Frequently Asked Questions
Insurance Premium Tax for Licensed Companies
- 1. How does a company determine the correct prepayment amount?
- Life, accident and health; property and casualty; title insurers; and health maintenance organizations licensed by the Texas Department of Insurance must make two tax prepayments during the calendar year. The amount of each prepayment should be half of the net premium tax due for the previous calendar year (line 25 on Form 25-100), or half of the current year's liability, whichever is less.
- 2. When are the prepayments due?
- Prepayments are due each March 1 and August 1.
- 3. Why does it take so long to receive a billing for penalty and interest for a late or insufficient prepayment?
- The amount of each prepayment is the lesser of two options; half of the net premium tax due for the previous calendar year or half of the current year’s liability, whichever is less. Since the current year’s liability cannot be determined until the taxpayer files an annual report the following March 1, penalty and interest for late or insufficient prepayments can only be assessed after we receive a taxpayer’s annual report.
- 4. How do I determine the maximum amount available for the guaranty assessment credit for line 24 on Form 25-100?
- There are two types of guaranty association assessments, Class A and Class B. Class A assessments cover the administrative and overhead costs of the association in the liquidation of an insurer and are available for a one-time credit of 100 percent of the amount paid. Class B assessments supplement the assets of the insurer to pay covered claims and are either 10 percent per year for 10 or more successive years or 20 percent for five or more successive years. Each year's maximum allowable credit is preprinted on line 24 of the annual tax report, form 25-100.
- 5. If a company’s guaranty association credits are greater than its tax liability, what happens to the excess?
- Any portion of the maximum Class B assessment credits that cannot be used in any year can be carried forward to future years. Depending on when the tax credits were issued, up to 10 or 20 percent of the credit can be used each year. Any remaining balance will be carried forward, which will extend the life of the credits.
- 6. Can a company transfer guaranty assessment credits to another company?
- Assessment credits may be assigned or transferred among or between insurers if a merger, acquisition, or total assumption of reinsurance occurs, or if the Commissioner of Insurance approves the transfer or assignment.
Volunteer Fire Department Assistance Fund
- 1. Where can I get the form for the Volunteer Fire Department Assistance Fund assessment?
- For a copy of the billing for the Volunteer Fire Department Assistance Fund assessment, call us toll-free at 800-252-1387.
- 2. Why isn’t the form online with the other insurance report forms?
- The billings are calculated based on an individual insurer's premium in certain categories of insurance business in proportion to the total of all insurers' premiums in these same categories An insurer cannot determine the amount of its billing without the total of all insurer's premiums for the categories used in the calculation; therefore, the form is not available to the insurer. We will send you a duplicate billing upon request.
- 3. How do you apply to receive money from the Volunteer Fire Department Assistance Fund?
- Contact the Texas Forest Service at 979-458-6505.
Surplus Lines Premium Tax
- 1. Can a non-resident agent conduct surplus lines business in Texas?
- A non-resident agent can obtain a Texas surplus lines license if they hold the same license in their home state. The non-resident agent must follow Texas laws and regulations when placing surplus lines business for Texas residents and paying surplus lines tax. The agent cannot begin doing business in this state prior to receiving a Texas license.
- 2. My non-profit organization is exempt from sales and franchise taxes. Why am I charged tax on my insurance policy?
- Each Texas tax has its own exemptions. An exemption from one tax does not necessarily extend to other taxes. There is no exemption from surplus lines tax for policies issued to non-profit organizations except policies issued for risks located in federal or international waters, or that are under the jurisdiction of a foreign government.
Federal preemptions from state taxation are recognized for the Federal Deposit Insurance Corporation (FDIC) or the Resolution Trust Corporation (RTC) where either entity is the receiver of a failed financial institution and holds the property being insured, federally chartered credit unions, the National Credit Union Administration, and risks located on Indian Tribal Nations reservations.
Independently Procured Premium Tax
- 1. What is independently procured insurance tax?
- The independently procured tax statute requires taxes to be paid on insurance procured on Texas risks or exposures, where the insurer is not licensed to write insurance in this state and where all negotiations for the insurance occurred outside of Texas. The appropriate and timely payment of the tax provides an exemption from unauthorized insurance provisions. Failure to pay the tax may subject the policyholder, the insurer and the agent to unauthorized insurance provisions if any insurance activity occurs in Texas. Some of these activities are claims adjustments, payment of claims, inspections, etc.
- 2. What kind of insurance is subject to the tax?
- The tax applies to all types of insurance except individual life or individual disability policies. In addition, workers’ compensation coverage is ineligible for the independently procured market because workers’ compensation providers in Texas must be licensed insurers.
- 3. Does the Dow Chemical case affect the collection of this tax?
- The Dow Chemical case established that location of insurance risk in Texas by itself, is insufficient nexus for taxation purposes.
The independently procured insurance tax statute provides a "safe harbor" from unauthorized insurance provisions. The "safe harbor" prevents the determination of unauthorized insurance activities in the state, in the case of an insured loss that results in the insurer adjusting the claim in this state. If insurance activities occur in this state after the original procurement of the policy, without the “safe harbor” of it being reported as independently procured insurance, the insurance would be deemed to be unauthorized insurance and unauthorized insurance tax would be due. To have the protection of the "safe harbor," many policyholders either elect to report and pay the tax, or their insurer requires them to report and pay the tax.
