October 19, 1978

Ms. Jane Nelson, Secretary 
Department of Commerce and
  Consumer Affairs 
State Capitol 
Pierre, South Dakota 57501

Official Opinion No. 78-42

Taxation of health maintenance organizations

Dear Ms. Nelson:

You have requested an official opinion from this office based on the following factual situation:

FACTS: 

The 1974 Legislature enacted SDCL 58-41 to regulate Health Maintenance Organizations.  No express provision is contained therein for the taxation of such organizations.

Based on the above factual situation, you have asked the following question:

QUESTION: 

Are Health Maintenance Organizations subject to taxation under SDCL 58- 6-68 and SDCL 10-44-2?

SDCL 58-41-26 provides: 
    
Except as otherwise provided in this chapter, provisions of the insurance laws and provisions of hospital or medical service corporation laws shall not be applicable to any health maintenance organization granted a certificate of authority under his chapter. This provision shall not apply to an insurer or hospital or medical service corporation, licensed and regulated pursuant to the insurance laws or the hospital or medical service corporation laws of this state except with respect to its health maintenance organization activities authorized and regulated pursuant to this chapter.

Based on the language of SDCL 58-41-26, it is my view that a health maintenance organization, which has a certificate of authority, is not subject to the taxation imposed by SDCL 58-6-68, since by definition, that tax is imposed on “insurers.”

The same logic, I believe, applies to the taxes imposed under SDCL 10-44-2 on companies doing an insurance business in this state.

Although the issue is not directly raised in your opinion request, I would point out that SDCL 10-45-4 establishes a tax which, depending upon the structure of a health maintenance organization, might be applicable.

Respectfully submitted,

William J. Janklow
Attorney General

WJJ:DOC:in