Was a Medicare Part D insurer that paid no Louisiana premiums tax exempt from corporation franchise tax?

Plain-English summary

Louisiana Private Letter Ruling 10-018 held that a Medicare Part D insurance company was not exempt from Louisiana corporation franchise tax when it paid no Louisiana gross premiums tax.

Federal law prevented Louisiana from imposing a premium tax on the company's Medicare Part D receipts. But the state franchise-tax exemption applied to insurance corporations actually “paying” Louisiana premiums tax, not merely companies subject to the insurance tax statutes.

Taxpayer's business and tax position

The redacted taxpayer was a non-Louisiana insurance company formed exclusively to offer Medicare Part D prescription drug plans. It operated nationwide and filed zero-liability gross premiums tax returns in applicable states, including Louisiana.

Under 42 C.F.R. section 423.440(b), states could not impose a premium tax, fee, or similar assessment on specified Medicare Part D payments from CMS, beneficiaries, or third parties.

The taxpayer argued that it remained an insurance company subject to Louisiana's gross premiums tax system even though federal law reduced its liability to zero. It therefore claimed the insurance-company exemption from corporation franchise tax.

Department's answer on premiums tax

The taxpayer first asked whether it was subject to Louisiana gross premiums tax despite the federal exemption.

The Department of Revenue declined to answer. The ruling stated that the Louisiana Department of Insurance administered the gross premiums tax, placing that question outside Revenue's authority.

Franchise-tax exemption required payment

La. R.S. 47:608(10) exempted insurance companies “paying” a premiums tax under Louisiana's Insurance Code.

The Department rejected the argument that being generally subject to the premiums tax was enough. Because the taxpayer paid no Louisiana gross premiums tax, it did not meet the statutory condition for the franchise-tax exemption.

The taxpayer therefore remained subject to Louisiana corporation franchise tax under the ruling.

What this means for you

Medicare Part D insurers

Federal protection from state premium tax did not automatically produce a Louisiana franchise-tax exemption under the Department's reading of the 2010 law.

Insurance tax departments

Distinguish among being licensed, filing a zero return, being within a tax statute's scope, and actually paying tax. The PLR treated payment as the decisive franchise-exemption condition.

Accountants and tax professionals

The Department of Revenue did not decide whether the company was legally subject to gross premiums tax; it decided only that no exemption from franchise tax arose when no premiums tax was paid.

Common questions

Q: Why did the insurer pay no Louisiana premiums tax?

A: Federal Medicare Part D rules prohibited the state tax on the payments described in the ruling.

Q: Was filing a premiums-tax return enough for the franchise exemption?

A: No. The ruling read La. R.S. 47:608(10) to require actual payment of premiums tax.

Q: Did Revenue decide the insurer's premiums-tax status?

A: No. It said that question belonged to the Louisiana Department of Insurance.

Q: Can another insurer rely on this PLR?

A: No. It bound the Department only for the addressed taxpayer and the truthful, complete facts presented.

Citations and references

• La. R.S. 47:601(3)(A) — corporations within the franchise tax
• La. R.S. 47:608(10) — franchise-tax exemption for insurance companies paying premiums tax
• La. R.S. 22:1061(A) — insurance license and premiums tax
• La. R.S. 22:1069 — insurer franchise and capital stock tax provision
• 42 C.F.R. section 423.440(b) — federal prohibition on state premium taxes for Medicare Part D payments
• LAC 61:III.101 — Private Letter Ruling authority and reliance limits

