NAPLES, Fla.—The surplus lines market is at odds with insurance commissioners over what sort of interstate compact should be established to simplify payment of premium taxes as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, making it unlikely a solution will be in place by the time the law takes effect this summer.

The provisions, which were part of the Nonadmitted and Reinsurance Reform Act until that measure was folded into Dodd-Frank last year, make a policyholder's home state the sole regulator of surplus lines transactions and require that all premium taxes be paid only to that state as of July 21.

The law, which leaves it to states to devise a way to collect and allocate premium taxes, has spawned competing efforts to set up a multistate compact to handle that chore.

The National Assn. of Professional Surplus Lines Offices Ltd. helped develop an approach known as the Surplus Lines Insurance Multi-State Compliance Compact. SLIMPACT would authorize, among other things, a governing commission to establish allocation formulas, uniform payment methods and reporting requirements for policyholders and surplus lines brokers.

Separately, the National Assn. of Insurance Commissioners is lobbying states to adopt its proposal, the Nonadmitted Insurance Multi-State Agreement. NIMA addresses the tax issues, but it does not address the uniformity issues covered in SLIMPACT.

Richard M. Bouhan, executive director of NAPSLO, said during the group's 25th annual Mid-Year Leadership Forum in Naples, Fla., late last month that the two sides have squared off.

“This has become a battle between NIMA—and let me assure you that the brokers do not want to live in a NIMA world with the tax allocation formulas—and SLIMPACT,” he said.

SLIMPACT, Mr. Bouhan said, “is a much better compact from our perspective” and better reflects “what Congress wanted the states to do in developing a compact. We support SLIMPACT as the compact states should enter into.”

The National Conference of Insurance Legislators, the Council of State Governments and the National Conference of State Legislators have endorsed SLIMPACT.

NAPSLO opposes the NIMA approach in part because it requires significant data reporting and does not establish a commission as called for in SLIMPACT, said Steven P. Stephan, director of government relations with NAPSLO.

NIMA would require “the voluntary cooperation of 50 insurance commissioners to get uniformity,” he said. “Those of you who have been around awhile know it is very, very difficult to get 50 commissioners to agree on anything.”

Mr. Stephan said the tax payment rules and others, such as those that simplify broker compliance and licensing requirements, in the Dodd-Frank legislation generally treat surplus lines insurers and brokers more like those in the admitted market. The provisions “were the right thing to do. These reforms were common sense (and) put in place a structure that was much simpler for the surplus lines world,” he said.

“The issue has to do with how much data is going to be required and when is it going to be required to divide the taxes,” he said. “We don't particularly care if the states want to divide up their taxes; we do care if they want an enormous amount of data from the brokers in order to get this allocated.”

There is no deadline to establish an interstate compact, but divisiveness over what sort of arrangement should be used is slowing the process of setting one up, he said.

“It will be difficult for anyone to start any kind of tax-sharing agreement between now and July” when the law goes into effect, Mr. Stephan said. Some states have proposed various legislation regarding tax allocation through a compact, “but even if they adopted them today, they still need a regulation and a lot of infrastructure” to implement the system, he said.

In the meantime, only the home state of an insured will collect surplus lines premium taxes and other states will have to wait to receive their share.