The Board of Examiners on Wednesday approved joining an interstate agreement to share tax revenues from insurance premiums paid by multi-state businesses.
Insurance Commissioner Brett Barratt told the board that he expects Nevada to profit by joining because premiums now collected by states where corporations, including major mining firms, are registered get to keep the insurance premium taxes those companies pay. Under the Nonadmitted Insurance Multi-State Agreement, they'd share those revenues with other states where the companies also do business.
"In other words, we'll net out more," said Gov. Brian Sandoval, who chairs the board.
Barratt said that is what he expects to see. He said a review of "surplus lines tax" information for 2010 shows that about $2 million of the $6.5 million in revenue is attributable to multi-state risk policies.
"If Nevada does not enter a multi-state agreement, Nevada would lose approximately $2 million in tax revenue each year," he said. "This is a known loss that would occur if Nevada does not expeditiously enter into a multi-state agreement."
He said the federal law providing for the agreement takes effect today, and he expects about 20 states to quickly become members.
He said there is a potential downside: "If we don't join, Nevada could continue to collect all of that premium tax without sharing with other states."
He said he and his staff will monitor the program and, if Nevada begins to lose money rather than gain, they'll advise the board immediately. The legislation authorizing Nevada to join the pact was approved by the 2011 Legislature and requires the insurance division to evaluate whether the state is gaining or losing revenue. Barratt told the board Nevada can pull out of the pact on 60 days' notice.
The types of insurance policies involved in the program are what the industry refers to as "surplus lines" -- specialized types of insurance products that differ greatly from normal business or residential policies. Barratt said an example would be insurance purchased by a mining company to cover potential liability from using explosives to blast ore free in an open pit mine. Currently, a mining company would buy that policy through its central offices in its home state and, without the multi-state pact, only that state would collect the premium tax, even if most of the business activity was in another state such as Nevada.