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H.B. 316 Enrolled

             1     

TAXATION OF SURPLUS LINES OF INSURANCE

             2     
2011 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Todd E. Kiser

             5     
Senate Sponsor: Curtis S. Bramble

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Insurance Code to address the taxation of surplus lines of
             10      insurance including prohibiting local taxation and authorizing the commissioner to
             11      enter into certain agreements.
             12      Highlighted Provisions:
             13          This bill:
             14          .    prohibits local taxation of surplus lines insurance transactions;
             15          .    defines terms;
             16          .    authorizes the commissioner to enter into an agreement related to surplus lines
             17      insurance;
             18          .    addresses the collection of taxes and fees, if an agreement is entered into, for
             19      coverage of property, risks, or exposures located or to be performed in and out of
             20      this state; and
             21          .    makes technical and conforming amendments.
             22      Money Appropriated in this Bill:
             23          None
             24      Other Special Clauses:
             25          None
             26      Utah Code Sections Affected:
             27      AMENDS:
             28          31A-3-301, as last amended by Laws of Utah 2005, Chapter 124
             29          31A-3-303, as last amended by Laws of Utah 2003, Chapters 252 and 298


             30      ENACTS:
             31          31A-3-305, Utah Code Annotated 1953
             32     
             33      Be it enacted by the Legislature of the state of Utah:
             34          Section 1. Section 31A-3-301 is amended to read:
             35           31A-3-301. Tax imposed on surplus lines insurance transactions.
             36          (1) (a) An insurance transaction under Section 31A-15-103 is subject to a tax of
             37      4-1/4% of gross premiums, less 4-1/4% of return premiums paid to insureds by reason of policy
             38      cancellations or premium reductions.
             39          (b) [The gross] "Gross premium," for a surplus lines insurance transaction, means the
             40      monetary consideration for an insurance policy including [all] the fees charged to the insured,
             41      however designated.
             42          (2) The tax imposed by this section does not apply to:
             43          (a) ocean marine insurance;
             44          (b) insurance premiums paid by institutions within the state system of higher education
             45      as specified in Section 53B-1-102 ; or
             46          (c) annuities.
             47          (3) [This tax shall be deposited] The department shall deposit a tax imposed by this
             48      section in the General Fund.
             49          (4) (a) A county, city, or municipality within the state may not impose an occupation
             50      tax or other tax or fee on a surplus lines insurance transaction.
             51          (b) Notwithstanding Subsection (4)(a), an insurer, producer, or policyholder may be
             52      subject to other taxes not described in Subsection (4)(a).
             53          Section 2. Section 31A-3-303 is amended to read:
             54           31A-3-303. Payment of tax.
             55          (1) [The] (a) An insurer, [all] the producers involved in the transaction, and the
             56      policyholder are jointly and severally liable for the payment of the taxes required under Section
             57      31A-3-301 .


             58          (b) The policyholder's liability for payment of the premium tax under Section
             59      31A-3-301 ends when the policyholder pays the tax to [the] a producer or an insurer.
             60          (c) The insurer and [all] the producers involved in the transaction are jointly and
             61      severally liable for the payment of the additional tax required under Section 31A-3-302 .
             62          (d) Except for the tax under Section 31A-3-302 , the [taxes] policyholder shall pay a tax
             63      under this part [shall be paid by the policyholder who] and shall be billed specifically for the
             64      tax when billed for the premium.
             65          (e) Except for the tax imposed under Section 31A-3-302 , absorption of the tax by the
             66      producer or insurer is an unfair method of competition under Section 31A-23a-402 .
             67          (2) (a) The commissioner shall by rule prescribe accounting and reporting forms and
             68      procedures for insurers, producers, and policyholders to use in determining the amount of taxes
             69      owed under this part, and the manner and time of payment.
             70          (b) If a tax is not paid within the time prescribed under the commissioner's rule, a
             71      penalty shall be imposed of 25% of the tax due, plus 1-1/2% per month from the time of
             72      default until full payment of the tax.
             73          (3) Upon making a record of its actions, and upon reasonable cause shown, the [State
             74      Tax Commission] commissioner may waive, reduce, or compromise any of the penalties or
             75      interest imposed under this part.
             76          (4) [If] (a) Subject to Section 31A-3-305 , if a policy covers risks that are only partially
             77      located in this state, for computation of tax under this part the premium shall be reasonably
             78      allocated among the states on the basis of risk locations. However, [all] the premiums with
             79      respect to surplus lines insurance received in this state by a surplus lines producer or charged
             80      on policies written or negotiated in or from this state are taxable in full under this part, subject
             81      to a credit for any tax actually paid in another state to the extent of a reasonable allocation on
             82      the basis of risk locations.
             83          (5) [All] Subject to Section 31A-3-305 , the premium taxes collected under this part by
             84      a producer or by an insurer are the property of this state.
             85          (6) If the property of [any] a producer is seized under any process in a court in this


