Multi-state policies present unique challenges for surplus lines tax compliance. When a single policy covers risks across multiple jurisdictions, you need to properly allocate premium and calculate the correct taxes for each state.
Understanding Premium Allocation
Premium allocation determines how much of the total policy premium is attributed to each state. This allocation directly impacts tax calculations.
Common Allocation Methods
- **Pro-rata by exposure**: Based on the relative exposure in each state
- **Schedule rating**: Using the policy's location schedule
- **Property values**: Allocating by insured values per location
- **Payroll**: Common for workers' comp and GL
State Rules Vary
Each state has its own rules for how to allocate premium:
- Some states require specific allocation methods
- Others defer to the policy's stated allocation
- A few have minimum premium requirements
Tax Calculation Steps
- Determine the total policy premium
- Identify all risk locations by state
- Apply the appropriate allocation method
- Calculate each state's allocated premium
- Apply each state's tax rate and fees
Example Calculation
Consider a $100,000 premium policy with risks in:
- California (40% of exposure): $40,000 × 3.0% = $1,200
- Texas (35% of exposure): $35,000 × 4.85% = $1,697.50
- Nevada (25% of exposure): $25,000 × 3.5% = $875
Total taxes: $3,772.50
Automation is Key
Manual multi-state calculations are error-prone and time-consuming. arqu handles this automatically:
- Identifies all risk locations from the policy
- Applies correct allocation rules for each state
- Calculates taxes using current rates
- Generates state-specific filing documents