When calculating an insurer’s premium tax liability, the Superintendent of Insurance may use the amount of “direct premiums written” rather than “premiums received”, according to an opinion issued by Ohio Attorney General Dann. The Opinion effectively confirms the legality of the tax calculation mechanism that has been used by the Insurance Department for many years. That mechanism was challenged by one insurer, bringing the issue into question for P&C insurers.
Under Ohio law, premium tax must be measured by the gross amount of premiums received, as reflected in a company’s annual statement. The Superintendent adopts the forms for the annual statement that are prescribed by the NAIC; however, these forms do not include a place for insurance companies to report the “gross amount of premiums received,” either as a total or on a state-by-state basis. The Superintendent considers the dollar amount reported on the NAIC’s form that most closely approximates “premiums received” is the “premiums written.” Virtually all companies have operated under this view for years. An unnamed property & casualty insurance company challenged this position and argued that a clear distinction exists between “premiums written” and “premiums received,” and that consequently, Ohio law requires that the tax be calculated based on “premiums received.” Moreover, the insurer contended that the amount reported on the annual financial statement as “premiums written” overstates the company’s premium receipts because not all of the premiums written are actually received.
While “gross amount of premiums received” has not be statutorily defined, the Ohio Attorney General relied upon a judicial interpretation of this concept — State ex rel. Northwestern Mutual Life Insurance Co. v. Tomlinson (1919), 99 Ohio St. 233, 124 N.E. 220. In Tomlinson, the court held that the legislative history of the Ohio statutes indicate that the gross amount of “premiums received” meant the gross premiums stipulated on the face of the policies. This interpretation would include within the “gross amount of premiums received,” premiums never ultimately received under a written policy. Therefore, the Superintendent was authorized to base the excise tax imposed on companies doing business in Ohio.