Premium Tax Underpayment and Late Filing
Peach State Equipment Rental, Inc. is a Georgia corporation with one location in Atlanta. On November 1, 2024, its surplus lines broker, North Georgia Specialty, places a $120,000 annual premium equipment floater with an eligible surplus lines insurer. The broker collects $4,800 from the insured as Georgia surplus lines premium tax but remits only $3,600 to the Georgia Department of Insurance with its annual report, which it files on April 15, 2025. The broker explains that it used a 3% rate because 'that is what most states use' and that it kept the $1,200 difference as additional commission. The Department's records show the annual surplus lines tax report was due March 1, 2025. The insured has already paid the full $4,800.
1. What is the correct Georgia surplus lines premium tax, and when was it due?
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The correct tax is 4% of the $120,000 gross premium, or $4,800. The annual surplus lines tax report and payment were due March 1, 2025. North Georgia Specialty remitted only $3,600 on April 15, 2025, so it underpaid by $1,200 and filed late. The broker's belief that 'most states use 3%' is not a defense; Georgia's rate is 4%.
2. Can North Georgia Specialty retain the $1,200 as commission or absorb the tax? Explain.
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No. The $1,200 is premium tax collected from the insured, not commission. The broker must hold it for the Department and remit it. Converting it to commission is a misappropriation of tax funds. The broker also cannot cure the problem by 'absorbing' the tax from its own funds while reporting a lower amount; the return must reflect the correct tax. North Georgia Specialty remains liable for the $1,200, plus interest and penalties, and may face license discipline.
3. What penalties or license consequences may follow?
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Possible consequences include assessment of the unpaid tax, interest, and late-filing penalties; a civil penalty; and license suspension, revocation, or probation. Because the broker converted collected tax to commission, the Department may treat it as a serious fiduciary violation. The broker's surety bond, if any, may also be exposed. The broker should file an amended return, pay the difference, and document corrective steps.