Glossary · Insurance agency commissions
Surplus lines tax
Surplus lines tax is a state premium tax on insurance placed with non-admitted carriers. The licensed surplus lines broker collects it and remits it to the insured’s home state, usually passing it to the insured as a separate charge. Rates and stamping fees vary by state, and the tax is generally not commissionable.
What it means
The NAIC’s surplus lines overview says that “[t]he licensed surplus lines broker is responsible for ensuring the surplus lines insurer meets eligibility criteria to write policies in the state and remits payment of the surplus lines premium tax to the ‘home state.’” It lists “[f]ailure to collect or remit required surplus lines premium tax” among reasons a state may act against a broker’s license.
How it works: on an E&S placement, the invoice shows premium, then surplus lines tax as a percentage of premium, often a stamping office fee, and any policy fee. Each state sets its own rate, whether fees are taxed, and filing deadlines, so check the home state’s rules for each policy.
How it shows on a commission statement
On a wholesaler’s statement the tax sits on its own line next to the premium. Commission should be figured on premium only. If commission divided by premium comes out higher than your agreed rate, check whether the base included the tax; if it is lower, check whether tax was recorded as premium in your own records.
Example
- Premium
- $10,000.00
- Surplus lines tax at an invented 3.5%
- $350.00
- Stamping fee at an invented 0.2%
- $20.00
- Total billed to insured
- $10,370.00
- Retail commission at 10% of premium
- $1,000.00
Commonly confused
- A policy fee is charged by a carrier or agency; surplus lines tax is a state tax. See policy fee.
- Admitted carriers pay state premium tax inside their rates; on surplus lines it is billed separately.
- Return premium on a cancelled E&S policy may or may not refund the tax, depending on state rules. See return premium.
Common mistakes to check
- Calculating commission on premium plus tax and fees.
- Recording the total invoice as premium in the agency management system.
- Assuming one state’s tax rate applies to a multi-state risk.
Questions
Who pays surplus lines tax?
The insured usually pays it as a separate charge. According to the NAIC, the licensed surplus lines broker is responsible for remitting it to the home state.
Is commission paid on surplus lines tax?
Generally no. Commission is calculated on premium; the tax is passed through to the state. Check your wholesaler agreement for any exception.
Is surplus lines tax refunded when a policy cancels?
It depends on the state and on the minimum earned premium. Some states refund tax on returned premium; others do not. Check the home state’s rules.
Sources
- National Association of Insurance Commissioners, Surplus Lines, insurance topics page. Retrieved October 13, 2026.
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