Tax Filing for Nonadmitted Insurance Purchases Due March 1, 2021

February 16, 2021

By Kenneth S. Levinson and William M. Howieson

Filing/Tax Payment Requirements

DOR Filing

Minnesotans whose “home state” is here and who purchase “nonadmitted insurance” directly from insurers not licensed to sell insurance in Minnesota are required to file Form IG255 annually with the Department of Revenue (DOR). These forms are due on March 1, 2021, with respect to these reportable activities undertaken in 2020, and require a payment equal to two percent of the taxable gross premiums paid for such directly purchased insurance.

DOC License

Furthermore, those Minnesota direct purchasers are required to obtain an annual license to procure such nonadmitted insurance from the Department of Commerce (DOC), a license that is to “pre-date the issue date of the binder or the insurance policy(s)” according to the DOC’s instructions to their form “Application for License to Procure Insurance Directly From a Nonadmitted Insurer” (License). Note: this annual form must be notarized and requires a fee of $575.

Key Issues

Form IG255 for 2020

This DOR Form was revised substantially late in 2020 with respect to the 2020 reporting year. Among other changes to it, the DOR for the first time included “captive insurance companies” as a form of nonadmitted insurer from whom direct purchases of insurance by Minnesota “home state” insurers were reportable purchases. The Form also included the definition of “home state” as provided in Minnesota law (see Minn. Stat. § 297I.01, Subd. 10a). In other words, if the insured whose purchase of nonadmitted insurance, from an out-of-state captive or other nonadmitted insurer has its “home state” in Minnesota, then 100 percent of the premiums paid to such nonadmitted insurer are subject to reporting and tax payments here pursuant to the revised version of Form IG255, regardless of whether some of those risks attach to property or activities outside of Minnesota.

“Home State”

The 2020 revisions to Form IG255 included a more complete description of the Minnesota “home state” definition, enacted in 2011, as found in the citation above. Notably:

  • When the “named insured” does not have its principal place of business in Minnesota, or
  • When 100 percent of the insured risk is located outside Minnesota, or
  • When more than one named insured from an affiliated group is named in a single nonadmitted insurance contract,

the Minnesota home state rule (requiring 100 percent of the premium to be reportable and taxable here) may not apply. If you may be involved in one of these possible exceptions, legal advice should be obtained.

“Captive Insurance Company”

Form IG255 for 2020 includes the term “captive insurance company” for the first time as a “type” of nonadmitted insurer from whom the direct purchase of insurance may be reportable and taxable. For the definition of that type of insurer, the instructions reference Minn. Stat. § 290.01, Subd. 5c, a provision enacted generally to determine when a “captive insurance company” is or is not included in a “unitary business” for corporate income tax filing requirements. As a result of the cross-reference in the Form, if a particular “captive insurance company” does not meet that statutory definition, it would seem to be excluded from Form IG255 reporting.

License to Procure Nonadmitted Insurance

A less understood, but still required, obligation is for Minnesota purchasers of nonadmitted insurance to first procure from the DOC, before binding their policies, a License to purchase insurance from nonadmitted insurers. See Minn. Stat. § 60A.198, Subd. 8. The License application states that the person filing has its “home state” in Minnesota, and that the applicant signing the notarized License form “agrees to file” all tax returns with and pay all taxes due to the DOR as required by Minn. Stat. Chapter 297I.

For more information, contact Fredrikson & Byron attorneys Ken Levinson or Will Howieson.