Premium Tax, Policy Fees, Export-List Filing, and Mid-Term Cancellation
On March 1, a surplus lines producer binds a commercial property policy effective March 1 with a nonadmitted insurer. Gross premium is $48,000. The producer also collects a $1,200 inspection fee paid to an independent third-party inspector and a $600 policy fee retained by the insurer. The producer remits the surplus lines premium tax for the quarter on April 20. Assume Oregon's surplus lines premium tax rate is 2.3% and the quarterly return was due April 15. The producer also placed a separate $20,000-premium policy in a coverage on the Oregon export list and did not obtain individual declinations. The insurer later cancels the first policy mid-term and returns $8,000 premium. The producer's file shows the tax was calculated on $48,000 only, and no amended report was filed after the cancellation.
1. Compute the correct initial premium tax on the first policy and explain the treatment of the two fees.
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Start with gross premium of $48,000. The $600 policy fee retained by the insurer is consideration for the policy and should be included in the premium tax base unless Oregon rules specifically exclude it; add it to get $48,600. The $1,200 inspection fee paid to an independent third-party inspector is not premium if it is separately stated, not required by the insurer as a condition of coverage, and not retained by the insurer or producer as compensation for the insurance. On those assumptions, tax is 2.3% × $48,600 = $1,117.80. The producer calculated tax on $48,000 only, or $1,104.00, underpaying $13.80 before penalties and interest. The producer should correct the return and document why the inspection fee was excluded. If the policy fee is actually a producer fee rather than insurer consideration, the analysis changes; the key is substance, not the label.
2. Does the export-list placement eliminate the premium tax or filing obligation?
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No. The export list affects the declination requirement, not the premium tax. A coverage on the export list may be placed without individual declinations if the other conditions are met, but the transaction is still a surplus lines placement. The producer must report it, keep records, and remit the applicable premium tax on the gross premium. The producer also needs to document the export-list basis for the coverage. The fact that no declinations were obtained does not make the policy tax-exempt, and failing to report an export-list policy is a filing violation even if the placement itself was permitted.
3. What should the producer do about the April 20 filing and the $8,000 mid-term return premium?
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The April 20 filing was late because the assumed due date was April 15. The producer should file promptly, pay the additional tax due on the policy fee, and expect late-filing penalties and interest unless the Department grants relief for reasonable cause. After the mid-term cancellation, the producer should not retain tax on premium that was not earned. The producer should file an amended or corrective report showing the $8,000 return premium and claim a credit or refund for the tax attributable to the returned premium, according to Oregon's surplus lines tax procedures. The producer must also correct the records and reconcile the insurer's cancellation notice, the return premium, and the tax report. Keeping the overpayment without amendment is a records and remittance violation.