Why is the same tax rate used for Independently Procured Coverage as for Surplus Lines?

Using the same tax rate for Independently Procured Coverage as for Surplus Lines serves to maintain fairness and discourage avoidance. This alignment ensures that policyholders cannot gain an advantage by opting for one type of coverage over the other to take advantage of a lower tax rate. By imposing the same tax rate, the state promotes a level playing field among various insurance offerings, preventing market distortions where some insurers or policyholders might choose alternatives solely based on favorable taxation.

This approach also enhances regulatory integrity, creating an environment where all insurance transactions are treated equally, irrespective of how they are procured. It satisfies the regulatory framework intended to capture adequate resources for state revenues while ensuring that all entities comply with the same tax obligations. Thus, this consistency in taxation reinforces compliance and mitigates the risk of evasive practices that could undermine the state's insurance regulatory system.