Instructions for Reporting Premium Allocations
IMPORTANT FILING NOTICE
New rules adopted by the Texas Department of Insurance December, 2000 (28 TAC § 15.20) and by the Comptroller’s Office March, 2001 (34 TAC §3.822) require some significant changes in reporting of certain policies to the Stamping Office. These changes begin with policies you file on or after November 1, 2001 and are discussed below.
Policies Not To Be Reported
The following types of policies need not be reported to the Stamping Office:
- 100% of premium is on exposures outside Texas.
(Please note that under Article 1.14-2, Sec. 12(a) of the Insurance Code, agents could report premium on non-Texas exposures as if they were Texas risks and pay the tax to Texas. This option is still available to you, although there may be tax consequences in other states for the insureds.) - 100% of premium is exempt from tax (i.e., on risks located in federal or international waters, or under the jurisdiction of a foreign country).
If any portion of the exposure can be allocated to Texas ( e.g., time spent in a Texas port or in Texas state waters), then that premium is taxable and the policy must be reported to the Stamping Office under the procedures outlined below. - 100% of premium is preempted from state tax by federal law and is on risks located entirely outside Texas.
Federal preemptions exist for premium on policies issued to federally chartered credit unions, the National Credit Union Administration, and the Federal Deposit Insurance Corporation (FDIC) when acting as receiver of a failed financial institution that holds the property being insured. If any of the exposure is located in Texas, the policy must be reported. The Stamping Office will in turn process the premium as “non-taxable”, although there will be a stamping fee charged on the Texas premium.
Reporting of Allocated Premium
Beginning November 1, agents must report to the Stamping Office the gross amount of the policy premium, not just the Texas portion. You must allocate the policy premium according to whether the premium is on Texas exposures, on Other States exposures, or is Exempt from tax. (Again, the Insurance Code permits you to report all taxable premium as ‘Texas” if you desire.) As in the past, you should only charge a stamping fee on the premium allocated to Texas. The allocation requirement also applies to any premium-bearing item (endorsements, audits, cancellations, etc.).
You are required to maintain a record of the method you chose to allocate the premium. (28 TAC
§ 15.19) Methods of allocation are found in the Comptroller’s premium tax rule (34 TAC §3.822(c)) and include percentage of physical assets in Texas, percentage of sales in Texas, percentage of time insured’s conduct or property is exposed to coverage in Texas, or “any other method of equitable apportionment that is adequately described.”
To assist you in complying with TDI and Comptroller rules and in reporting a policy with allocated premium, we have revised both the Transmittal and Verification Slip (T &V) and the Policy Security Correction (green) T&V. These replace previous versions of the forms. We have also developed a new form to be attached to the relevant item. Copies of these forms are enclosed with this bulletin. When filing an allocated premium policy or other premium-bearing item, place an “X” in the box just to the left of the ”Named Insured” column for that policy on the new T&V. You will fill out all other parts of the T & V as you have in the past. The premium reported on the T & V is only the Texas premium. (Note: in our recently concluded agents seminars, we informed attendees that all the various premium allocations would also need to be listed on the T & V for each allocated policy. Following feedback from agents, we have decided this was duplicative and unnecessary additional work. X’ing the allocation box provides us sufficient information on the T & V.)
Next, for each allocated premium policy or other premium-bearing item, it will be necessary to use the new “Other States/Exempt Premium” form. On this form, you must show the policy number, then indicate next to each category the amount of premium that is Texas, Other States, and Exempt. Attach this form to the top of the relevant transaction in the batch you will send to the Stamping Office. Only use this form to report a policy (or other premium-bearing item) that includes non-Texas and/or tax-exempt premium in addition to the Texas premium.
To help you better understand how to use the forms, we have enclosed completed samples of both a T&V and an “Other States/Exempt” form for your review. Also, a specimen copy of each form is available for download from our website.
We know many agents are currently using a stamp on the dec page of the policy copy sent to the Stamping Office, on which you indicate the portion of a policy’s total premium that is allocated to Texas. We will consider your continued use of such a stamp to report allocated premium under the new requirements, instead of using our suggested “Other States/Exempt Premium” form. However, we ask that you call SLTX to discuss this possibility. We will not accept use of a stamp until you speak with our office.