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You are here: Home . rules . 2005 . 0113-059

Subchapter C. Maintenance Taxes and Fees – 28 TAC §1.414

1. INTRODUCTION. The Commissioner of Insurance adopts amendments to §1.414, concerning assessment of maintenance taxes and fees for payment in the year 2006. The amended section is adopted without changes to the text proposed in the November 25, 2005 issue of the Texas Register (30 TexReg 7804).

2. REASONED JUSTIFICATION. The amendments are necessary to adjust the rates of assessment for maintenance taxes and fees for 2006 to provide the revenue necessary to fund appropriations made by the Legislature to fund regulation of the insurance industry in Texas . In addition, the amendments are necessary to set maintenance tax assessment rates to implement HB 7, Acts 2005, 79th Legislature, Regular Session ch. 265, eff. Sept. 1, 2005, which transferred the functions of the Texas Workers' Compensation Commission (TWCC) to the Department's newly created Division of Workers' Compensation (DWC) and established the Office of Injured Employee Counsel (OIEC), a separate agency to help injured employees in the workers' compensation system. HB 7 transferred funding of the DWC and the OIEC from the State General Revenue Fund to the Department's operating account, as provided in the Labor Code §403.001, and granted authorization to the Commissioner of Insurance to assess maintenance taxes for the operation of the DWC and to prosecute workers' compensation insurance fraud in Texas, as provided in the Labor Code §§403.002 and 403.003. The amended section is also necessary to set assessment rates for workers' compensation self-insurance groups to implement HB 2095, Acts 2003, 78th Legislature, Regular Session, ch.275, eff. Sept. 1, 2003 codified as Labor Code Chapter 407A.

Insurance Code §201.001 creates the Texas Department of Insurance operating account and authorizes the Commissioner to administer the money in the account and to spend money from the account in accordance with state law, rules adopted by the Commissioner, and the General Appropriations Act. Section 201.001 also provides that the money deposited to the credit of the account may be used for any purpose for which money in the account is authorized to be used by law. Section 251.001 of the Insurance Code provides that collected maintenance taxes must be deposited in the general revenue fund and reallocated to the Texas Department of Insurance operating account. The General Appropriations Act (SB 1, 79th Legislature, Regular Session) mandates that the Department's operating account in 2006 be used to pay the expenses for the operation of the Department as well as the expenses for the operation of the newly created DWC within the Department; the OIEC, a newly created agency which assumed some functions of the TWCC; and other state agencies. The operation of the DWC was formerly funded by maintenance taxes assessed by the TWCC. The functions to be performed by the OIEC were funded from the maintenance taxes assessed by the TWCC.

