California ~ Insurance Tax: Surplus Lines Insurance Provisions Amended

Legislation has been enacted conforming California surplus lines insurance tax provisions to provisions of the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA). The provisions take effect immediately and generally become operative on July 21, 2011, to forestall preemption of the state statutes by the NRRA.

The California tax on surplus lines insurance premiums will be imposed only on insurance for which California is the home state of the insured. Also, the annual statement required from surplus lines brokers and persons that directly procure nonadmitted insurance will be required only with respect to business placed or insurance procured for a home-state insured during the preceding calendar year. Generally, the statement must include the following:

— the total amount of premium (gross premium for brokers);

— the total premium (gross premium for brokers) for single state risks where 100% of the premium is attributable to risks in California; and

— for multistate risks, the percentage of premium allocated to California and each other state.

However, the Insurance Commissioner may waive or modify any of the foregoing requirements by issuance of a notice published on the department’s website.

If a new or renewal policy has an effective date from January 1, 2011, to July 20, 2011, inclusive, and is placed on or before July 20, 2011, then the policy will be considered to be business done or insurance procured as of the effective date. Cancellations or endorsements will be business done on the same date as the policy that is being cancelled or endorsed, if that policy effective date is on or before July 20, 2011. Installment premiums will be business done on the date of the most recent invoice issued on or before July 20, 2011, that included premium tax charges.

For purposes of these provisions, “home state” is defined to mean:

— the state in which the insured maintains its principal place of business or principal residence; or

— if 100% of the insured risk is located outside the state in which the insured maintains its principal place of business or principal residence, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.

Surplus lines brokers will be responsible for determining whether an applicant for nonadmitted insurance is a California home state insured. A surplus lines broker who reasonably relies on information provided in good faith by the applicant, whether directly or through the producer, will be deemed to be in compliance with this requirement.

Ch. 83 (A.B. 315), Laws 2011, effective July 15, 2011, and operative as noted

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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