taxes

Guidelines for Premium Tax Compliance With the Nonadmitted and Reinsurance Reform Act

The Nonadmitted and Reinsurance Reform Act of 2010 (NRRA), part of the Dodd Frank Wall Street Reform and Consumer Protection Act, became effective July 21, 2011. The NRRA provides that the placement of nonadmitted insurance is subject solely to the requirements of the insured’s home state. No state other than the home state of an insured can require any premium tax payment for nonadmitted insurance.

Nonadmitted insurance includes both surplus lines and independently procured insurance, but does not include unauthorized insurance.

NRRA Key Definitions

Affiliate (of the insured) – any person or entity that controls, is controlled by, or is under common control with the insured

Affiliated Group – any group of entities whose members are all affiliated

Control – an entity has “control” over another entity if the entity:

  • directly, indirectly or acting through one or more other persons owns, controls or has the power to vote 25 percent or more of any class of voting securities of the other entity; or
  • controls, in any manner, the election of a majority of the directors or trustees of the other entity

Home State – With respect to an insured, “home state” means:

  • If the insured is a business, home state refers to the state in which the insured maintains its principal place of business.*
  • If the insured is an individual, home state refers to the state in which the insured maintains its principal residence.
  • If 100 percent of the insured risk is located outside of the state identified above for the business or individual, home state refers to the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
  • If more than one insured from an affiliated group are named insureds on a single policy, home state refers to the state of the member of the group that has the largest percentage of premium attributed to it under such insurance contract.

*Without guidance in the NRRA to determine the principal place of business, the Comptroller’s office defines the principal place of business as the center of corporate “direction, control, and coordination,” which is usually a corporation's headquarters.

Independently Procured – insurance procured directly by an insured from a nonadmitted insurer

Nonadmitted Insurance – any property and casualty insurance permitted to be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept such insurance

Nonadmitted Insurer – an insurer not licensed to engage in the business of insurance in a state, but excluding a risk retention group as that term is defined in Section 2(a)(4) of the Liability Risk Retention Act of 1986 (15 U.S.C. 3901(a)(4))

Premium Tax – for surplus lines or independently procured insurance coverage, any tax, fee, assessment or other charge imposed by a government entity directly or indirectly based on any payment made as consideration for an insurance contract for such insurance (including premium deposits, assessments, registration fees and any other compensation given in consideration for a contract of insurance)

General Guidelines

  • Only the insured’s home state can require premium tax on a multi-state policy; however, states may join an agreement to allocate the taxes among the various states covered under the policy. At this time, Texas has not entered into any agreement as provided under Texas Insurance Code, Chapter 229, and does not participate with other states to collect premium taxes imposed on nonadmitted insurance policies.
  • New and renewal policies and any modifications made with an effective date on or after July 21, 2011, are only subject to the laws and regulations of the home state of the insured.
  • Multi-year and continuous-until-cancelled policies must apply the NRRA provisions to the policy’s first anniversary date that occurred on or after July 21, 2011.
  • The NRRA does not preempt any state law, rule or regulation that applies to the placement of workers’ compensation or excess insurance for self-funded workers’ compensation plans.
  • The NRRA’s provisions do not apply to captive insurance companies.

Agent Filing Requirements

When Texas is the insured’s home state, agents must file policy information with the Surplus Lines Stamping Office of Texas showing the entire policy premium as Texas premium.

For information purposes only, agents must report the portion of the premium that applies to risks in other states under the “Breakdown of States Summary” category. If an agent or broker is involved in the placement of an insurance policy in the surplus lines market, then the policy is surplus lines insurance. The surplus lines agent placing the coverage must report and pay taxes to the insured’s home state.

Under the NRRA, the same home state provisions apply to “independently procured” insurance, and the policyholder must report and remit the taxes on the premium to the insured’s home state. If Texas is the home state, the independently procured insurance policyholder must report and remit tax on the entire premium to Texas.

94-431
(02/2018)