| (a) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1) Captive insurer--An insurance company that is formed
for the purpose of insuring the risks of entities that are related
to it through common ownership. These may be referred to as single-parent,
in-house, or pure captives.
(2) Exempt premium--Premium that is not taxable in
this state. Examples include premiums on risks or exposures that are
properly allocated to federal waters or international waters; premiums
on risks or exposures that are under the jurisdiction of a foreign
government; and premiums that are specifically exempt from taxation
under the regulations of another state.
(3) Nonadmitted insurer--An insurer who does not hold
a certificate of authority in this state.
(4) Preempted premium--Federal preemptions from state
taxation exist for premiums on policies that are issued to the following
entities:
(A) the Federal Deposit Insurance Corporation, when
it is the receiver of a failed financial institution that holds the
property being insured. The preemption applies to receiverships only,
not to supervision or conservatorships;
(B) federally chartered credit unions; and
(C) the National Credit Union Administration, when
acting as conservator or liquidating agent for federally chartered
credit unions.
(5) Taxable premium--The total gross amount of consideration
paid for insurance coverage provided under the contract or policy,
including, but not limited to, premiums, premium deposits, membership
fees, assessments, dues, policy fees, or any other consideration for
insurance that is required to be paid.
(6) Texas waters--Waters within 10.359 statute miles
or nine nautical miles from the Texas coastline.
(b) Properly allocated and apportioned. Premium for
a policy that covers risks in Texas and other states or jurisdictions
is properly allocated and apportioned when it is divided or distributed
to the various states or jurisdictions that are afforded coverage
under the policy in accordance with the methods described in this
section.
(1) The taxpayer must allocate the premium using the
allocation standard that most reasonably and equitably apportions
the premium applicable to the risk in Texas, other states, and nontaxable
jurisdictions based on the type of policy. For example, an allocation
based on the percentage of sales in Texas in relation to sales in
other states would be a reasonable allocation for a product liability
policy, but an allocation based on the percentage of physical assets
in Texas would not.
(2) The allocation standard chosen must be maintained
in the policy file at the office of the taxpayer and must be available
for inspection upon request by the comptroller or the comptroller's
authorized representative for a minimum of four years from the date
the tax report is filed.
(3) Acceptable apportionment or premium allocation
standards include:
(A) percentage of physical assets in Texas;
(B) percentage of payroll applicable to employees located
or conducting business in Texas;
(C) percentage of sales in Texas;
(D) percentage of time insured's conduct or property
is exposed to coverage in Texas;
(E) the total insured value of the property that is
located in Texas; and
(F) any other method of equitable apportionment that
is adequately described by the taxpayer in its records.
(c) Determination of premium tax due.
(1) Nonadmitted captive insurers must report tax to
the comptroller on all premium, excluding exempt premium, preempted
premium, and premium that is properly allocated and reported as a
taxable premium of another state, that:
(A) covers risks or exposures located or resident in
this state;
(B) is written, procured, or received in this state;
(C) is for a policy negotiated in this state; or
(D) is written for an insured whose home office or
state of domicile or residence is located in this state.
(2) In the case of an indemnity policy that reimburses
the insured for losses paid, the location of the risk or exposure
insured is the location of the insured's home office.
(3) No later than March 1 following the calendar year
in which the insurance was effectuated, continued, or renewed, and
unless otherwise properly allocated and reported, a nonadmitted captive
insurer will pay to the comptroller a tax of 4.85% of the taxable
premiums described in paragraph (1) of this subsection. The tax under
this section, if not paid when due, is a liability of the insurer,
the insurer agent, or the insured, and each party is jointly and severally
liable for payment of the tax.
(4) Insurance Code, §101.053(b)(6) exempts from
regulation by the Department of Insurance an activity in this state
by or on the sole behalf of a nonadmitted captive insurance company
that insures solely:
(A) directors' and officers' liability insurance for
the directors and officers of the company's parent and affiliated
companies;
(B) the risks of the company's parent and affiliated
companies; or
(C) both the individuals and entities described by
subparagraphs (A) and (B) of this paragraph.
(5) The regulatory exemption under Insurance Code, §101.053(b)(6)
does not exempt the insured or the insurer from payment of an applicable
tax on premium.
(6) Premiums on policies for risks in Texas waters
are subject to Texas taxation.
(7) All premium taxes are calculated on the total gross
premium written for the policy as of the date that coverage becomes
effective, except as follows:
(A) A policy that is issued for a term in excess of
one year with a fixed premium that is payable annually shall be taxed
on the first year's premium at the statutory rate as of the date that
the policy is effective. The tax on premiums payable for subsequent
years shall be computed at the statutory rate as of the date that
such subsequent premiums become due and payable. For taxation purposes,
that date is the policy anniversary date.
(B) Premium deposits made on a policy that provides
for retrospective premium adjustments are premiums for such policy
as of the effective date of the policy, and are taxed accordingly.
(C) Retrospective premium adjustments made under the
terms of a policy that require the insured's payment of additional
premiums are taxed at the rate originally charged. Retrospective premium
adjustments that require the return of a portion of premium or premium
deposit are effectuated through a tax refund at the rate originally
charged.
(d) Business conducted through the mail or by email.
Venue for an act performed by mail, facsimile, electronic mail, or
other method is the place where the matter transmitted is delivered
and takes effect.
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