Several statutes require the Department to set maintenance tax assessment rates for the various lines of insurance to fund the appropriations made by the legislature from the Department's operating account. Section 1.414 sets rates for maintenance tax assessment on individual lines of insurance and applies those rates to the gross premium receipts for the calendar year 2005, or some other basis specified by statute, to life, accident, and health insurance; motor vehicle insurance; casualty insurance, and fidelity, guaranty and surety bonds; fire insurance and allied lines, including inland marine; workers' compensation insurance; title insurance; health maintenance organizations; third party administrators; and corporations issuing prepaid legal services contracts. The factors considered in the Department's rate setting process are: (i) the appropriations made by the legislature, including the legislative mandates to fund the expenses of the DWC and the OIEC and to fund Department and OIEC employee salary increases; ii) the cost to regulate each line of insurance; (iii) the Department operating account ending balance; (iv) non-maintenance tax revenues; and (v) the statutory caps for each line of insurance. In the absence of changes in these factors, maintenance tax rates and revenues should remain constant from year to year. Based on material changes in appropriations made by the Legislature and the prior year Department operating account ending balance, the Department has determined that approximately $54 million is needed from maintenance taxes to fund the Department's operating account legislative appropriations, excluding the $52 million needed to fund DWC and OIEC. Based on these factors the Department determined that a total of approximately $106 million is needed from maintenance taxes to fund the insurance operating account legislative appropriations for 2006. Approximately $52 million of the $106 million is needed to fund the insurance operating account legislative appropriations for the DWC and OIEC operating expenses, and $54 million is needed to fund the remainder of the insurance operating account legislative appropriations, including the operation of the Department. Any comparison of the proposed rates for 2006 to the rates adopted for 2005, however, must exclude the proposed rates for the DWC and the OIEC and their projected revenue need of $52 million because that projected revenue amount was not included in the calculations for the 2005 rates. The $54 million maintenance tax need is an increase of $20 million from the 2005 maintenance tax need of $34 million. The increased need requires rates above the 2004 and 2005 adopted rates. The proposed 2006 rates are projected by the Department to produce the revenue of approximately the 2003 amount of $55 million. The rates adopted in 2005, as well as those adopted in 2004, were unusually low due to mandatory budget reductions by the Legislature that resulted in lower spending than expected and a one-year revenue collection greater than expected because of higher premiums than projected. Therefore, the resulting balance in the Department's operating account created by the budget reductions and greater revenues than expected resulted in the lower rates in 2004 and 2005. Also, new legislative mandates that require additional funding of approximately $11 million from the Department's operating account further increase the total amount needed to fund the Department's operating account legislative appropriations for 2006 . Therefore, the resulting ending balance in the Department's operating account created by the budget reductions and greater revenues than expected resulted in the lower rates in 2004 and 2005. Also new legislative mandates to provide additional funding of approximately $11 million from the Department's operating account further increase the total amount needed to fund the Department's operating account legislative appropriations for 2006 . These new mandates, funding a state wide salary increase for employees of the Department, and a lower ending balance in the Department's operating account are the primary reasons for the increase in maintenance tax rates for 2006, excluding DWC and OIEC, a separate agency to help injured employees in the workers' compensation system.

The maintenance tax rates needed to fund the DWC and OIEC in 2006, as determined by the Department, are 15 percent higher than the 2005 rates. This is the result of several factors. HB 7 transferred funding of the DWC and the OIEC from the State General Revenue Fund to the Department's operating account. Maintenance tax rates set by the former TWCC were set to fund operations of that agency through December of each year. The transfer of the funds to the Department's operating account, however, requires revenues from the maintenance taxes to fund operations of the DWC and the OIEC through April of each year; this means that the funding period is extended for an additional four months which contributes to the rate increase. Additionally, the rates set by TWCC in 2004 were set low in order to spend down available funds. The Department incorporated provisions of HB 7 into the rate setting process for the newly created DWC within the Texas Department of Insurance and the OIEC, a separate new agency. All of these factors together contributed to the 15 percent increase in the maintenance tax assessment rate to fund the DWC and OIEC operating expenses.

3. HOW THE SECTION WILL FUNCTION. Section 1.414 sets rates of assessment and applies those rates to the gross premium receipts for the calendar year 2005, or some other basis specified by statute, to life, accident, and health insurance; motor vehicle insurance; casualty insurance, and fidelity, guaranty and surety bonds; fire insurance and allied lines, including inland marine; workers' compensation insurance; title insurance; health maintenance organizations; third party administrators; and corporations issuing prepaid legal services contracts. The Department anticipates the adopted rates will produce revenue of $106,221,189 to fund appropriations made by the Legislature. The amended section implements HB 7, which transferred the functions of the TWCC to the Department's new created DWC and established the OIEC, by adding new paragraphs (5) and (6) of subsection (a) and subsection (d) to include the maintenance tax rates previously assessed by the TWCC. The amended section also implements HB 2095, Acts 2003, 78th Legislature, Regular Session, ch.275, eff. Sept. 1, 2003, codified as Labor Code Chapter 407A by adding paragraph (7) to subsection (a) set a rate of assessment for workers' compensation self-insurance groups.

4. SUMMARY OF COMMENTS AND AGENCY RESPONSE TO COMMENTS.

Comment: Commenters expressed concern over what they characterized as the substantial increase in the proposed rates of assessment for 2006 over the rates adopted for 2005.