             86      state, or if [his] a producer's business is suspended by the action of creditors or put into the
             87      hands of an assignee, receiver, or trustee, [all] the taxes and penalties due this state under this
             88      part are preferred claims and the state is to that extent a preferred creditor.
             89          Section 3. Section 31A-3-305 is enacted to read:
             90          31A-3-305. Agreement related to nonadmitted insurance taxes.
             91          (1) As used in this section:
             92          (a) "Agreement" means a cooperative agreement, reciprocal agreement, or compact
             93      with one or more other states.
             94          (b) (i) "Home state," except as provided in Subsections (1)(b)(ii) and (iii), with respect
             95      to an insured, means:
             96          (A) the state in which the insured maintains its principal place of business or, in the
             97      case of an individual, the individual's principal residence; or
             98          (B) if 100% of the insured risk is located out of the state described in Subsection
             99      (1)(b)(i)(A), the state to which the greatest percentage of the insured's taxable premium for that
             100      insurance contract is allocated.
             101          (ii) If more than one insured from an affiliated group are named insureds on a single
             102      nonadmitted insurance contract, "home state" means the home state determined under
             103      Subsection (1)(b)(i) of the member of the affiliated group that has the largest percentage of
             104      premium attributed to it under the nonadmitted insurance contract.
             105          (iii) (A) When a group policyholder pays 100% of the premium from its own money,
             106      "home state" means the home state determined under Subsection (1)(b)(i) of the group policy
             107      holder.
             108          (B) When a group policyholder does not pay 100% of the premium from its own
             109      money, "home state" means the home state determined under Subsection (1)(b)(i) of the group
             110      member.
             111          (c) "Principal place of business," for purposes of determining the home state of an
             112      insured, means:
             113          (i) the state where the insured maintains its headquarters and where the insured's


             114      high-level officers direct, control, and coordinate the business activities;
             115          (ii) if the insured's high-level officers direct, control, and coordinate the business
             116      activities in more than one state, the state in which the greatest percentage of the insured's
             117      taxable premium for that insurance contract is allocated; or
             118          (iii) if the insured maintains its headquarters or the insured's high-level officers direct,
             119      control, and coordinate the business activities outside any state, the state to which the greatest
             120      percentage of the insured's taxable premium for that insurance contract is allocated.
             121          (d) "Principal residence," with respect to determining the home state of an insured,
             122      means:
             123          (i) the state where the insured resides for the greatest number of days during a calendar
             124      year; or
             125          (ii) if the insured's principal residence is located outside any state, the state to which
             126      the greatest percentage of the insured's taxable premium for that insurance contract is allocated.
             127          (2) The commissioner may enter into an agreement to:
             128          (a) facilitate the collection, allocation, and disbursement of premium taxes attributable
             129      to the placement of nonadmitted insurance;
             130          (b) provide for uniform methods of allocation and reporting among nonadmitted
             131      insurance risk classifications; and
             132          (c) share information among states relating to nonadmitted insurance premium taxes.
             133          (3) If the commissioner enters into an agreement under Subsection (2), the following
             134      apply:
             135          (a) In addition to the full amount of gross premiums charged by the insurer for the
             136      insurance, a surplus lines producer shall collect and pay to the commissioner a sum based on
             137      the total gross premiums charged, less any return premiums, for surplus lines insurance
             138      provided by the surplus lines producer.
             139          (b) When surplus lines insurance covers property, risks, or exposures located or to be
             140      performed in and out of this state, the sum payable is calculated as follows:
             141          (i) calculate an amount equal to the applicable tax rates under this part on that portion


             142      of the gross premiums allocated to this state pursuant to the agreement;
             143          (ii) add to the amount under Subsection (3)(b)(i) an amount equal to the portion of the
             144      premiums allocated to other states or territories on the basis of the tax rates and fees applicable
             145      to properties, risks, or exposures located or to be performed outside of this state pursuant to the
             146      agreement; and
             147          (iii) subtract from the amount under Subsection (3)(b)(ii) the amount of gross
             148      premiums allocated to this state and returned to the insured.
             149          (c) The tax on any portion of the premium unearned at termination of insurance having
             150      been credited by the state to the licensee shall be returned to the policyholder directly by the
             151      surplus lines producer. A surplus lines producer may not absorb or rebate, for any reason, any
             152      part of the tax.
             153          (4) The commissioner may participate in a clearinghouse established through an
             154      agreement described in Subsection (2) for the purpose of collecting or disbursing to reciprocal
             155      states any money collected pursuant to Subsection (3) applicable to properties, risks, or
             156      exposures located or to be performed outside of this state. To the extent that other states where
             157      portions of the properties, risks, or exposures reside have failed to enter into an agreement with
             158      this state, the state shall retain the net premium tax collected.
             159          (5) The commissioner may adopt an allocation schedule included in an agreement
             160      described in Subsection (2) for the purpose of allocating risk and computing the tax due on the
             161      portion of premium attributable to each risk classification and to each state where properties,
             162      risks, or exposures reside.
             163          (6) The commissioner may apply the definition of "home state" in Subsection (1) when
             164      implementing an agreement described in Subsection (2).
             165          (7) The commissioner shall report to the Business and Labor Interim Committee
             166      regarding the nature and status of any agreement into which the commissioner enters under
             167      Subsection (2).


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