| (3) Failure to bill and collect the tax at the time
of delivery of the cover note, certificate of insurance, policy, or
other initial confirmation of coverage is a violation of Insurance
Code, Article 1.14-2, §12.
(e) Prepayment of taxes. Beginning January 1, 2000,
licensed surplus lines agents are required to remit tax prepayments.
(1) A surplus lines agent must remit a premium tax
prepayment by the 15th day of the month that follows any month in
which accrued taxes equal or exceed $70,000, based on the tax base
elected by the agent under subsection (d) of this section. The prepayment
amount must equal the accrued liability at the end of the month.
(2) Failure to make the required prepayments will result
in the application of penalty and interest.
(f) Bad debts. Any portion of the policy premium that
is not collectible is considered to be a bad debt.
(1) An agent is not required to report tax on any amount
that has been entered in the agent's books as a bad debt during the
reporting period in which the contract was made, provided that the
agent has deducted such amount on the agent's federal income tax return
for that period.
(2) An agent is entitled to a credit for tax reported
and paid on an account that is later determined to be a bad debt.
The agent may take a deduction on the surplus lines tax report form,
or obtain a refund from the comptroller, in the reporting period in
which the agent's books reflect the bad debt. Deductions and refunds
due to bad debts are limited to four years from the date on which
the account is entered in the agent's books as a bad debt.
(3) A deduction may only be claimed on that portion
of the bad debt that represents the amount reported subject to tax.
In determination of that amount, all payments and credits to the policy
may be applied ratably against the various charges that comprise the
bad debt, except as paragraph (4) of this subsection provides.
(4) An agent may not deduct the expense of collection
of bad debt, or the amount that the agent pays to a third party or
that the third party retains for the service of collection of bad
debt, from the amount subject to tax.
(5) To claim bad debt deductions, an agent's records
must show:
(A) the date of the original or renewal insurance policy;
(B) the name and address of the insured;
(C) the amount that the insured contracted to pay;
(D) taxable and nontaxable charges;
(E) the amount on which the agent paid tax;
(F) all payments or other credits that are applied
to the account of the insured; and
(G) evidence that the uncollected amount has been
designated as a bad debt in the agent's books and records and was
claimed as a bad debt deduction for income tax purposes.
(6) If an agent later collects all or part of an account
for which a bad debt deduction was claimed, the amount collected must
be reported as taxable premium in the reporting period in which such
collection was made and taxed at the rate originally assessed.
(7) Installment policies may not be labeled as bad
debts merely for the purpose of delay of payment of the premium tax.
(g) Financed or periodic payment transactions. Financed
or periodic payment transactions include all policies in which the
terms of the contract provide for deferred payments of the premium.
These transactions include installment policies, conditional contracts,
and premium-financed policies.
(1) Tax is due on the premium, interest charges, finance
charges, and all other service charges incurred as a part of the policy
issuance, unless these charges are stated separately to the insured
by such means as an invoice, billing, ticket, or contract.
(2) An agent must report and pay tax on financed or
periodic payment transactions based on one of the reporting methods
that subsection (d) of this section describes.
(A) If the agent has elected to pay tax based on a
premium-written basis, the entire amount of tax is due on the premium
for the policy period and must be reported during the initial year
in which the policy is effective.
(B) If the agent has elected to pay tax on a premium-receipts
basis, tax must be reported based on the actual premium collected
during the reporting period, excluding separately stated finance charges.
(h) Multiple agent transaction. Each agent of record
in a multiple agent transaction is responsible for filing the policy
that covers such agent's portion of the premium with the Surplus Lines
Stamping Office of Texas, for filing an annual tax report with the
comptroller on such business, and for payment of premium taxes on
such premium or portion of such premium.
(i) Absorption of tax. As stated in Insurance Code,
Article 1.14-2, §12, surplus lines agents are prohibited from
absorption of the surplus lines premium tax. The assessment of tax
due but not collected from insureds does not constitute absorption
of taxes. Agents who are found to be absorbing tax through practices
such as rebating or failing to bill for tax, or through violation
of any subsection of this section, will be reported to the Texas Department
of Insurance for regulatory action.
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