Agency Response: The Department estimates that the proposed rates will produce $106 million in 2006 which is needed to fund legislative appropriations for 2006 from the Department's operating account. An accurate comparison of the proposed rates for 2006 to the rates adopted for 2005, however, must exclude the proposed rates for the DWC and the OIEC and their projected revenue need of $52 million, because that projected revenue amount was not included in the calculations for 2005. The factors considered in the Department's rate setting process are: (i) the appropriations made by the legislature, (ii) the cost to regulate each line of insurance, (iii) prior year fund balance, (iv) non-maintenance tax revenues, and (v) statutory caps for each line of insurance. In the absence of changes in these factors, maintenance tax rates and revenues should remain constant from year to year. Based on material changes in appropriations made by the Legislature and the prior year Department operating account ending balance, the Department has determined that approximately $54 million is needed from maintenance taxes to fund the Department's operating account legislative appropriations, excluding the $52 million needed to fund DWC and OIEC. The $54 million maintenance tax need is an increase of $20 million from the 2005 maintenance tax need of $34 million. The increased need requires rates above the 2004 and 2005 adopted rates. The proposed 2006 rates are projected by the Department to produce the revenue of approximately the 2003 amount of $55 million. Also, any accurate rate comparison between 2005 rates and 2006 proposed rates must consider that the rates adopted in 2005, as well as in 2004, were unusually low due to legislatively mandated budget reductions that resulted in lower spending than expected and a one-year revenue collection greater than expected because of higher premiums than projected. Therefore, the resulting ending balance in the Department's operating account created by the budget reductions and greater revenues than expected resulted in the lower rates in 2004 and 2005. Also new legislative mandates to provide additional funding of approximately $11 million from the Department's operating account further increase the total amount needed to fund the Department's operating account legislative appropriations for 2006 . These new mandates, funding a state wide salary increase for employees of the Department, and a lower ending balance in the Department's operating account are the primary reasons for the increase in maintenance tax rates for 2006, excluding DWC and OIEC.

Comment: Commenters questioned the Legislature's inclusion of certain mandates in the General Appropriations Act in determining the proposed rates, because those mandates did not provide funding for the Department or were unrelated to the regulation of insurance. They questioned whether the proposed rates should impose a tax which provides funds other than those necessary to pay the Department's expenses for regulating insurance. Some commenters additionally asserted that the maintenance tax statutes conflict with certain mandates in the General Appropriations Act because the maintenance tax statutes are substantive laws that require funds raised from the maintenance taxes to be used exclusively to pay the Department's expenses. They stated this conflict invalidated those mandates in the General Appropriations Act and that the Department should not include those mandates in determining the rates of assessment.

Agency Response: It is the Department's position that the maintenance tax rates proposed for 2006 are properly determined within the Department's statutory authority and in accordance with legally valid legislative mandates in the General Appropriations Act (SB 1, 79th Legislature, Regular Session). Insurance Code §201.001 creates the Texas Department of Insurance operating account and authorizes the Commissioner to administer the money in the account and to spend money from the account in accordance with state law, rules adopted by the Commissioner, and the General Appropriations Act. Section 201.001 also provides that the money deposited to the credit of the account may be used for any purpose for which money in the account is authorized to be used by law. Section 251.001 of the Insurance Code provides that collected maintenance taxes must be deposited in the general revenue fund and reallocated to the Texas Department of Insurance operating account. The General Appropriations Act (SB 1, 79th Legislature, Regular Session) mandates that the Department's operating account in 2006 be used to pay the expenses for the operation of the Department as well as the expenses for the operation of the newly created DWC within the Department; the OIEC, a newly created agency which assumed some functions of the TWCC; and other state agencies. The operation of the DWC was formerly funded by maintenance taxes assessed by the TWCC. The functions to be performed by the OIEC were funded from the maintenance taxes assessed by the TWCC.

Several statutes require the Department to set maintenance tax assessment rates to fund the appropriations made by the Legislature from the Department's operating account. These maintenance tax statutes provide that the maintenance taxes are to be deposited in the Department's operating account. None of these statutes provide that the revenues from the maintenance taxes are exclusively for the use of the Department's expenses for regulating insurance. The Department's operating account is used to pay the expenses for the operation of the Department and other state agencies as mandated by the legislature in the General Appropriations Act. Since the Legislature in the General Appropriations Act appropriated funds from the Department's operating account for specific designated purposes, the Department and the Commissioner in setting the maintenance tax rates are responding to the legislative intent expressed in the General Appropriations Act.

