BILL ANALYSIS Senate Research Center C.S.S.B. 1455 By: Hagenbuch Business & Commerce 4/8/2025 Committee Report (Substituted) AUTHOR'S / SPONSOR'S STATEMENT OF INTENT This legislation intends to solve the problem of retaliatory taxes that Texas-based insurance companies are facing when they do business in other states like California and Illinois. Most states charge retaliatory taxes on insurance companies that are domiciled in other states. Out-of-state insurers are made to pay the difference between a state's overall tax rate and the tax rate of the home state of that out-of-state insurer. For example, a Texas-based workers' compensation insurer has a 3.66 percent overall tax burden (1.6 percent in base premium tax + 2.06 percent in maintenance taxes). When that Texas-based insurer does business in California, they will charge the difference between that 3.66 percent and their own base tax rate of 2.35 percent. This means that a Texas-based company will be punished with 1.31 percent in additional tax to the state of California simply because they are domiciled in Texas. This same scenario plays out in Illinois and many other states. The solution is a simple semantic change to the Insurance Code to reclassify the three maintenance taxes (the 2.06 percent referenced above) as a surcharge. Surcharges, by virtue of the structure, name, and the manner in which they are collected, are not included in the overall tax burden for purposes of calculating retaliatory taxes. Other states such as California will not consider these new surcharges when calculating the retaliatory tax of Texas-based insurance companies, thereby lowering or eliminating the retaliatory tax burden. This strategy is already employed by other states to mitigate the retaliatory tax burden on their domestic carriers. California, for example, currently assesses all workers compensation carriers roughly six percent in annual assessments and surcharges that are not included in their retaliatory calculations. The change will not have an impact on the amounts paid to the State of Texas by our Company and will not affect the premium paid by workers' compensation policyholders. It will make Texas a more attractive home for workers' compensation carriers like our own, looking to avoid the predatory and unfair tax practices of other states. (Original Author's/Sponsor's Statement of Intent) C.S.S.B. 1455 amends current law relating to the funding mechanism for the regulation of workers' compensation and workers' compensation insurance and authorizes surcharges. RULEMAKING AUTHORITY This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends the heading to Title 3, Insurance Code, to read as follows: TITLE 3. DEPARTMENT FUNDS, FEES, SURCHARGES, AND TAXES SECTION 2. Amends the heading to Subtitle C, Title 3, Insurance Code, to read as follows: SUBTITLE C. INSURANCE MAINTENANCE TAXES AND SURCHARGES SECTION 3. Amends Section 201.001(a), Insurance Code, to provide that the Texas Department of Insurance (TDI) operating account includes certain monies, including surcharges received by the commissioner of insurance (commissioner) or the Comptroller of Public Accounts of the State of Texas (comptroller) that are required by this code or other law to be deposited to the credit of the account. SECTION 4. Amends Sections 201.051(a) and (d), Insurance Code, to make conforming changes. SECTION 5. Amends Section 251.001(a), Insurance Code, to require the commissioner to annually determine the rate of assessment of each maintenance tax or workers' compensation surcharge imposed under this subtitle. SECTION 6. Amends Section 251.002, Insurance Code, to make conforming changes. SECTION 7. Amends Section 251.003, Insurance Code, to make conforming changes. SECTION 8. Amends the heading to Section 251.004, Insurance Code, to read as follows: Sec. 251.004. DEPOSIT OF MAINTENANCE TAXES AND SURCHARGES. SECTION 9. Amends Section 251.004(a), Insurance Code, to require that maintenance taxes collected under this subtitle and surcharges collected under Chapter 255 (Workers' Compensation Insurance), except as provided by Subsection (b) (relating to requiring the comptroller to reallocate a certain amount of money to the floodplain management account), be deposited in the general