Federal Excise Taxes?

[Dawgnacious]

We recently placed an excess property layer with an E+S insurer that is domiciled in Bermuda. We placed this cover via a London based broker.

We have been advised that our client will be responsible for paying a 4% Federal Excise Tax in addition to paying the normal surplus lines tax for our particular state.

If anyone else has had a similar experience and can confirm or deny the Fed. tax requirement, please respond to this topic.

[Big Dog]

That's correct. Hopefully, your E&S company can provide the details on how to file the FET. Otherwise, check their website for instructions - http://www.irs.gov/businesses/small/art ... 17,00.html

[LadyBroker]

I didn't think that the insured had to pay both the Surplus Lines tax and the FET. I could be wrong, but I would double check that with your E & S Broker. In California, I believe you only pay one or the other, not both.

[Dawgnacious]

Thanks for the replies.

Yes, I checked with several w/sale brokers and each one that had experience in dealing with this particular carrier did advise that the Fed Excise Tax was required. While I am not certain, I do suspect that most US based w/salers would collect and file this tax along with whatever state surplus lines taxes are due. In my case, we are dealing directly with a London based w/saler and they do not offer to file the Fed or State taxes. We file the State tax and our insured will file the Fed Excise taxes.

Upon further investigation, I was able to obtain the proper IRS tax form and instructions. For those that have a similar situation and/or are simply very curious, the tax form number is 720. Other than this form and instructions there apparently is not a lot of other information available to us retail agents.

Maybe other agents that have more experience with this type of situation will chime in with their stories.

[rcb]

FET used to be common, but then most major Alien insurers who wrote business in the US concluded an agreement with the IRS whereby they pad taxes to the IRS based upon their writings. Not all Alien carriers were a party to that treaty, but it is rare to see FET's now.

You can get moe information if you are into that sort of thing frimn the California SLA http://www.sla-cal.org/publications/pb_400_series.html
Bulletin 445 is particularly detailed.

[LadyBroker]

I would still double check to be certain you have to pay Surplus Lines taxes in addition to the FET. It is not my experience that you pay both, typically its one or the other.

[Dawgnacious]

Ladydog:

Wish it were true but apparently not. The state really does not care what the Federal guys do and I think it is also true that the Feds do not care what the states do. They are two separate tax levying/collecting entities.

A good analogy is my personal taxes. In my state (Georgia) we have to file state income taxes. Also, I have to file and pay Federal taxes. I certainly do wish I only had to pay one and not both but alas, I must pay both or risk the consequences.

Thank you all for your replies.

[trobo]

Keep in mind that the FET is due on the premium exported out of the country. So if you pay net premium to the Bermuda market, calculate the 4% on the net premium. Also, the filing of the FET is the obligation of the entity that exports the money, so if you used a U.S. based wholesaler and they collect the premium for onward transmission, they are responsible for collecting and filing the tax forms.

Another issue is that the tax is only due for U.S. based exposures. If you have a policy that covers e.g. property in the U.S. and Canada (Canada insurance regulations not considered) you calculate the FET only on the U.S. generated premiums.

[Dawgnacious]

Trobo:

Thank you for your input.

We brokered this US only exposure deal direct with one of our London based wholesalers.

I provided our insured with the proper tax forms and instructions. The insured/buyer forwarded same to their in house accounting department for proper handling. So far, no questions or concerns.