8181 / What are the state-level taxes that may apply to a captive entity? What are the corresponding state tax benefits that a captive may realize?

The captive will be regulated as an insurance company in the state in which it is formed, just as any other insurance company. Most states impose a premium tax on the value of the premiums collected by the captive.

Despite this, the premium taxes imposed by many states are highly favorable to captives. For example, Vermont, which is one of the largest U.S. markets for captive insurance companies, collects a premium tax of 0.38 percent on the first $20 million of insurance premiums collected by the captive in the state. The second $20 million of insurance premiums is taxed at 0.285 percent, the third $20 million is taxed at 0.19 percent and anything above $60 million in premiums is taxed at 0.072 percent.¹ The total amount of premium taxes that must be paid by a captive in Vermont is capped at $200,000 annually.² Vermont also imposes a minimum premium tax of $7,500.³

Some states also impose a self-procurement tax on the insured entity that procures insurance directly from non-admitted insurance companies. These taxes also vary from state to state. In Florida, for example, an insured entity that independently procures its insurance is subject to a self-procurement tax of 5 percent of the gross premiums paid.⁴ Florida also charges a 0.3 percent service fee, increasing this tax to 5.3 percent.⁵