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Illinois law that raises tax on captive insurers draws fire

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Illinois law that raises tax on captive insurers draws fire

An Illinois law that apparently will subject Illinois-based companies to self-procurement taxes on premiums placed in their captives could be “very detrimental” to those companies' captive operations, a captive association leader said.

The measure, presented by the Illinois Department of Insurance as a “technical amendment” to the state's existing premium tax law meant to clarify application of the tax in surplus lines transactions, has also raised the ire of the state's Republican legislators who view it as a tax increase on Illinois businesses.

“We were made aware of it early on before the governor signed the bill,” said Richard Smith, president of the Burlington, Vermont-based Vermont Captive Insurance Association. “We knew that there was a group of business organizations that were seeking to work with the bill's sponsor and, at the time, the governor to get him to veto it. That didn't happen.”

The measure, signed into law Aug. 15 by Illinois Gov. Pat Quinn, a Democrat, takes effect Jan. 1. It could place a tax of up to 4.6% on premiums placed in captives by Illinois companies.

“Obviously it would be very detrimental to captives headquartered in Illinois,” said Mr. Smith.

A letter to the governor from the 47 Republican members of the Illinois House of Representatives earlier this month asked that the Illinois Department of Insurance reverse its interpretation that the new law applied to captives.

“The Department of Insurance portrayed the bill as a technical amendment to existing law, not a tax increase,” the letter said. “The department's own fact sheet on Senate Bill 3324 made no mention of taxing payments to captive insurance companies or closing 'loopholes.'”

The letter said that if the Illinois department did not reverse its interpretation that the law applies to captives, the Republican caucus would work to repeal the measure during the General Assembly's fall veto session in November and December.

Mr. Smith said there is a working group of captive owners looking to revise the measure to eliminate the application of the tax to captives.

“It includes a number of our members,” he said, adding that the VCIA has approximately 30 Illinois-based members, including both captives and service providers.

The Illinois Department of Insurance did not respond to request for comment.

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