Some nonresident agents are mistakenly reporting all policies to the Stamping Office as surplus lines transactions whenever the policy has insured risk in Texas. Often, such transactions are “independently procured” (IP) insurance under Texas law (Insurance Code, Sec. 101.053(b)(4)). While IP transactions may be subject to payment of premium taxes to Texas, the policies themselves should not be filed with the Stamping Office.  Also, there is no stamping fee charged on the Texas exposure.

Consider the following example. A New York agent that holds a Texas nonresident surplus lines license procures a surplus lines policy for a corporation headquartered in New York. The insured property is located primarily in New York, but there are exposures in other states, including Texas. In New York, this transaction is surplus lines insurance. A regulatory filing would be made to the Excess Line Association of New York (ELANY). However, in those states where there was covered property, but in which no “business of insurance” occurred, the transaction is deemed to be independently procured. For Texas, there would be no regulatory filing; that is, the New York agent would not report the Texas portion to the Stamping Office. The premium tax on the policy would be IP and the insured or any person designated by the insured would follow the instructions on the tax form when reporting the premium tax to the Texas Comptroller’s Office.  (Sections 226.051-226.056 of the Insurance Code apply to premium taxes on IP insurance. The appropriate tax form is #25-103, Texas Annual Insurance Tax Report – Independently Procured Insurance, available from the Comptroller’s website at http://window.state.tx.us/taxinfo/taxforms/25-103.pdf.)

If the Stamping Office identifies a transaction that appears to be IP insurance based on the location of the insured and non-resident surplus lines agent, rather than process the policy as surplus lines, we will notify the agent by “tag” that we have entered the policy as a “pending” item. The pending status will remain until the agent verifies that the policy is in fact a Texas surplus lines transaction. The agent can then resubmit the policy and we will complete processing it. If the agent determines it is truly an IP transaction, it need not be returned to the Stamping Office.

Differentiating between surplus lines and IP can be confusing. Ultimately, it depends on whether the policy has been negotiated in Texas. Typically, a policy is a surplus lines policy, in the state in which the policy is negotiated. In other states, the policy may be considered under state law to be IP (although some states do not have IP laws).

Tax questions should be directed to the Comptroller’s Office at (800) 252-1387.

Please call our staff at (512) 346-3274 if we can assist you in understanding this issue.