[Congressional Record Volume 149, Number 50 (Thursday, March 27, 2003)]
[Senate]
[Pages S4526-S4527]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BOND (for himself and Mr. Johnson):
  S. 735. A bill to amend the Internal Revenue Code of 1986 to clarify 
the exemption from tax for small property and casualty insurance 
companies; to the Committee on Finance.
  Mr. BOND. Mr. President, I rise today to introduce a bill that 
addresses an inequity facing an important segment of the small business 
community. This legislation is simple and straight forward--it adjusts 
the current tax exemption that has existed since 1942 for small 
property and casualty, P&C, insurance companies so that it keeps pace 
with inflation.
  As the former Chairman and Ranking Member of the Committee on Small 
Business and Entrepreneurship, I have heard from many small P&C 
insurers in Missouri and across the Nation that they are having to 
consider raising their premiums simply because the tax laws have not 
kept pace with inflation. Under current law, mutual and stock P&C 
insurance companies are exempt from Federal income taxes if the greater 
of their direct or net written premiums in a taxable year do not exceed 
$350,000.
  For companies that grow above the $350,000 threshold, current law 
permits electing P&C insurance companies to be taxed only on their 
investment income, provided their premiums do not exceed $1.2 million. 
Unfortunately, these thresholds, which were last updated in the Tax 
Reform Act of 1986, have not been adjusted for inflation.
  This situation has created an unintended outcome. Take, for instance, 
a small P&C insurer in my State that started insuring the local farmers 
in the late 1980s. Over the ensuing years, the company's client base 
changed very little, but the insurance premiums increased gradually to 
keep pace with inflationary pressures. As a result, while the business 
itself has not grown, its premium base has and with it the loss of the 
tax exemption (or the alternative tax on investment income).
  For the farmers and ranchers covered by the small P&C insurer, this 
loss is certain to mean higher insurance premiums, leaving the client 
with the choice of cutting coverage or paying higher costs, neither of 
which is a real option. And for our agricultural community over the 
past few years, this choice is about the last thing they need.
  The bill I introduce today would correct this problem by simply 
adjusting the $350,000 and $1.2 million thresholds to bring them up to 
the level they would have been this year if the 1986 tax code had 
included an inflation adjustment. Accordingly, the tax exemption would 
apply to P&C insurers with premiums that do not exceed $575,000, and 
the alternative for taxation of investment income would apply to 
companies with premiums above $575,000 but not more than $1,971,000. 
The bill would apply for taxable years beginning in 2003 and would 
index both thresholds for inflation thereafter.
  According to the National Association of Mutual Insurance Companies, 
this legislation will help at least 665 small P&C insurance companies 
nationwide. In my State under current law, only 23 out of 86 small 
insurance companies are currently tax-exempt. Under this proposed 
legislation, at least 66 of the 86 small insurance companies will be 
covered, thereby enabling them to continue providing critical insurance 
coverage to small businesses across Missouri.
  With this legislation, we have an opportunity to infuse some fairness 
into our tax code and at the same time help the thousands of farmers, 
ranchers, and entrepreneurs covered by small P&C insurers in this 
country. I ask my colleagues to support this legislation, and I look 
forward to working with the Finance Committee to see it enacted into 
law.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 735

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Insurance Company 
     Inflation Adjustment Act''.

     SEC. 2. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) Premium Limitations Increased To Reflect Inflation 
     Since First Imposed.--
       (1) Increased limitations for exemption from tax.--
       (A) Subparagraph (A) of section 501(c)(15) of the Internal 
     Revenue Code of 1986 is amended by striking ``$350,000'' and 
     inserting ``$575,000''.
       (B) Paragraph (15) of section 501(c) of such Code is 
     amended by adding at the end the following new subparagraph:
       ``(D) In the case of any taxable year beginning in a 
     calendar year after 2003, the $575,000 amount set forth in 
     subparagraph (A) shall be increased by an amount equal to--
       ``(i) $575,000, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2002' for `calendar year 1992' in subparagraph 
     (B) thereof.


     If the amount as adjusted under the preceding sentence is not 
     a multiple of $1,000, such amount shall be rounded to the 
     next lowest multiple of $1,000.''.
       (2) Increased limitations for alternative tax liability.--
       (A) Clause (i) of section 831(b)(2)(A) of such Code is 
     amended to read as follows:

[[Page S4527]]

       ``(i) the net written premiums (or, if greater, direct 
     written premiums) for the taxable year exceed the amount 
     applicable under section 501(c)(15)(A) but do not exceed 
     $1,971,000, and ''.
       (B) Paragraph (2) of section 831(b) of such Code is amended 
     by adding at the end the following new subparagraph:
       ``(C) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 2003, the $1,971,000 
     amount set forth in subparagraph (A) shall be increased by an 
     amount equal to--
       ``(i) $1,971,000, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2002' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If the amount as adjusted under the preceding sentence is not 
     a multiple of $1,000, such amount shall be rounded to the 
     next lowest multiple of $1,000.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
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