Frequently Asked Questions
Insurance Premium Tax for Licensed Companies
(See the section below for Licensed Captive Insurance Company information.)
Life insurers, accident and health insurers, property and casualty insurers, title insurers and health maintenance organizations licensed by the Texas Department of Insurance having a net tax liability in the previous calendar year of more than $1,000 are required to make semi-annual prepayments of tax on March 1 and August 1.
The amount of each prepayment should be half of the total amount of tax paid the previous calendar year (Item 25 on Form 25-100), or half of the current year’s estimated liability, whichever is less.
The Comptroller will bill the company for penalty and interest on the underestimated amount of tax.
Prepayments are due each March 1 and August 1.
The amount of each prepayment is half of the total amount of tax paid for the previous calendar year, or half of the current year’s liability, whichever is less.
The Comptroller cannot determine whether penalty and/or interest will apply to a late or insufficient prepayment until the taxpayer files the annual report due the following March 1.
The Comptroller mails a detailed report of the total available credits before the end of January of each year.
If you file electronically, WebFile will automatically apply the maximum guaranty association assessment, CAPCO and TWIA available credit. Do not enter these available credits in the “Credits” field; this field is reserved for examination expense and overhead assessment credits only.
For paper filers, the Comptroller preprints each year’s maximum allowable credit on Item 24 of the annual tax report, Form 25-100.
If the preparer enters credits in error, the company will be billed for any duplicate credits claimed, plus applicable penalty and interest.
The company can carry forward to future years any portion of the maximum Class B assessment credits that cannot be used in any year. The remaining balance is reflected in the Comptroller’s records, extending the life of the credits.
Assessment credits can be assigned or transferred among or between insurers if there is a merger, acquisition or total assumption of reinsurance, or if the Commissioner of Insurance approves the transfer or assignment.
The Comptroller does not mail preprinted tax forms to a taxpayer who is required to file electronically or who has filed electronically for the previous two tax years.
The Comptroller will continue to send licensed insurers a report of any guaranty association assessment, CAPCO and TWIA credits available to be claimed on the current report. When the company files electronically, WebFile will automatically apply the available guaranty association assessment, CAPCO and TWIA credits.
Maybe. If the company paid the Texas Department of Insurance for examination expenses or overhead assessments billed, the company can claim these expenses as a credit on the tax report covering the year in which they were paid.
This tax credit was suspended by the Legislature for tax years 2012 and 2013, but the company can again claim it on the 2014 tax report due March 1, 2015. Because March 1, 2015, falls on a Sunday, the due date for the 2014 tax report is March 2, 2015, the next regular business day.
The Comptroller reconciles the credits claimed against information provided by the Texas Department of Insurance, and issues billings or refunds as appropriate.
Refer to Insurance Code Section 401.154 for additional information.
10. The Texas Title Insurance Basic Manual, Procedural Rule P-23, states that title insurance agents currently retain 85 percent of the premium, while 15 percent of the premium is allocated to the title insurer. Who reports the premium tax and maintenance fees?
Chapters 223 and 271 of the Insurance Code address premium tax and maintenance fees for title agents and insurers. Premiums received from the business of title insurance are subject to both premium tax and the maintenance fee, whether paid to a title insurance company or retained by a title insurance agent.
The state facilitates the collection of the premium tax and maintenance fee on the premiums retained by a title insurance agent by establishing the division of the premiums between the title insurance company and title insurance agent so the company receives the premium tax and maintenance fee due on the agent’s portion of the premiums and remits it to the state.
Refer to the retaliatory section of the FAQs for information regarding this calculation.
Insurance Premium and Maintenance Tax for Licensed Captive Insurance Companies
The Texas Department of Insurance (TDI) administers the regulatory laws governing the business of insurance in Texas.
Contact TDI for information about licensing and regulatory matters at 512-322-3507.
The Comptroller will create a tax account for the company, and will assign it a unique 11-digit taxpayer number. The company will use that number to file all insurance tax reports.
The premium tax and maintenance tax reports are due each March 1 after the end of the calendar year for which the tax is due.
The premium tax rate for captive insurance companies is 0.5 percent, with a minimum tax due of $7,500 and a maximum tax due of $200,000.
