Nonadmitted Insurance Multi-State Agreement (‘NIMA’) member states change multi-state tax allocation effective date to January 1, 2012
Oct 25, 2011
Unable to meet a looming November 15, 2011 deadline for the establishment of a Clearinghouse for the collection and distribution of surplus lines premium taxes, representatives of Nonadmitted Insurance Multi-State Agreement (“NIMA”) member states voted in an emergency session on October 21, 2011 to revise the effective date of NIMA’s multi-state tax allocation provision to January 1, 2012.
The proposed emergency NIMA amendment to modify the date was submitted by Gennady Stolyarov II of the Nevada Division of Insurance. Two other amendments, which included different proposed scenarios, were rejected.
In order to collect Third Quarter 2011 premium taxes pursuant to NIMA’s provisions, the Clearinghouse had to be operational by November 15, 2011. Given the adopted amendment, the Clearinghouse will need to be operational in time to begin collecting and processing First Quarter 2012 premium tax filings and payments, which would be due May 15, 2012 pursuant to NIMA’s current terms.
In its correspondence discussing the amendment, Nevada indicated that the state supports an option proposed by Mississippi Commissioner Mike Chaney to allow a currently participating NIMA state – in situations where it is the Home State – to collect and retain 100 percent of the tax proceeds at the Home State’s tax rate until the Clearinghouse is operational. In Nevada’s view, the deferral of multi-state premium tax allocation until January 1, 2012, will “allow brokers to understand definitively how to approach premium taxes for the last two quarters of 2011.”
The adopted amendment states that, for participating states that sign NIMA prior to January 1, 2012, the premium tax allocation shall become effective and binding as of January 1, 2012. After that, a participating state must give notice to the Clearinghouse that it has joined NIMA no less than 30 days prior to the expiration of a quarter in order to be eligible for participation in the next quarter.
Once operational, the Clearinghouse will ultimately collect and distribute premium taxes pursuant to surplus lines reform provisions of the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”).
“This was not the result we hoped for,” said Mark Haire, general counsel for the Mississippi Insurance Department, “but I think most of us recognized that not meeting the November 15 goal was a possibility.”
Mr. Haire said he had spoken with Florida Surplus Lines Service Office (“FSLSO”) Executive Director Gary Pullen earlier last week to discuss the requirements needed to coordinate the software with other operational issues, until it became evident that a November 15 deadline would be impossible to meet.
Part of the challenge related to getting the Clearinghouse in place more quickly includes the following timeframes needed by the FSLSO for NIMA implementation:
- 90-days for the execution of software contracts and services
- 45-60 days for the FSLSO to modify its existing software to comply with NIMA requirements
- 45-60 days for testing filing and reporting systems
- 45 days for training
The FSLSO’s National Clearinghouse Committee budgeted funds for Clearinghouse operations in September and approved draft agreements for software licensing and services during early October.
Mr. Haire noted that it is important for the NIMA member states to achieve consensus and adopt uniform procedures for the period of time between the execution of NIMA and the operational date of the Clearinghouse.
Another teleconference to discuss NIMA bylaws and the incorporation of NIMA Inc. will be scheduled for October 28, 2011.
With no further business before the group, the meeting was adjourned.
A copy of correspondence regarding Nevada’s proposal, including the language of the adopted amendment, is attached.
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