Hawaii Gets New Captive Tax, Fee Rules

Hawaii's Governor Ben Cayetano signed a measure into law lastweek that simplifies the state's premium tax law for captives.

Under the new rules, effective immediately, all captivelicensees will be subject to a flat 0.25 percent tax on the first$25 million of premiums, 0.15 percent on the next $25 million, and0.05 percent on premiums in excess of $50 million.

“Rather than have a separate tax rate for groups versus purecaptives, we now have a single tax rate,” said Craig M. Watanabe,captive insurance administrator for the Hawaii InsuranceDivision.

“We don't double-tax premiums into captives,” he added,explaining that Hawaii captives only pay tax on premiums notpreviously taxed. For example, when a captive assumes reinsurancefrom an insurer that already paid a tax on underlying premium,Hawaii does not impose another tax.

Mr. Watanabe said a similar graduated tax structure exists inVermont. Unlike Hawaii, Vermont and South Carolina impose a tax onreinsurance.

Insurance Commissioner Wayne Metcalf said in a statement that itwould be unlikely that premium tax collections from captives wouldhave a significant impact on Hawaiis over $7 billion budget, unlessHawaii aggressively taxed “at rates far in excess of what itactually coststo regulate and develop the industry.” In thelong-term, he said, Hawaii benefits more by monies brought throughthe captive industry, including the hiring of professional andtechnical staff and consultants; investment management; conferencesand meetings; and tourism.

Explaining the new fee structure, Mr. Watanabe said it is basedon the amount of time required to review a captive's records. “Ourfees range between $75 and $150 a half-day,” he said. “So thecaptives that don't have records as well put together as others mayincur a higher fee for examination because it takes our staff moretime to get through their records.”

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, July 15, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.