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May 17, 2021

Washington State to require captive insurers to register and pay insurance premium tax

On May 12, 2021, Washington Governor Jay Inslee signed a bill (SB 5315) that provides for the registration and taxation of certain out-of-state captive insurance companies.

Prior to SB 5315, Washington lacked the statutory framework to allow for the registration or taxation of captive insurance companies in the state.


According to a report commissioned by the Washington State Office of Insurance Commissioner (OIC), 46 US states and territories impose a self-procurement tax (SPT) on insurance procured from unauthorized captive insurance companies. Additionally, 38 US states and territories provide for the formation and domicile of captive insurance companies.

The OIC had previously pursued enforcement actions against large Washington-headquartered businesses that insured risks with out-of-state captive insurance companies. The OIC argued that these companies were engaged in unauthorized insurance activity in the state in violation of Washington law, and that such premiums should be subject to Washington's tax on unauthorized (surplus lines) insurance or, in the alternative, the B&O tax. Some of these enforcement actions were discontinued at the request of legislative leadership while they worked on a legislative resolution.

The OIC and Washington Department of Revenue (DOR) also commissioned a multistate study on the taxation and regulation of insurance by an independent consulting firm to inform their legislative approach.1

SB 5315

SB 5315 does not establish Washington as a state of domicile/formation for captive insurers. Rather, it requires certain "eligible captive insurers" domiciled in other states, and insuring Washington state risk, to register with the Department of Insurance and pay a premium tax. Unlike SPTs imposed in other states, Washington's tax would be imposed on the captive insurance company, rather than on the insured.

An "eligible captive insurer" is an insurance company that:

  • Is partially or wholly owned by a corporation, company, nonprofit or public institution of higher education
  • Insures risk of its captive owner, the owner's affiliates or both
  • Has at least one insured whose principal place of business is Washington State
  • Has assets that exceed its liabilities by $1 million and can timely pay its debts, as verified by audited financial statements prepared by an independent certified accountant
  • Is licensed as a captive insurer by the jurisdiction in which it is domiciled

Eligible captive insurers are required to register with the OIC within 120 days of either (1) the effective date of the bill or (2) the date a policy is issued covering Washington risks. The bill took effect immediately upon being signed into law. An eligible captive insurer must pay an initial registration fee of $2,500. The OIC may set an annual renewal fee of $2,500 or less. Failing to register will make the eligible captive insurer liable for penalties and fines.

By March 1 of each year, registered eligible captive insurers (except those affiliated with colleges and universities) are required to pay a 2% premium tax on insurance directly procured by and provided to its parent or affiliate to cover risks within the state during the preceding calendar year. SB 5315 is structured like an automatic voluntary disclosure program (VDA) with a 10-year lookback period. Under SB 5315, premium taxes are due for any period after January 1, 2011; penalties and fees will not be imposed. However, beginning July 1, 2021, penalties, interest and fees may be imposed.


Most states tax insureds via an SPT. Under the framework established by the Nonadmitted Reinsurance and Reform Act of 2010 (NRRA), an SPT is generally only imposed by a single "home state" for a policy covering a single insured or a group of affiliated insureds. Washington's registration and taxation regime imposed on captive insurers by SB 5315 is unique among the states and deviates from the NRRA approach. The Washington tax impacts captive insurers where "one or more of its insureds have their principal place of business in Washington."2 Thus, if an affiliated group's home state is in another state, for example Illinois, it would owe tax, generally on 100% of the group policy premium to Illinois. If that affiliated group also has a subsidiary whose principal place of business is in Washington state, it might then also owe tax to Washington on the Washington portion of that premium as well, which could result in multiple taxation. This legislation is also unusual in its retroactive effect; given the 2021 enactment date, Washington is seeking to tax insurance activity that occurred up to 10 years ago. Businesses with captive insurance arrangements may want to review this legislation against their facts — dating back to January 1, 2011 — to assess whether this new tax might arguably apply to them.


Contact Information
For additional information concerning this Alert, please contact:
Financial Services Office – Insurance Sector
   • Mikhail Raybshteyn (
State and Local Taxation Group
   • Conor McKenzie (
   • Timothy Mahon (
   • Trim Smith (


1 See Washington DOR and OIC, Captive Insurance Study (Jan. 18, 2021).

2 SB 5315 is potentially ambiguous in certain respects. For example, "principal place of business" is not defined in the legislation and raises questions as to the application to corporate groups.