In addition, the Department does not agree with the commenters that there is conflict between the maintenance tax statutes and certain mandates in the General Appropriations Act. It is the Department's position that the maintenance tax statutes are in harmony with the General Appropriations Act because they do not state that the revenues from the taxes are exclusively for the use of the operation of the Department. This interpretation of the laws is supported by the Code Construction Act, Government Code Chapter 311. Government Code §311.021 provides that in interpreting an enacted statute it is presumed that the entire statute is intended to be effective. The application of this statutory principle to the General Appropriations Act results in the interpretation that every provision of that Act, including the legislative mandates that the commenters argue cannot be legally funded with maintenance taxes, must be implemented, i.e., funded, by the Department in accordance with the method of funding directed by the Legislature. Further support for this interpretation is provided in Section 311.025 of the Government Code which provides that in the event of an irreconcilable conflict between enacted statutes, whether at the same or different sessions, the statute latest in date of enactment prevails. The General Appropriations Act, which was adopted on June 18, 2005 is clearly the later enactment because the various maintenance tax statutes were enacted in previous sessions except for those enacted in HB 7 which were adopted on September 1, 2005 . Therefore, under this statutory legal principle, the Commissioner of Insurance is required to include the legislative mandates in the General Appropriations Act in determining the rates of assessment under the maintenance tax statutes.

An analysis of the Legislature's authority to appropriate state money also supports the Department's position that the maintenance tax rates proposed for 2006 are properly determined within the Department's statutory authority and in accordance with legally valid legislative mandates. The appropriation of state money is a legislative function. Articles III and VIII of the Texas Constitution grant the Legislature the authority to enact legislation and to raise state revenue. (Tex. Att'y Gen. Op. No. JM-772 (1987): "A corollary of the Legislature's exclusive control over the appropriation of state funds is its exclusive control over how state funds are to be spent.") Section 6 of Article VIII of the Texas Constitution provides that no money shall be drawn from the state treasury unless pursuant to an appropriation "made by law." ( Bullock v. Calvert , 480 S.W.2d 367, 370-371 ( Tex. 1972).) Section 6 has been construed consistently to require an appropriation by the Legislature before any money can be paid out of the state treasury. ( Lightfoot v. Lane, 140 S.W. 89 ( Tex. 1911); Pickle v. Finley , 44 S.W. 480 ( Tex. 1898).) As such, funds in the state treasury may not be expended without a legislative appropriation. An appropriation may be effected either by the constitution, by statute, or by a general appropriations bill. The constitution vests in the Legislature authority to direct how public funds shall be used and to allocate the funds among state agencies. Tex. Const. art. III, §§ 35, 44; art. VIII, § 6. The Legislature exercises this power by enacting general laws defining the agency's powers and duties and by appropriating funds to the agency to carry out its legislative mandate. The Legislature appropriated funds to the Department so that the Department can carry out its legislative mandate. The Legislature's authority to appropriate funds to other entities from the Department's operating account is derived from its authority to allocate state funds among state agencies. The Department's expenditure of funds from its operating account is to carry out the Department's statutory duties and obligations. The funds appropriated by the Legislature to other entities are to be expended by those entities to accomplish their legislative purposes. Because the funds in the Department's operating account are generated by the assessment of maintenance taxes on insurers and other entities regulated by the Department does not mean that the Legislature lacks the authority to appropriate or allocate those funds to other entities. Therefore, it is the Department's position that the Commissioner is properly exercising the statutory authority provided in §201.001 of the Insurance Code, which permits the Commissioner to administer and spend money in the operating account in accordance with state law, rules adopted by the Commissioner, and the General Appropriations Act. For these reasons the Department does not find that it is legal or feasible to adjust the maintenance tax rates in accordance with the commenters' objections.

Comment: A commenter stated that the industry expected workers' compensation costs to go down and expressed surprise that the maintenance tax rates related to the DWC and the OIEC were increasing.

