Surplus Lines Tax
A state-imposed tax on premiums written through non-admitted carriers, collected by the surplus lines broker and remitted to the state—typically 2%–6%.
FAQs
- Who is legally responsible for paying surplus lines taxes to the state?
- The surplus lines licensed broker bears primary legal responsibility for collecting the tax from the insured and remitting it to the state. Even if the insured refuses to pay the tax separately, the broker remains responsible for remittance. Some states allow direct collection from the insured by the retail agent, but the surplus lines licensee is the party accountable to the state.
- Does the insured or the carrier pay surplus lines taxes?
- The tax is economically a cost to the insured—it is typically itemized on the invoice as a separate charge on top of carrier premium. The carrier does not pay the tax; the broker collects it and remits it. This means surplus lines placement is more expensive than admitted placement by the amount of the tax, which is one reason the surplus lines market is used only after a diligent search of admitted markets fails.
- What is the SLIMPACT Act and why does it matter for multi-state risks?
- The Dodd-Frank Act (2010) included the Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT) framework, which designated the insured's 'home state' as the sole state entitled to collect surplus lines taxes on a multi-state risk. Before this reform, brokers had to allocate premium to each state and comply with each state's separate tax requirements. SLIMPACT streamlined this to a single-state filing for most risks, though actual implementation and compact adoption has varied by state.
Related Terms
Surplus Lines Compliance
Regulatory requirements governing non-admitted insurance placement—diligent search documentation, stamping office filings, disclosure, and tax remittance.
Non-Admitted Carrier
An insurer not licensed in a given state but eligible on a surplus lines basis through licensed brokers, with fewer consumer protections than admitted carriers.
Wholesale Insurance Distribution
The channel where surplus lines brokers act as intermediaries between retail agents and specialty or non-admitted markets retail agents cannot directly access.
Producer Licensing
The state-by-state system requiring insurance agents and brokers to obtain and maintain licenses to solicit or sell insurance for each line of authority.