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Captives report unpaid premium taxes to Washington state

Posted On: Jun. 11, 2019 11:37 AM CST


Six captives have self-reported unpaid premium taxes to the state of Washington as part of an initiative by Insurance Commissioner Mike Kreidler to allow captives that have unlawfully insured any risk in the state in the past 15 years to pay a substantially reduced fine and premium tax penalty for self-reporting the activity.

The self-reporting initiative, launched in December, followed a settlement with Microsoft Corp. over unpaid premium taxes for its out-of-state captive. In May 2018, Mr. Kreidler’s office issued a cease-and-desist order to Microsoft’s Arizona-based captive insurer and a notice that it intended to collect unpaid premium taxes. In August 2018, the Redmond, Washington-based software giant agreed to pay $573,905 in unpaid premium taxes and $302,915 in interest and penalties, and Mr. Kreidler rescinded the order to Microsoft’s captive Cypress Insurance Co. of Phoenix to stop transacting insurance without a license and pay tax on its written premiums.

One of the six captives self-reporting to date, NW Re Ltd. in Phoenix, agreed to pay $3.6 million in unpaid premium taxes, penalties, interest and a fine in March. NW Re’s sole insured and parent company is Costco Wholesale Corp. based in Issaquah, Washington. The captive provided deductible reimbursement for Costco’s liability and workers compensation coverage from 2000 until 2019 without authorization, according to a department statement.

The department is still working out settlements for the other five captives, a spokeswoman said via email on Tuesday.

“Among captives, we do believe that failing to pay premium taxes is a widespread practice,” the spokeswoman said. “Many large corporations use captives to some degree and generally only pay premium taxes to their state of captive domicile — not the states where they are insuring risk or their insured is located.”