Alert

Washington Passes New Legislation Enforcing Premium Tax on Captive Insurers

On May 12, 2021, Washington State Governor Jay Inslee signed into law Second Substitute Senate Bill 5315 (SSSB 5315), which details the applicability of:

  • Washington premium tax
  • Washington premium tax registration process
  • Penalty and interest abatement for captive insurers doing business in Washington that haven’t registered or paid Washington premium tax

An overview of the law and how it could impact your business follows.

Washington Premium Tax Imposed on Eligible Captive Insurers

Washington law provides that Washington-authorized insurers are subject to a 2% premium tax on the amount of premiums written. Based on past guidance and communications, the Washington Office of the Insurance Commissioner (OIC) held the position that captive insurers are subject to the premium tax.

SSSB 5315 confirms that eligible captive insurers are subject to the premium tax on premiums for insurance directly procured by and provided to its parent or another affiliate for Washington risks during the preceding calendar years.

Washington risks means the share of risk covered by the premiums that’s allocable to Washington, based on either:

  • Where the underlying risks are located
  • Where the losses or injuries giving rise to covered claims arise

Eligible Captive Insurers Defined

An eligible captive insurer means an insurance company that has the following characteristics:

  • Wholly or partially owned by a captive owner
  • Insures risks of the captive owner or affiliates or both
  • One or more of its insureds have their principal place of business in Washington
  • Has assets that exceed its liabilities by at least $1 million and can pay its debts as they come due, verified by audited financial statements by an independent CPA
  • Licensed as a captive insurer by the jurisdiction in which it’s domiciled

Eligible captive insurers may provide only property and casualty insurance.

Eligible Captive Insurers Required to Register

Within 120 days after May 12, 2021, or, if later, 120 days after first issuing a policy that covers Washington risks, an entity acting as an eligible captive insurer must register with the OIC. 

Registration will be approved if:

  • Assets exceed liabilities by at least $1 million and the captive can pay its debts as they come due, both as verified by audited financial statements by an independent CPA
  • The captive is in good standing in its jurisdiction of domicile
  • The captive has paid a fee of $2,500

Penalty and Interest Abatement Available for Periods Through June 30, 2021

Taxes on premiums are due from an eligible captive insurer for any period after January 1, 2011, if not previously remitted to the commissioner.

Taxes due for periods before July 1, 2021, aren’t subject to penalties or interest if captive insurers register with the OIC before September 12, 2021.

However, for periods beginning July 1, 2021, a registered eligible captive insurer is subject to penalties and interests.

We’re Here to Help

For questions regarding the new captive insurer legislation, contact your Moss Adams professional.

Special thanks to Cory Van Arnum, senior, State & Local Tax Services, for contributions to this article.

Contact Us with Questions

Enter security code:
 Security code