Virginia lawmakers have approved legislation tightening tax compliance requirements for surplus lines insurance brokers while introducing a tax exemption intended to benefit the state’s commuter rail systems.
The measure, Senate Bill 1269, amends § 38.2-4809 of the Code of Virginia. Signed into law on March 19 by Governor Glenn Youngkin, the bill reinforces the state’s oversight of the surplus lines market and heightens penalties for brokers who fail to meet their reporting and tax obligations.
At the same time, the law exempts insurance policies covering Northern Virginia’s commuter rail systems from certain taxes, a move designed to reduce insurance costs for public transportation authorities.
Under the new law, surplus lines brokers licensed in Virginia—or those required to be licensed—must file annual reports by March 1 detailing gross premiums from policies placed with eligible nonadmitted insurers for insureds whose home state is Virginia. The reports must be submitted under oath to the Department of Taxation.
Brokers whose annual premium tax liability exceeds $1,500 are now required to file quarterly tax reports, due within 30 days of each calendar quarter’s end. The law sets strict penalties for late filings, including a fine of $50 for each day a report is overdue. Brokers who fail to pay the premium license tax on time face a 10 percent penalty and interest charges.
The Department of Taxation is empowered to waive penalties for late payments upon a showing of good cause, though interest will still accrue.
The law reinforces criminal penalties for brokers who willfully evade taxes or submit fraudulent returns. Violators may be charged with a Class 1 misdemeanor, the most serious misdemeanor classification under Virginia law.
In addition, any broker who collects taxes or assessments from insured clients is designated as a fiduciary of the Commonwealth, responsible for remitting those funds properly.
Perhaps the most consequential provision of the legislation is the new exemption from premium license taxes for insurance policies procured on behalf of Virginia’s commuter rail systems. Beginning in calendar year 2025, brokers will no longer be subject to the tax on policies covering the rail systems operated jointly by the Northern Virginia Transportation Commission and the Potomac and Rappahannock Transportation District.
The exemption is intended to alleviate the cost burden of insuring public transit infrastructure, potentially freeing up funds for other operational or capital needs.
The legislation places heightened responsibility on surplus lines brokers to meet both annual and quarterly reporting deadlines. Industry experts say brokers may need to strengthen compliance infrastructure, including investing in specialized staff or automated systems, to avoid penalties.
“The state is making clear that accurate and timely reporting is not optional,” said one compliance officer at a regional insurance firm. “The risk of fines, interest charges and even criminal liability means brokers can’t afford to be complacent.”
For most policyholders, the law’s changes are unlikely to translate into higher premiums, industry analysts said. However, brokers may pass along increased administrative costs associated with meeting the new compliance requirements.
The most direct financial relief will go to public transportation authorities. By exempting commuter rail insurance policies from surplus lines taxes, the law reduces costs for transit operators in Northern Virginia—a move state officials say reflects Virginia’s commitment to supporting public infrastructure.
Observers note that Virginia’s legislative shift aligns with a broader trend toward tighter regulation of surplus lines brokers nationwide. The law mirrors principles in the federal Nonadmitted and Reinsurance Reform Act, emphasizing transparency, timely tax remittance and financial accountability in the surplus lines market.
While formal reactions from trade associations and regulators remain forthcoming, Virginia’s Bureau of Insurance and Department of Taxation are expected to issue guidance clarifying enforcement and reporting procedures ahead of the law’s implementation.
In the meantime, brokers are advised to audit their internal processes to ensure compliance.
