John Stewart once quipped on his show, “Let’s say you’re the present governor of Illinois, and you’re in a room with a former governor of Illinois on your right, and a former governor of Illinois on your left…chances are, the room you’re in is jail.”
Recently, more than a few lawmakers and business owners in Illinois would have liked to put Gov. Pat Quinn in a holding cell after a minor change in the state’s laws that govern insurance taxation were slipped past the Illinois House and Senate.
The law in question, which was thought to be a small amendment to an existing law, creates a loophole that could apply state tax rates to payments to wholly owned captive insurance subsidiaries beginning in 2015 at a cost of almost $100 million a year to Illinois-based businesses like Boeing and United/Continental Holdings, according to Crain’s Chicago Business.
With all the best intentions
The original intention of the bill was to target the premium tax paid by brokers in Illinois who arrange surplus lines of insurance, but the language created the possibility that the state could look to captive holders for as much as 4.6 percent of tax on premiums. Here is a very good explanation of how the law is worded from InsideSalt.com.
A letter signed by all 47 of the republican members of the Illinois House demanded a resolution to the issue, but it’s not likely to happen before the tax could be imposed next year.
Should lawmakers have read the fine print prior to voting for the amendment? Possibly, but the administration should have been more forthcoming about the potential impact of the bill. Most agree that the impact to captive owners had never been raised in formal meetings about the bill, and it would have taken a keen-eyed staffer to identify the loophole.
Looking to 2015
Illinois lawmakers and businesses will continue to put pressure on Gov. Quinn to not sign the bill, but the case reminds us how important it is to keep current with laws that regulate the insurance industry.
We maintain a close watch on laws and regulations in each state that we serve, and keep up with federal regulations, too. This particular law in Illinois is a glaring example of what can happen when lawmakers are careless, but illustrates that even small alterations to existing rules and regulations can have a big impact on our clients.
We’re hopeful that the issue in Illinois will be cleared up, and that Gov. Quinn has better luck than some of his predecessor in the Governor’s seat in Illinois. In the meantime, contact us if we can help you with your enterprise risk captive.