Hawaii Gets New Captive Tax, Fee Rules

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

Under the new rules, effective immediately, all captive licensees 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, and 0.05 percent on premiums in excess of $50 million.

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

“We don't double-tax premiums into captives,” he added, explaining that Hawaii captives only pay tax on premiums not previously taxed. For example, when a captive assumes reinsurance from 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 in Vermont. Unlike Hawaii, Vermont and South Carolina impose a tax on reinsurance.

Insurance Commissioner Wayne Metcalf said in a statement that it would be unlikely that premium tax collections from captives would have a significant impact on Hawaiis over $7 billion budget, unless Hawaii aggressively taxed “at rates far in excess of what it actually coststo regulate and develop the industry.” In the long-term, he said, Hawaii benefits more by monies brought through the captive industry, including the hiring of professional and technical staff and consultants; investment management; conferences and meetings; and tourism.

Explaining the new fee structure, Mr. Watanabe said it is based on the amount of time required to review a captive's records. “Our fees range between $75 and $150 a half-day,” he said. “So the captives that don't have records as well put together as others may incur a higher fee for examination because it takes our staff more time 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Hawaii Gets New Captive Tax, Fee Rules

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