8.3 Tax Reports and Prepayments, the Annual Report and Notices to TDI, and Surplus Lines Recordkeeping

8.3 Tax Reports and Prepayments, the Annual Report and Notices to TDI, and Surplus Lines Recordkeeping

The outline lists "reports and notices" (TIC §§ 981.216-.217) and "recordkeeping" (TIC §§ 981.215-.216; 28 TAC §§ 15.4, 15.9, 15.108-.113) as separate items. Taxes also generate their own reports. Keep three agencies straight:

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1. Annual Tax Report and Payment (Comptroller)

• Due date: The tax is due and payable on or before March 1, and the agent files a tax report with the payment (TIC § 225.008). The Comptroller's example: March 1, 2015, for premiums received in 2014.
• Forms: Comptroller Form 25-104, Annual Insurance Tax Report - Surplus Line/Purchasing Groups. Prepayments use Form 25-105.
• How to file, based on tax paid in the preceding state fiscal year (September 1 - August 31):
  • Under $50,000: Webfile or paper forms; pay by Webfile EFT or credit card, TEXNET, or check.
  • $50,000 - $499,999: Webfile only for reporting; pay by Webfile EFT or credit card, or TEXNET.
  • $500,000 or more: Webfile only for reporting and TEXNET only for payment.
• Zero reports: In 2026 the Comptroller announced that it no longer requires zero reports from surplus lines agents and agencies that have nothing to report. They may still file one during March. This change does not apply to surplus lines insurers. Older materials that say zero reports are mandatory are out of date.

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2. Prepayments

• Rule: A surplus lines agent must prepay the tax when accrued taxes due equal at least $70,000. The prepayment is due on or before the 15th day of the month following the month in which that amount accrues (TIC § 225.009). The Comptroller may change the threshold and deadline by rule.
• Amount: The prepayment must equal the accrued liability at the end of the month, based on the agent's tax base election. Missing a prepayment triggers penalty and interest (34 TAC § 3.822(e)).

Example: An agency accrues $40,000 of tax in January and $35,000 more in February. Its accrued liability reaches $75,000 at the end of February, so it must prepay $75,000 by March 15. If it accrues $30,000 in March and $45,000 in April, accrued tax again reaches $75,000 at the end of April, and that prepayment is due May 15. Any remaining balance for the year is paid with the March 1 report.

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3. Penalties, Interest, and Consequences

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4. Annual Report to TDI (TIC § 981.216)

Before March 1 each year, a surplus lines agent must submit to TDI a report, on the commissioner's form, for the preceding calendar year. The report must demonstrate that the insurance obtained from each eligible surplus lines insurer was only the amount exceeding what was obtainable from authorized insurers, the excess-only rule of § 981.004(b), and include any other required information. This TDI report is separate from the Comptroller tax report due the same day.

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5. Notices to TDI Within 30 Days (TIC § 981.217)

A surplus lines agent must notify TDI, on the commissioner's form, not later than the 30th day after any of these occurs:

1. Balances due for more than 90 days to an eligible surplus lines insurer, or for more than 60 days to the agent acting for the insurer, exceed $1 million or 10% of the insurer's policyholder surplus as of December 31 of the preceding year;
2. Balances due for more than 60 days from a managing general agent, or from a local recording agent appointed by or reporting to it, exceed $500,000;
3. The agent's authority to settle claims for an eligible insurer is withdrawn;
4. Funds held for an eligible insurer for losses exceed, by more than $100,000, the amount needed for losses and loss adjustment expenses expected in the next 60 days; or
5. The agent's contract to act for a surplus lines insurer is canceled or terminated.

For items 1, 2, and 4, an agent or insurer that routinely operates beyond those limits may file a single annual report if the commissioner verifies the circumstances.

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6. Recordkeeping

Content (TIC § 981.215(a); 28 TAC § 15.110)

For each surplus lines contract, the agent keeps a complete record, including, as applicable:

• The daily report or other evidence of insurance;
• The amount of insurance and the risks or perils insured;
• A description and location of the insured property, including ZIP code;
• Gross premium, return premium, and rates;
• Contract terms including the effective date;
• Names and addresses of the insured and the insurer;
• The amount collected from the insured;
• Any § 225.006(c) managing-underwriter agreement;
• Evidence supporting exempt commercial purchaser or industrial insured status;
• A record of losses, claims, and payments;
• A true copy of the policy and all correspondence; and
• Any other information TDI requires.

Required Record Systems (28 TAC §§ 15.108-.113)

• Policy register, contract file, and general books of account, plus a list and copies of managing-underwriter agreements (§ 15.108(a)).
• Policy numbers: Record the policy number and insured's name immediately on procuring coverage, use that number on all related records, and explain any voided or unused numbers (§ 15.109).
• Accounting records: General ledger, general journal, and cash records, with month-end and year-to-date summaries, kept under generally accepted accounting principles (§ 15.113).

Access and Retention

Exam Tip: For "how long must surplus lines records be kept," the Texas rule answer is five years after the policy expires or terminates (28 TAC § 15.108). The statute sets a shorter floor, keeping records open until the third anniversary (TIC § 981.215(b)), but agents follow the longer rule.