State Tax

If a broker fails to pay state tax by the due date, it will result in a penalty of 10% of the amount of payment due, plus an interest rate of 1% per calendar month (or fraction thereof) until the payment is received by the Commissioner. More severe penalties may be imposed for "willful" violations.

For tips on how to prepare for a CDI audit, visit the following link: https://www.slacal.com/resources/cdi-audit-tips-for-brokers.

California does require a direct placement tax from the consumer for coverage placed on their own, for their own property, with a surplus line insurer. Refer to Bulletin #621. 

California does not provide specific regulation around federal tax exemptions and refers brokers to the federal tax code. The CDI Premium Tax Audit Unit has provided the following guidance for similar inquires in the past:

• The applicable California Insurance Code provision is 1761, which limits the scope of surplus line requirements to transactions on property or operations conducted within this state.
• Insurance transacted on a Native American reservation for and on behalf of the resident Native Americans or their property or operations is generally exempt from the surplus line taxation and regulation statutes because the reservation is a Sovereign nation and therefore are not deemed to be within this state.
• Also, pursuant to CICS 1760.2, “The surplus line broker shall be responsible for determining whether an applicant for nonadmitted insurance is a California home state insured. A surplus line broker who reasonably relies on information provided in good faith by the applicant, whether directly or through the producer, shall be deemed to be in compliance with this requirement.”

Following please find some links which may be helpful:

• Federally recognized tribes
• IRC Section 7871 – Treatment of Indian Tribes as States
• Tax Information for Indian Tribal Governments
• CA Department of Tax & Fee: Sales to Native Americans and Sales in Indian Country

The California Dept of Insurance advises that the tax exemption under federal law for Federal Credit Unions do not apply to the surplus line broker.

Unless the audit endorsement is rescinded, the surplus line broker is responsible for paying taxes and fees whether or not payment has been collected. Taxes are due to the California Department of Insurance (CDI) based on the invoice date. The stamping fee is payble and due to the Surplus Line Association (SLA) upon reciept of the monthly invoice.