by John Darer CLU ChFC MSSC CeFT RSP CLTC
A Colorado Springs Gazette editorial reported June 11, 2020 that Colorado House Bill 1420 introduced June 8, 2020 "would eliminate tax exemptions for "deposit fund annuities, structured settlements and lottery payouts". The bill was passed out of committee Tuesday with the session ending this week. But what appeared as a bullet point is misleading because the bill only refers to premium taxes paid by insurance companies.
Section 11 repeals the statutes that provide an insurance premium tax rate reduction for insurance companies maintaining a home office or a regional home office in the state. Section 11 also clarifies that, for purposes of the insurance premium tax, an "annuity plan" or an "annuity consideration" does not include a deposit-type contract that does not incorporate mortality or morbidity risks, such as a guaranteed investment or interest certificate, a supplementary contract without life contingencies,an annuity certain, a premium fund or other deposit fund, a dividend accumulation, a coupon accumulation, a lottery payout, or a structured settlement. Read the actual text of House Bill 1420
What is Premium Tax?
Premium tax is a tax that insurers often have to pay on the premiums that they receive from their policyholders. The tax varies from state to state. Structured settlement annuities are not purchased by individuals. Structured settlement annuities are generally purchased by assignment companies.
Damages for personal injury have been tax exempt for more than 100 years on a federal level. The Revenue Act of 1918 is the origin of the exclusion for personal injury damages presently encapsulated in IRC Section 104(a)(2). When one boils down a properly constructed personal injury structured settlement transaction, each of the future periodic payments is considered payment of damages under IRC 104(a)(2).
Read more about the tax benefits of structured settlements
Post Script Good news for Coloradans and assignment companies domiciled in Colorado
A joint statement from a coalition of trade organizations, including; the American Council of Life Insurers, the National Structured Settlements Trade Association, the American Association of People with Disabilities, the National Association of Insurance and Financial Advisors and IRI was sent to the Colorado state legislature on June 12th urging them to reject a tax increase on injured people in Colorado and retirement savers that could impact 20-thousand Coloradans. As a result of these industry and as partner organizations along with considerable grassroots efforts in the state, the Colorado legislature dropped the bill and efforts to impose taxes on annuities