Out-of-state Insurance Companies Ruled Exempt From Maryland Income Tax
Does the Maryland State Comptroller Require Income Tax From All Businesses With Customers in the State?
As a general rule, all corporate income derived within the state of Maryland is subject to taxation – with, of course, several caveats and exceptions.
In a case recently decided by the Maryland Tax Court on April 24, 2015, this general principle has been further extrapolated to apply to the out-of-state insurance industry. More specifically, the court held in National Indemnity Company v. Comptroller of the Treasury that an out-of-state predecessor insurance company is not subject to the same two percent tax assessment as its already-taxed successor company based on the well-established principles set forth in MD. CODE ANN., INS. § 6-101(a)(1). In sum, since the successor company already paid the two percent tax rate for the same tax years, the state Comptroller could not double-assess the income by imposing a tax on the predecessor.
Details of National Indemnity Company
The details of the National Indemnity Company case involved an assignment of interest from a Nebraska-based licensed insurance company. Nonetheless, the Comptroller of Maryland assessed a two percent tax on the successor company totaling $815,748.00 for tax years 2000 through 2003, which the successor company argued had already been paid by the predecessor. From the Comptroller’s point of view, the successor was subject to taxation on “all new and renewal gross direct premiums allocable to Maryland and written during the preceding calendar year.” The Comptroller further explained its position by likening the assignment of interest to an investment made by a commercial bank – an entity not subject to a statutory exemption.
Despite its efforts, the Comptroller was unable to convince the court of this analogy, and it held in favor of the insurance company, holding that it was not subject to the tax regardless of the source of its profits.
The case presents an interesting look at the taxation standards for out-of-state businesses, particularly those engaged in the niche industry of insurance premium sales within the state of Maryland.
If your business is enduring a confounding state taxation issue, please do not hesitate to contact the Bethesda and Rockville, Maryland tax attorneys at Longman & Van Grack, LLC by calling (301)291-5027.
