Surplus lines tax

The Nonadmitted and Reinsurance Reform Act, passed in 2010 as part of the Dodd-Frank Act and in force from 21 July 2011, settled a question that had dogged multi-state programs: only the insured's home state now collects surplus lines tax. Before that, a single premium was apportioned across several tax authorities, each with its own rate and its own forms. The tax falls on premium placed with a non-admitted insurer. The surplus lines broker collects and remits it, and is personally liable if it goes unpaid. The rate varies from state to state, in the region of a few percent. Several states add a stamping fee levied by a market office, such as the Surplus Lines Stamping Office of Texas or the Excess Line Association of New York, which also checks the compliance of the placements filed. The tax comes on top of the premium, which makes non-admitted cover more expensive than the rate gap alone suggests. It is still due although the insured normally has no state guaranty fund behind it. New Jersey is the exception, with a fund of its own for surplus lines. The state thereby recovers the revenue it gives up by letting the risk leave its licensed market, where it would also have kept control of rates and forms.