LOUISIANA SURPLUS LINES ASSOCIATION SURPLUS LINES TAXES POST NIMA

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1 LOUISIANA SURPLUS LINES ASSOCIATION SURPLUS LINES TAXES POST NIMA Everyone has been asking questions regarding HB 259 and how it will affect the reporting and payment of surplus lines taxes in Louisiana. HB 259 is now law and can be found as Acts 2015 No. 386 and becomes effective on October 1, To assist you in this transition, the Louisiana Surplus Lines Association provides surplus lines brokers operating in Louisiana with the following guidance. The States that are presently members of the Non-Admitted Insurance Multi-State Agreement (NIMA) are: Florida, Louisiana, Puerto Rico, South Dakota, Tennessee, Utah, Wisconsin and Wyoming. La. R.S. 22:439 and 443 states: A) All new and renewal policies will be reported in the calendar quarter in which the effective date of the policy falls. B) All other premium transactions will be reported in the calendar quarter in which the invoice date of the other premium transaction falls. ALL NEW AND RENEWAL POLICIES OR ENDORSEMENTS ADDING PREMIUM WITH AN EFFECTIVE DATE ON OR AFTER OCTOBER 1, 2015 WILL HAVE A TAX RATE OF 4.85%. ALL EXISTING POLICIES OR NEW AND RENEWAL POLICIES WITH AN EFFECTIVE DATE PRIOR TO OCTOBER 1, 2015 WILL HAVE A 5.0% TAX RATE. ANY NEGATIVE PREMIUM TRANSACTION (E.G. CANCELLATION, ETC.) TO THIS POLICY WILL HAVE A TAX RATE OF 5.0% APPLIED TO THE TRANSACTION. There are FOUR different scenarios that will come into play starting with your 4 th Quarter 2015 surplus lines tax report. The 4 th quarter 2015 tax report is due and payable by March 1, The FOUR scenarios are: 1) SINGLE STATE POLICY LOCATED ALL IN LOUISIANA 2) MULTI-STATE POLICY WHERE LOUISIANA IS THE HOME STATE AND NONE OF THE OTHER LOCATIONS ARE IN A NIMA STATE 3) MULTI-STATE POLICY WHERE LOUISIANA IS THE HOME STATE AND ALL OF THE OTHER LOCATIONS ARE IN A NIMA STATE 4) MIXED MULTI-STATE POLICY WHERE LOUISIANA IS THE HOME STATE AND SOME OF THE OTHER LOCATIONS ARE IN A NIMA STATE AND SOME OF THE OTHER LOCATIONS ARE NOT IN A NIMA STATE

2 Starting with the fourth quarter 2015 tax report, the way to properly report surplus lines transactions is to have your computer systems run two separate surplus lines quarterly reports: COMPUTER REPORT A AND COMPUTER REPORT B A) A report with all new and renewal policies with an effective date on or after October 1, 2015 and any other transactions (endorsements, audits, etc.) to these policies. These transactions will be at the 4.85% rate. B) A report with any negative premium transactions (cancellations, audits, etc.) on any policy that has an effective date prior to October 1, 2015 until such policy expires. You will have already reported the new or renewal policy premium in prior quarters. These will all be at the 5% rate. This report should be printed out for each company and have the transaction reported by THE EFFECTIVE DATE OF THE POLICY and totaled by each quarter. SCENARIO 1 SINGLE STATE POLICY LOCATED ALL IN LOUISIANA items on this report should be at the 4.85% rate. b) You will use computer report B to go into each of the prior quarters and amend your tax return for each prior quarter in which you have a negative transaction. This report goes to the Louisiana Department of Insurance. If your amended quarter shows a credit due you, you will be able to select the option to carry forward this credit or you will be able to select that the Louisiana Department of Insurance send you a check. These items will be at the 5% rate. After a year of doing this, everything should then be taxed at the 4.85% rate and your computer will not have any items to report on report B and you will be able to go back to the way you had been doing the quarterly reports.