revenue fund and reallocated to the TDI operating account. SECTION 10. Amends Chapter 255, Insurance Code, as follows: CHAPTER 255. WORKERS' COMPENSATION INSURANCE Sec. 255.001. New heading: SURCHARGE IMPOSED. (a) Provides that a surcharge, rather than a maintenance tax, is imposed on each authorized insurer with gross premiums subject to the surcharge, rather than to taxation, under Section 255.003, including certain entities. (b) Provides that the surcharge required by this chapter is in addition to taxes or other surcharges imposed that are not in conflict with this chapter. Makes conforming changes. Sec. 255.002. MAXIMUM RATE; ANNUAL ADJUSTMENT. (a) Prohibits the sum of the rates of assessment for the surcharge imposed by this chapter and the surcharges imposed by Chapters 403 (Division Financing) and 405 (Workers' Compensation Research), Labor Code, set by the commissioner, from exceeding 2.7 percent of the gross premiums subject to surcharges. Deletes existing text prohibiting the rate of assessment set by the commissioner from exceeding 0.6 percent of the gross premiums subject to taxation under Section 255.003. (b) Makes conforming changes to this subsection. Sec. 255.003. New heading: PREMIUMS SUBJECT TO SURCHARGE. (a)-(b) Makes conforming changes to these subsections. Sec. 255.004. New heading: SURCHARGE DUE DATES. (a)-(b) Makes conforming changes to these subsections. Sec. 255.005. RECOVERY OF SURCHARGE. Authorizes an insurer to recover a surcharge under this chapter by reflecting the surcharge as an expense in a rate filing required under this code or by charging the insurer's policyholders. SECTION 11. Amends the heading to Section 281.006, Insurance Code, to read as follows: Sec. 281.006. TREATMENT OF CERTAIN TAX REDUCTIONS, SURCHARGES, AND CREDITS. SECTION 12. Amends Section 281.006, Insurance Code, by adding Subsection (c) to provide that, notwithstanding Section 281.005(4) (relating to prohibiting the comptroller from considering a surcharge that an insurer is authorized to recover directly from policyholders), a surcharge imposed by Chapter 255 of this code or certain chapters of the Labor Code, is considered to be a fee paid in this state for purposes of Chapter 281 (Retaliatory Provisions). SECTION 13. Amends Section 402.076(b), Labor Code, to make a conforming change. SECTION 14. Amends Section 403.001(a), Labor Code, to make a conforming change. SECTION 15. Amends Section 403.002, Labor Code, as follows: Sec. 403.002. New heading: SURCHARGES. (a) Requires each insurance carrier, other than a governmental entity, to pay an annual surcharge, rather than maintenance tax, to pay the costs of administering Subtitle A (Texas Workers' Compensation Act) and to support the prosecution of workers' compensation insurance fraud in this state. (b) Provides that the rate of assessment is applied to, rather than prohibits the assessment from exceeding an amount equal to two percent of, the correctly reported gross workers' compensation insurance premiums, including the modified annual premium of a policyholder that purchases an optional deductible plan under Subchapter E (Optional Deductible Plans), Chapter 2053 (Rates for Workers' Compensation Insurance), rather than under Article 5.55C, Insurance Code. (c) Provides that a workers' compensation insurance company is assessed the surcharge, rather than taxed, at the rate established under Section 403.003 and as limited by Section 255.002(a), Insurance Code. Makes conforming changes. (d) Makes a conforming change to this subsection. SECTION 16. Amends the heading to Section 403.003, Labor Code, to read as follows: Sec. 403.003. RATE OF SURCHARGE. SECTION 17. Amends Section 403.003(a), Labor Code, to make conforming changes. SECTION 18. Amends Section 403.004, Labor Code, as follows: Sec. 403.004. New heading: COLLECTION OF SURCHARGE AFTER WITHDRAWAL FROM BUSINESS. Makes conforming changes to this section. SECTION 19. Amends Section 403.005, Labor Code, as follows: Sec. 403.005. New heading: SURCHARGE RATE. Makes conforming changes to this section. SECTION 20. Amends Chapter 403, Labor Code, by adding Section 403.0055, as follows: Sec. 403.0055. RECOVERY OF SURCHARGE. Authorizes an insurer to recover a surcharge under this chapter by reflecting the surcharge as an expense in a rate filing required under the Insurance Code or charging the insurer's policyholders. SECTION 21. Amends Section 403.007(e), Labor Code, to make a conforming change. SECTION 22. Amends the heading to Section 405.003, Labor Code, to read as follows: Sec. 405.003. FUNDING; SURCHARGE AND RECOVERY OF SURCHARGE BY INSURERS. SECTION 23. Amends Section 405.003, Labor Code, by amending Subsections (a), (b), (c), and (d) and adding Subsection (g), as follows: (a) Makes conforming changes to this subsection. (b) Prohibits the surcharge rate, rather than the tax rate, for insurance companies from exceeding the limitation in Section 255.002(a), Insurance Code, rather than from exceeding one-tenth of one percent of the correctly reported gross workers' compensation insurance premiums. Provides that the surcharge rate is applied to the correctly reported gross workers' compensation insurance premiums. Prohibits the surcharge rate for certified self-insurers from exceeding the limitation in Section 255.002(a), Insurance Code, rather than from exceeding one-tenth of one percent of the total tax base of all certified self-insurers, as computed under Section 407.103(b) (relating to the requirements for determining the surcharge base of a certified self-insurer). Provides that the surcharge rate is applied to the total surcharge base of all certified self-insurers, as computed under Section 407.103(b). Prohibits the surcharge rate for self-insurance groups described by Subsection (a) (relating to funding a self-insurance group's duties through the assessment of a surcharge) from exceeding the limitation in Section 255.002(a), Insurance Code, rather than from exceeding one-tenth of one percent of the group's gross premium for the group's retention, excluding premium collected by the group for excess insurance. Provides that the surcharge rate is applied to the group's gross premium for the group's retention, excluding premium collected by the group for excess insurance. Makes conforming changes. (c)-(d) Makes conforming changes to these subsections. (g) Authorizes an insurer to recover a surcharge under this section by reflecting the surcharge as an expense in a rate filing required under the Insurance Code or charging the insurer's policyholders. SECTION 24. Amends Section 407.103, Labor Code, as follows: Sec. 407.103. New heading: SELF-INSURER SURCHARGE; EFFECT ON GENERAL SURCHARGE. (a)-(b) Makes conforming changes to these subsections. (c) Provides that the surcharge, rather than tax, liability of a certified self-insurer under this section is the surcharge, rather than tax, base computed under Subsection (b) multiplied by the rate assessed workers' compensation insurance companies under Sections 403.002 and 403.003, as limited by Section 255.002(a), Insurance Code. (d) Makes a conforming change to this subsection. SECTION 25. Amends Section 407.104, Labor Code, as follows: Sec. 407.104. New heading: COLLECTION OF SURCHARGES AND FEES; ADMINISTRATIVE VIOLATION. (a)-(e) Makes conforming changes to these subsections. SECTION 26. Amends Section 407A.252(b), Labor Code, as follows: (b) Authorizes the commissioner to recover the expenses of the examination under Sections 401.151 (Expenses of Examination of Domestic Insurer) and 401.152 (Expenses of Examination of Other Insurers), rather than Article 1.16, Insurance Code, to the extent the surcharge under Section 407A.302 does not cover those expenses. Makes a conforming change. SECTION 27. Amends the heading to Subchapter G, Chapter 407A, Labor Code, to read as follows: SUBCHAPTER G. TAXES, SURCHARGES, AND ASSESSMENTS SECTION 28. Amends Section 407A.301, Labor Code, as follows: Sec. 407A.301. New heading: SURCHARGE FOR DIVISION AND RESEARCH FUNCTIONS OF DEPARTMENT. (a)-(e) Makes conforming changes to these subsections. SECTION 29. Amends Section 407A.302, Labor Code, as follows: Sec. 407A.302. New heading: SURCHARGE FOR DEPARTMENT. (a)-(c) Makes conforming changes to these subsections. SECTION 30. Amends Section 407A.303, Labor Code, as follows: Sec. 407A.303. New heading: COLLECTION AND PAYMENT OF SURCHARGES. (a)-(c) Makes conforming changes to these subsections. SECTION 31. Makes application of this Act prospective. SECTION 32. Effective date: January 1, 2026.
BILL ANALYSIS
Senate Research Center C.S.S.B. 1455
By: Hagenbuch
Business & Commerce
4/8/2025
Committee Report (Substituted)
Senate Research Center
C.S.S.B. 1455
By: Hagenbuch
Business & Commerce
4/8/2025
Committee Report (Substituted)
AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
This legislation intends to solve the problem of retaliatory taxes that Texas-based insurance companies are facing when they do business in other states like California and Illinois.
Most states charge retaliatory taxes on insurance companies that are domiciled in other states. Out-of-state insurers are made to pay the difference between a state's overall tax rate and the tax rate of the home state of that out-of-state insurer. For example, a Texas-based workers' compensation insurer has a 3.66 percent overall tax burden (1.6 percent in base premium tax + 2.06 percent in maintenance taxes). When that Texas-based insurer does business in California, they will charge the difference between that 3.66 percent and their own base tax rate of 2.35 percent. This means that a Texas-based company will be punished with 1.31 percent in additional
tax to the state of California simply because they are domiciled in Texas. This same scenario plays out in Illinois and many other states.
The solution is a simple semantic change to the Insurance Code to reclassify the three maintenance taxes (the 2.06 percent referenced above) as a surcharge. Surcharges, by virtue of the structure, name, and the manner in which they are collected, are not included in the overall tax burden for purposes of calculating retaliatory taxes. Other states such as California will not consider these new surcharges when calculating the retaliatory tax of Texas-based insurance companies, thereby lowering or eliminating the retaliatory tax burden.
This strategy is already employed by other states to mitigate the retaliatory tax burden on their domestic carriers. California, for example, currently assesses all workers compensation carriers roughly six percent in annual assessments and surcharges that are not included in their retaliatory calculations.
The change will not have an impact on the amounts paid to the State of Texas by our Company and will not affect the premium paid by workers' compensation policyholders. It will make Texas a more attractive home for workers' compensation carriers like our own, looking to avoid the predatory and unfair tax practices of other states.
(Original Author's/Sponsor's Statement of Intent)
C.S.S.B. 1455 amends current law relating to the funding mechanism for the regulation of workers' compensation and workers' compensation insurance and authorizes surcharges.
RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends the heading to Title 3, Insurance Code, to read as follows:
TITLE 3. DEPARTMENT FUNDS, FEES, SURCHARGES, AND TAXES
SECTION 2. Amends the heading to Subtitle C, Title 3, Insurance Code, to read as follows:
SUBTITLE C. INSURANCE MAINTENANCE TAXES AND SURCHARGES
SECTION 3. Amends Section 201.001(a), Insurance Code, to provide that the Texas Department of Insurance (TDI) operating account includes certain monies, including surcharges received by the commissioner of insurance (commissioner) or the Comptroller of Public Accounts of the State of Texas (comptroller) that are required by this code or other law to be deposited to the credit of the account.
SECTION 4. Amends Sections 201.051(a) and (d), Insurance Code, to make conforming changes.
SECTION 5. Amends Section 251.001(a), Insurance Code, to require the commissioner to annually determine the rate of assessment of each maintenance tax or workers' compensation surcharge imposed under this subtitle.
SECTION 6. Amends Section 251.002, Insurance Code, to make conforming changes.
SECTION 7. Amends Section 251.003, Insurance Code, to make conforming changes.
SECTION 8. Amends the heading to Section 251.004, Insurance Code, to read as follows:
Sec. 251.004. DEPOSIT OF MAINTENANCE TAXES AND SURCHARGES.
SECTION 9. Amends Section 251.004(a), Insurance Code, to require that maintenance taxes collected under this subtitle and surcharges collected under Chapter 255 (Workers' Compensation Insurance), except as provided by Subsection (b) (relating to requiring the comptroller to reallocate a certain amount of money to the floodplain management account), be deposited in the general revenue fund and reallocated to the TDI operating account.
SECTION 10. Amends Chapter 255, Insurance Code, as follows:
CHAPTER 255. WORKERS' COMPENSATION INSURANCE
Sec. 255.001. New heading: SURCHARGE IMPOSED. (a) Provides that a surcharge, rather than a maintenance tax, is imposed on each authorized insurer with gross premiums subject to the surcharge, rather than to taxation, under Section 255.003, including certain entities.
(b) Provides that the surcharge required by this chapter is in addition to taxes or other surcharges imposed that are not in conflict with this chapter. Makes conforming changes.
Sec. 255.002. MAXIMUM RATE; ANNUAL ADJUSTMENT. (a) Prohibits the sum of the rates of assessment for the surcharge imposed by this chapter and the surcharges imposed by Chapters 403 (Division Financing) and 405 (Workers' Compensation Research), Labor Code, set by the commissioner, from exceeding 2.7 percent of the gross premiums subject to surcharges. Deletes existing text prohibiting the rate of assessment set by the commissioner from exceeding 0.6 percent of the gross premiums subject to taxation under Section 255.003.
(b) Makes conforming changes to this subsection.
Sec. 255.003. New heading: PREMIUMS SUBJECT TO SURCHARGE. (a)-(b) Makes conforming changes to these subsections.
Sec. 255.004. New heading: SURCHARGE DUE DATES. (a)-(b) Makes conforming changes to these subsections.
Sec. 255.005. RECOVERY OF SURCHARGE. Authorizes an insurer to recover a surcharge under this chapter by reflecting the surcharge as an expense in a rate filing required under this code or by charging the insurer's policyholders.
SECTION 11. Amends the heading to Section 281.006, Insurance Code, to read as follows:
Sec. 281.006. TREATMENT OF CERTAIN TAX REDUCTIONS, SURCHARGES, AND CREDITS.
SECTION 12. Amends Section 281.006, Insurance Code, by adding Subsection (c) to provide that, notwithstanding Section 281.005(4) (relating to prohibiting the comptroller from considering a surcharge that an insurer is authorized to recover directly from policyholders), a surcharge imposed by Chapter 255 of this code or certain chapters of the Labor Code, is considered to be a fee paid in this state for purposes of Chapter 281 (Retaliatory Provisions).
SECTION 13. Amends Section 402.076(b), Labor Code, to make a conforming change.
SECTION 14. Amends Section 403.001(a), Labor Code, to make a conforming change.
SECTION 15. Amends Section 403.002, Labor Code, as follows:
Sec. 403.002. New heading: SURCHARGES. (a) Requires each insurance carrier, other than a governmental entity, to pay an annual surcharge, rather than maintenance tax, to pay the costs of administering Subtitle A (Texas Workers' Compensation Act) and to support the prosecution of workers' compensation insurance fraud in this state.
(b) Provides that the rate of assessment is applied to, rather than prohibits the assessment from exceeding an amount equal to two percent of, the correctly reported gross workers' compensation insurance premiums, including the modified annual premium of a policyholder that purchases an optional deductible plan under Subchapter E (Optional Deductible Plans), Chapter 2053 (Rates for Workers' Compensation Insurance), rather than under Article 5.55C, Insurance Code.
(c) Provides that a workers' compensation insurance company is assessed the surcharge, rather than taxed, at the rate established under Section 403.003 and as limited by Section 255.002(a), Insurance Code. Makes conforming changes.
(d) Makes a conforming change to this subsection.
SECTION 16. Amends the heading to Section 403.003, Labor Code, to read as follows:
Sec. 403.003. RATE OF SURCHARGE.
SECTION 17. Amends Section 403.003(a), Labor Code, to make conforming changes.
SECTION 18. Amends Section 403.004, Labor Code, as follows:
Sec. 403.004. New heading: COLLECTION OF SURCHARGE AFTER WITHDRAWAL FROM BUSINESS. Makes conforming changes to this section.
SECTION 19. Amends Section 403.005, Labor Code, as follows:
Sec. 403.005. New heading: SURCHARGE RATE. Makes conforming changes to this section.
SECTION 20. Amends Chapter 403, Labor Code, by adding Section 403.0055, as follows:
Sec. 403.0055. RECOVERY OF SURCHARGE. Authorizes an insurer to recover a surcharge under this chapter by reflecting the surcharge as an expense in a rate filing required under the Insurance Code or charging the insurer's policyholders.
SECTION 21. Amends Section 403.007(e), Labor Code, to make a conforming change.
SECTION 22. Amends the heading to Section 405.003, Labor Code, to read as follows:
Sec. 405.003. FUNDING; SURCHARGE AND RECOVERY OF SURCHARGE BY INSURERS.
SECTION 23. Amends Section 405.003, Labor Code, by amending Subsections (a), (b), (c), and (d) and adding Subsection (g), as follows:
(a) Makes conforming changes to this subsection.
(b) Prohibits the surcharge rate, rather than the tax rate, for insurance companies from exceeding the limitation in Section 255.002(a), Insurance Code, rather than from exceeding one-tenth of one percent of the correctly reported gross workers' compensation insurance premiums. Provides that the surcharge rate is applied to the correctly reported gross workers' compensation insurance premiums. Prohibits the surcharge rate for certified self-insurers from exceeding the limitation in Section 255.002(a), Insurance Code, rather than from exceeding one-tenth of one percent of the total tax base of all certified self-insurers, as computed under Section 407.103(b) (relating to the requirements for determining the surcharge base of a certified self-insurer). Provides that the surcharge rate is applied to the total surcharge base of all certified self-insurers, as computed under Section 407.103(b). Prohibits the surcharge rate for self-insurance groups described by Subsection (a) (relating to funding a self-insurance group's duties through the assessment of a surcharge) from exceeding the limitation in Section 255.002(a), Insurance Code, rather than from exceeding one-tenth of one percent of the group's gross premium for the group's retention, excluding premium collected by the group for excess insurance. Provides that the surcharge rate is applied to the group's gross premium for the group's retention, excluding premium collected by the group for excess insurance. Makes conforming changes.
(c)-(d) Makes conforming changes to these subsections.
(g) Authorizes an insurer to recover a surcharge under this section by reflecting the surcharge as an expense in a rate filing required under the Insurance Code or charging the insurer's policyholders.
SECTION 24. Amends Section 407.103, Labor Code, as follows:
Sec. 407.103. New heading: SELF-INSURER SURCHARGE; EFFECT ON GENERAL SURCHARGE. (a)-(b) Makes conforming changes to these subsections.
(c) Provides that the surcharge, rather than tax, liability of a certified self-insurer under this section is the surcharge, rather than tax, base computed under Subsection (b) multiplied by the rate assessed workers' compensation insurance companies under Sections 403.002 and 403.003, as limited by Section 255.002(a), Insurance Code.
(d) Makes a conforming change to this subsection.
SECTION 25. Amends Section 407.104, Labor Code, as follows:
Sec. 407.104. New heading: COLLECTION OF SURCHARGES AND FEES; ADMINISTRATIVE VIOLATION. (a)-(e) Makes conforming changes to these subsections.
SECTION 26. Amends Section 407A.252(b), Labor Code, as follows:
(b) Authorizes the commissioner to recover the expenses of the examination under Sections 401.151 (Expenses of Examination of Domestic Insurer) and 401.152 (Expenses of Examination of Other Insurers), rather than Article 1.16, Insurance Code, to the extent the surcharge under Section 407A.302 does not cover those expenses. Makes a conforming change.
SECTION 27. Amends the heading to Subchapter G, Chapter 407A, Labor Code, to read as follows:
SUBCHAPTER G. TAXES, SURCHARGES, AND ASSESSMENTS
SECTION 28. Amends Section 407A.301, Labor Code, as follows:
Sec. 407A.301. New heading: SURCHARGE FOR DIVISION AND RESEARCH FUNCTIONS OF DEPARTMENT. (a)-(e) Makes conforming changes to these subsections.
SECTION 29. Amends Section 407A.302, Labor Code, as follows:
Sec. 407A.302. New heading: SURCHARGE FOR DEPARTMENT. (a)-(c) Makes conforming changes to these subsections.
SECTION 30. Amends Section 407A.303, Labor Code, as follows:
Sec. 407A.303. New heading: COLLECTION AND PAYMENT OF SURCHARGES. (a)-(c) Makes conforming changes to these subsections.
SECTION 31. Makes application of this Act prospective.
SECTION 32. Effective date: January 1, 2026.