DEPARTMENT OF REVENUE [61 PA. CODE CH. 162] Calculation of Title Insurance Company Gross Pre- miums [27 Pa.B. 4434] The Department of Revenue (Department), under the authority contained in section 408(a) of the Tax Reform Code of 1971 (72 P. S. § 7408(a)), proposes to add § 162.11 (relating to calculation of title insurance company gross premiums) to read as set forth in Annex A.
Purpose of the Regulation
The Department is proposing a change in the method of calculating the gross premiums tax on title insurance policies for which the issuer charges the insured an all-inclusive fee under the rate schedule approved by the Insurance Department.
Explanation of Regulatory Requirements
There are two methods under which title insurance companies issue policies: the all-inclusive fee and the approved attorney system. Under the all-inclusive fee system, the title insurer charges a fee under a schedule approved by the Insurance Department. In addition to the charge for the policy, this fee includes a charge for ancillary services, such as title searches, abstracts, attorneys' fees and document preparation. The title company performs these ancillary services. Under the approved attorney fee system, an approved attorney performs the ancillary services and the insurer charges a fee for the policy referred to as the approved attorney rate.
Depending on the method used, the Department currently subjects to the gross premiums tax either the entire all-inclusive fee or the approved attorney rate.
The Department is proposing to tax a title insurance policy issued under the all-inclusive fee schedule approved by the Insurance Department that portion of the all-inclusive fee that is equivalent to the fee that would be charged under the approved attorney fee schedule for the same policy coverage. See § 162.11(b).
Subsection (c) sets forth the method of calculation and provides a detailed example. Notwithstanding the amount of the fee charged to the insured, subsection (d) provides that a title insurance company must calculate the amount of its taxable premiums relative to the total fee charged on the basis of the number of policies and the total liability covered by the policies with respect to the liability ranges prescribed in the approved attorney fee schedule then in effect. An example details how the schedule should be prepared.
Fiscal Impact
The Department estimates that the proposed regulation will cause annual revenue losses of $1.2 million. This figure is based on estimated fiscal year cash payments of the six foreign title insurance companies that are currently appealing or litigating tax liabilities under the all-inclusive fee schedule. Costs in the current fiscal year reflect refunds due the six appellants/litigants, which are estimated to be $2.7 million, including principal and interest (accrued for periods between 1984 and 1995). Reference should be made to the Regulatory Analysis Form, Question (20), for more information regarding estimated annual revenue losses.
Paperwork
The proposed regulation will have a minimal impact on the paperwork requirements for title insurance companies. The proposed regulation will require a title insurance company to complete and file an additional schedule reporting taxable premiums under the approved attorney rate fee schedule with its annual gross premiums tax report. This schedule, however, is simply completed by information readily available to the title insurance companies because of their own recordkeeping systems.
Effectiveness/Sunset Date
The proposed regulation will become effective upon final publication in the Pennsylvania Bulletin. The proposed regulation is scheduled for review within 5 years of final publication. No sunset date has been assigned.
Contact Person
Interested persons are invited to submit in writing any comments, suggestions or objections regarding the proposed regulation to Anita M. Doucette, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061, within 30 days after the date of the publication of this notice in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act, (71 P. S. § 745.5(a)), on August 20, 1997, the Department submitted a copy of this proposed regulation to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the House Committee on Finance and the Senate Committee on Finance. In addition to submitting the proposed regulation, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of this material is available to the public upon request.
If IRRC has objections to any portion of the proposed regulation, it will notify the Department within 10 days of the close of the Committees' comment period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review of objections raised, prior to final publication of the regulation, by the Department, the General Assembly and the Governor.
ROBERT A. JUDGE, Sr.,
SecretaryFiscal Note: 15-385. (1) General Fund;
One-Time Cost (2) Implementing Year 1997-98 is $2.7 million; Revenue Loss (3) 1st Succeeding Year 1998-99 is $1.2 million; 2nd Succeeding Year 1999-00 is $1.2 million; 3rd Succeeding Year 2000-01 is $1.2 million; 4th Succeeding year 2001-02 is $1.2 million; 5th Succeeding year 2002-03 is $1.2 million; (4) 1996-97 $ Non-Applicable; FY 1995-96 $; FY 1994-95 $;
(7) Tax Refunds--Executive Authorization; will pay one-time costs; (8) recommends adoption.
Annex A TITLE 61. REVENUE PART I. DEPARTMENT OF REVENUE Subpart B. GENERAL FUND REVENUES ARTICLE VI. CORPORATION TAXES CHAPTER 162. INSURANCE COMPANIES SUBJECT TO TAX IN THIS COMMONWEALTH TITLE INSURANCE COMPANIES § 162.11. Calculation of title insurance company gross premiums.
(a) The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Excess fee--The difference between the all-inclusive fee for the total transaction and the all-inclusive fee for the maximum liability coverage specified in the approved attorney fee schedule.
