NIMA Formally Dissolves as Participatory States weigh in on Future Tax Treatment of Multi-State Risks

Earlier this month we reported here that Florida had withdrawn from the Non-Admitted Insurance Multi-State Association (“NIMA”), a compact between various state to distribute surplus lines premium taxes. We can now report that NIMA has announced its unanimous decision to dissolve. The expectation is that dissolution of the tax compact will become effective October 1, 2016 and will include a run-off period until September 30, 2017 which will allow time for endorsements to be filed through the Surplus Lines Clearinghouse.

While the dissolution of NIMA means that states will retain 100% of surplus lines premium on individual policies containing multi-state risks, questions remain as to how the remaining NIMA jurisdictions will apply tax rates, and how group policies will be treated. According to the National Association of Professional Surplus Lines Offices, South Dakota and Tennessee will apply their own surplus lines tax rates to 100% of the risk; Utah and Wyoming will calculate the tax rate according to where the risk resides; and Puerto Rico has not yet provided guidance.

NIMA’s dissolution may or may not impact how states choose to treat certificate holders under master group policies. While the dissolution of NIMA may indicate a national trend toward recognition that all taxes will be paid to (and kept by) the home state of the insured, many states continue to treat certificate holders under group policies as separate insureds and require surplus lines taxes to be paid to the home state of the certificate holder as well. We are able to provide guidance as to how each state treats certificate holders under group policies as needed.