Maryland: Captive insurance company not subject to corporate income tax

The Maryland Tax Court recently held that an insurance company was exempt from corporate income tax on its non-premium income.  The taxpayer was an unauthorized insurance company regulated by Title 4 of the Maryland’s Insurance Article, which imposes a premiums receipts tax on insurance companies in lieu of “all other state taxes.”  During the years at issue, the taxpayer did not earn any insurance premiums, but earned interest income from its parent corporation.  At issue was whether the taxpayer’s interest income was subject to Maryland corporate income tax.  The Comptroller argued that the premiums receipts tax was imposed on “premiums” and that because the taxpayer did not earn any premiums during the tax years at issue, the exemption from all other state taxes was not applicable. 

The Tax Court disagreed, noting that the exemption only requires the taxpayer to be subject to the premiums receipts tax and applies regardless of whether the taxpayer actually paid tax on insurance premiums receipts. The Comptroller also argued that the “all other state taxes” language in the exemption was meant to exempt unauthorized insurers only from sales and use tax.  Again, the court disagreed, noting that the Legislature intended insurance companies to be taxed on premium receipts and be exempt from all other state taxes.  Finally, the Comptroller argued that applying the exemption would result in the taxpayer avoiding tax on nearly two billion dollars of non-premiums receipt income. The court was not persuaded by the Comptroller’s dismissive interpretation of the plain reading of the insurance statutes.  Please contact Dan McGuire for questions on Leadville Ins. Co. v. Comptroller of the Treasury.