TCA § 56-13-114 — Taxation

Each captive insurance company shall pay to the department, on or prior to March 15 of each year, a tax at the rate of four tenths of one percent (0.4%) on the first twenty million dollars ($20,000,000), and three-tenths of one percent (0.3%) on each dollar thereafter on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December 31 next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums. Return premiums shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders. No tax shall be due or payable under this title as to considerations received for annuity contracts. Each captive insurance company shall pay to the department, on or prior to March 15 of each year, a tax at the rate of 225-thousandths of one percent (0.225%) on the first twenty million dollars ($20,000,000) of assumed reinsurance premium, and 150-thousandths of one percent (0.150%) on the next twenty million dollars ($20,000,000), and 50-thousandths of one percent (0.050%) on the next twenty million dollars ($20,000,000), and 25-thousandths of one percent (0.025%) of each dollar thereafter. However, no reinsurance tax applies to premiums for risks or portions of risks that are subject to taxation on a direct basis pursuant to subsection (a). No reinsurance premium tax shall be payable in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control; provided, that the commissioner verifies that such transaction is part of a plan to discontinue the operations of such other insurer, and if the intent of the parties to such transaction is to renew or maintain such business with the captive insurance company. Except with regard to a protected cell captive insurance company, as defined in § 56-13-202, with more than ten (10) cells, the annual minimum aggregate tax to be paid by a captive insurance company calculated under subsections (a) and (b) shall be five thousand dollars ($5,000), and the annual maximum aggregate tax shall be one hundred thousand dollars ($100,000). For a protected cell captive insurance company with more than ten (10) cells, the annual minimum aggregate tax to be paid under subsections (a) and (b) shall be ten thousand dollars ($10,000), and the annual maximum aggregate tax shall be one hundred thousand dollars ($100,000), plus five thousand dollars ($5,000) multiplied by the number of cells over ten (10). A dormant captive insurance company that has been issued a letter of dormancy under § 56-13-124 is not subject to or liable for the payment of the annual minimum aggregate tax established under this subsection (c). The tax provided for in this section shall constitute all taxes collectible under the laws of this state from any captive insurance company and from any insured on its payments to a captive insurance company, and no other occupation tax or other taxes shall be levied or collected from any captive insurance company by this state or any county, city, or municipality within this state, except ad valorem taxes on real and personal property used in the production of income. Captive insurance companies, protected cells of captive insurance companies, and incorporated protected cells of captive insurance companies shall be subject to the fees in § 56-4-101. All premium taxes paid into the department under this chapter shall be held by the commissioner as expendable receipts for the purpose of administering this chapter and for promoting the Tennessee captive insurance industry. The tax provided for in this section shall be calculated on an annual basis, notwithstanding policies or contracts of insurance or contracts of reinsurance issued on a multiyear basis. In the case of multiyear policies or contracts, the premium shall be prorated for purposes of determining the tax under this section. Nothing in this section shall be construed to provide an exemption from the sales and use tax imposed by title 67, chapter 6. Entities in this state, including industrial insureds as defined in § 56-2-105(7), who have procured insurance from a captive insurance company and, on or before December 31, 2018, either redomesticate that captive insurance company to this state pursuant to this chapter or transfer a complete line of business or complete geographic risk into a captive formed in this state between January 1, 2016, and December 31, 2018, shall not be liable for any unreported taxes due pursuant to § 56-2-411 on a policy or contract of insurance procured from the captive insurance company before the redomestication of the captive insurance company or transfer of line of business or complete geographic risk to this state; provided, that the policy or contract is substantially similar to a policy or contract of insurance procured from the captive insurance company after it is redomiciled or after the line of business or the complete geographic risk is transferred to this state. In order for a transfer of a line of business or complete geographic risk to a Tennessee captive formed between January 1, 2016, and December 31, 2018, to qualify under subdivision (i)(1), the Tennessee captive formed between January 1, 2016, and December 31, 2018, must have and maintain, for no less than five (5) years from the date of formation, capital of at least fifteen million dollars ($15,000,000) and annual premiums of at least thirty million dollars ($30,000,000). Any captive insurance company failing to pay premium tax payments as provided by this chapter shall forfeit and pay to the state, in addition to the amount of the unpaid taxes, a penalty of five hundred dollars ($500) for the first month or fractional part of the first month of delinquency; provided, that should the period of delinquency exceed one (1) month, the company shall pay an additional five hundred dollars ($500) for the second month or fractional part of the second month. Any premium tax payment that is not paid within sixty (60) days of the due date is a violation of this chapter and is subject to § 56-13-120. The commissioner has the discretion, upon written application and for good cause shown, to waive the penalties of this subdivision (j)(1). All delinquencies shall bear interest at the rate of ten percent (10%) per annum from the date the amount was due until paid. The interest shall apply to any part of the tax unpaid by the due date and no interest may be waived. The commissioner shall promulgate rules governing the manner in which the premium tax shall be paid. The rules shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5. The rules may provide for the making of premium tax payments through electronic means. The rules may also provide for a convenience fee to cover the costs of accepting electronic premium tax payments. In no event shall the convenience fee exceed the actual costs incurred by the department in accepting electronic premium tax payments in addition to any applicable penalty and interest fees.