Exhibit D Page 11 of 20 Report-Senate Finance Committee (17th Cong., 34 Sosa, & Ropt. 1631).— This section corresponds to section 147 of the House bill which revised the exemption in section 101 (11) of the Code so that it would be limited to "mutual hail, cyclone, casualty, liability, or fire insurance companies or associations (including interinsurers and reciprocal underwriters) writing insurance contracts solely on a mutual basis, if the mean of the ledger assets held at the beginning and end of the taxable year does not exceed $100,000" and subjected such companies to income tax on the sum of their investment and underwriting income in a manner somewhat similar to that used under section 204 (relating to insurance companies other than life or mutual). Your committee has changed the exemption and Completely revised the method of taxing such gompanies. Most natural insurance companies other than life, large as well as small, are given an outright exemption from taxation under the existing section 101 (11), although that section was originally designed to exempt only small and local mutual companies. The remaining mutual companies, with a few exceptions, ordinarily pay no tax under the present method of computing their income even though not specifically exempted from the tax. (See inside back cover The exemption provided in section 101 (11) of the Code, as revised by the House bill, is further revised so that it will be limited to "mutual insurance companies or samociations, ether than life or marine (including interinsurers and reciprocal underwriters) writing no insurance contracts other than mutual insurance contracts, if the gross amount received during the taxable year from interest, dividends, renta, and premiums (including deposits and assessments does not exceed $75,000." The gross amount received from interest, dividends, rente. and premiums of practically all of the farmers' and other small and local mutual companies is less than $75,000 and accordingly they will not be required to file income-tax returns or pay any income taxes. It is estimated that over 80 percent of all companies will be exempt from fling returns under this provision. In addition, even where such gross amount received exceeds $75,000, and an income tax return must be filed, it is provided under section 207 (a) that no income tax is payable if the corporation surtax Bet income (which may be greater than, but can never be less than, the Dormal-tax net income) is $3,000, or less, and the grom amount received from interest, dividends, rests, and Bet premiums, minus the dividends to policyholders, minus the interest which under section 22 (b) (4) is excluded from gross income is $75,000 or less Accordingly, these provisions will impose no bardship upon farmers or other small and local mutual insurance companies other than life or manne. (p. 150-151) Congressional Discussion And so forth. I should like to gast to the Senator from Georgia the wisdom of striking out the words writing no insurance contracts other than mutual insurance contracts." It was called to our attention during the discusion in the subcommittee that this language is subject to fused interpretation. It has been brought to my attention and I have conferred with Mr. Stam, of the joint committee staff, about it, and he sees Bo objection to those words being stricken. I therefore move to strike out in line 15, the words "writing no insurance contracts other than mutual insurance contracts." Mr. GEORGE. Mr. President, I have no objection to striking those words. There is some doubt about the language there used expressing pre cisely what is intended. That would put that feature of it in con The whole section might be in ference anyway. I have no objec striking out those words. (p. 7823) Discussion House; on Report Conference Committee (Cong Rec. There has been considerable interest Vel 8-Mr. TREADWAY.. in the provisions of the bill relating to mutual fre and casuality insurance mutual companies are completely excompanion. Under existing law, these mpt from income tax. Under the House bill, those having net income in excess of $50,000 and assets in excom of $100,000 were made subject to tax. The Senate has changed the changed the basis of taxation of comexemption to $75,000, and substantially panies made subject to tax. The amendments, which are desired by the conference agreement adopts the Senate mutual companies. Stock insurance companies, which compete with the mutual companies for business, favored the House provisions. (p. 8470) This provision, stricken by the Conference Committee, had to do with stock accident and health insurance companies. It provided, through proposed sec. 101 (21) of the Code, for an exemption from tax of such companies with gross receipts of lem than $200,000. Applicable legislative history references ar: Report-Conference Committee (77th Cong., 2d Sem., H. Rept. 2586). Discussion-Senate (Cong Rec. Vol. 88, p. 8041-42). Discussion-Benate; on Report of Conference Committee (Cong. Rec. Vol. 8, p. 8410). Exhibit D Page 12 of 20 not qualifying as a life insurance company. This change is to permit SECTION 167. MUTUAL INSURANCE COMPANIES OTHER This section corresponds to section 147 of the House bill