Washington Increases Enforcement of Premium Tax for Captive Insurers

The Washington Office of the Insurance Commissioner (OIC) has recently taken aggressive action against captive insurance companies that haven’t paid tax on premiums for risks insured in Washington state.

Washington Premium Tax

Washington state law provides that Washington-authorized insurers are subject to a 2% premium tax on the amount of premiums written. Based on recent guidance and communications, the OIC has demonstrated its position that it’s long been OIC policy that captive insurers are subject to the premium tax.

Impact on Captive Insurers

According to Washington state law, risk in the state may only be insured through an admitted insurer or unauthorized insurer placed by a surplus lines broker.

Additionally, captive insurers owe Washington premium tax on the total amount of premium written to insure risk located in Washington, regardless of where the captive insurer is located or domiciled.   

The Self-Reporting Program

Given the OIC’s heightened enforcement of premium tax against captive insurers, the OIC is allowing captive insurance companies to participate in an amnesty program, referred to as the self-reporting program, if they:

  • Haven’t been contacted by the OIC
  • Have unlawfully insured any risk in Washington state in the past 15 years

Benefits and Deadlines

Captive insurers who are insuring risk in Washington and wish to participate in the self-reporting program enjoy the benefit of reduced tax penalties and fines and a reduced lookback period. 

Captive insurers who self-report on or before December 31, 2019, receive the benefit of only a 10-year lookback period, a 50% reduction of tax penalty, and a limitation of fines to no more than $100,000.

Captive insurers who self-report after December 31, 2019, but before June 30, 2020, receive the benefit of a 15-year lookback period and a 25% reduction of tax penalty. Full fines will be applied.

The self-reporting program will no longer be available after June 30, 2020, and captive insurers who are contacted for enforcement purposes by the OIC will likely be subject to an unlimited lookback period paired with full interest, penalties, and fines. 

We’re Here to Help

Contact your Moss Adams professional or email statetax@mossadams.com with any questions regarding the OIC self-reporting program.