WIN Magazine - Summer 2012 - (Page 34)
STATE TAXATION OF
Non-U.S. RISK PREMIUM
An Unintended Consequence of the Nonadmitted and Reinsurance Reform Act?
BY FRED E. KARLINSKY, ESQ., RICH J. FIDEI, ESQ., AND JENNIFER C. ERDELYI, ESQ.
M A JO R I T Y O F S TAT E S h av e adopted, and a few are considering, legislation to implement the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA, or the Act) part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the DoddFrank Act), which became effective on July 21, 2011. Prior to the NRRA’s implementation, states had typically imposed tax only upon that portion of the premium attributable to risk located in their respective states. Traditionally, this did not apply to portions of the premium attributable to risks in foreign countries. Among its provisions, the NRRA gives exclusive authority to the home state of the insured to require premium tax on nonadmitted insurance. Many of the enacted state laws addressing the NRRA provide that the state will impose tax on the gross premium of the nonadmitted insurance policy when that state
is the home state pursuant to the NRRA’s definition. Some states have interpreted this language to apply to premium allocated to risks and exposures located not just in the United States, but to foreign jurisdictions, as well. Other states have indicated they are not taxing that portion of the premium allocated to non-U.S. risks and exposures. Still others have not addressed the issue. In home states that impose tax on the entire amount of gross premium, there are several scenarios where it appears that tax may be imposed on that portion of the premium allocable to foreign risks. One example would be when a U.S.-based entity owns property or has other risks outside of the U.S. that are covered by a policy issued to the U.S. entity. Another is when one policy is issued to multiple insureds, including both a U.S. entity and its affiliated non-U.S. entities, covering the domestic risks of the U.S. entity and the non-U.S. based risks of the affiliates.
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Table of Contents for the Digital Edition of WIN Magazine - Summer 2012
Another Liability Catastrophe in the Making?
The Economy and the Insurance Pricing Cycle 2012: When Good News is Bad News
Capitalizing on Supplementary Coverages: MPL & Excess/Umbrella Policies
Are Your Technology Solutions Enabling Your Business?
NRRA Implementation: What Lies Ahead for Wholesalers and Producers
State Taxation of Non-U.S. Risk Premium
Rick Transfer Techniques for the American Wheat Farmer
Cyber & Reputational Risk Insurance: Past, Present, & Future
In the WIN-ner’s Circle
INDEX TO ADVERTISERS/ ADVERTISERS.COM
WIN Magazine - Summer 2012