Vermont -~ Insurance Tax: Surplus Lines Insurance Compact Adopted; Tax Provisions Conformed to NRRA

Vermont has enacted legislation authorizing the state to enter into the Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT) and has amended its premiums receipts tax provisions to conform to the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA). As previously reported, the NRRA authorizes states to enter into a compact to allocate among them the premium taxes paid to an insured’s home state. (TAXDAY, 2010/08/04, S.1) In addition, if the SLIMPACT does not take effect, the Vermont Commissioner of Banking, Insurance, Securities, and Health Care Administration may enter into a cooperative agreement, reciprocal agreement, or multistate agreement with another state or states to provide for the reporting, payment, collection, and allocation of premium fees and taxes imposed on nonadmitted insurance.

Vermont’s SLIMPACT Provisions

Under Vermont’s legislation, the purposes of the SLIMPACT include implementing the express provisions of the NRRA; establishing a clearinghouse for receipt and dissemination of premium tax and clearinghouse transaction data related to nonadmitted insurance of multistate risks; and adopting uniform rules to provide for premium tax payment, reporting, allocation, data collection, and dissemination for nonadmitted insurance of multistate risks and single-state risks. The Vermont legislation includes uniform definitions and provisions regarding the authority, powers, duties, and organization of the SLIMPACT Commission; dispute resolution; and review of SLIMPACT Commission decisions. The Vermont Commissioner of Banking, Insurance, Securities, and Health Care Administration or a designee will be the state’s member on the SLIMPACT Commission.

The Vermont legislation states that the SLIMPACT becomes effective and binding upon legislative enactment of the compact into law by two compacting states. The SLIMPACT Commission becomes effective for purposes of adopting rules and creating the clearinghouse when there are a total of 10 compacting states and contracting states or, alternatively, when there are compacting states and contracting states representing greater than 40% of the surplus lines insurance premium volume based on records of the percentage of surplus lines insurance premium set forth in the legislation. The clearinghouse operations and the duty to report clearinghouse transaction data will begin on the first January 1 or July 1 following the first anniversary of the Commission effective date.

NRRA Conformity Amendments

The provision imposing a 3% premium receipts tax on surplus lines coverages placed with nonadmitted insurers is amended to provide that the 3% rate is used to compute the tax only when Vermont is the home state of the insured. If the insurance covers properties, risks, or exposures located or to be performed both in and outside Vermont, the sum payable must be computed on the basis of gross premiums charged, less any return premiums, as follows:

— an amount equal to 3% on the portion of the premiums applicable to properties, risks, or exposures located or to be performed in Vermont; plus

— an amount equal to a percentage on the portion of the premiums applicable to properties, risks, or exposures located or to be performed outside Vermont. This percentage must be determined based on the laws of the jurisdiction within which the property, risk, or exposure is located or to be performed.

The provision requiring certain insureds and self-insureds who are insured by a nonadmitted insurer (except those with insurance procured through a surplus lines broker) to file a written report by March 1 is amended to apply only to persons for whom Vermont is their home state.

S.B. 36, Laws 2011, effective May 26, 2011, except as noted

AUTHOR

Wolters Kluwer Tax and Accounting

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