(b) Except as provided in subsection (c), gross premiums for all title insurance companies subject to gross premiums tax shall be calculated using the applicable approved attorney fee schedule approved by the Insurance Department for the title insurance company. If a title insurance policy is issued under the all-inclusive fee schedule approved by the Insurance Department, the taxable gross premium shall be that portion of the all-inclusive fee that is equivalent to the fee that would be charged under the approved attorney fee schedule for the same policy coverage.
(c) The taxable premium for policies that are written in excess of the maximum liability coverage amount specified in the approved attorney fee schedule shall be calculated as follows:
(1) If the title insurance policy is written under the approved attorney system, the taxable premium is the entire fee.
(2) If the title insurance policy is written under the all inclusive system, the taxable premium is the sum of the following:
(i) The approved attorney fee for the maximum liability coverage specified in the approved attorney fee schedule.
(ii) The excess fee.
Example:
Title Insurance Company X writes one title insurance policy for more than $1 million. The liability coverage of that policy is $20 million. The $20 million policy was written under the all inclusive system for a total fee of $38,583. The approved attorney fee schedule in effect for Title Insurance Company X is as follows:
Unit of Insurance or Fraction Thereof
Fee$0.00 to $15,000$45
$15,001 to $100,000Add $3 per $1,000
$100,001 to $500,000Add $2.50 per $1,000
$500,001 to $1 millionAdd $2 per $1,000
$1,000,001 and greaterSubject to negotiation
The all-inclusive fee schedule in effect for Title Insurance Company X is as follows:
Unit of Insurance or Fraction Thereof
Fee$0.00 to $15,000$303
$15,001 to $35,000Add $7 per $1,000
$35,001 to $50,000Add $6 per $1,000
$50,001 to $100,000Add $5 per $1,000
$100,001 to $500,000Add $4.50 per $1,000
$500,001 to $1 millionAdd $3.50 per $1,000
$1,000,001 and greaterSubject to negotiation
The maximum policy specifically covered by the approved attorney fee schedule and the all-inclusive fee schedule is $1 million; the approved attorney fee for a $1 million policy is $2,300; the total fee for the $20 million policy written under the all-inclusive system is $38,583; and the all-inclusive fee for a $1 million policy is $4,333. Therefore, the excess fee for this policy is $34,250 ($38,583--4,333) and the taxable gross premium is $36,550 ($2,300 (approved attorney fee for $1 million policy) + 34,250 (excess fee)).
(d) A title insurance company shall calculate the amount of its taxable premiums on the basis of the number of policies and the total liability covered by the policies within the liability ranges as prescribed in the approved attorney fee schedule then in effect. A title insurance company shall submit a schedule setting out the relevant data by policy coverage ranges and calculating the taxable gross premiums as indicated. (Refer to the schedule in the example which follows.) This schedule shall be attached to the title insurance company's gross premiums tax report. Copies of the applicable approved attorney fee schedule and the all-inclusive fee schedule in effect for the title insurance company also shall be attached to the gross premiums tax report.
Example:
Title insurance company writes 3,201 title insurance policies covering a total liability of $391 million under the all-inclusive system during the tax year. The distribution of policies within the ranges set forth in the fee schedule is as follows:
A B C D E F G H I Range Number of Policies Total Liability for Policies in Range Premium on first $15,000 of Coverage [Col. B × $45)] Premium on next $85,000 Per Policy @ $3 per 1,000 Premium on next $400,000 per policy
@ $2.50 per 1,000Premium on next $500,000 per policy
@ $2 per 1,000Excess Fee for Negotiated Policies Total
[Col. D +Col. E +Col. F +Col. G +Col. H]0 to 15,000 100 1,000,000 4,500 -- -- -- -- 4,500 15,001 to 100,000 2,000 90,000,000 90,000 180,000
(60,000,000
@ $3 per 1,000)-- -- -- 270,000 100,001 to 500,000 1,000 200,000,000 45,000 255,000 (85,000,000
@ $3 per 1,000)250,000 (100,000,000 @ $2.50 per 1,000) -- -- 550,000 500,001 to 1,000,000 100 80,000,000 4,500 25,500 (8,500,000
@ $3 per 1,000)100,000 (40,000,000 @ $2.50 per 1,000) 60,000 (30,000,000 @ $2 per 1,000) -- 190,000 1,000,001 or more 1 20,000,000 45 255 (85,000
@ $3 per 1,000)1,000 (400,000 @ $2.50 per 1,000) 1,000 (500,000
@ $2 per 1,000)34,250 36,550 TOTAL 3,201 391,000,000 144,045 460,755 351,000 61,000 34,250 1,051,050 Under this section, the title insurance company's taxable gross premiums are $1,051,050.
[Pa.B. Doc. No. 97-1391. Filed for public inspection August 29, 1997, 9:00 a.m.]
