A bill introduced in Washington last week that proposes a 2% captive premium tax on risks based in the state, would raise about $29 million in back taxes and generate more than $2 million in annual revenue going forward, according to an official who testified before a legislative committee Tuesday.

The bill, which is supported by several large captive owners in the state, follows four years of increased scrutiny of captives in Washington by the state’s Insurance Commissioner Mike Kreidler.

After being challenged over the alleged nonpayment of premium taxes, various large captive owners, including Microsoft Inc. in 2018 and Costco Wholesale Corp. in 2019, paid back taxes and penalties to settle with the insurance department.

According to the text of S.B. 5315, the legislation would not make Washington a captive domicile but would establish “a framework for registration by captive insurers that insure Washington-based entities.”

The legislation would impose the premium tax on captives only “for insurance directly procured by and provided to its parent or another affiliate for Washington risks,” the bill states. In addition, captives would be required to pay an annual $2,500 registration fee.

Testifying before the Senate Business, Financial Services & Trade Committee on Tuesday, Candice Myrum, deputy commissioner, policy and legislative division for the state’s office of the insurance commissioner, said the premium tax would be applied retroactively for 10 years to Jan. 1, 2021, in addition to future captive premiums. No penalties or interest would be charged on the back taxes.

Regulators estimate that the tax would raise $29 million on a retroactive basis and $2 million to $2.6 million annually, based on current captive usage in the state.

Future tax revenue could rise to $5 million a year if as expected captives that had suspended operations after the state started investigating the issue reenter the market, said Denny Eliason, a partner at lobbying firm Alliances Northwest, who represents Amazon.com Inc., Starbucks Corp. and other captive owners.

Captive owners have worked with the insurance commissioner since the legality of captives in Washington was questioned and the bill “offers a thoughtful compromise,” and sets out “an appropriate level of registration and oversight,” he said.