                              ATTORNEY GENERAL OF TEXAS
                                           GREG        ABBOTT




                                             September 8, 2009



The Honorable Richard R. Hicks III                     Opinion No. OA-0739
Caldwell County Criminal District Attorney
Post Office Box 869                                    Re: Whether premiums paid for group health
Lockhart, Texas 78644                                  insurance by the Caldwell County Employee
                                                       Benefit Trust are subject to insurance premium
                                                       taxes under section 222.002 of the Insurance Code
                                                       (RQ-0787-GA)

Dear Mr. Hicks:

         You ask whether "premiums paid for group health insurance by the Caldwell County
Employee Benefit Trust (the "Trust") ,[are] subject to insurance premium taxes under Texas
Insurance Code section 222.002."1 Section 222.002 requires insurers to pay an annual tax on the
gross premiums they receive on life, accident, or health insurance policies. See TEx. INs. CODE ANN.
§ 222.002(a)-(b) (Vernon 2009). In determining an insurer's taxable gross premiums, the
Legislature has exempted "premiums or revenues paid on group health, accident, and life policies
or contracts in which the group covered by the policy or contract consists of a single nonprofit trust
established to provide coverage primarily for employees of ... a municipality, county, or hospital
district in this state." Id. at § 222.002(c)(5)(A).

         The Legislature has expressly authorized commissioners courts to establish a single nonprofit
trust to "pay for the group health and related benefits." TEx. Loc. GOV'T CODE ANN. § 157.102
(Vernon 2008). You explain that pursuant to section 157.102, Caldwell County has "created a fund
in the form of a single nonprofit trust" and that "[i]n negotiating with the health insurance company
... for rates for health insurance benefits, the Trust advised the health insurance company that it was
not necessary for the Company to pass through the cost of premium taxes" to the Trust because the
exemption in subsection 222.002(c)(5)(A) would apply. Request Letter at 1. However, the
insurance company separately requested advice from the Texas Comptroller of Public Accounts
("Comptroller") regarding whether the exemption would apply and was informally advised that it
would not likely apply in this case. Id. at 1-2. You therefore ask us to provide an opinion on
whether the Trust qualifies as a single nonprofit trust under subsection 222.002(c)(5)(A) such that
an insurance company would not be taxed on premiums the Trust pays for health, accident, and life
insurance. Id. at 1.


        lRequest Letter at 1 (available at http://www.texasattomeygeneral.gov).
  The Honorable Richard R. Hicks III - Page 2                     (GA-0739)



             The Legislature has directed the Comptroller to "administer and enforce the provisions of
    [the Insurance Code] and other insurance laws of this state that relate to the administration,
    collection, and reporting of taxes and certain fees and assessments imposed" thereunder. TEx.INs.
    CODE ANN. § 201.051(a) (Vernon 2009). Construing the subsection 222.002(c)(5)(A) exemption,
    the Comptroller's office interprets the phrase "single nonprofit trust" as "requiring a trust established
    for the single purpose of paying premiums and one that does not inure to the benefit of any
    individual.,,2 In response to the insurance company's inquiry about whether the Trust would qualify
    for the subsection 222.002(c)(5)(A) exemption, the Comptroller's office concluded that"the Trust
... ''does not appear to meet the qualification~ necessary to ex~ludethe preIllhulls paid out of this trust
    from the premium tax base." See Request Letter, Attachment Cat 2. The Comptroller's office
    further explained that "[slome ofthe trust's provisions exceed the single purpose necessary to qualify
    for exemption from the premium tax." [d. Specifically, it pointed to provisions that provide errors
    and omissions coverage for trustees, authorize trustees to acquire and manage property, and make
    Trust funds available for professional services and judgments or settlements arising out oflitigation
    against the Trust. [d.

            The Legislature has not defined single nonprofit trust, and we have not found any Texas case
 . law or administrative rules interpreting the phrase. As the Comptroller's office recognizes, "there
   is no good guidance on how this provision ... should be interpreted." Comptroller's Brief at 2.
   It is unclear what the Legislature meant by using the word single to modify the word trust. Single,
   when used as an adjective, can have multiple meanings, including "unaccompanied by others," or
   "consisting of or having only one part, feature, or portion." MERRIAM-WEBSTER'S COLLEGIATE
   DICTIONARY 1163 (lIth ed. 2004); see TEx. GOV'T CODE ANN. § 311.011(a) (Vernon 2005)
   (phrases construed according to common usage). Thus, the Legislature may have meant that each
   municipality, county, and hospital district may create one single trust to pay for the insurance of all
   employees, or it may have intended for the trust to have one single purpose, providing insurance
   coverage for employees and their dependents. Although the phrase single nonprofit trust could have
  multiple meanings, we conclude that the Comptroller's interpretation, requiring that the Trust be
  used for a single purpose, is a reasonable one.

