The possible repeal of the 831(b) tax election could be “detrimental” to North Carolina’s captive industry, according to a new memo from the state’s captive association and department of insurance, who have pre-emptively addressed the issue.
With the possibility of US Congress repealing the 831(b) tax election, as a means of raising revenue to help fund a tax cut, North Carolina’s captive programme could take a hit with an estimated 85 percent of its captives making the 831(b) election.
In a memo from the both the North Carolina Captive Insurance Association and the state’s Department of Insurance, it suggested that if a repeal was to happen, “it is expected that the majority of small captive insurers (including those domiciled in North Carolina) will terminate their operations, resulting in a loss of premium tax revenue, captive insurance service provider revenue, and hospitality and recreational facility revenue”.
It also highlighted the benefits that the captive insurance industry has brought to the state. Since its inception, the North Carolina captive programme has created an economic impact of $41 million. Of that figure $23 million came from last year alone.
The memo stated that the 85 percent accounts for approximately $35 million of the economic development contributed by the industry to North Carolina over the last three years.
It suggested that the repeal could cause the loss of a risk management tool for small and mid-sized North Carolina businesses; reduce premium tax revenue paid to the State of North Carolina; reduce business revenues generated by captive insurance service providers; and affect hospitality providers and recreational facilities, while jobs that have already been created will no longer be needed.
