In a recent article by David J. Slenn, the issue of Florida commencing self-procurement tax audits for businesses with captives is highlighted. Captive insurance arrangements in Florida are now being audited to assess the 5.3% Independently Procured Tax (IPT) due, which was previously ignored by many businesses. The IPT is imposed on businesses that purchase out-of-state insurance without using an in-state agent, which many captive insurance companies do.
The average person purchases insurance from a licensed carrier in their state and through an insurance agent or broker. However, captive insurance companies, created by parent companies to insure subsidiaries, often operate in states other than where the business is located. This allows businesses, such as one in Miami, to purchase insurance from a captive in a different state, bypassing Florida-licensed insurance companies and brokers. States like Florida impose the IPT to discourage this and generate revenue, but many businesses with captives have ignored paying it.
While most states have an IPT on their books, it is rarely assessed and often ignored. States like Texas and Washington have been aggressive in collecting the IPT in the past, but then passed laws to allow captives domiciled in-state to avoid it. Florida, with limited captive activity, has now begun auditing companies with captives to ensure the IPT is being paid. The 5.3% IPT can significantly impact the economics of captive arrangements, making it crucial for businesses to address this tax obligation.
David Slenn’s article suggests there may be ways to reduce the IPT burden, including potentially redomiciling a captive to Florida. Finding solutions to mitigate or eliminate the IPT tax liability is essential for businesses with captive arrangements in Florida, given the high tax rate, potential penalties for non-payment, and the risk of facing felony charges for non-compliance. Businesses should consult with professional captive advisors to navigate the complexities of IPT and avoid serious consequences for non-payment.
The 5.3% IPT tax rate imposed by Florida is among the highest in the country, making it a significant financial burden for businesses with captive insurance arrangements. By addressing this tax liability and exploring potential strategies to reduce or eliminate it, businesses can protect themselves from penalties, legal consequences, and financial strain. Awareness of the IPT and proactive measures to address it are crucial for businesses with captives operating in Florida to ensure compliance and avoid costly repercussions. Captive insurance arrangements face potential risks and consequences if the IPT is not addressed, making it essential for businesses to take appropriate action.