For premium tax purposes, all premium written by the captive is taxable in Texas, regardless of the location of any covered risks located outside Texas. The company can claim examination fees paid to the Texas Department of Insurance as a premium tax credit on the tax report covering the year in which these fees were paid. Unused credits cannot be carried forward.
A captive insurance company having a net tax liability in the previous calendar year of more than $1,000 is required to make a semi-annual prepayment of tax on March 1 and August 1. The prepayment must be equal to half of the total amount of tax the company paid for the previous calendar year or half of the current year’s estimated liability, whichever is less.
If tax was not paid the previous calendar year, the tax paid must be equal to the tax owed on the aggregate of the gross premiums for the two previous calendar quarters. For the March 1 prepayment, this means July through December of the prior calendar year and for the August 1 prepayment, this means January through June of the current calendar year. Penalty and interest will be due on late or insufficient prepayments.
Captive insurance companies are also responsible for reporting and paying maintenance taxes. These taxes are due based on the type of business written. Unlike premium tax, only the premium on policies covering risk in Texas is subject to this tax.
Refer to Rule 3.827.
Surplus Lines Premium Tax
The due date is March 1, and the tax due is based on policies placed in the prior year, which a company reports to the Comptroller on either a “written” or “received” basis.
Agents should not use the yearly summary provided by the Surplus Lines Stamping Office of Texas because this is a compilation of all transactions processed during the calendar year, and does not reflect either of the two methods of reporting to the Comptroller.
Yes, all agents and agencies holding an active Texas surplus lines license must file a tax report, whether or not business was placed during the year. A tax report is also due for the year in which a surplus lines license is cancelled, expires or is not renewed, or is voluntarily surrendered.
You can file electronically using WebFile. If you are unable to file electronically, the tax report form for surplus lines tax is Form 25-104.
If an agent or agency’s accrued tax reaches $70,000, a prepayment of tax is required.
The prepayment is based on the total accrued tax at the end of the month in which the threshold was reached, and is payable to the Comptroller by the 15th of the following month. The prepayment amount must be computed based on the tax reporting method chosen by the agent.
You can use WebFile to make the prepayment, or you can submit the prepayment on Form 25-105, if not required to pay taxes electronically.
The tax rate for surplus lines policies is 4.85 percent.
The Comptroller does not mail preprinted tax forms to a taxpayer who is required to file electronically or who has filed electronically for the previous two tax years. If you or your agency’s address has changed, update your address with the TDI and they will notify our office of the change.
The premium-written method of reporting surplus lines premium tax means that the tax is reportable to the Comptroller based on the effective date of a new or renewal policy. For example, a policy having an effective date of Dec. 20, 2014, must be reported on the 2014 annual tax report regardless of when the premium is billed and collected.
Endorsements, audits or cancellations that result in changes to the original premium charged are reportable based on the date those changes occur, and not on the original policy’s effective date.
The premium-received method of reporting means that the tax is reportable to the Comptroller based on the date the insurance premium tax is collected on a new or renewal policy, or in the case of transactions that result in a return of premium, when the premium tax refund is made.
A non-resident agent can obtain a Texas surplus lines license if they hold the same license in their home state. The non-resident agent must follow Texas laws and regulations when placing surplus lines business for Texas residents and paying surplus lines tax. The agent cannot begin doing business in this state prior to receiving a Texas license.
Contact the Agent’s Licensing Division, Texas Department of Insurance, at 512-322-3503 to apply for a license.
A report is due even if you did not place business with your surplus lines license. If you did not file a tax report for the year noted on the billing, the Comptroller’s Enforcement Division has estimated tax due.
If you did not place any business in the surplus lines market, you must file a zero tax report to satisfy insurance tax filing requirements and prevent further collection actions.
Each Texas tax has its own exemptions. An exemption from one tax does not necessarily extend to other taxes. There is no exemption from surplus lines tax for policies issued to non-profit organizations.
The Nonadmitted and Reinsurance Reform Act of 2010 (NRRA), which was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, resulted in changes to the regulation and taxation of surplus lines insurance policies.
The NRRA, effective July 21, 2011, changed the allocation of premium in all states.
Under the NRRA, the home state of the insured controls for purposes of regulation and taxation, and all policies must be reported to the home state of the insured.
