| (a) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1) Exempt premiums--If a surplus lines policy covers
risks or exposures that are properly allocated to federal waters,
international waters, or risks or exposures that are under the jurisdiction
of a foreign government, then the premiums on such policies or portions
of such policies are not taxable in Texas.
(2) Federal preemptions to state taxation for surplus
lines insurance--Federal preemptions from state taxation exist for
premiums on policies that are issued for the following entities:
(A) The Federal Deposit Insurance Corporation (FDIC),
when it acts as the receiver of a failed financial institution that
holds the property being insured;
(B) The National Credit Union Administration; and
(C) A federally chartered credit union.
(3) Multiple agent transaction--A transaction in which
two or more agents, each acting as a surplus lines agent of record,
place portions of the total insurance coverage, under a cover note
or under a subscription policy, for a single insured.
(4) Premium received--The total gross amount of premium
that is collected for the coverage that the contract or policy provides,
which includes, but is not limited to, premiums, membership fees,
assessments, dues, policy fees, or any other consideration for insurance.
This amount includes agent fees that are charged in addition to, or
in lieu of, a commission. Premium received does not include any separately
billed finance charge that is associated with the financing of the
premium.
(5) Premium written--The total gross amount of premium
for the coverage that the insurance contract or policy provides, which
includes, but is not limited to, premiums, membership fees, assessments,
dues, policy fees, or any other consideration for insurance that is
billed to the insured. This amount includes agent fees that are charged
in addition to, or in lieu of, a commission. Premium written does
not include any separately billed finance charge that is associated
with the financing of the premium.
(6) Properly allocated and apportioned--The division
or distribution of premium among or between the various locations
afforded coverage under the insurance contract. This distribution
of premium must comply with the methods that this section describes.
(7) Surplus lines agent or agency--An agent or agency
that holds a surplus lines license that this state has issued pursuant
to Insurance Code, Article 1.14-2.
(8) Surplus lines agent of record--The Texas licensed
surplus lines agent who places a policy with an eligible surplus lines
insurer, or the Texas licensed surplus lines agent who transacts business
directly with an out-of-state agent not licensed by Texas as a surplus
lines agent to obtain coverage with an eligible surplus lines insurer.
The agent in these situations is the agent of record for such agent's
portion of the premium for the policy placement.
(9) Taxable surplus lines premium--For surplus lines
taxation purposes, except for exempt or federally pre-empted premiums,
surplus lines premium is taxable under Insurance Code, Article 1.14-2,
§12(a).
(10) Texas waters--Waters within 10.359 statute miles
or nine nautical miles from the Texas coastline.
(b) Determination of Texas premium and tax due. Unless
otherwise properly allocated and reported pursuant to subsection (c)
of this section, all premiums that are associated with a surplus lines
policy are Texas premiums for taxation and reporting purposes. Premiums
on policies for risks in Texas waters are subject to Texas taxation.
All surplus lines insurance premium taxes must be computed on the
total gross premium written or premium received for the policy as
of the date that coverage becomes effective, except as follows:
(1) 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 and collected as of the date that
such subsequent premiums become due and payable. For taxation purposes,
that date is the policy anniversary date.
(2) 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.
(3) Retrospective premium adjustments that are made
under the terms of a surplus lines policy and 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 by the surplus lines
agents through a tax refund at the rate originally charged.
(c) Allocation of premium. A surplus lines agent of
record may allocate the premium by use of the method that most reasonably
and equitably allocates the premium that applies to Texas, other
states, and nontaxable jurisdictions on those policies that cover
multiple locations. The amount of premium on each policy must be allocated
as Texas premium, other states premium, and exempt/preempted premium
and must be reported to the Surplus Lines Stamping Office of Texas
in a format that the Texas Department of Insurance and the Surplus
Lines Stamping Office of Texas provide. Policies for risks that are
100 percent exempt, are preempted by federal statute and are on risks
located entirely outside Texas, or risks that are allocated entirely
to another state, are not required to be reported to the Surplus Lines
Stamping Office of Texas. The premiums for these policies must be
reported to the comptroller on a form prescribed for this purpose.
The premium allocated to other states must be reported in the aggregate
for all other states, beginning with policies that are effective the
month that follows adoption of this section. The allocation standard
chosen must be maintained in the policy file at the office of the
surplus lines agent of record, and must be available upon request
for inspection for taxation and regulation purposes for a minimum
of four years, beginning the day after the date on which the annual
tax report is due.
(1) Acceptable apportionment or premium allocation
standards are as follows:
(A) (PA)--percentage of physical assets in Texas;
(B) (EP)--percentage of payroll that applies to employees
who are located or conduct business in Texas;
(C) (S)--percentage of sales in Texas;
(D) (TC)--percentage of taxable capital for franchise
tax purposes in Texas;
(E) (T)--percentage of time that an insured's conduct
or property is exposed to coverage in Texas;
(F) (X)--any other method of equitable apportionment
that is adequately described.
(2) Premiums that are properly allocated to any other
state or states, and that are specifically exempt from taxation under
the regulations of the other state or states, are not taxable in Texas.
(3) The apportionment or allocation standards under
subsection (c)(1) of this section also apply to independently procured
insurance premiums under Insurance Code, Title 2, §101.252.
(d) Tax base election. Surplus lines agents may elect
to report and pay the premium tax on a premium-written or premium-received
basis. All premiums will be taxed on the same basis. Each surplus
lines agent must file an election on forms that the comptroller prescribes,
and must state the method of taxation that the agent has chosen. If
an agent fails to file an election, the agent must report on a premium-written
basis. The tax base election chosen must be identified on the first
tax report filing made that follows adoption of this section. Subject
to approval from the comptroller, agents are allowed to change their
election every four years prospectively. After the expiration of
the initial four year election period, a change in the tax base election
will be effective beginning the year received by the comptroller.
An agent who changes from a premium-received to a premium-written
basis will owe taxes on all outstanding receivables as of January
1 of the year of the change.
(1) Agents who elect to pay premium taxes on a premium-written
basis will owe tax on all premium written during the reporting period,
regardless of whether the tax has been collected, unless the premium
is properly allocated or apportioned and reported under subsection
(c) of this section.
(2) Agents who elect to pay premium taxes on a premium-received
basis will owe tax on all premium received, regardless of whether
the tax has been collected during the reporting period, unless the
premium is properly allocated or apportioned and reported under subsection
(c) of this section.
Cont'd... |
