United States

Massachusetts: Premium Excise Tax limited to Premiums Derived from Resident Individuals

Feb 13, 2017
From KPMG TaxWatch

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The Massachusetts Appellate Tax Board (“Board”) recently ruled in favor of a taxpayer in a premiums tax dispute. The taxpayer, a dental insurance provider, contracted exclusively with employers headquartered in Massachusetts to provide coverage for their employees. Under Massachusetts law, an excise tax is imposed on the “gross premiums received during the preceding calendar year for covered persons residing in the commonwealth[.]” The taxpayer argued that the phrase “covered persons residing in the Commonwealth” should be interpreted to mean individual plan subscribers who live in Massachusetts. On this basis, the taxpayer sought refunds of the excise paid on premiums related to persons not residing in Massachusetts, even though they were employed by entities headquartered in Massachusetts. The Commissioner, however, argued that the phrase should be construed to mean the employers with whom the taxpayer contracted to provide coverage, all of whom were based in Massachusetts.

Ultimately, the Board sided with the taxpayer, finding that the phrase “covered person” means the individual, natural person receiving care under an insurance plan, rather than the employers with whom the taxpayer contracted to provide coverage. “Covered persons” is defined in part as any person for whom an insurance company must provide health care services. The Board reasoned that natural persons, not employers, are capable of receiving the health care services. Further, the Board pointed out that in other parts of the statute, the term “covered person” referred to a natural person. In addition, the Board noted that the statute and accompanying regulation both use the phrase “other person” when referencing who qualifies as a “covered person.” Reasoning that the phrase “other person” was intended to describe spouses and dependents covered under a policy, the Board concluded that the term “covered persons” must refer to employees, not business entity employers. In conclusion, the Board ruled that the ordinary meaning of the statutory phrase “residing in the commonwealth” referred to natural persons living in the commonwealth. The taxpayer was therefore entitled to refunds for the tax years at issue. Please contact Michael Desrochers at 617-988-1396 with questions on Dental Serv. of Mass., Inc. v. Comm’r of Revenue.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.