Washington State’s Office of the Insurance Commissioner has published further information as to how it plans to implement new legislation mandating the self-procurement tax passed by legislators earlier this year. Senate Bill 5315 was signed into law by Governor Jay Inslee on May 12 and imposes a 2% tax on all premium relating to Washington risks with the methodology for calculating the allocation made available to the Commissioner.
Captives will need to register with Commissioner Mike Kreidler’s office, incurring a $2,500 fee, and demonstrate that captive assets exceed liabilities by $1 million. The first draft of regulations, published on August 20, provide further information on how Kreidler’s office is planning to implement the new law. Of particular interest will be the interpretation of the ‘principle place of business’ of the captive owner.
The proposed rules suggest that Washington State-based subsidiaries of corporates headquartered in another state will have their premium taxed. “Except where the parent corporation is the alter ego of the subsidiary, subsidiaries are analyzed separately from their parent or holding companies,” the regulations state. “For example, if a captive insurer insures a subsidiary that is headquartered in Washington, then this state would be the principal place of business for the insured subsidiary, even if the parent company was headquartered elsewhere.”
Such an interpretation is likely to concern captive owners around the United States that have operations in Washington and ensures this is no longer just a challenge for corporates headquartered in the state. The regulations also stipulate that a registered captive insurer can only provide property & casualty insurance and cannot provide medical stop-loss insurance or workers’ compensation coverage directly to workers.
Again, this is likely to be a challenge for several captive owners with significant operations in Washington State. Stakeholders can provide comments on the proposed regulations until 10 September.