Surplus Lines Tax in Texas
Surplus lines tax is a Texas premium tax imposed on taxable gross premiums for surplus lines insurance when Texas is the insured’s home state.
Definition
Surplus lines tax in Texas is the premium tax imposed under Texas Insurance Code Chapter 225 on taxable gross premiums for surplus lines insurance. The statutory tax rate is 4.85 percent of gross premiums.
The tax applies within the Texas surplus lines regulatory framework when Texas qualifies as the insured’s home state. For applicable placements, taxable gross premium generally consists of premium written or received for surplus lines insurance placed through an eligible surplus lines insurer during the relevant calendar year.
Structural Components
- Taxable gross premium: The premium amount forming the statutory basis on which the surplus lines premium tax is calculated.
- Tax rate: Texas imposes a rate of 4.85 percent on taxable gross surplus lines premium.
- Home state: The jurisdictional determination establishing which state has authority to tax the nonadmitted insurance premium.
- Surplus lines placement: Insurance placed with an eligible surplus lines insurer through the surplus lines regulatory framework.
- Collection responsibility: The statutory responsibility for collecting the applicable tax from the insured generally rests with the surplus lines agent, subject to specific provisions governing managing underwriters and contractual allocation of reporting responsibilities.
- Reporting framework: The mechanism through which taxable surplus lines premium and associated tax are reported under Texas law.
Parameters & Conditions
Texas surplus lines tax is determined principally by the insured’s home state and the taxable gross premium associated with the surplus lines insurance contract.
- The statutory rate is 4.85 percent of taxable gross premium.
- Texas may impose the premium tax when Texas is the home state of the insured under the applicable nonadmitted insurance rules.
- When Texas is the insured’s home state, the tax generally applies to the entire policy premium, including premium associated with risks located in other states, subject to the statutory home-state rules.
- If all insured risk is located outside the insured’s principal-residence or principal-place-of-business state, home-state status may instead be determined by the state to which the largest percentage of taxable premium is allocated.
- Returned premium reduces taxable premium for applicable reporting purposes.
- The surplus lines premium tax is legally distinct from the stamping fee associated with filings through the Surplus Lines Stamping Office of Texas.
Topic Relationships
- Excess and Surplus Lines — the nonadmitted insurance framework to which the Texas surplus lines premium tax applies.
- Premium — the insurance consideration that forms the basis of the taxable gross premium calculation.
- Insurance Distribution — the broader system through which surplus lines insurance is placed and administered.
- Insurance Broker — a distribution role conceptually related to insurance placement and premium transactions.
- Independent Insurance Agent — an insurance distribution role that may interact with surplus lines markets through applicable placement structures.
- Rate — the general concept of a percentage or monetary factor applied to a defined insurance basis.
- Insurance Pricing — the broader concept concerning the monetary components associated with insurance risk transfer.
Exceptions, Limitations & Boundaries
Surplus lines tax does not apply merely because an insurer is nonadmitted. The applicable tax treatment depends on the statutory classification of the insurance transaction, the insured’s home state, the nature and location of the insured risk, and any applicable exemption or federal preemption.
- Premium associated with risks or exposures properly allocated to federal or international waters or under the jurisdiction of a foreign government is not taxable by Texas under the applicable surplus lines tax provision.
- Certain federally protected or preempted insureds or risks may not be subject to Texas surplus lines premium tax.
- Specific ocean marine exposures may qualify for statutory tax exemptions.
- When another state is the insured’s home state, Texas generally does not impose its surplus lines premium tax solely because part of the insured risk is located in Texas.
- Independently procured insurance is subject to a separate statutory and reporting framework even though its Texas premium tax rate may also be 4.85 percent.
- The surplus lines premium tax is not the same charge as the Surplus Lines Stamping Office of Texas stamping fee. For policies with inception dates on or after January 1, 2024, the stamping fee is 0.04 percent under the applicable stamping-office schedule.
The surplus lines tax does not define policy coverage, insurance rates, underwriting eligibility, policy limits, exclusions, or the availability of insurance through admitted or surplus lines markets.
Surplus Lines Tax in Texas: Definitional FAQ
The statutory Texas surplus lines premium tax rate is 4.85 percent of taxable gross premium.
The tax applies to taxable gross premium for surplus lines insurance when Texas is the insured’s home state, subject to statutory exemptions and jurisdictional rules.
No. Surplus lines tax is a state premium tax, while the stamping fee is a separate charge associated with the operations and filing functions of the Surplus Lines Stamping Office of Texas.
When Texas is the insured’s home state under the applicable home-state rules, Texas generally taxes the entire taxable policy premium even when portions of the insured risk are located in other states.
The surplus lines agent generally collects the applicable tax from the insured, subject to statutory provisions that may assign collection and reporting responsibilities to a managing underwriter or allocate those responsibilities by written agreement.