Part 1. COMPTROLLER OF PUBLIC ACCOUNTS

Chapter 3. TAX ADMINISTRATION

Subchapter GG. INSURANCE TAX

34 TAC §3.811

The Comptroller of Public Accounts proposes an amendment to §3.811, concerning the taxpayer election for reciprocal or interinsurance exchanges to be taxed under Insurance Code, Article 4.10, instead of the rate established for reciprocal or interinsurance exchanges under Insurance Code, Article 4.11B. The amendment eliminates references to qualification for tax rates based on investments and identifies the flat tax rate of 1.6% to be effective January 1, 2000, in accordance with House Bill 1837, 76th Legislature, 1999.

Mike Reissig, Director of Estimates, has determined that for the first five-year period the amendment will be in effect there will be no significant revenue impact on the state or local government.

Mr. Reissig also has determined that for each year of the first five years the amendment is in effect the public benefit anticipated as a result of adopting the amendment will be in providing new information regarding tax responsibilities. This amendment is adopted under the Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed amendment.

Comments on the proposal may be submitted to Bryant K. Lomax, Manager, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.

This amendment is proposed under the Tax Code, §111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2.

The amendment implements the Insurance Code, Article 4.10, Article 4.11B, and Article 4.11C.

§3.811.Election by Reciprocal or Interinsurance Exchange Pursuant to the Insurance Code, Article 4.11C.

(a)

Reciprocal or interinsurance exchanges are subject to premium taxes as are all other licensed insurance carriers. A reciprocal or interinsurance exchange must either affirmatively elect to be subject to the tax imposed under the Insurance Code, Article 4.10, or it will be subject to the tax imposed under the Insurance Code, Article 4.11B.

(b)

Election. Under the Insurance Code, Article 4.11C, a reciprocal or interinsurance exchange may elect to be taxed under Article 4.10.

(1)

To make the election, a reciprocal or interinsurance exchange must submit a statement in writing on a form prescribed by the comptroller making such an election. The comptroller has developed form 25-208 for this purpose. This form must be filed no later than the 31st day before the beginning of the tax year the election is to be effective.

(2)

A reciprocal or interinsurance exchange that elects to be taxed under the Insurance Code, Article 4.10, will continue to be taxed under that article for each tax year until written notice is given to the comptroller that the election is withdrawn. The notice of withdrawal must be filed with the comptroller not later than the 31st day before the beginning of the tax year for which the withdrawal is to be effective.

(c)

If a reciprocal or interinsurance exchange does not file an election as provided by this section or has withdrawn the election, the reciprocal or interinsurance exchange is subject to the tax imposed under the Insurance Code, Article 4.11B.

(d)

The Insurance Code, Article 4.10, §10, imposes a tax equal to 1.6% [ 3.5% ] of the gross premium receipts of insurance carriers transacting business under the authority of this article. [ An insurance carrier may qualify for a lower tax rate of 2.4% or 1.6% under the Insurance Code, Article 4.10, based on a comparison of the percentage of Texas investments owned by the carrier to investments in a similar or comparison state. ]

(e)

The Insurance Code, Article 4.11B, imposes on each reciprocal or interinsurance exchange transacting business in this state an annual tax equal to 1.7% of its gross premium receipts.

(f)

Failure to file and pay taxes as provided under the Insurance Code, Article 4.10, §10, Article 4.11B, or Article 4.11C, will subject the taxpayer to penalty and interest under the Tax Code, Title 2, Subtitles A and B.

(g)

The Comptroller of Public Accounts adopts by reference form 25-208, Reciprocal or Interinsurance Exchange Election. Copies of the form are available for public inspection at the Office of the Secretary of State, Texas Register Division, or may be obtained from the Comptroller of Public Accounts, Account Maintenance-Insurance, 111 East 17th Street, Austin, Texas 78774-0100. Copies may also be requested by calling toll free at 1-800-252-1387. In Austin, call 463-4600.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on January 27, 2000.

TRD-200000595

Martin Cherry

Special Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: March 12, 2000

For further information, please call: (512) 463-4062

Chapter 29. BENEFITS

Subchapter E. DEFERRED RETIREMENT OPTION PLAN

34 TAC §29.63

The Teacher Retirement System of Texas (TRS) proposes a new §29.63 concerning the deadline for the purchase of special service credit. The proposed new rule will implement the statutory provisions regarding the deadlines for the purchase of special service credit applicable to participants in the deferred retirement option plan (DROP).

The new rule clarifies to DROP participants that, unless they purchase eligible special service credit on or before the effective date of their DROP participation, they will lose the option to purchase it. Because service credit for state personal or sick leave cannot be purchased prior to the date of actual retirement, the proposed rule clarifies that an election to participate in DROP affects the member's ability later on, at the time of retirement, to include leave accumulated at the time of the DROP election in calculating the number of days or hours of leave required to purchase the service credit. The proposed new rule also provides that special service credit may be purchased upon termination of DROP participation under limited circumstances.

Ronnie Jung, Chief Financial Officer, has determined that for each year of the first five-year period the rule is in effect, there will be no fiscal implications to state or local governments as a result of enforcing or administering the rule.

Mr. Jung has also determined that for each year of the first five years the rule is in effect the public benefit anticipated will be clarification of the deadlines for the purchase of special service credit applicable to those members participating in the DROP. There will be no effect on small businesses. There are no anticipated economic costs to the public or to the persons who are required to comply with the section as proposed.

Comments on the proposal may be submitted to Charles L. Dunlap, Executive Director, 1000 Red River, Austin, Texas 78701.

The new rule is proposed under the Government Code, Chapter 825, §825.102, which authorizes the Board of Trustees of the Teacher Retirement System to adopt rules for the administration of the funds of the retirement system.

Other laws affected by this proposed rule are Government Code, Chapter 824 §824.803(c) and 824.805(b) as well as Government Code, Chapter 823, §823.006.

§29.63.Deadline for Purchase of Special Service Credit.

(a)

Pursuant to Government Code §824.803(c), a member who elects to participate in the Deferred Retirement Option Plan (DROP) but also desires to purchase special service credit must purchase all special service credit eligible for purchase on or before the effective date of the member's DROP participation. Special service credit that a member would otherwise become eligible to purchase during DROP participation may not be purchased after the effective date of DROP participation. Also, an election to participate in DROP disqualifies any state personal or sick leave accumulated at the time of the effective date of the member's DROP participation as well as such leave accumulated during participation in DROP from being used in calculating the number of days or hours required to purchase state personal or sick leave at the time of actual retirement.

(b)

If a member discontinues participation in DROP pursuant to Government Code §824.805(b), this rule shall not be deemed to bar the member from purchasing special service credit for which the requirements have been earned or met before or during the member's participation in DROP.

(c)

Further, a member who completes the period of participation in DROP and who returns to employment with a TRS-covered employer without having retired may purchase prior to retirement any special service credit for which the member is eligible and for which the requirements have been earned or met entirely after the member's participation in DROP.

(d)

The purchase of special service credit before or after participation in DROP may not violate applicable plan qualification requirements, including the permissive service credit purchase restrictions set forth in Government Code §823.006.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on January 26, 2000.

TRD-200000542

Charles Dunlap

Executive Director

Teacher Retirement System of Texas

Proposed date of adoption: March 31, 2000

For further information, please call: (512) 391-2115