Filed Under:Agent Broker, E&S/Specialty Business

As NIMA Touts Accomplishments, Opponents Still Support Home-State Taxation

Reported premium in the Non-Admitted Insurance Multi-State Agreement (NIMA) exceeds more than $500 million in the year since the Surplus Lines Clearinghouse became operational a year ago, NIMA Inc. reported Tuesday.

Of the more than $531 million in premium reported to the Clearinghouse as of July 1, 2013, $281 million was directly allocated to the six participating member states and territories of NIMA. These include Florida, Louisiana, South Dakota, Utah, Wyoming and Puerto Rico.

Total non-NIMA state allocated premiums totaled $252 million. (Please see this reported breakdown for non-NIMA state premium allocation.)

During its first year, ending July 1, 2013, the Clearinghouse collected more than $24.9 million in total taxes on this reported premium. 

The NIMA agreement provides a mechanism to report, collect, allocate and distribute surplus lines tax revenues consistent with the Nonadmitted and Reinsurance Reform Act (NRRA), part of the Dodd-Frank Act. 

The NRRA establishes the insured’s home state as the only state with jurisdiction over multistate surplus-lines transactions and the only state that can require a tax to be paid by the broker. The home state is then supposed to provide states where the risk is situated with their share of the premiums.

“NIMA provides a viable opportunity for states to collect additional tax revenues while also promoting nationwide uniformity,” says Merle Scheiber, chairman of NIMA, Inc. and South Dakota’s director of insurance. “The success of the program lies within the accuracy of the data as well as its availability to regulators.”

However, the proponents of home-state taxation -- the approach used in about 46 jurisdictions and states representing more than 80 percent of nationwide surplus-lines premium -- are standing their ground and supporting their system rather than NIMA.

NIMA has been trying to lure these states, offering them a free trial Associate Membership. The Associate Members report policy information to the Clearinghouse but do not share in the tax revenue, although they receive quarterly data reports on the amount of taxable premium that could have been allocated to their state had they been a participating member of NIMA, Inc.

But the National Association of Professional Surplus Lines Offices (NAPSLO) and the Council of Insurance Agents & Brokers (CIAB) reached out to Scheiber to go through their reasons for supporting home-state taxation.

Various broker and state insurance interest groups held a meeting in June in South Dakota, Scheiber’s state, with representatives of NIMA, Inc., the Clearinghouse, NAPSLO, CIAB and the National Conference of Insurance Legislators (NCOIL) present.

NAPSLO has said in the past that it believes the cost of tax sharing will far exceed the reallocation of surplus lines tax dollars among any states participating in a tax-sharing arrangement. 

“When you break down the relatively low percentage of surplus-lines premium on multi-state risks, and further break down the proportion of multi-state premium allocable outside the insured’s home state, the resulting tax allocations become relatively immaterial,” according to NAPSLO, based in Kansas City, Mo.

“We continue to be opposed to tax sharing for these reasons,” NAPSLO Executive Director Brady Kelley said in a brief interview yesterday.

NAPSLO said that it has analyzed the data published as part of NIMA’s Associate Membership offering, which includes data reported through the NIMA Surplus Lines Clearinghouse for the three quarters ending March 31, 2013, and has found that it illustrated the potential for only immaterial reallocation to these non-NIMA states, even before accounting for any taxes flowing back out of those states to the NIMA states.

NAPSLO’s report includes an assessment of the top 10 premium jurisdictions, led by Texas and California.  

“The premium reported through NIMA for these top 10 states represents just .42 percent of the total 2011 surplus lines premium in these states and would appear to result in a maximum $2.8 million in taxes for the first nine months of NIMA’s operations – just .24 percent of total 2011 surplus lines taxes collected nationwide.

“We believe it is highly unlikely that [the big states] would ever agree to join a tax-sharing arrangement. Thus, NIMA is not a viable national solution to the NRRA uniform tax provisions,”  says a summary of NAPSLO’s key points shared at the June 12 meeting. 

The CIAB weighed on behalf of its brokers by noting that “the fragmentation of regulation – a handful of states that require allocation of premium by jurisdiction versus the majority that do not – remains a substantial problem.”

“We have no doubt that the NIMA offices can demonstrate premium taxes that could have gone to other jurisdictions if there was a larger participation. It is just as true that there are millions of dollars of premium taxes that would not be retained by states that join the clearinghouse.  We flatly disagree with the statement that ‘associate membership’ would be ‘at no cost to … brokers.’”

Joel Wood, the CIAB’s chief lobbyist, explains, “Associate membership may be free for state insurance departments, but it won’t be free for brokers or ultimately their clients who pay the costs of such regulation. Brokers bear the regulatory burden of determining allocations of surplus lines premium taxes. It is that disproportionate bureaucratic burden – in a system where there is no standard approach among states -- that inspired the creation of the NRRA.”

However, NIMA continues to press its point that as “more states join NIMA, Inc., the percentage of this non-member premium should decrease, and the member states will then tax their portion of this premium pursuant to the NIMA Agreement.”

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