STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

August 25, 1972

Mr. Ralph A. Nauman
Commissioner of Insurance, State of South Dakota
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 72-46

Premiums and considerations from policies or contracts qualified within §403(b) of the U. S. Internal Revenue Code, paid in 1972, are not taxable, since the tax thereon is not payable until 1973. SDCL 10-44-1(4) (5), 10-44-2, 58-6-75.

Dear Mr. Nauman:

You have asked for an opinion as to whether a premium newly exempted by Ch. 260, 1972 S. L. would continue to be taxable if it is paid to the company in 1972.

The premiums are paid in 1972, and the tax, if due, would be payable any time from January 1, 1973 to March 1, 1973.

Analysis properly begins with the general law of taxation set out in SDCL 10-19-1:

All taxes become due on the first day of January of the year following that in which such taxes are assessed ...

This principle is carried into the taxation of insurance premiums by the definition of "premiums" given in SDCL 10-44-1(4):

"Premiums," the gross amount of direct premiums, or consideration to such company, whether in the form of periodical premium and assessment, or otherwise, (but not including premiums received for reinsurance, and not including any consideration for annuity contracts) received by such company for the preceding calendar year, upon property or risks…

SDCL 10-44-1 (5) continues as to annuity consideration:

"Consideration for annuity contracts," the gross amount of such consideration received by such a company during the preceding calendar year for annuity contracts on lives of residents ...

The tax on premiums is imposed by SDCL 10-44-2 which reads as follows:

Except as is expressly provided in this chapter, there is hereby levied a tax on all companies doing an insurance business in this state, at the rates hereinafter specified, such tax to be paid into the office of the commissioner of insurance of each company at the time of making its annual statement . . .

(1) On each domestic company, one half of one per cent of premiums and one half of one per cent of the consideration for annuity contracts;

(2) On each foreign company ... (same except for the rates)

The annual statement referred to above is to be submitted before March first of the following year, for the calendar year ending on December 31st. (SDCL 58-6-75)

Chapter 260, 1972 S. L. makes only three changes in SDCL 58-6-68. These are that its policies and contracts exempted by IRC (1954) §403(b) are to be exempted in addition to other exemptions. It also changes the date included in the last line of Sec. 1, and adds Sec. 2:… with respect to the tax payable in (((1973))) and annually thereafter.

(((Section 2. This Act shall become effective January 1, 1973)))

From this, the conclusion is that the Legislature was contemplating the tax payable before March 1, 1973, as the tax which was to be affected by the exemption as defined in IRC §403(b). This tax would be the tax computed from the premiums paid to the company during the calendar year 1972, ending on December 31, 1972. If there is an ambiguity, it is because Sec. 2 of Ch. 260, 1972 S. L. stated that the Act would not be in effect until January 1, 1973. However, this would be the first day that the tax could be computed and paid, and hence, rather than contradicting the other date named in the Act, seems to reinforce it.

It is my opinion that premiums paid during 1972 and which are reportable and taxable on or after January 1, 1973, are therefore exempt.

Respectfully submitted,

Gordon Mydland
Attorney General