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 10-018

Original ruling text

Private Letter Ruling
Redacted Version
No. 10-018
October 14, 2010
Corporation Franchise Tax
Medicare Part D Insurance Corporation not Exempt
This is in reply to your request submitted on behalf of Taxpayer Insurance Company for a private letter ruling
to determine whether Taxpayer is subject to Louisiana corporate franchise tax.
FACTUAL SCENARIO
You provided these facts:
Background
Taxpayer is a non-Louisiana domiciled insurance company and a wholly-owned indirect subsidiary of Parent.
Taxpayer was formed in 2005 exclusively to provide benefits as a prescription drug plan under the federal
government’s Medicare Part D program, which is administered by the Centers for Medicare and Medicaid
Services (CMS). Taxpayer commenced operations on January 1, 2006.
From inception, Taxpayer has solely offered Medicare Part D plans to eligible participants in all 50 states, the
District of Columbia and the territories of Puerto Rico and the US Virgin Islands. As of December 31, 2007,
Taxpayer was licensed as an insurer in 36 states and the District of Columbia and has filed expansion
applications to become a licensed insurer in the states where it is required to do so, and will file applications
in the remaining states upon satisfaction of seasoning requirements. Taxpayer operates under a waiver from
CMS in the states where it is not licensed. In addition to filing license applications, Taxpayer files zero
liability gross premiums tax returns in all applicable states, including Louisiana. 1
Louisiana does not impose the state franchise tax on insurance companies that pay the premiums tax under
Title 22 of the Louisiana Revised Statutes of 1950. Section 47:608(10) La. R.S. However, Title 42 C.F.R. §
423.440 preempts state law and prohibits states from imposing a gross premiums tax, fee or similar
assessment on the premiums paid to Medicare Part D plan sponsors.
TAXPAYER’S DISCUSSION OF LAW
Medicare Part D premiums are federally subsidized premiums received for prescription drug benefits
provided to Medicare beneficiaries in the United States. States are prohibited, by federal statute, from
imposing a premiums tax or fee on such receipts. Specifically, Federal law does not allow states to impose a
premiums tax, fee or other similar assessment on any payment CMS makes on behalf of Medicare Part
1 Title 42 C.F.R. § 423.440(b) State premium taxes prohibited—(1) Basic rule. No premium tax, fee, or other
similar assessment may be imposed by any State, the District of Columbia, the Commonwealth of Puerto Rico, the
Virgin Islands, Guam, and American Samoa, the Mariana Islands or any of their political subdivisions or other
governmental authorities for any payment CMS makes on behalf of Part D plan or enrollees under this part
(including the direct subsidy, reinsurance payments, and risk corridor payments); or for any payment made to Part D
plans by a beneficiary or by a third party on behalf of a beneficiary.

617 North Third Street, Post Office Box 44098, Baton Rouge, Louisiana 70804-4098 • (225) 219-2780 • Fax (225) 219-2759 • TDD (225) 219-2114

