ALJDEC

98A-118-INS · Department of Insurance · 1998-09-18

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 18, 1998 APPEARANCES: Stephen D. Collier, Assistant Secretary , on behalf of the Petitioner; Assistant Attorney General Patrick Irvine on behalf of the Arizona Department of Insurance ADMINISTRATIVE LAW JUDGE: Lewis D. Kowal _____________________________________________________________________ FINDINGS OF FACT 1. SAFECO Life Insurance Company (“Appellant”) filed its Annual Premium Tax and Fees Report (the ”Report”) for the calendar year 1997 with the Arizona Department of Insurance (“ Department”). 2. In Schedule AHB of the Report, Appellant did not follow the computations as set forth in that document. That schedule is a worksheet comprised of columns and lines. Under Column A, entitled ”ALL Accident and Health Business”, and Line 5, entitled “Accident and Health business subject to 2% tax”, the directions provide for the computation to be made by taking “Line 4, Column A minus Line 4, Column C and D”; and under Column C, entitled “Accountable Health Plan Small Group Business Only Between January 1 & June 30, and Line 9, entitled “Small Group Tax Due”, the directions provide for the computation to be made by taking “Line 4, Column C times Line 8”. 3. A.R.S. §20-2304 was amended in 1997 so as to provide for phasing out of premium taxes to be paid by accountable health plans issuing health benefit plans to small employers by providing for a 1% premium tax beginning July 1, 1996. As of July 1, 1997, the accountable health plans are exempt for the premium taxes required by A.R.S. §20-2304.

4. The Department implemented the above-mentioned amendment by providing for the reporting of premiums and computation of taxes to be made as follows: for the reporting documents for the year ending 1996, Column C, entitled “Accountable Health Plan Small Group Business Only Between January & June 30” was included in the general computation, resulting in it being taxed at 2%. However, Column D, entitled ”Accountable Health Plan Small Group Business Only Between July 1 & December 31” was excluded from the general computation of a 2% tax rate and separately taxed at a rate of 1%. Likewise, in Column C of the Report, entitled “Accountable Health Plan Small Group Business Only Between January 1 & June 30” was excluded from the general computation consisting of a 2% tax rate and was taxed at 1%. Column D of the Report, entitled “Accountable Health Plan Small Group Business Only Between July 1 & December 31” was also excluded from the 2% tax computation and not taxed at all. 5. Appellant presented credible evidence that its third party software company, which assists Appellant in preparing premium tax reporting forms, did not make the appropriate changes to the 1997 premium tax reporting form but instead completed that form in the same manner as it had prepared the Department’s form for the prior calendar year (1996). Appellant noticed this and, thinking that the Department erred, decided to follow the reporting format in the manner in which Appellant’s third party software company had prepared. 6. Although Appellant asserts that it exercised due diligence in filing the premium tax reporting documents for the calendar year 1997, there is no credible evidence in the record supporting that assertion. If as Appellant contends, it thought that the Department had erred in its directions on the Report, Appellant could have contacted the Department and inquired about the change in the reporting requirements for the 1997 calendar year from the prior year’s reporting requirements. However, that was not done. 7. Appellant may have had good intentions and thought it was acting conservatively in reporting the premium taxes in the manner it did for the 1997 calendar year. However, Appellant did not comply with the reporting requirements of the Report, which are clear and unambiguous. 8. Appellant intentionally deviated from the Department’s reporting requirements that are set forth in the Report, and did so at its own peril. 9. The difference in how the Appellant completed the Report resulted in the calculation of a lower retaliatory tax to be paid by Appellant which resulted in an assessment of a penalty against Appellant. Subsequently, the Department adjusted the amount of the penalty assessed, giving credit to Appellant for the additional premium taxes it paid for the calendar year 1997. 11. Appellant seeks to have the above-mentioned penalty abated because it relied on the manner in which the Department had required insurers to report premium taxes in a prior year. Appellant asserts that the reporting it made in the Report with respect to premium taxes was a mistake based in good faith upon a belief that the Department had erred. The problem with Appellant’s position is that the directions on the reporting form for the calendar year 1997 are self-explanatory and provide a step by step approach regarding the computations and reporting requirements.

CONCLUSIONS OF LAW The Appellant failed to established by a preponderance of the evidence that the amended penalty the Department assessed against Appellant was improper and should be abated. RECOMMENDED ORDER It is recommended that the amended penalty issued by the Department against Appellant in this matter be affirmed. Done this day, October 7, 1998.

_________________________________ Lewis D. Kowal Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 1998, to:

Mr. Charles R. Cohen, Acting Director Department of Insurance 2910 North 44th Street, Ste. 210 Phoenix, AZ 85018

Attention: Curvey Burton

By _______________________________

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Office of Administrative Hearings 1700 West Washington, Suite 602 Phoenix, Arizona 85007 (602) 542-9826