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Microsoft settles captive tax dispute with Washington state

Posted On: Aug. 16, 2018 8:12 AM CST

Microsoft settles captive tax dispute with Washington state

Washington state and Microsoft Corp. have settled allegations of taxes unpaid by the software giant’s captive insurer.

The Redmond, Washington-based company agreed to pay $573,905 in unpaid premium taxes and $302,915 in interest and penalties, and Washington state Insurance Commissioner Mike Kreidler has rescinded cease-and-desist orders issued in May to Microsoft’s captive Cypress Insurance Co. of Phoenix to stop transacting insurance without a license and pay tax on its written premiums.

“I am pleased with the outcome of this settlement,” Mr. Kreidler said in a statement on Monday. “Cypress is now complying with Washington state law, and the state will receive some of the money owed. Captives are a gray area in state law, and this is the first case where we’ve tested them.”

Cypress did not hold a certificate of authority or place insurance through a surplus line broker, according to the statement. As of July 1, Cypress obtained new policies through a surplus line broker, which is licensed and pays premium tax. Surplus line insurance typically covers risks that other insurers do not, the statement noted.

Mr. Kreidler’s office will look at other captives that do business in Washington state, according to the statement. 

“I encourage captives insuring risks in Washington — and that want to be proactive in the interest of fairness — to contact my office to start conversations about their portfolios,” Mr. Kreidler said. “I want to make sure that all insurers pay their fair share as part of doing business here.”

The dispute between Microsoft and Washington state regulators caught the attention of the captive community, speakers at the Vermont Captive Insurance Association conference in Burlington, Vermont, said last week.

“We entered into an agreement with the Washington Office of the Insurance Commissioner and the matter is resolved," the company said in an emailed statement.