DEPARTMENT OF STATE REVENUE

Revenue Ruling #2008-01 IT

September 12, 2008

ISSUES

The taxpayer requests the Department to rule on the following issues:

1. Is taxpayer subject to the Indiana gross premiums tax, even though its Medicare Part D premiums are exempt pursuant to federal law?

2. If taxpayer is subject to Indiana gross premium tax, then is taxpayer exempt from Indiana corporate income tax?

STATEMENT OF FACTS

Taxpayer, a wholly-owned indirect subsidiary of a corporation, is a Tennessee domiciled insurance company formed exclusively to provide benefits as a prescription drug plan under the federal government's Medicare Part D program. Taxpayer solely offers Medicare Part D plans to eligible participants. Taxpayer files zero liability gross premiums tax returns in all applicable states, including Indiana.

DISCUSSION

IC 27-1-18-2, last amended in 2000, established a gross premium privilege tax on insurance companies not organized under Indiana law. Federal law, specifically 42 CFR §423.440, regarding Medicare Part D was later enacted, preempting state laws applicable to Medicare Part D plans offered by Part D plan sponsors. As a result of 42 CFR §423.440, Indiana's gross premium privilege tax was prohibited on Medicare Part D plans. Thus, taxpayer is not subject to IC 27-1-18-2 since taxpayer solely issues Medicare Part D plans, which are exempt from gross premium privilege tax.

Under 42 CFR §423.440(b)(2), Part D plan sponsors are not, however, exempt from taxes related to net income or profit realized by the organization from business conducted under Part D. IC 6-3-2-2.8(4) only exempts insurance companies from adjusted gross income tax if the insurance company is subject to tax under IC 27-1-18-2. As discussed above, however, taxpayer is not subject to tax under IC 27-1-18-2 and is therefore not exempt from Indiana adjusted gross income tax under the provisions of IC 6-3-2-2.8. Without this exemption, taxpayer remains subject to the corporate adjusted gross income tax as provided in IC 6-3-2-1.

RULING #1

Is taxpayer subject to the Indiana gross premiums tax, even though its Medicare Part D premiums are exempt pursuant to federal law?

The Department rules that the taxpayer, who solely offers Medicare Part D plans, is not subject to the Indiana gross premiums tax because federal law, specifically 42 CFR §423.440, prohibits states from taxing premiums paid on behalf of a Part D plan enrollees or beneficiaries.

RULING #2

If taxpayer is subject to Indiana gross premium tax, then is taxpayer exempt from Indiana corporate income tax?

As stated above in Ruling #1, taxpayer is not subject to Indiana gross premium tax. However, IC 6-3-2-2.8 provides that insurance companies are not subject to adjusted gross income tax when they are subject to tax under IC 27-1-18-2. Because taxpayer is precluded from taxation under IC 27-1-18-2 via the provisions of 42 CFR §423.440, taxpayer is not exempt from tax under IC 6-3-2-2.8 and remains subject to adjusted gross income tax under IC 6-3-2-1.

CAVEAT

This ruling is issued to the taxpayer requesting it on the assumption that the taxpayer's facts and circumstances, as stated herein are correct. If the facts and circumstances given are not correct, or if they change, then the taxpayer requesting this ruling may not rely on it. However, other taxpayers with substantially identical factual situations may rely on this ruling for informational purposes in preparing returns and making tax decisions. If a taxpayer relies on this ruling and the Department discovers, upon examination, that the fact situation of the taxpayer is different in any material respect from the facts and circumstances given in this ruling, then the ruling will not afford the taxpayer any protection. It should be noted that subsequent to the publication of this ruling a change in statute, regulation, or case law could void the ruling. If this occurs, the ruling will not afford the taxpayer any protection.

DIN: 20081029-IR-045080810NRA

Composed: Apr 27,2024 4:57:52AM EDT

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