If a multi-state policy is placed where Texas is the home state of the insured, then 100 percent of the premium must be reported to Texas regardless of the locations of the risk.
If Texas is the home state of the insured, but the policy covers risks entirely outside Texas, the state to which the largest amount of premium is allocated becomes the home state. Refer to the “Example” section addressing surplus lines and the NRRA.
Policies issued for risks located in federal or international waters, or under the jurisdiction of a foreign government, are not subject to tax. Federal preemptions from state taxation are recognized for the Federal Deposit Insurance Corporation (FDIC) when it is the receiver of a failed financial institution and holds the insured property, federally chartered credit unions, the National Credit Union Administration and risks located on Indian Tribal Nations reservations. Additionally, House Bill 2972 (83rd Legislature, Regular Session), effective Jan. 1, 2014, exempts premium on policies insuring risks or exposures under ocean marine insurance coverage of stored or in-transit baled cotton for export. Refer to Publication 94-142.
Examples: Surplus Lines and the Effect of the Nonadmitted and Reinsurance Reform Act (NRRA) on Texas Taxation
The NRRA defines the “home state of the insured” as the principal residence of an individual or the principal place of business of the insured that is not an individual.
In the case of a business, this generally refers to the corporate headquarters. For some larger companies with numerous operations and subsidiaries, this might be more difficult to determine. We have adopted a “nerve center” approach to make this determination, as found in the United States Supreme Court case Hertz Corp. v. Friend et al, 559 U.S. 77 (U.S. 2010). The nerve center is the location from which the company radiates out into all its constituent parts, and from which the high level executives in the company direct, control and coordinate its activities.
Only the home state can require a surplus lines agent to be licensed in order to sell, solicit or negotiate non-admitted insurance with respect to an insured, such that an agent located outside the United States and its territories and possessions might be required to hold such a license. In the absence of a surplus lines license issued by the Texas Department of Insurance, the foreign agent would be required to locate a Texas licensed surplus lines agent, who would be required to place the policy, report the policy to the Surplus Lines Stamping Office of Texas (SLSOT) and report and pay the tax due to the Comptroller.
No. Although Texas is the home state of the insured, this policy’s home state will be the state to which the largest amount of premium is allocated because there is no exposure in Texas.
3. Our insured’s home state is Oklahoma. This policy covers risks in Oklahoma and Texas but the premium allocable to Oklahoma is just 5 percent of the total premium. Which state should receive the tax?
Oklahoma is the home state of the insured, and it is irrelevant that only 5 percent of the premium is allocable to it. In this case, 100 percent of the tax is payable to Oklahoma.
Independently Procured Premium Tax
Prior to July 21, 2011
Prior to passage of the NRRA, which was effective July 21, 2011, the independently procured tax statute required taxes to be paid on insurance procured on Texas risks or exposures, when the insurer is not licensed to write insurance in Texas and when all negotiations for the insurance occurred outside of Texas.
The appropriate and timely payment of the tax provides an exemption from unauthorized insurance provisions. Failure to pay the tax may subject the policyholder, the insurer and the agent to unauthorized insurance provisions if any insurance activity occurs in Texas. Some of these activities are claims adjustments, payment of claims, inspections, etc.
The tax rate for independently procured policies is 4.85 percent.
On or After July 21, 2011
The tax rate for independently procured policies is 4.85 percent.
You can file electronically using WebFile. If you are unable to file electronically, the tax report form for independently procured insurance tax is Form 25-103 and the supplement required to be filed is Form 25-122.
The due date for filing independently procured insurance tax is on or before May 15 of the year following the calendar year in which the policy is written.
The tax applies to all types of insurance except individual life or individual disability policies.
In addition, workers’ compensation coverage is ineligible for the independently procured market because workers’ compensation providers in Texas must be licensed insurers.
Yes. For policies effective on or after July 21, 2011, independently procured insurance is defined more narrowly as “insurance procured directly by an insured from a non-admitted insurer.” An agent or broker must not be involved in the placement in order for the policy to be considered independently procured.
Yes. In order to be considered as assistance in placing a policy of insurance, there would have to be a revenue factor involved, either by direct receipt of a commission or by fees received in lieu of commission on that particular policy placement.
