Nonadmitted Insurance Tax
Purpose of bulletin
To inform stakeholders of statutory changes related to the state’s ability to tax policyholders, who directly purchase or renew an insurance contract during the calendar quarter from an insurance company that is not authorized to transact business in California.
AB 315, signed into law on July 13, 2011, conforms California law to the federal Nonadmitted and Reinsurance Reform Act (NRRA) that was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Both state and federal law now utilize “home state” of the insured to determine which state is able to tax the policyholder. If a policyholder’s home state is California, and the person obtained insurance from a nonadmitted insurance company, that person will pay California the tax attributable to all premiums on policies from nonadmitted insurers, regardless of where the risk is located. No state, other than the insured’s home state, may tax a policyholder that has obtained insurance from a nonadmitted insurer.
Home state – The state where the insured maintains its principal place of business; or if an individual, the state of the individual’s principal residence; however if 100 percent of the insured risk is located outside the state of the insured’s principal place of business or principal residence, then the home state is the state where the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
Principal place of business – The state where the insured maintains its headquarters and where the insured’s high level officers direct, control, and coordinate the business activities; or if the insured’s high level officers direct, control and coordinate business activities in more than one state or outside any state, the state in which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
Principal residence – The state where the insured resides for the greatest number of days during a calendar year, or if the insured’s principal residence is located outside any state, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
Home state insured or home state insured applicant – A person whose home state is California and who has received a certificate or evidence of coverage as set forth in Insurance Code section 1764, or a policy as issued by an eligible surplus line insurer, or a person who is an applicant.
Multistate risk – Risk covered by a nonadmitted insurer with insured exposures in more than one state.