By Stephen Burroughs and Andrew Appleby
The Alabama Court of Civil Appeals ruled in favor of an out-of-state life insurance company regarding the calculation of its Alabama net worth tax – the Business Privilege Tax (BPT). The BPT requires an insurance company to calculate its Alabama net worth based on the ratio its Alabama premium income bears to its total direct premiums received nationwide. The taxpayer included its annuity considerations within its premium calculation. The Department excluded the annuities from the premium calculation because, for purposes of Alabama’s premium tax, the term “premium” excludes annuity considerations. In holding that “premiums” include annuity considerations for purposes of the BPT, thus ruling in favor of the taxpayer, the Court found that: (1) the definition of “premium” the Department relied upon is limited specifically to the chapter of the Insurance Code imposing the premium tax; (2) the premium tax law definition of “premium” should not be read in pari materia with the BPT because the two taxes are not similar and do not cover the same subject matter; (3) other definitions of “premium” within the Insurance Code include annuity considerations; and (4) the insurance industry (including Schedule T, upon which the BPT is calculated) often uses the terms “premiums” and “considerations” interchangeably. In light of the Court’s holding, insurance companies doing business in Alabama may want to examine their BPT apportionment methodology. Ala. Dept. Revenue v. Am. Equity Inv. Life Ins. Co., No. 2130933 (Ala. Civ. App. Jan. 16, 2015).