3 SCENARIO 2 MULTI-STATE WHERE LOUISIANA IS THE HOME STATE AND NONE OF THE OTHER LOCATIONS ARE IN A NIMA STATE In a pre-october 1, 2015 situation, when you bound these types of policies you collected and reported the Louisiana portion of the tax at the 5% rate to the CLEARINGHOUSE and did NOT collect any tax for the portion belonging to the NON- NIMA state/states. Effective October 1, 2015, since Louisiana will be the home state for 100% of the multilocation account, you will now collect ALL of the tax for ALL locations at 4.85% and collect and report the entire tax to the Louisiana Department of Insurance, NOT the CLEARINGHOUSE. You would file your Louisiana Portion as follows: items on this report should be at 4.85% rate. b) You will use computer report B for negative transactions, ONLY FOR THE PORTION OF THE POLICY THAT IS LOCATED IN LOUISIANA and go into each of the prior quarters and amend your tax return for each quarter that you have a negative transaction. This report goes to the CLEARINGHOUSE, who will certify the refund amount to the Louisiana Department of Insurance. If the CLEARINGHOUSE certifies that you are due a credit from Louisiana, the CLEARINGHOUSE will advise the Louisiana Department of Insurance to send you a check. These items will be at the 5% rate. SCENARIO 3 MULTI-STATE WHERE LOUISIANA IS THE HOME STATE AND ALL OTHER LOCATIONS ARE IN A NIMA STATE. In a pre-october 1, 2015 situation, when you bound these types of policies you were supposed to collect the Louisiana portion of the tax at 5% and you were to collect any tax for the portion belonging to the other NIMA state/states at the tax rate applicable to the other NIMA state/states. You then reported the entire tax collected for all of the

4 states on the policy to the CLEARINGHOUSE. Therefore, until October 1, 2015 you will continue to report any such transactions to the CLEARINHOUSE as you are presently doing. After October 1, 2015, any endorsements will still be reported to the Louisiana Department of Insurance until those policies expire. For all new and renewal policies with an effective date on or after October 1, 2015, since Louisiana will be the home state for 100% of the multi-location account, you will now collect ALL of the tax for ALL locations at 4.85% and collect and report the entire tax to the Louisiana Department of Insurance, NOT the CLEARINGHOUSE, regardless of what other NIMA state/states have any portion of the risk. You will file your Louisiana Portion as follows: items on this report should be at 4.85% rate. b) You will use computer report B for negative premium transactions to the Louisiana Department of Insurance, ON THE PORTION OF THE POLICY THAT IS LOCATED IN LOUISIANA and go into each of the prior quarters and amend your tax return for each quarter that you have a negative transaction. This report goes to the CLEARINGHOUSE, who will certify the refund amount to the Louisiana Department of Insurance as well as the amount of the refund due from the other NIMA states. If your amended quarter shows you are due a credit from Louisiana, the CLEARINGHOUSE will advise the Louisiana Department of Insurance to send you a check. These items will be at the 5% rate. SCENARIO 4 MIXED MULTI-STATE WHERE LOUISIANA IS THE HOME STATE AND SOME OF THE OTHER LOCATIONS ARE IN A NIMA STATE AND SOME ARE NOT IN A NIMA STATE. In a pre-october 1, 2015 situation, when you bound these types of policies you were supposed to collect the Louisiana portion of the tax at 5% and you were to collect any tax for the portion belonging to the other NIMA state/states at the tax rate applicable to the other NIMA state/states. You were not supposed to collect tax for any non-nima state/states on the mixed multi-state policy. You then reported the entire tax collected for Louisiana and the other NIMA state/states on the policy to the CLEARINGHOUSE.

5 Therefore, until October 1, 2015 you will report any transactions to the NIMA CLEARINHOUSE as you are presently doing. After October 1, 2015, any endorsements will still be reported to the CLEARINGHOUSE until those policies expire. All new/renewal multi-state policies with an effective date on or after October 1, 2015 will be taxed at the rate of 4.85% and the entire policy will be reported and paid to the Louisiana Department of Insurance, regardless of what other states have any portion of the risk. You will file your reports as follows: items on this report should be at the 4.85% rate. b) You will use computer report B and report any negative premium transactions on the PORTION OF THE POLICY THAT IS LOCATED IN LOUISIANA as well as the portions of the policy written in the other NIMA state/states until all of the pre-october 1, 2015 policies expire. This report goes to the CLEARINGHOUSE, who will certify the refund amount to the Louisiana Department of Insurance as well as the amount of the refund due from the other NIMA states. If your amended quarter shows that you are due a credit from Louisiana, the CLEARINGHOUSE will advise the Louisiana Department of Insurance to send you a check. These items will be at the 5.00% rate. All new/renewal multi-state policies with an effective date of October 1, 2015 and later will be taxed at 4.85% and the entire policy will be reported and paid to the Louisiana Department of Insurance regardless of what other states have any portion of the risk. The information contained in this document is provided for general information purposes only. Your use of any of this information is at your own risk, and you should consult your legal and tax professional for further advice. LSLA accepts no liability for the content of this document, or for the consequences of any actions taken on the basis of the information provided.