The agreement between the broker/agent and the policyholder should specifically delineate between general services performed, some of which might be subject to sales tax as taxable insurance services, and those performed with the intent of obtaining a policy of insurance. Refer to Insurance Services Rule 3.355.
The company must first confirm it is no longer subject to the tax after July 21, 2011, the effective date of the NRRA. Following are three alternatives for taxation of insurance business, excluding unauthorized insurance.
Licensed (admitted) market: Policies placed in the licensed market are subject to the gross receipts tax in Texas, and the licensed insurer will remit the tax due directly to the Comptroller.
Surplus lines market: If the company’s home state is Texas, and if a policy is placed using a Texas surplus lines agent, the agent will collect and pay the surplus lines insurance premium taxes due to the Comptroller.
If Texas is not the company’s home state, your surplus lines agent will report the policy according to the laws of the company’s home state.
Independently procured policy: If your company does procure a policy directly from a nonadmitted insurer, and if your company’s home state is Texas, then tax is due to Texas based on the entire premium charged for the policy, even if there is risk located in other states.
Conversely, if your company’s home state is not Texas, and if the policy covers risks in your home state as well as in Texas or other states, under the NRRA, only the home state is entitled to tax on the entire premium charged for the policy. If the policy does not cover any risk in your home state, the state with the largest allocation of premium becomes the home state and any tax due should be reported to that state.
If you find you are no longer responsible for paying independently procured insurance taxes, contact our office at 1-800-252-1387, explain why your company is no longer subject to the tax and ask that your independently procured tax account be inactivated.
Unauthorized Insurance Premium Tax
Insurance placed without the required license or authorization of statute, or outside the scope of the license or authorization granted.
A policy obtained from an unlicensed insurer that does not fit the criteria for surplus lines or independently procured is also considered unauthorized insurance.
Anyone who conducts the business of insurance, which includes any of the acts defined in Insurance Code Section 101.051, must hold the appropriate state license issued by the Texas Department of Insurance.
The unauthorized insurer is responsible for paying the 4.85 percent tax. If the insurer does not pay the tax when it is due, then the unauthorized insurance premium tax becomes a liability of both the agent and the insured until the tax is paid.
You can file electronically using WebFile. If you are unable to file electronically, the tax report form for unauthorized insurance premium tax is Form 25-108 and the supplement required to be filed is Form 25-123.
The due date for filing unauthorized insurance taxes is on or before March 1 of the year following the calendar year in which the policy became effective. The tax base is the premium covering risks located in Texas.
Volunteer Fire Department Assistance Fund
For a copy of the billing for the Volunteer Fire Department Assistance Fund (VFDAF) assessment, call us at 1-800-252-1387.
The billings are mailed to your company by the Comptroller, and the assessment due is calculated based on an individual insurer's premium in certain lines of business in proportion to the total of all insurers' premiums in these same lines.
This ratio is applied to the amount appropriated in the General Appropriations Act or $30 million, whichever is less. An insurer cannot determine the amount of its billing without the total of all insurer’s premiums for the categories used in the calculation; therefore, the form is not available to the insurer. We will send you a duplicate billing upon request.
The VFDAF is administered by the Texas A&M Forest Service. Contact the Forest Service at 979-458-6505.
Automobile Burglary and Theft Prevention Authority (ABTPA) Assessment
No. The ABTPA assessment is regulated under Vernon’s Civil Statutes, Title 70, Chapter 9, Article 4413 (37). While the definition of insurer in subsection (a) appears broad enough to include surplus lines insurers, subsection (d) stipulates that failure to pay the assessment may result in revocation of the insurer’s certificate of authority. Surplus lines insurers are not licensed and do not have a certificate of authority in Texas.
The Comptroller’s office collects this assessment under contract with the ABTPA. Insurers who overpay must notify the ABTPA within six months of payment. The Authority makes decisions regarding refunds of overpayments and the Authority’s decision is final.
If you have questions about ABTPA assessment refunds, call the ABTPA at 512-465-4011.
Office of Public Insurance Counsel (OPIC) Assessment
The assessment defrays the administrative and operating costs of the Office of Public Insurance Counsel, which was created to represent the interests of Texas insurance consumers.
