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State of California Franchise Tax Board

Legal Summary | Nonadmitted Insurance Tax

California Assembly Bill (AB) 315, signed into law by Governor Brown on July 13, 2011, conforms California law to the Nonadmitted and Reinsurance Reform Act (NRRA) that was part of H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, (signed into law by President Barack Obama on July 21, 2010). AB 315's provisions became operative on July 21, 2011.

AB 315 introduces the concept of the “home state” of the insured to determine which state is able to tax the premiums paid by the insured.  Thus, if a policyholder’s home state is California, and that person obtained insurance from a nonadmitted insurance company, that person will pay to California the tax attributable to all premiums on policies from nonadmitted insurers, regardless of where the risk is located, in or out of California.  AB 315’s description of home state mirrors the provisions of the NRRA.

If an insured is a business, the insured’s home state generally is the state where the insured maintains its principal place of business. If an insured is an individual, the insured’s home state is generally where the insured maintains his or her principal residence. However, if 100 percent of the insured risk is located outside the state where the insured maintains its principal place of business or principal residence, the home state is the state to which the greatest percentage of the insured’s taxable premium for the insurance contract is allocated (California Insurance Code sections 1760.1(e)(1)(A)and(B)).

If more than one insured from an affiliated group is named in a single non-admitted insurance contract, the home state is the home state of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract (California Insurance Code section 1760.1(e)(4)). Existing Insurance Code section 1215(a) defines “affiliate.”

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