NU Online News Service, May 20, 3:05 p.m. EDT
After initial fear that tax-sharing agreements of surplus-lines taxes could be doomed, there is new optimism that the vast majority of states will enter into some arrangement.
Recently, three states adopted legislation that will bring them into compliance with the federal Nonadmitted and Reinsurance Reform Act (NRRA) that was adopted under the Dodd-Frank financial-services law.
Those additions mean that 28 states that have now implemented such legislation.
The aim of NRRA is to streamline the collection of taxes and regulation of excess and surplus lines. Under the law, E&S brokers pay taxes and are regulated by their home states.
The concern is that the law would cause states to lose out on tax revenue when a firm's business is placed in other states. Many in the industry have pushed for SLIMPACT (Surplus Lines Insurance Multistate Compliance Compact) that would promote uniformity in tax collection, distribution and regulation.
Many are opting for SLIMPACT-Lite, which deals with the collection and sharing of taxes.
A few months ago some of the larger states, notably New York, were not going along with the tax-sharing notion. But that seems to be changing.
Mike Ardis, a spokesman for the National Association of Professional Surplus Lines Offices (NAPSLO), in an e-mail says: "NAPSLO believes SLIMPACT-Lite is moving closer to reaching the required 10 states to become operational."
"SLIMPACT-Lite would offer the states more than a strict tax compact; more efficiency, more uniformity, and also provides states greater oversight of the surplus lines industry," he adds.
When asked if the accumulation of smaller states adopting SLIMPACT-Lite could put pressure on the large-market states—New York, California, Florida, Texas and Louisiana—he explains: "Under a tax-compact arrangement some states will get less revenue back than they send in and other states will receive more than they send in. The large-revenue states have the most at risk, and a number have recognized they could receive less revenue, so many of the large states haven't moved to join a compact."
He indicated that New York and California may have legislation in the works to adopt tax-sharing agreements with other states.
In a statement from The Council of State Governments, Kentucky State Rep. Robert Damron says that "SLIMPACT-Lite represents thoughtful consideration by numerous stakeholders."
The association says that Indiana, Kentucky, North Dakota and New Mexico have adopted SLIMPACT-Lite legislation, and legislation has gone to the governors in Maryland and Ohio. Action is taking place on the legislation in eight other states, including Texas.
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