Agency Response: The 15 percent increase in the maintenance tax rates to fund the DWC and OIEC was the result of several factors. The Department incorporated provisions of HB 7 into the rate setting process for the newly created DWC within the Texas Department of Insurance and the OIEC, a separate new agency established to help injured employees in the workers' compensation system. HB 7 also transferred funding of the DWC and the OIEC from the State General Revenue Fund to the Department's operating account, as provided in the Labor Code §403.001, and granted authorization to the Commissioner of Insurance to assess maintenance taxes for the operation of the DWC and to prosecute workers' compensation insurance fraud in Texas, as provided in the Labor Code §§403.002 and 403.003.. Maintenance tax rates set by the former TWCC were set to fund operations of that agency through December of each year. The transfer of the funds to the Department's operating account, however, requires revenues from the maintenance tax to fund operations of the DWC and the OIEC through April of each year; this means that the funding period is extended for an additional four months which contributes to the rate increase. Additionally the rate set by TWCC in 2004 was set low in order to spend down available funds. All of these factors together contributed to the 15 percent increase in the maintenance tax assessment rate to fund the DWC and OIEC operating expenses. In accordance with the Legislature's appropriations from the Department's operating account to fund the DWC and the OIEC, the Department proposed maintenance tax rates to provide funding of $52 million.

5. NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTIONS.

For: None.

Against: American Council of Life Insurers, American Insurance Association, State Farm Insurance Companies, Texas Association of Health Plans, Texas Association of Life & Health Insurers.

6. STATUTORY AUTHORITY. The amendments are adopted under the Insurance Code §§201.001, 251.001, 252.001 - 252.003, 253.001 - 253.003, 254.001 - 254.003, 255.001 - 255.003, 257.001 - 257.003, 258.002 - 258.004, 259.002 - 259.004, 260.001 - 260.003, 271.002 - 271.006 and §36.001; Labor Code §403.002, §403.003, §407.103, §407A.301, and §407A.302; and the General Appropriations Act, SB 1, 79th Legislature, Regular Session, Article VIII. Insurance Code §201.001 creates the Texas Department of Insurance operating account and provides that the Commissioner shall administer the money in the account and may spend money from the account in accordance with state law, rules adopted by the Commissioner, and the General Appropriations Act; it also provides that the money deposited to the credit of the account may be used for any purpose for which money in the account is authorized to be used by law. The General Appropriations Act enacted by the 79th Legislature mandates that the Department's operating account in 2006 be used to pay the expenses for the operation of the Department as well as the expenses for the operation of the newly created DWC within the Department and the OIEC, a separate agency. The following statutes require the Department to set assessment rates to fund the appropriations made by the legislature from the Department's operating account. Section 251.001 directs the Commissioner to annually determine the rate of assessment of each maintenance tax imposed under Insurance Code, Title 3, Subtitle C, Insurance Maintenance Taxes. Sections 252.001 - 252.003 impose a maintenance tax on each authorized insurer based on the insurer's gross premiums for fire and allied lines coverage, including inland marine. Sections 253.001 - 253.003 impose a maintenance tax on each authorized insurer based on the insurer's gross insurance premiums for casualty insurance and fidelity, guaranty and surety bonds coverage. Sections 254.001 - 254.003 impose a maintenance tax on each authorized insurer based on the insurer's gross premiums for motor vehicle coverage. Sections 255.001 - 255.003 impose a maintenance tax on each authorized insurer based on the insurer's gross premiums for workers' compensation coverage. Sections 257.001 - 257.003 impose a maintenance tax on each authorized insurer based on the insurer's gross premiums collected from Texas residents for life, accident, and health coverage and the gross considerations collected for annuity and endowment contracts. Sections 258.002 - 258.004 impose a per capita maintenance tax on each authorized health maintenance organization based on the correctly reported gross revenues collected from issuing health maintenance certificates or contracts in Texas . Sections 259.002 - 259.004 impose a maintenance tax on each authorized third-party administrator based on each administrator's correctly reported administrative or service fees. Sections 260.001 - 260.003 impose a maintenance tax on each nonprofit legal services corporation based on the correctly reported gross revenues received from issuing prepaid legal services contracts in this state . Sections 271.002 - 271.006 impose a maintenance fee on each insurer's correctly reported gross premiums for writing title insurance in this state. Labor Code §403.002 and §403.003 impose a maintenance tax on each insurer, except for a governmental entity, writing workers' compensation based on the insurer's correctly reported gross workers' compensation insurance which will pay the cost of administering the DWC, OIEC and support the prosecution of workers' compensation insurance fraud in Texas. Labor Code §407.103 imposes a maintenance tax on each workers' compensation certified self-insurer. Labor Code §407A.301 imposes a self-insurance group maintenance tax on each workers' compensation self-insurance group based on gross premium for the group's retention. This maintenance tax is to pay for: the administration of the DWC; the prosecution of workers' compensation insurance fraud in Texas ; the research functions of the Department under Labor Code Chapter 405; and the administration of the OIEC under Labor Code Chapter 404. Labor Code §407A.302 requires each workers' compensation self-insurance group to pay the maintenance tax imposed under Insurance Code §255.001 based on gross premium for the group's retention; this is to be used for the administrative costs incurred by the Department in administering Labor Code, Chapter 407A. Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the Department under the Insurance Code and other laws of this state.

