The issues caused for captive insurance companies by the ‘Microsoft v Washington Insurance Commissioner’ case and the comments of commissioner Mike Kreidler are not going away, according to John Dies, managing director of tax controversy at alliantgroup.
Microsoft’s captive insurer, Cypress Insurance, will pay $876,820—$573,905 in unpaid premium taxes and $302,915 in interest and penalties—to Kreidler, as part of a settlement agreement with the state.
Following the settlement decision, Kreidler suggested his office will turn their attention to other captives doing business in Washington state.
Dies said that while Washington’s stance has been “very aggressive”, other states are considering taking similar action.
He commented: “There are plenty of states out there right now that are making decisions about what they’re going to do.”
“The captive market is increasing exponentially and I don’t see that as an issue that is going away, I think the bigger question is are states going to make policy decisions here.”
According to Dies, states face a “revenue decision” as to what their next move is.
“I guess it is a revenue decision, if they think they have a lot of captives in their state that are not complying with what they believe their rules require, they have to make the decision over whether the revenue they’re losing by allowing captives to be in the state without complying is greater than the revenue they will lose by captives possibly moving elsewhere.”
“Maybe the easy answer for all of them is get a few of the big companies, generate some revenue and then come up with a compliance-friendly policy that encourages captives to come to them instead of having to chase and catch them to force compliance.”