The OPIC assessment for property and casualty insurance companies is based on the number of policies in force at the end of the year. A company reporting maintenance tax premiums in any line item, but entering a zero in the OPIC assessment or leaving it blank, will receive a notice requesting a check of their tax report for accuracy. We presume if there are reported premiums, then there were policies in force at year-end, and an OPIC assessment applies to the premiums reported.
The OPIC assessment for life, accident and health, HMOs and title insurance applies only to new policies or certificates of coverage issued during the year. If premiums are reported for maintenance tax for any of these categories and no OPIC assessment has been calculated, the taxpayer is asked to verify the tax report for accuracy.
Special purpose assessments are assessments such as guaranty association assessments, high risk health pool assessments, joint underwriting association (JUA) assessments, windstorm association assessments or other similar assessments.
These assessments apply only to insurance companies and only for losses or deficits as provided under Texas laws or under the laws of any other state or territory.
Title agents are not insurers, and the retaliatory tax applies only to insurers. Title agents are required to pay premium tax and maintenance fees on their portion of the title insurance premiums. The Insurance Code requires the title insurance companies to remit these taxes and fees on behalf of title agents.
For retaliatory tax purposes, the title insurer is required to show 100 percent of the premium from all operations for both Texas and its state of incorporation, and then deduct on Form 25-200, in Item 19a, the agent’s portion of the premium split (currently 85 percent) for both premium tax and maintenance fee purposes.
The title insurer must show the total premium for all business, including the 85 percent currently retained by the agent, on the state of incorporation side of the calculation. Title insurers domiciled in a “risk rate” state should show the Texas “all inclusive” premium from all operations, including the agent’s retention, on both the Texas and the state of incorporation side, and then deduct the agent’s portion of the premium split in Item 19a and any portion of the total premium not taxed by the home state in Item 19b of Form 25-200.
For retaliatory tax purposes, the Comptroller requires the same premium volume be used as the starting point for the comparison. If the home state taxes finance and service charges, for example, the tax or fee due on these amounts must be shown separately in Item 26b of Form 25-200.
Similarly, if the insurer writes workers’ compensation business and is allowed to report on an installment or a basis other than the “written” basis required by Texas, any reduction to premium should be shown in Item 14b (or if an addition to premium, include the additional tax due in Item 26b).
Maintenance Taxes and Fees
Maintenance taxes and fees (generally referred to as “maintenance taxes”) fund the Texas Department of Insurance, which administers the insurance laws in Texas.
The Texas Department of Insurance sets each year’s maintenance tax rates based on the prior year’s premium volume and the next year’s anticipated funding needs.
The rates are generally set in late November or early December, and the Comptroller mails report forms with the preprinted rates by the end of January.
The current rates are available in Publication 94-130.
Maintenance taxes are assessed on annuities at the time of annuitization or purchase.
Typically known as “back-end reporting,” this method does not include funds left with insurance companies in deposit-type accounts.
Deposit-type accounts, including deferred-annuity deposits, such as funds received by insurance companies to fund retirement programs and individual annuities to purchase annuity contracts in the future, accumulate interest or investment earnings until the funds are either withdrawn or used to purchase an annuity. Maintenance taxes would then be assessed on the total cost of the annuity contract purchased.
Maintenance Tax – Workers’ Compensation Premiums
Maintenance tax is based on workers’ compensation premiums before applying any deductible credits.
Maintenance taxes are used to fund the Texas Department of Insurance, its Workers’ Compensation Research Division and the Division of Workers’ Compensation/Office of Injured Employee Counsel (DWC/OIEC).
Each division and the OIEC are responsible for regulating different aspects of workers’ compensation insurance in Texas, and each sets a maintenance tax rate to support its operations.
3. I understand the Texas Department of Insurance is adopting various National Council on Compensation Insurance (NCCI) manuals with Texas exceptions. How does this affect the amounts I report to the Comptroller?
Adoption of the NCCI manual with Texas exceptions does not affect the workers’ compensation amounts reported to the Comptroller.
The Comptroller continues to require the premium written basis for reporting workers’ compensation premium, based on the effective date of the new or renewal policy and the total estimated annual premium charged to the insured.
The Comptroller does not recognize an installment, booked-as-billed or any other tax reporting method. The Comptroller requires a deductible credit option chosen by the insured to be added to the estimated annual premium for maintenance tax purposes.