7. TEXT.

§1.414. Assessment of Maintenance Taxes and Fees, 2006.

(a) The following rates for maintenance taxes and fees are assessed on gross premiums of insurers for calendar year 2005 for the lines of insurance specified in paragraphs (1) - (8) of this subsection:

(1) for motor vehicle insurance, pursuant to the Insurance Code §254.002, the rate is .062 of 1.0%;

(2) for casualty insurance, and fidelity, guaranty and surety bonds, pursuant to the Insurance Code §253.002, the rate is .119 of 1.0%;

(3) for fire insurance and allied lines, including inland marine, pursuant to the Insurance Code §252.002, the rate is .291 of 1.0%;

(4) for workers' compensation insurance, pursuant to the Insurance Code §255.002, the rate is .051 of 1.0%;

(5) for workers' compensation insurance, pursuant to Labor Code §403.003, the rate is 1.051%;

(6) for workers' compensation insurance, pursuant to Labor Code §407A.301, the rate is 1.051%;

(7) for workers' compensation insurance, pursuant to Labor Code §407A.302, the rate is .051 of 1%;

(8) for title insurance, pursuant to the Insurance Code §271.004, the rate is .107 of 1.0%.

(b) The rate for the maintenance tax to be assessed on gross premiums for calendar year 2005 for life, health, and accident insurance and the gross considerations for annuity and endowment contracts, pursuant to the Insurance Code §257.002, is .040 of 1.0%.

(c) Rates for maintenance taxes are assessed for calendar year 2005 for the following entities:

(1) pursuant to the Insurance Code §258.003, the rate is $.51 per enrollee for single service health maintenance organizations, $1.53 per enrollee for multi-service health maintenance organizations and $.51 per enrollee for limited service health maintenance organizations;

(2) pursuant to the Insurance Code §259.003, the rate is .149 of 1.0% of the correctly reported gross amount of administrative or service fees for third party administrators; and

(3) pursuant to the Insurance Code §260.002, the rate is .044 of 1.0% of correctly reported gross revenues for nonprofit legal service corporations issuing prepaid legal service contracts.

(d) Pursuant to Labor Code §407.103, each certified self-insurer shall pay a self-insurer maintenance tax in calendar year 2006 at a rate of 1.051% of the tax base calculated pursuant to Labor Code §407.103(b) which shall be billed to the certified self-insurer by the Division of Workers' Compensation;

(e) The enactment of Senate Bill 14, 78th Legislature, Regular Session, relating to certain insurance rates, forms, and practices, did not affect the calculation of the maintenance tax rates or the assessment of the taxes.

(f) The taxes assessed under subsections (a), (b), and (c) of this section shall be payable and due to the Comptroller of Public Accounts, Austin, TX 78774-0100 on March 1, 2006.



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Last updated: 12/13/2016

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