Massachusetts Surplus Lines Tax: 4% Rate, Filings, and Exemptions

The Massachusetts surplus lines tax is a flat 4% levy on the gross premium of any insurance placed with a non-admitted carrier when Massachusetts is the insured’s home state. The placing broker collects it, files a sworn annual statement with the state treasurer by January 31, and pays the tax with that filing. Getting the calculation, the filing, or the underlying diligent search wrong can cost a broker their license and, under Chapter 175, Section 168, up to a year in jail.¹

Who Owes the Tax and When It Applies

Personal responsibility for the tax sits with the licensed surplus lines broker who places the coverage, not the insured. Massachusetts collects it whenever the insured’s “home state” is Massachusetts, meaning the state of the insured’s principal place of business (or principal residence for an individual). If none of the risk sits in the home state, the home state defaults to whichever state receives the largest share of allocated premium.¹

This home-state rule comes from the federal Non-Admitted and Reinsurance Reform Act, which gives the insured’s home state exclusive authority over surplus lines premium taxes. When Massachusetts is the home state, it taxes the entire premium and no other state can tax the same policy. When another state is the home state, Massachusetts collects nothing even if some of the covered risk sits inside its borders.²

Surplus lines coverage itself is coverage placed with an out-of-state insurer that isn’t licensed in Massachusetts but is eligible to write business here on a non-admitted basis. It exists for risks the standard admitted market has declined or won’t quote. A few lines are off-limits entirely and don’t belong in the surplus lines market at all: workers’ compensation, compulsory motor vehicle liability, accident and health, and life insurance. Transportation network vehicle policies and personal vehicle-sharing coverage are the carve-outs from the motor vehicle exclusion.¹

How the 4% Is Calculated

The base is gross premiums charged, minus return premiums on canceled policies. A $50,000 annual premium on a Massachusetts home-state policy produces a $2,000 tax bill.³

For any policy with an effective date on or after August 10, 2018, the 4% rate applies to the whole gross premium when Massachusetts is the home state, regardless of where the covered risks sit. A Massachusetts-headquartered company with insured property in five states pays Massachusetts tax on the entire premium.⁴

Policies written before August 10, 2018, and still in force, follow the older rule for the remainder of their term: the 4% rate applied only to the portion of premium allocated to Massachusetts risks, with other states taxing their own portions at their own rates.

Filing Deadline and Forms

The tax is annual, not quarterly. By January 31 each year, every licensed surplus lines broker files a sworn statement with the state treasurer covering all business written during the previous calendar year, and pays the tax to the Commonwealth of Massachusetts with that filing. The statement must show gross premiums charged on all insurance procured or placed, plus gross return premiums on canceled policies.¹

Filing runs through the NAIC’s OPTins system using Forms BR-9 and BR-18. A broker who held a license all year but wrote no surplus lines business still has to file, showing zero activity.³

Two other filings sit alongside the annual tax return. Brokers file a certified copy of each account with the Commissioner of Insurance, listing the exact amount of insurance placed, gross premium charged, issuing company, and date and term for every policy. And for each new or renewal placement, Form BR-7 (Affidavit by Assured) goes to the Division of Insurance within 20 days of the procurement date.³

Exemptions From the Tax

Three placements are exempt from the 4% tax under Massachusetts law:

The Massachusetts Bay Transportation Authority
Federal credit unions, when they are the purchaser
Policies covering tribal lands on reservations

The exemption is from the tax only. The broker still makes all standard surplus lines filings and notes the claimed exemption on the applicable form.³

Diligent Search and the Exempt Commercial Purchaser Rule

Every surplus lines placement in Massachusetts has to clear a diligent search: documented evidence that admitted carriers were approached and either declined or couldn’t offer adequate terms. Massachusetts publishes no export list of coverages pre-approved for direct surplus lines placement, so no line of business is exempt from the search.¹

The Division of Insurance can audit these records at any time, and the common failure isn’t the search itself but the paperwork proving it happened.³

Large commercial buyers can qualify for a federal exemption from the search requirement as “exempt commercial purchasers.” All three conditions must be met at the time of placement:

The purchaser employs or retains a qualified risk manager to negotiate coverage.
The purchaser paid more than $100,000 in aggregate commercial property and casualty premiums nationwide over the prior 12 months.
The purchaser meets at least one size criterion: net worth above $20,000,000; annual revenues above $50,000,000; more than 500 full-time employees (or 1,000 in an affiliated group); a nonprofit or public entity with annual budgeted expenditures of at least $30,000,000; or a municipality with a population above 50,000.

The net worth, revenue, and nonprofit expenditure figures adjust every five years for CPI inflation.⁵

Even a qualifying purchaser only gets the exemption if the broker discloses that admitted market coverage may offer greater regulatory protection and the purchaser then requests in writing that the broker proceed with a non-admitted insurer. The waiver is of the search requirement only; the 4% tax still applies. Massachusetts also exempts certain sophisticated commercial purchasers from filing the BR-7 Affidavit by Assured, though the broker still makes the standard surplus lines filings.³

Records You Have to Keep

Section 168 requires every surplus lines broker to keep a separate account of all business written under the license. Each account must show the exact amount of insurance placed for each insured whose home state is Massachusetts, gross premium charged, issuing company, date and term of each policy, and the equivalent detail for any canceled policies with their return premiums. A certified copy of that account goes to the Commissioner.¹

For general tax record retention, Massachusetts requires taxpayers to preserve records for at least three years after the return’s due date or actual filing date, whichever is later. That window extends in cases involving fraud, failure to file, or an agreement between the taxpayer and Commissioner to extend the assessment period. Where fraud is involved, there is no time limit at all.⁶

Given how far back an audit or client dispute can reach, holding surplus lines files for six or seven years is a reasonable practical margin above the statutory minimum.

Penalties for Getting It Wrong

Section 168 sets criminal-level penalties for the core failures. A broker who fails to file the required sworn statement and affidavit, files a false statement, or conducts surplus lines business after license suspension or revocation faces a fine of $100 to $500, up to one year in prison, or both. Conviction also forfeits the license if it hasn’t already been revoked.¹

Alongside the statutory penalties, the Division of Insurance has broad administrative authority. After investigating a violation, it can issue cease and desist orders, mandate compliance programs, suspend or revoke licenses, order restitution, and impose financial penalties through settlements or administrative hearings. The Division publishes its administrative actions, so any enforcement outcome is visible to clients, carriers, and competitors.⁷

Audits typically compare the certified accounts filed with the Commissioner against the annual sworn statement filed with the treasurer, checking that premium totals, policy counts, and tax calculations line up, and that a diligent search sits behind every placement. Discrepancies in any of those areas are where enforcement usually begins.

1
General Court of Massachusetts. Massachusetts General Laws Chapter 175 Section 168
2
Office of the Law Revision Counsel. 15 USC 8201 – Reporting, Payment, and Allocation of Premium Taxes
3
Mass.gov. Surplus Lines Insurance
4
Mass.gov. Notice Regarding Important Changes to Surplus Lines Premium Fee Reporting Procedures
5
Office of the Law Revision Counsel. 15 USC 8206 – Definitions
6
Massachusetts Department of Revenue. 830 CMR 62C.25.1 – Record Retention
7
Mass.gov. Enforcement