The Texas Comptroller of Public Accounts (Comptroller) is conducting a temporary tax amnesty program for "unauthorized insurance premium tax" for nonadmitted captive insurance companies (i.e., unlicensed captive insurance companies) and their insureds through December 31, 2026. Nonadmitted captive insurance companies that participate in the amnesty program and come into compliance with the state's insurance premium tax law will have otherwise applicable penalties and interest waived and be subject to a four-year lookback period.

Nonadmitted captive insurance companies are subject to the unauthorized insurance premium tax, which is levied at a rate of 4.85% on the gross premiums charged for insurance covering people, property or activities located in Texas. If a nonadmitted captive insurance company that insures only the risks of its parent or affiliated companies engages in an unauthorized insurance transaction, the company remains liable for the premium tax on that business under Tex. Ins. Code Section 101.053(b)(6), even though it is not subject to the regulatory prohibitions and sanctions that otherwise apply to unauthorized insurance. The tax applies to the portion of premium allocated to risks or exposures located in Texas; premium on a multistate policy is apportioned using one of the standards permitted under 34 Tex. Admin. Code Section 3.835 (for example, Texas physical assets, payroll, sales, exposure time, or total insured value). The rule also treats the insured's home office as the location of the risk in the case of indemnity policies that reimburse the insured for losses paid. Both the agent and the insured are jointly responsible for the tax when it is not timely paid by the captive insurer (Tex. Ins. Code Section 226.005(c)).

The Comptroller said it is notifying certain franchise taxpayers that may be affiliated with a nonadmitted captive insurance company; however, taxpayers that do not receive such notice may still participate in the amnesty program.

Certain arrangements are excepted from the unauthorized insurance premium tax and would fall outside the scope of this amnesty program, including the lawful transaction of surplus lines insurance under Chapter 981 of the Texas Insurance Code, independently procured insurance on which premium tax has been paid under Chapter 226, and captive insurers authorized under Chapter 964 that pay premium tax under Chapter 223A and maintenance taxes under Tex. Ins. Code Section 964.068. Taxpayers should confirm whether an exception applies before considering participation in the amnesty program.

To participate in this amnesty program, an unlicensed captive insurance company, and those who are insured by one, must file Forms 25-108, Texas Annual Insurance Tax Report (Unauthorized Insurance), and 25-123, Texas Annual Insurance Tax Report — Supplement (Unauthorized Insurance) for insurance tax years 2022 through 2025. This covers insurance written from January 1, 2022 through December 31, 2025.

To qualify for amnesty, the forms must be filed by December 31, 2026. Forms 25-108 and 25-123 are available on the Texas Insurance Tax Forms webpage.

Implications

Unlicensed captive insurance companies and those who are insured by one may want to consider participating in this amnesty program to (1) bring themselves into compliance with the state's insurance premium tax laws, (2) have otherwise applicable penalties and interest waived, and (3) be subject to a limited lookback period.

Taxpayers who receive a notice from the Comptroller will not have to take further action if they are not affiliated with a nonadmitted captive insurance company.