SOUTHERN PINES……In a surprise move the N.C. General Assembly is considering legislation that, if approved, will exempt “foreign” captive insurance companies (those domiciled outside of North Carolina but within the US) from all state taxes. Currently, NC does not tax captives chartered in the other states that do business in or write coverage in NC. This is in contrast to states like Tennessee and Texas which impose a “procurement” tax on captives chartered outside their states, but insure risks for companies doing business in TN.
Initially, the exemption language was contained in Senate Bill 715, an omnibus catch-all of Revenue Law Changes conforming NC tax rules to the recent changes made by Congress in the TCJA (2017, amended 2018). However, in the last few days, these state tax law changes have been engrossed into and combined with the annual State Budget Changes for FY 2018-2019. This budget/ tax combo is contained in the Conference Committee Substitute for S.B. 99.
Specifically, the exemption language would prohibit the NC Department of Revenue (NCDOR) from taxing premiums earned, for example, by a captive domiciled outside of NC doing business and insuring a risk located in NC. The specific tax exemptions are for premium taxes, corporate income taxes, franchise taxes, privilege taxes and insurance regulatory charges imposed by NCDOI.
Since the original Captive Insurance Act was passed in 2013, it has been the stated policy of North Carolina and NCCIA to encourage both “foreign” captives and “alien” captives (those domiciled offshore) to re-domicile in NC. To further that end, NCCIA is considering whether to advocate for a “premium tax holiday” next year as an incentive to bring both on and off-shore captives into the state. This tax incentive would offset the one-time costs of redomiciling and could spur health care providers, banks and other organizations to move their captive insurance companies to North Carolina.
With the Legislature rushing to adjourn by June 15th, we will give you an update in the June, 2018 Newsletter. For questions on this pending proposal, contact Lane Brown, NCCIA VP for Govt. Affairs at 704-773-0008 or email@example.com.