A Technical Assistance Advisement (TAA) was issued by the Florida Department of Revenue (“the Department”) clarifying the requirements for a nonresident reinsurer to establish nexus with the state for purposes of corporate income tax.1 It was determined that the taxpayer at issue, Company X, was not registered to do business in Florida, had no property or employees in the state, and had only reinsured some Florida risks of its related entities. These affiliate insurance companies, the Ceding Companies, are not domiciled in Florida but operate there as well as in many other states.
Florida Rule 12C-1.011, lists many activities that would be considered “doing business” in the state, including the following:
The entering into contracts of reinsurance when such contracts of reinsurance are placed with an approved insurer by a ceding insurer domiciled or commercially domiciled in Florida as defined in Chapter 624, F.S., or by either an artificial entity domiciled or resident in Florida or a political subdivision of Florida where either the artificial entity or the political subdivision is engaged in self insurance.
Company X is not an approved reinsurer and is not registered with the Florida Office of Insurance Regulation. The Ceding Companies are not domiciled or commercially domiciled in Florida. As such, the conclusion was that Company X does not have nexus under this rule.
In reaching this conclusion, the Department also considered whether the presence of the Ceding Companies in Florida constituted a “regional home office.” With no definition in the statutes, the Department considered the intent of the law and the common definition of the terms. As less than 5% of the Ceding Companies’ underwriters are located in Florida and all activities are approved by the home office, the Florida location could not be considered a regional home office. Therefore, Company X does not have nexus in Florida for purposes of corporate income tax.
This interpretation of nexus-generating activities for reinsurers warrants a re-evaluation of the nexus status of reinsurers’ Florida risks.
1 Technical Assistance Advisement No. 17C1-001, Florida, (Jan. 13, 2017).
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