Gross Premium, Return Premium, and the Quarterly Report
A surplus lines agent is closing the quarter. Four items are on the desk:
- A $18,000 commercial property policy placed with an eligible carrier.
- A $6,500 general liability policy for a small contractor.
- A $42,000 package policy for a Florida-domiciled manufacturer whose only other location is in Georgia; the policy covers both locations and the insured's home state is Florida.
- A $9,000 policy that was flat-cancelled - the carrier issued it in error and returned the entire premium; coverage was never in force.
The agent's commission on these items totals $9,100. The agent asks whether it can remit tax on the net-of-commission figure, and whether the flat-cancelled policy has to be reported at all.
1. Compute the Florida surplus lines premium tax and the service fee base, and identify which items are taxable.
Read the worked answer
Taxable base is gross premium - the commission is irrelevant.
| Item | Gross premium | Taxable? |
|---|---|---|
| Property | $18,000 | Yes |
| GL | $6,500 | Yes |
| FL/GA package | $42,000 | Yes - in full |
| Flat-cancelled policy | $9,000 | No |
- Why the package is 100% Florida: because the insured's home state is Florida, Florida is the home state for surplus lines tax purposes, and the entire premium is taxed at the Florida rate regardless of where the individual risks sit.
- Why the flat cancellation drops out: a true flat cancellation returns the premium in full and treats the policy as never having been effective; there is no premium to tax. (A pro rata or short-rate cancellation is different - tax is due on the earned premium.)
Computation (verify current rates with the Florida Surplus Lines Service Office before filing):
- Taxable premium: $18,000 + $6,500 + $42,000 = $66,500
- Premium tax at 5%: $3,325
- Service fee at 0.06% of premium: $39.90
Remitting on $57,400 net of commission ($66,500 − $9,100) would understate tax by roughly $455 and is a reporting violation.
2. What are the agent's filing, payment, and recordkeeping obligations for these items, and what happens if a mid-term cancellation later produces return premium?
Read the worked answer
Filing and payment
- The surplus lines agent is responsible for reporting and remitting premium tax and the service fee to the Florida Surplus Lines Service Office on the quarterly cycle; the report and payment fall due shortly after quarter end (the 45-day mark is the figure to verify against the current statute and rule 69B-220).
- Each policy must be reported with the insured, insurer, effective date, and premium. The service fee is a separate line, not part of the tax.
- Tax is the agent's personal statutory responsibility - if the agency fails to collect it from the insured, the agency still owes it.
Recordkeeping
- Retain the policy, the diligent-effort documentation (declinations, or the export-list basis for skipping the search), the signed disclosure acknowledgement, and the tax worksheets. Florida requires surplus lines records to be kept for 5 years and available for examination.
Later return premium
- A mid-term cancellation produces earned and unearned premium. Tax is owed on the earned portion only. The unearned premium is returned to the insured and the tax and service fee attributable to it are removed from the next report as a credit - not taken as a cash refund out of the current quarter's remittance.
- Document the cancellation date and method (pro rata vs. short rate), because the earned/unearned split drives the credit.