Surplus Lines Licensee Filing the Surplus Lines Taxes
Surplus Lines producers/brokers are regulated under the Non-Admitted Reinsurance Reform Act (NRRA) as of July 21, 2011, as well as Chapter 19 of PA 218 of 1956, MCL 500.1900 et seq.
A surplus lines producer is required to report surplus lines or non-admitted insurance business written for a Michigan risk on a semi-annual basis under MCL 500.1905. If Michigan is deemed to be the home state of the insured as defined by the NRRA, 100% of surplus lines tax is to be paid to the State of Michigan. “Courtesy” tax filings are not permitted.
However, if the surplus lines producer places business with a Foreign Risk Retention Group, it is the responsibility of the risk retention group to pay the surplus lines taxes for Michigan risks via the NAIC OPTins portal (OPTins). If the producer is placing business with a non-admitted insurer for a Purchasing Group, it is the responsibility of the Purchasing Group to pay the surplus lines taxes via OPTins.
As of July 1, 2012, electronic reporting and payment are required to be submitted via the NAIC OPTins. Registration with OPTins is required prior to utilization of the system; this may take up to two weeks. To register with OPTins simply click on the “Getting Started” tab in the blue colored menu bar at the top of the Home page. Registration assistance is available by calling 816-783-8787 or emailing firstname.lastname@example.org. For assistance with the OPTins system when filing a tax report, please contact the OPTins Help Desk at 816-783-8990 or email@example.com.
The report and payment are due August 15th and February 15th for each previous six-month period as outlined:
January through June - due to be reported and taxes paid by August 15th
July through December - due to be reported and taxes paid by February 15th of the following year
If the agency is licensed for surplus lines and the agency remits the surplus lines taxes, the individual producers are not required to submit separate zero reports. However, the agency must list all agency affiliated surplus lines individuals on the tax form.
Michigan’s tax rate is a combined tax and regulatory fee of 2.5% on the premium amount for the insurance. Additional fees charged to the insured are not calculated into the premium amount and therefore are not taxed. Please refer to Section 1915 of the Insurance Code for the statutory requirements regarding additional fees that a licensee may charge. A zero report is requested when the licensee has conducted no business in Michigan during each six-month period. There is no annual report requirement.
Pursuant to MCL 500.1905(3)(d) as a condition of licensure, the surplus lines licensee is required to report and pay surplus lines taxes and regulatory fees on business written in Michigan for each calendar six-month period. Reports and payments are due electronically on February 15 for the preceding six-month period ending December 31 and on August 15 for the preceding six-month period ending June 30.
Beginning January 1, 2015, the Michigan Department of Insurance and Financial Services (DIFS) will begin monitoring timeliness of surplus lines licensees’ tax report information and payments for the purpose of issuing a Market Conduct fee as authorized by the Michigan Insurance Code for licensees filing late tax reports and payments.
DIFS does not have statutory authority to issue a surplus lines tax refund, but credits may be taken for canceled business with supporting documentation. Declaration sheets are not required to be submitted with the report; however, they may be requested during a tax examination or an on-site audit.
The additional affidavit form Report of Transaction with an Unauthorized Insurer Not Recognized as Eligible, available via OPTins, is required if business is placed with a surplus lines insurer that is not domiciled in a U.S. jurisdiction or on the NAIC Alien Quarterly List.