          Whether the Comptroller too narrowly applies that interpretation to mean that Trust funds
  may be used only for paying premiums is a separate question. While the Legislature made it clear
  that, in order to receive the premium tax exemption, the trust must be "established to provide
  coverage primarily for employees," nothing in the statute limits the use of the trust funds solely for
  paying insurance premiums. 3 TEx. INS. CODE ANN. §222.002(c)(5) (Vernon 2009). The features of
  the Trust that the Comptroller challenges are statutorily-recognized powers of a trustee. Chapter



            2Brieffrom Martin Cherry, General Counsel, Texas Comptroller of Public Accounts, at 3 (Apr. 27, 2009) (on
  file with the Opinion Committee) [hereinafter "Comptroller's Brief'].

            3Letters from the Comptroller's office have advised that "[o]ther than the payment of trust fees and expenses
  related to the funding of group benefits for employees and retirees, no other expenses may be paid from such a trust."
  Comptroller's Brief, Attachment Bat 6 (emphasis added). However, those letters have also advised local governments
  "to make all payments for taxes and administration expenses from outside of the trust." Id. at 5.
The Honorable Richard R. Hicks III - Page 3                       (GA-0739)



113, Subchapter A of the Texas Property Code specifically authorizes a trustee to: "purchase
insurance of any nature, form, or amount to protect the trust property and the trustee"; "invest and
reinvest in property of any character"; "employ attorneys [and other agents] reasonably necessary
in the administration of the trust estate"; and "reimburse himself from trust principal orincome or
partly from both for ... expenses incurred while administering or protecting the trust." TEx. PROP.
CODE ANN. §§ 113.013 01ernon 2007) (insurance); 113.006 (general authority to manage and invest
trust property); 113.0 18 (employment of agents); 114.063 (general rightto reimbursement). While
these powers can be revoked by ''the instrument creating the trust, a subsequent court order, or
m1other"statute, we find nothing to indicate that the Legislature intended to limit these powers in
a trust created under section 222.002. See id. § 113.001 (powers of trustee can be limited by trust
document, court order, or statute). As long as these powers are used to further the purpose of paying
insurance premiums for employees and their dependents, they are not contrary to the limitations
placed on a trust created under subsection 222.002(c)(5).

        Furthermore, in adopting section 222.002, the Legislature noted that local governments "are
exempt from the state sales tax, franchise tax, and motor vehicle tax, and there is no reason they
should pay a premium tax on municipal employees' insurance policies." HOUSE STUDYGROUP,BILL
ANALYSIS, Tex. H.B. 1785, 67th Leg., R.S. (1981). The Comptroller's narrow application of the
phrase single nonprofit trust to include only those trusts solely used to pay insurance premiums is
at odds with the Legislature's intent to exempt local governments from payment ofthe premium tax. 4
See In re Am. Homestar o/Lancaster, Inc., 50 S.W.3d 480,490-91 (Tex. 2001) (orig. proceeding)
(courts do not defer to an agency's interpretation of a statute if the interpretation is unreasonable or
at odds with the plain language of the statute).

        Thus, to the extent that the challenged powers of the Caldwell County Trust are generally
recognized powers of a trustee that are necessary to protect and operate the Trust and are used to
further the purpose of providing insurance coverage for employees and their dependents, we believe
a court would find the Trust complies with subsection 222.002(c)(5)(A) and should be subject to the
premium tax exemption.




          4Although the Comptroller's Brief argues that the Legislature's intent in enacting section 222.002 was "to
maximize fund assets to pay for certain types of insurance," it does not direct us towards any authority that supports that
intent, nor have we been able to find any. See Comptroller's Brief at 3.
The Honorable Richard R. Hicks III - Page 4            (GA-0739)




                                        SUMMARY

                        Subsection 222.002(c)(5)(A) of the Insurance Code creates a
                tax exemption for certain premiums paid on group health, accident,
                and life insurance policies by a single nonprofit trust established to
                provide coverage for employees of municipalities, counties, or
                hospital districts. The Legislature has not defined the term single
                nonprofit trust, and the Comptroller ofPublic Accounts, as the agency
              . charged with administering and enforcing the premium tax statute,
                has interpreted the term to mean a trust established for the single
                purpose of paying insurance premiums. Although the Comptroller's
                construction of this ambiguous phrase is reasonable, the Comptroller
                is too narrowly defining single purpose such that the trust can only
                pay insurance premiums. As long as the trust funds are used to
                further the purpose of providing insurance coverage for employees
                and their dependents, their use is notcontrary to the limitations placed
                on a trust created under subsection 222.002(c)(5)(A).




ANDREW WEBER
First Assistant Attorney General

JONATHAN K. FRELS
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee
