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State of Vermont

House of Representatives

Montpelier, Vermont

Joint House Resolution

J.R.H.  46

 Joint resolution advocating withdrawal of proposed U.S. Treasury regulations that the U.S. Internal Revenue Service issued on September 28, 2007 eliminating the deductibility of reserves of a captive insurance company participating in a consolidated federal income tax return

Offered by:  Representatives Hube of Londonderry, Keenan of St. Albans City, Acinapura of Brandon, Ainsworth of Royalton, Allard of St. Albans Town, Ancel of Calais, Anderson of Montpelier, Andrews of Rutland City, Aswad of Burlington, Atkins of Winooski, Audette of S. Burlington, Baker of West Rutland, Barnard of Richmond, Bissonnette of Winooski, Bostic of St. Johnsbury, Botzow of Pownal, Branagan of Georgia, Bray of New Haven, Brennan of Colchester, Browning of Arlington, Canfield of Fair Haven, Chen of Mendon, Cheney of Norwich, Clark of St. Johnsbury, Clark of Vergennes, Clarkson of Woodstock, Clerkin of Hartford, Condon of Colchester, Consejo of Sheldon, Copeland-Hanzas of Bradford, Corcoran of Bennington, Courcelle of Rutland City, Davis of Washington, Deen of Westminster, Devereux of Mount Holly, Donaghy of Poultney, Donahue of Northfield, Donovan of Burlington, Dostis of Waterbury, Edwards of Brattleboro, Emmons of Springfield, Errecart of Shelburne, Evans of Essex, Fallar of Tinmouth, Fisher of Lincoln, Fitzgerald of St. Albans City, Flory of Pittsford, Frank of Underhill, French of Randolph, Gervais of Enosburg, Gilbert of Fairfax, Godin of Milton, Grad of Moretown, Haas of Rochester, Head of S. Burlington, Heath of Westford, Helm of Castleton, Hosford of Waitsfield, Howard of Rutland City, Howrigan of Fairfield, Hunt of Essex, Hutchinson of Randolph, Jerman of Essex, Johnson of South Hero, Johnson of Canaan, Keogh of Burlington, Kilmartin of Newport City, Kitzmiller of Montpelier, Klein of East Montpelier, Koch of Barre Town, Komline of Dorset, Krawczyk of Bennington, Kupersmith of S. Burlington, Larocque of Barnet, Larrabee of Danville, Larson of Burlington, LaVoie of Swanton, Lawrence of Lyndon, Lenes of Shelburne, Leriche of Hardwick, Lippert of Hinesburg, Livingston of Manchester, Maier of Middlebury, Malcolm of Pawlet, Manwaring of Wilmington, Marcotte of Coventry, Marek of Newfane, Martin of Springfield, Martin of Wolcott, Masland of Thetford, McAllister of Highgate, McCormack of Rutland City, McCullough of Williston, McDonald of Berlin, McFaun of Barre Town, McNeil of Rutland Town, Milkey of Brattleboro, Miller of Shaftsbury, Minter of Waterbury, Mitchell of Barnard, Monti of Barre City, Mook of Bennington, Moran of Wardsboro, Morley of Barton, Morrissey of Bennington, Mrowicki of Putney, Myers of Essex, Nease of Johnson, Nuovo of Middlebury, Obuchowski of Rockingham, O'Donnell of Vernon, Orr of Charlotte, Otterman of Topsham, Oxholm of Vergennes, Pearson of Burlington, Peaslee of Guildhall, Pellett of Chester, Perry of Richford, Peterson of Williston, Potter of Clarendon, Pugh of S. Burlington, Randall of Troy, Scheuermann of Stowe, Shand of Weathersfield, Sharpe of Bristol, Shaw of Derby, Smith of Morristown, Spengler of Colchester, Stevens of Shoreham, Sweaney of Windsor, Symington of Jericho, Trombley of Grand Isle, Turner of Milton, Valliere of Barre City, Westman of Cambridge, Weston of Burlington, Wheeler of Derby, Winters of Williamstown, Wright of Burlington, Zenie of Colchester and Zuckerman of Burlington

Whereas, the cost  and availability of insurance are significant challenges for many businesses, prompting an increasing number of corporations to establish within their corporate framework insurance subsidiaries known as captive insurance companies, and

Whereas, more than 5,000 captive insurance companies have now been established worldwide including 823 licensed in the state of Vermont, and

Whereas, over 25 years ago, the state of Vermont recognized that many captive insurance companies, if offered a comprehensive, knowledgeable, and stable regulatory environment would locate in this state, creating professional employment opportunities arising from the management and regulation of their operations, and

Whereas, beginning with Act 28 of 1981, the Vermont General Assembly  adopted a series of laws, codified as chapter 141 of Title 8, that established a comprehensive, knowledgeable, and stable regulatory environment for the captive insurance industry, and

Whereas, the captive insurance industry now generates over 1,400 jobs (direct and indirect) in Vermont, and

Whereas, an additional incentive to organize a captive insurance company in the United States has been the ability, in accordance with existing U.S. Treasury Regulation § 1.1502, to take a current tax deduction for both the loss reserves and unearned income premium reserves that intercompany insurance transactions generate between members of a group of corporations filing on a consolidated basis, and

Whereas, these reserves represent an actuarially determined amount of funds that a captive insurance company must maintain under Vermont law to pay future claims and loss adjustment expenses, and

Whereas, on September 28, 2007, the U.S. Internal Revenue Service published proposed Treasury Regulation §1.1502-13(e) that for federal tax purposes would eliminate these reserves and would defer tax deductibility until a subsequent year in which the claim or expense is actually paid, and

Whereas, under the proposed regulation, affected insurance companies include members of a consolidated tax group (which by federal tax law excludes foreign insurance companies) that earn five percent or more of their premiums from insuring risks of other members of the group, and

Whereas, the finalization of proposed U.S. Treasury Regulation § 1.1502-13(e) would adversely impact a significant number of captive insurance companies domiciled in Vermont and their parent corporations, and

Whereas, the disallowance of this federal income tax benefit could result in captive insurance companies licensed in the state of Vermont and in other U.S. domiciles to consider relocating to offshore domiciles that the proposal does not affect, thereby continuing to enjoy the tax advantage of deductibility of reserves, and

Whereas, finalization of this proposed change in federal tax regulations would have a significant negative impact on Vermont jobs and would reduce state general fund revenue, now therefore be it

Resolved by the Senate and House of Representatives:

That the General Assembly urges the U.S. Treasury secretary and the U.S. Internal Revenue Service to withdraw proposed U.S. Treasury Regulation § 1.1502-13(e), and be it further

Resolved:  That the secretary of state be directed to send a copy of this resolution to U.S. Secretary of the Treasury Henry Paulson and to the Vermont Congressional Delegation.





Gaye R. Symington                                     Attested to:

Speaker of the House


_____________________________            __________________________

Brian E. Dubie                                             Donald G. Milne

President of the Senate                               Clerk, House of Representatives


Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont