Direct Placement Tax Decision from the Tax Court of New Jersey

The Tax Court of New Jersey (NJTC) rendered an interesting decision regarding direct placement taxes. In brief, before the enactment of the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA), Johnson & Johnson, which is based in New Jersey and which at the time paid premium to its captive in Vermont, remitted to New Jersey direct placement tax on the portion of premium paid to the Vermont captive relating to risk in New Jersey. After enactment of the NRRA, Johnson & Johnson remitted to New Jersey direct placement tax on the full premium paid to Vermont.

The NRRA is relatively clear that its provisions apply to both surplus lines premiums and premiums paid to a nonadmitted insurer (such as the Vermont captive in the present case) and require that surplus lines and direct placement taxes be paid to the "home state" on the full premium.

Johnson & Johnson filed a claim for refund and argued that the New Jersey legislation enacted subsequent to the NRRA that was intended to implement the NRRA provisions specifically only referred to surplus lines premium (and not premiums paid to nonadmitted insurers), and as such, the tax provisions applicable to nonadmitted insurers prior to enactment of the NRRA were still applicable. The NJTC held that notwithstanding the specific language of the statute, the intent of the legislature had been to cover both surplus lines premium and premium paid to nonadmitted insurers.