The Fair Tax Act of 2005, Part XIII
Since I have little to do today, I’ll kick in one extra portion of the bill:
`SEC. 206. INSURANCE PROCEEDS CREDIT.
`(a) In General- A person receiving a payment from an insurer by virtue of an insurance contract shall be entitled to a credit in an amount determined by subsection (b), less any amount paid to the insured by the insurer pursuant to subsection (c), if the entire premium (except that portion allocable to the investment account of the underlying policy) for the insurance contract giving rise to the insurer’s obligation to make a payment to the insured was subject to the tax imposed by section 101 and said tax was paid.
`(b) Credit Amount- The amount of the credit shall be the product of–
`(1) the rate imposed by section 101, and
`(2) the quotient that is–
`(A) the amount of the payment made by the insurer to the insured, divided by
`(B) the quantity that is 1 minus the rate imposed by section 101.
`(c) Administrative Option- The credit determined in accordance with subsection (b) shall be paid by the insurer to the insured and the insurer shall be entitled to the credit in lieu of the insured, except that the insurer may elect, in a form prescribed by the Secretary, to not pay the credit and require the insured to make application for the credit. In the event of such election, the insurer shall provide to the Secretary and the insured the name and tax identification number of the insurer and of the insured and indicate the proper amount of the credit.
`(d) Coordination With Respect to Exemption- If taxable property or services purchased by an insurer on behalf of an insured are purchased free of tax by virtue of section 2(a)(8)(C), then the credit provided by this section shall not be available with respect to that purchase.
`(e) Insurance Contract- For purposes of subsection (a), the term insurance contract’ shall include a life insurance contract, a health insurance contract, a property and casualty loss insurance contract, a general liability insurance contract, a marine insurance contract, a fire insurance contract, an accident insurance contract, a disability insurance contract, a long-term care insurance contract, and an insurance contract that provides a combination of these types of insurance.
This is a bit long and involved, so it warrants some explanation. This section defines a mechanism for taxing the service provided by insurance companies. If you buy insurance, you pay the tax on the insurance payments. If you make a claim on your insurance, your are refunded the tax on the amount you claim. The insurance company pays you back the refunded money along with your claim. If your insurance company pays your doctor or buys you a new car, such transactions are tax-free (for business purpose) transactions. If you purchase something directly (co-pays and such) you pay tax on your direct purchases.