which revised the exemption in section 101 (11) of the Code so that it would be limited to "mutual bail, cyclone, casualty, liability, or fire insurance companies or associations (including interinsurers and reciprocal underwriters) writing insurance contracts solely on a mutual basis, if the mean of the ledger assets held at the beginning and end of the taxable year does not exceed $100,000" and subjected such companies to income tax on the sum of their investment and underwriting income in a manner somewhat similar to that used under section 204 (relating to insurance companies other than life or mutual). Your committee has changed the exemption and completely revised the method of taxing such companies. Most mutual insurance companies other than life, large as well as amall, are given an outright exemption from taxation under the exist ing section 101 (11), although that section was originally designed to exempt only small and local mutual companies. The remaining mutual companies, with a few exceptions, ordinarily pay no tax under the present method of computing their income even though not specifically exempted from the tax. The exemption provided in section 101 (11) of the Code, as revised by the House bill, is further revised so that it will be limited to "mutual insurance companies or associations, other than life or marine (including interinsurers and reciprocal underwriters) writing no insurance contracts other than mutual insurance contracts, if the gross amount received during the taxable year from interest, dividends, rents, and premiums (including deposits and assessments) does not exceed $75,000." The gross amount received from interest, dividends, rents, Exhibit D Page 13 of 20 and premiums of practically all of the farmers' and other small and local mutual companies is less than $75,000 and accordingly they will not be required to file income-tax returns or pay any income taxes. It is estimated that over 80 percent of all companies will be exempt from filing returns under this provision. In addition, even where such gross amount received exceeds $75,000, and an income tax return must be filed, it is provided under section 207 (a) that no income tax is payable if the corporation surtax net income (which may be greater than, but can never be less than, the normal-tax net income) is $3,000, or less, and the gross amount received from interest, dividends, rents, and net premiums, minus the dividends to policyholders, minus the interest which under section 22 (b) (4) is excluded from gross income is $75,000 or less. Accordingly, these provisions will impose no hardship upon farmers' or other small and local mutual insurance companies other than life or marine. In the case of mutual insurance companies other than life or marine which are not granted exemption under section 101 (11), it is proposed to subject such companies to income tax at the regular corporate rates on their net investment income or to a special tax of 1 percent on the gross amount received from interest, dividends, rents, and net premiums, minus dividends to policyholders, minus the interest which under section 22 (b) (4) is excluded from gross income, whichever is the greater. It is also proposed to exclude mutual marine insurance companies from the tax imposed by section 207 and to subject such companies to the tax imposed by section 204. Section 207 (a) imposes a tax upon the income of mutual insurance companies other than life or marine. Companies with corporation surtax net income of $3,000, or less, and with gross amounts received from interest, dividends, rents, and net premiums, minus dividends to policyholders, minus whoily tax-exempt interest, of $75,000 or less, pay no tax under this section. Companies with normal-tax net income or corporation surtax net income of between $3,000 and approximately $6,000 are taxed under section 207 (a) (1) at a special notch rate of twice the standard rates. Companies with gross amounts received from interest, dividends, rents, and net premiums, minus dividends to policyholders, minus wholly tax-exempt interest, ranging from $75,000 to $150,000 are taxed under section 207 (a) (2) at a special notch rate of twice the ordinary rate of 1 percent. An additional notch provision applies to either of the above taxes where the gross amount received from interest, dividends, rents, and premiums (including deposits and assessments) is between $75,000 and $125,000. The tax imposed by section 207 (a) is the tax computed under section 207 (a) (1) or 207 (a) (2), whichever is the greater. The amount computed under section 207 (a) (1) or 207 (a) (2) (A) is subject to the adjustment provided in section 207 (a) (3). The tax imposed by section 207 (a) (2) is not applicable to interinsurers or reciprocal underwriters. The application of section 207 (a) (1), (2), and (3) may be illustrated by the following examples: Example 1: The mutual casualty insurance company for the taxable year 1942 has a corporation surtax net income of $3,500, and partially tax exempt income of $600, giving a normal tax net income of $2,900 and the gross amount of income from interest, dividends, rents, net premiums, minus dividends to policyholders, minus wholly Exhibit D Page 14 of 20 |