www.revenue.louisiana.gov

Redacted Private Letter Ruling No. 10-018
Page 2 of 3
D plan or enrollees or on any payment made to Medicare Part D plans by a beneficiary or by a third party on
behalf of a beneficiary. Title 42 C.F.R. § 423.440(b).
Section 47:601(3)A La. R.S. provides that the corporate franchise tax shall be applied to:
"Every domestic corporation and every foreign corporation, exercising its charter, or qualified to do
business or actually doing business in this state, or owning or using any part or all of its capital, plant,
or any other property in this state, subject to compliance with all other provisions of law…"
However, the Louisiana franchise tax does not apply to:
"Insurance companies paying a premiums tax under Title 22 of the Louisiana Revised Statutes of
1950." § 47:608(10) La. R.S.
Section 22:1061.A La. R.S. imposes:
"…an annual license tax for the year 1982, and for each subsequent year, on each domestic, foreign,
and alien insurer engaged in the business of issuing insurance policies, contracts, or obligations…
Such license shall … be based on the gross amount of annual premiums on all risks, except annuity
contracts, located in this state…"
The Insurance title also provides:
"No insurer paying the license taxes levied under this Part shall be liable for any franchise or capital
stock tax." § 22:1069 La. R.S.
TAXPAYER’S ANALYSIS
Taxpayer is subject to the state gross premiums tax under Louisiana Revised Statutes §22:1061.A as an
insurance company and files its gross premiums tax returns on a timely basis. However, pursuant to Title 42
C.F.R. § 423.440(b), all of Taxpayer's receipts are exempt from Louisiana gross premiums tax as Medicare
Part D premiums. Thus, although Taxpayer maintains an insurer's license and is therefore subject to the
gross premiums tax, Taxpayer does not ultimately incur a gross premiums tax liability. The intent of the
Louisiana legislature in subjecting all insurance companies to the gross premiums tax and thus exempting
them from the franchise tax should not change solely because federal law specifically exempts Medicare Part
D premiums. Further, nowhere in Louisiana's statutes does it state that a company must have a positive
premiums liability to be considered "subject to" the gross premiums tax. As such, Taxpayer constitutes an
insurance company "subject to" the gross premiums tax and is exempt from the state franchise tax despite the
tax-exempt status of its premiums.
TAXPAYER’S CONCLUSION
Although, pursuant to federal law, 100% of its premiums are exempt from Louisiana gross premiums tax,
Taxpayer constitutes an insurance company subject to the Louisiana statutes governing the taxation of
insurance companies, and is therefore subject to the Louisiana gross premiums tax. As an insurance company
subject to gross premiums tax, Taxpayer should be exempt from Louisiana corporate franchise tax pursuant
to Louisiana statutes.
QUESTIONS PRESENTED

1. Is Taxpayer subject to the Louisiana gross premiums tax, even though its Medicare Part D
   premiums are exempt pursuant to federal law?
2. If Taxpayer is subject to Louisiana gross premium tax, then is Taxpayer exempt from Louisiana
   franchise tax?

Redacted Private Letter Ruling No. 10-018
Page 3 of 3
RULING REQUESTED
Taxpayer is an insurance company subject to the Louisiana gross premiums tax regardless of the fact that
Medicare Part D premiums are exempt from gross premiums tax pursuant to federal law. Further, because
Taxpayer is subject to the Louisiana gross premium tax, Taxpayer is exempt from Louisiana franchise tax.
RESPONSES TO QUESTIONS PRESENTED

1. Is Taxpayer subject to the Louisiana gross premiums tax, even though its Medicare Part D premiums
   are exempt pursuant to federal law? The Louisiana Department of Insurance administers the
   Louisiana gross premiums tax. Therefore, answering this question is outside of the scope of authority
   of the Louisiana Department of Revenue.
2. If Taxpayer is subject to Louisiana gross premium tax, then is Taxpayer exempt from Louisiana
   franchise tax? No. Merely being subject to the Louisiana gross premium tax does not exempt the
   taxpayer from the corporate franchise tax. La. R.S. 47:608 (10) provides an exemption from the
   franchise tax for insurance corporations paying a premium tax to Louisiana. Therefore, Taxpayer is
   not exempt from the Louisiana franchise tax because it is not paying the premium tax.
   RULING
   Because Taxpayer is not paying the Louisiana gross premium tax, Taxpayer is not exempt from Louisiana
   franchise tax.
   If you have any questions or need additional information, please call Vanessa LaFleur, Director, Policy
   Services Division or Edward Landry, Policy Services Division, at 219-2780.
   Sincerely,
   Cynthia Bridges
   Secretary
   By:
   Edward Landry
   Revenue Tax Research Analyst
   Policy Services Division

This correspondence constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided
for by section 61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at
the taxpayer's request. It is a written statement that applies principles of law to a specific set of facts or a particular
tax situation. A PLR does not have the force and effect of law, and is not binding on the person who requested it or
on any other taxpayer. This PLR is binding on the department only as to the taxpayer to whom it is addressed, and
only if the facts presented were truthful and complete and the transaction was carried out as proposed. It continues
as authority for the department's position unless a subsequent declaratory ruling, rule, court case, or statute
supersedes it.