BILL ANALYSIS �
AB 1395
Page 1
Date of Hearing: April 10, 2013
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AB 1395 (Committee on Insurance) - As Amended: April 2, 2013
SUBJECT : Surplus Line Brokers
SUMMARY : Eliminates unnecessary tax filing requirements for
surplus line brokers who have no taxes to report. Specifically,
this bill :
1)Deletes the requirement that every surplus line broker must
make a Surplus Line Tax filing even if the broker has not
transacted any business subject to the Surplus Line Tax.
2)Authorizes the Insurance Commissioner to waive or modify
filing requirements where no payment is due by means of notice
published on the Department of Insurance (DOI) Internet Web
site.
EXISTING LAW :
1)Authorizes surplus line brokers to place insurance on
California risks with insurance companies that are not
licensed to transact insurance in California when certain
conditions are met.
2)Requires the surplus line broker to account for and pay a
Surplus Line Tax in the amount of 3% of the premium paid for
the policy.
3)Requires an annual tax filing by the surplus line broker that
reflects net premiums written, even if the surplus line broker
has no net tax liability to be paid in that year.
FISCAL EFFECT : Undetermined, but minor to moderate savings to
the DOI in its Surplus Line tax program.
COMMENTS :
1)Purpose . The Committee introduced this bill at the suggestion
of the surplus line community, which has been consulting with
the DOI to address the circumstances whereby numerous, and
possibly a majority of the surplus line licensees, have no tax
AB 1395
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liability in any given year, yet must make tax filings that
the DOI must review.
2)Background . Admitted (licensed) insurers pay, based on a
provision in the state constitution, a gross premiums tax of
2.35% of gross premiums in lieu of all other taxes. Because
the state does not have the same taxing jurisdiction over
insurers that do not technically transact insurance within the
state (in theory, the surplus line broker reaches out to the
nonadmitted insurer which is not technically acting within
California at all), nonadmitted insurers do not pay the gross
premiums tax. Instead, a 3% "surplus line tax" is collected
through the surplus line broker, which is the entity that
California does have clear jurisdiction over. Practically
speaking, this tax is built into the transaction in the same
way the gross premium tax is built into insurance rates.
However, its administration is different, and in some ways
more costly.
In recent years, the number of surplus line licenses has
dramatically increased. However, many of these licensees hold
the license as a convenience, and frequently do not transact
under that license in a given year. As a result, the volume
of "no taxes due" tax filings has dramatically increased. The
bill is designed to eliminate an unnecessary burden on both
these licensees and the DOI.
REGISTERED SUPPORT / OPPOSITION :
Support
California Insurance Wholesalers Association
Surplus Lines Association
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086