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Revenue Administrative Bulletin 1990-34
Approved: December 21, 1990
SINGLE BUSINESS TAX BASE OF A NO-FAULT INSURER COLLECTING PREMIUMS TO THE CATASTROPHIC CLAIMS ASSOCIATION
RAB-90-34. This bulletin explains the single business tax base of a no-fault insurer which passes on to its insureds the cost of its membership premiums in the Catastrophic Claims Association ("the association").
The No-Fault Act
Under the Michigan no-fault act, MCL 500.3101 et seq.; MSA 24.13101 et seq., the owner or registrant of a motor vehicle required to be registered in this state must "maintain security for payment of benefits under personal protection insurance . . . ." [MCL 500.3101; MSA 24.13101]. That security may be provided under a policy providing insurance for the payment of personal injury protection benefits and issued by an insurer authorized to transact business in this state. [MCL 500.3101(3); MSA 13101(3)].
The Michigan Supreme Court has recognized "that it is the policy of the no-fault act that persons, not motor vehicles, are insured against loss." Lee v Detroit Automobile Inter-Insurance Exchange, 412 Mich 505, 509; 315 NW2d 413 (1981). The owner-insurer has a contract of insurance with his or her insurer which makes the insurer "liable to pay benefits for accidental bodily injury arising out of the ownership, operation, maintenance or use of a motor vehicle . . . ." [MCL 500.3105; MSA 24.13105]. The insurer collects a premium as consideration for undertaking such a risk.
The Catastrophic Claims Association
The legislature established the Catastrophic Claims Association to indemnify no-fault insurers from losses in excess of $250,000 sustained under personal protection insurance coverage. [MCL 500.3104; MSA 24.13104]. The statute requires that every no-fault insurer be a member of the association and gives the association the power to charge to members a premium which, in aggregate, will cover the expected losses and expenses of the association during the premium period. [MCL 500.3104(7)(d); MSA 24.13104(7)(d)]. The premiums charged to the members of the association are liabilities of the no-fault insurers. The owner-insured in not liable for and pays no premium to the association. There is no contract between the owner-insured and the association.
The statute requires the no-fault insurer to insure itself against personal protection insurance claims in excess of $250,000. The premium paid by the insurer is for its own protection. The coverage provided by the association is not resold by the insurer to its policy holders, although the expense of the premiums paid to the association by the insurer may be recovered from them. (The charge for personal protection insurance coverage in excess of $250,000 must be separately stated in the billing.)
The Single Business Tax Act, MCL 208.1 et seq.; MSA 7.558(1) et seq., imposes a tax upon all insurers. By statute, "the tax base and adjusted tax base of an insurance company is the product of .25 times the insurance company's gross receipts . . . ." [MCL 208.22a; MSA 7.558(22a)]. For insurers with gross receipts from more than one state, the gross receipts are apportioned to reflect only those premiums received for insurance upon property and risk in this state. [MCL 208.62; MSA 7.558(62)].
Premiums represent gross receipts received as consideration for providing insurance to a motor vehicle owner, including premiums paid to secure from the insurer protection for claims in excess of $250,000. The receipt of such premiums is in consideration of underwriting such a risk. Because the insurer does not resell the protection for claims in excess of $250,000 to its policy holders or receive payments for that protection from them in an agency or representative capacity, the entire premium must be included in the insurer's tax base for single business tax purposes.