Vermont’s specialized captive insurance businesses just got a gift in the form of a tax break from the State legislature. Captives are registered to be run out of Vermont, a few US states, Cayman Islands, Malta and Panama. The company we keep.

Now wouldn’t you think if a legislator gave out a break it would make headlines? Well this one will get a few, but likely most of them only in the sheltered world of corporate captives.

Vermont lawmakers Friday gave final approval to legislation to clarify that certain types of captives, such as sponsored and industrial insured captives that are not writing any business be allowed to enter a dormant status, exempting the captives from Vermont’s minimum annual premium tax.

The measure, H. 538, also allows for cells to be converted from a protected cell to an incorporated cell, allows cells to be transferred or sold, and allows cells to be converted to stand-alone captives of any type.

Vermont regulators provide a host of advantages to large corporations and wealthy families that form captives for modest licensing fees a small tax on premiums. But its  tough to compete with Panama and Malta for business .So now with this “house cleaning” legislation, the state is exempting their annual premium tax in some situations–discounting revenue the state would otherwise get from the captives. 

Corporations not only lower their insurance costs by forming captives but gain tax shelters and special tax benefits for them. A year ago the IRS took notice and placed some captive insurance on their “Dirty dozen” list of abusive tax scams. Commenting on corporate tax shelter benefits, a lawyer specializing in captives said: “[…] those are the icing on the cake – the cake is the numerous other non-tax advantages of captives”

But this cozy type of regulatory accommodation – tax break and rule adjustment on request is exactly what JV at the VPO says  Republican candidates Phil Scott and Randy Brock want to promote here in Vermont.

And Phil Scott is fond of saying “Imagine if we had a governor’s office that treated every sector in the same way”

For those who may have forgotten or may not know: A captive insurance business is a specialized company set up by (and captive to) a larger business to handle their own liability risk insurance needs. Essentially, an enterprise forms and manages its own insurance company as a subsidiary, and the enterprise’s other operating subsidiaries purchase insurance from the captive. 

Nice business if you can get it or make it — and get the state legislature to “protect” its benefits from the state’s own tax laws. And who is on the hook for every dime these “captives” don’t pay in taxes? Why, of course! It’s the rest of us taxpayers.