The “safe harbor” prevents the determination of unauthorized insurance activities in the state, in the case of an insured loss that results in the insurer adjusting the claim in this state. If insurance activities occur in this state after the original procurement of the policy, without the “safe harbor” of it being reported as independently procured insurance, the insurance would be deemed to be unauthorized insurance and unauthorized insurance tax would be due. To have the protection of the "safe harbor," many policyholders either elect to report and pay the tax, or their insurer requires them to report and pay the tax.
Automobile Burglary and Theft Prevention Authority (ABTPA) Assessment
- 1. Does the Automobile Burglary and Theft Prevention Authority (ABTPA or the Authority) assessment apply to surplus lines policies?
- No. The ABTPA assessment is regulated under Vernon's Civil Statutes, Title 70, Chapter 9, Article 4413 (37). While the definition of insurer in subsection (a) appears broad enough to include surplus lines insurers, subsection (d) stipulates that failure to pay the assessment may result in revocation of the insurer's certificate of authority. Surplus lines insurers are not licensed and do not have a certificate of authority in Texas.
- 2. When I filed my report, I discovered that I overpaid my ABTPA assessment for the previous year. I applied for a refund, but it was denied. Why?
- The Comptroller's office collects this assessment under contract with the ABTPA. Insurers who overpay must notify the ABTPA within six months of payment. The Authority makes decisions regarding refunds of overpayments and the Authority's decision is final. If you have questions about ABTPA assessment refunds, call the ABTPA at 512-416-4600.
Unauthorized Insurance Premium Tax
- 1. What is an unauthorized insurance policy?
- Anyone who conducts the business of insurance, which includes any of the acts defined in Article 101.051 of the Insurance Code must hold the appropriate state license issued by the Texas Department of Insurance. A policy placed by someone without the appropriate license is considered unauthorized insurance.
- 2. Who pays the unauthorized insurance premium tax?
- The unauthorized insurer is responsible for paying the tax. If the insurer does not pay the tax when due, the unauthorized insurance premium tax becomes a liability of the insurer, agent, and the insured until the tax is paid.
Office of Public Insurance Counsel (OPIC) Assessment
- 1. What is the OPIC assessment for?
- The assessment defrays the administrative and operating costs of the Office of Public Insurance Counsel, which was created to represent the interests of Texas insurance consumers.
- 2. Why did I receive a notice from the Comptroller’s office that I did not report anything for the OPIC assessment? I left other items blank on the report form which were not questioned.
- The OPIC assessment for property and casualty insurance companies is based on the number of policies in force at the end of the year. A company that reports maintenance tax premiums in any line item but enters a zero in the OPIC assessment or leaves it blank will receive a notice requesting a check of their return for accuracy. We assume that if there are reported premiums, then there were policies in force at year-end, and an OPIC assessment will apply for the premiums reported.
The OPIC assessment for life, accident and health, HMOs, and title insurance applies only to new policies or certificates of coverage issued during the year. If premiums are reported for maintenance tax for any of these categories and no OPIC assessment has been calculated, the taxpayer is asked to verify the return for accuracy.
- 1. Calculations of retaliatory tax exclude special purpose assessments. What are these assessments?
- Special purpose assessments are assessments such as guaranty fund association assessments, high risk health pool assessments, joint underwriting associations (JUA) assessments, windstorm association assessments, or other similar assessments. These assessments apply only to insurance companies and only for losses or deficits as provided under the laws of this state or under the laws of any other state or territory.
- 2. Does the retaliatory tax apply only to insurance companies or is it also applicable to title agents, who are responsible for premium tax?
- Title agents are required to pay premium and maintenance taxes on their portion of the title insurance premiums. Title insurance companies remit the taxes on behalf of title agents as required by statute. Title agents are not insurers and retaliatory tax applies only to insurers.
- 1. What are maintenance taxes?
- Maintenance taxes fund the Texas Department of Insurance which regulates the insurance industry in Texas.
- 2. What are the maintenance tax rates for this year’s premiums?
- The Texas Department of Insurance sets each year's maintenance tax rates based on the prior year's premium volume and the next year's anticipated funding needs. After the rates are set (usually in late November or early December), report forms with the preprinted rates are mailed to taxpayers. You may view the current rates by accessing the following link: http://window.state.tx.us/taxinfo/taxpubs/tx94_130.pdf.
- 3. How are annuities taxed for maintenance tax purposes?
- Maintenance taxes are assessed on annuities at annuitization, that is, at the time of purchase. Typically known as back-end reporting, this method does not include funds left with insurance companies in deposit-type accounts.
Deposit-type accounts, including deferred-annuity deposits, such as funds received by insurance companies to fund retirement programs and individual annuities to purchase annuity contracts in the future, accumulate interest or investment earnings until either withdrawn or used to purchase an annuity. Maintenance taxes would then be assessed on the total cost of the annuity contract purchased.
Maintenance Tax — Workers’ Compensation Premiums
- 1. How do I determine the taxable premium for maintenance tax?
- Maintenance tax is based on workers’ compensation premiums before applying any deductible credits.
- 2. Why are there two maintenance taxes that apply to workers’ compensation premiums? What are the taxes used for?
- Maintenance taxes are used to fund the Texas Department of Insurance Workers' Compensation Research Division and the Division of Workers' Compensation / Office of Injured Employee Counsel (DWC / OIEC). Each division is responsible for regulating different aspects of workers' compensation insurance in Texas, and each sets a maintenance tax rate to support its operations.