1. (a) The premium charged for surplus lines insurance coverage is subject to a 4.85% tax of all gross premiums charged for such insurance.

2. (b) If a surplus lines policy covers risks or exposures only partially in this state, the tax payable shall be computed on the portions of the premium which are properly allocable to the risks or exposures located in this state.

   1. (1) Acceptable apportionment standards are as follows:

      1. (A) (PA)--percentage of physical assets in Texas;
      2. (B) (EP)--percentage of employee payroll in Texas;
      3. (C) (S)--percentage of sales in Texas;
      4. (D) (TC)--percentage of taxable capital for franchise tax purposes in Texas;
      5. (E) (T)--percentage of times insured's conduct or property is exposed to coverage in Texas;
      6. (F) (X)--any other method of equitable apportionment with description of such method.
   2. (2) The surplus lines agent, with the assent of the insured, shall in the case of such apportionment select one of the methods described in paragraph (1) of this subsection which most equitably allocates the portion of premiums applicable to the State of Texas on those policies covering risks or exposures only partially in Texas.

3. (c) All surplus lines insurance premium taxes shall be computed on the total gross premium due on the policy as of the date that coverage under the policy becomes effective, except in respect to the following specific situations.

   1. (1) A policy issued for a term in excess of one year, with a fixed premium being payable annually, shall be taxed on the first year's premium at the rate of 4.85% as of the date of policy issuance. The tax on premiums payable for subsequent years shall be computed and collected as of the date such subsequent premiums become due and payable, which date shall be deemed for taxation purposes to be the policy anniversary date.
   2. (2) Premium deposits made on policies providing for retrospective premium adjustments shall be deemed to be premiums paid for such policy as of the date of issuance and taxed accordingly.
   3. (3) Retrospective premium adjustments, made pursuant to the terms of any surplus lines policy and requiring the payment of additional premiums by the insured shall be taxed as of the date such additional premiums become payable. Retrospective premium adjustments that require the return of a portion of premium or premium deposit shall be effected by the surplus lines agents through a tax refund as hereinafter set forth.

Source Note:The provisions of this §3.822 adopted to be effective January 1, 1976; amended to be effective March 15, 1981, 6 TexReg 770; amended to be effective December 27, 1991, 16 TexReg 7201; transferred effective September 1, 1993, as published in the Texas Register, October 19, 1993, 18 TexReg 7295.