3d 876).

Trust business of title companies.—The levy of a franchise tax on the trust business of a title insurance company for 1943 measured by the income of its trust business in 1942 is not a tax upon its 1942 trust business in violation of the effective date, December 31, 1942, of Section 144/5 of Article XIII, California Constitution. Title Insurance and Trust Co. v. Franchise Tax Board (1956) 145 Cal.App.2d 60.

Text of section operative July 1, 2012

12204. In lieu of other taxes; exceptions. (a) The tax imposed on insurers by this chapter is in lieu of all other taxes and licenses, state, county, and municipal, upon those insurers and their property, except:

(1) Taxes upon their real estate.

(2) Any retaliatory exactions imposed by paragraph (3) of subdivision (f) of Section 28 of Article XIII of the California Constitution.

(3) The tax on ocean marine insurance.

(4) Motor vehicle and other vehicle registration license fees and any other tax or license fee imposed by the state upon vehicles, motor vehicles or the operation thereof.

(5) That each corporate or other attorney-in-fact of a reciprocal or interinsurance exchange shall be subject to all taxes imposed upon corporations or others doing business in the state, other than taxes on income derived from its principal business as attorney-in-fact.

(b) This section shall become operative on July 1, 2012.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative on January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, replaced "attorney in fact" with "attorney-in-fact" two times in paragraph (5) of subdivision (a) and substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b). Stats. 2011, Ch. 11x1 (ABx1 21), in effect September 16, 2011, substituted "2012" for "2011" after "operative on July 1," in subdivision (b).

* The title of Article 1. Tax Base, commencing with former Section 12251 was amended to its present form by Stats. 1961, p. 1981, operative January 1, 1962.