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We share what it’s like working as a surplus lines tax filer and the skills needed to be successful.

Have you ever wondered who the individuals are who file the state surplus line taxes? Well, most surplus lines tax filers are not attorneys. I am equally sure they do not have a degree in Insurance Law, and chances are good they are not Accountants. So, who are they?

Some are young college graduates, others are moms or dads trying to figure out how to pay the mortgage or college tuition bills, and a few may be close to retirement. But in all cases, they have one thing in common: they learn quickly that Surplus Line Tax filing is no ordinary job.

Let me give you a quick synopsis of a typical day for a Surplus Lines Tax Filer.

A large portion of their day is spent fielding emails and phone calls from brokers asking questions, such as, “What’s the Home State?”, “Where do we pay the taxes?”, “What are the tax rates?”, “Is this coverage on the state export list?”, “Can I charge a fee?”, “How much of a fee can I charge?”, “Is this coverage or insured exempt from surplus line tax?”, “Is this carrier admitted or non-admitted?”, “Why do I need a diligent effort if this is a renewal policy?”, “Will you call the retail agent and explain why a diligent effort is required?”, “Will you fill out this carrier form for me?” etc.

Let’s not forget the emails and calls from state regulators or state stamping offices explaining the filing is being rejected for a laundry list of potential reasons:

  • The coverage code is wrong.

  • The class code is incorrect.

  • The taxes are off by a penny (literally, I have had a filing tagged because the tax amount was short by a penny).

  • The carrier NAIC number is missing.

Or perhaps the state regulators are requesting the filer email the policy to be reviewed (because they can) or notifying the filer their filing is late, the backup documentation is insufficient, and my personal favorite, “your filing is on the wrong report, so you will need to reverse the filing and re-file it on the correct report,” even though it was invoiced two months late into the Agency Management System.

Best of all is the email notification of a state audit forwarded from the broker to the surplus line tax filer for handling. In all honesty, it probably is better for the tax filer to complete the audit. I once received two audit notifications from the same state in one month. Have you ever processed a surplus line tax audit? If you have never been a tax filer, I am guessing your answer is no.

What skills should a Surplus Lines Tax Filer possess?

It is important to note that surplus line taxes are not the same as Federal Income taxes, State Income taxes, Sales Tax, or Withholding Tax. Surplus line taxes are a conglomerate of legal, accounting, and public relations knowledge. There are several duties a surplus lines tax filer must perform to succeed in their role.

1) Know the required documents inside and out. The tax filer should be intimately familiar with the correct forms and documentation that must be uploaded or attached to the tax report. They also need to know the proper documents that each state requires to be attached to a policy before being released or obtained for audit purposes. These forms include the diligent effort, state affidavit forms that may or may not require the insured’s signature, state guaranty fund disclosure notices, and of course, any other form a state may deem necessary.

2) A tax filer must be able to reconcile the surplus line taxes. For example, the tax filer must verify if the tax amount charged to the insured is correct or if all the required state taxes were applied correctly. They must be familiar with the regulations for each state. For instance, a few states levy an assessment on property coverages, while one state charges a revenue surcharge in addition to a municipality tax. Additionally, the tax filer must check if any broker fees were applied, and if so, determine if the fee is allowed, if the fee was taxed correctly and if the fee is reasonable. I will not even get into the whole “Net of Commission” thing–we’ll save that for another article for another day.

3) Work with diverse personalities and build relationships. Perhaps most importantly, the tax filer must be able to work not only with brokers but also with retail agents, state insurance regulators, stamping offices, and sometimes, insureds. Personality is everything. Having the ability to take complicated issues and make them simple to understand is essential. Surplus lines is confusing, and most people go glassy-eyed when trying to explain it to them. Whether it is the insured, retail agent, or broker, learning to explain tax requirements, affidavit forms, and diligent effort in simple terms without being condescending makes a tremendous difference in building relationships. This is especially true with insurance regulators. Insurance regulators are working nine-to-five jobs just like everyone else, and the pressure can, at times, be overwhelming. But regulators can be a tax filer’s greatest asset when problems arise, which they undoubtedly do.

At the end of the day, the tax filer knows their job is to be of service and that their customers are the brokers. Brokers are geared to sell, not complete paperwork. Brokers depend on the surplus lines tax filer to help them do their job with integrity, accuracy, and diligence.

So, who are the individuals that file surplus line taxes? They are a diverse group of individuals dedicated to ensuring the integrity of the brokers and companies they work for through hard work and perseverance.


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