Premium tax liability offset opportunity for Vermont captives

Author: Vermont Captive

In 2017, Vermont’s captive insurance companies were included in a state law allowing them to purchase Vermont Affordable Housing Tax Credits to offset their annual premium tax liability. (Vermont Statutes Online: Title 32: Chapter 151: Taxation and Finance: Cite as 32 V.S.A. §5930u)

Several captive insurers have already taken advantage of the opportunity and are supporting the growth of permanently affordable housing in Vermont.

Magali Welch, Partner at Johnson Lambert in Vermont spoke to Molly Lambert, Consultant at Champlain Housing Trust (CHT) to learn more about this new opportunity for captive insurance companies.

Q: What are Affordable Housing Tax Credits?
A: Affordable Housing Tax Credits are authorized by the Vermont State Legislature and allocated by the Vermont Housing Finance Agency to eligible applicants who qualify according to the statute. Champlain Housing Trust (CHT) is one of several eligible applicants in the state whose purpose is to create and retain affordable housing for Vermonters with lower income. It has in its bylaws a requirement that the housing it creates be maintained as perpetually affordable for Vermonters with lower income.

Q: How are credits applied to premium income tax liability?
A: The Captive purchases credits at a 10% discount, and the purchase is applied to the captive’s premium tax liability over 5 years. For example, a captive may purchase $100k of tax credits for $90k, and for each of the next five years, the captive may offset up to $20k of premium tax liability.

Q: What if credits go unused?
A: Unused credits can be carried forward to offset future premium tax liabilities for up to 14 years.

Q: What are some benefits of purchasing tax credits to offset premium tax liability?
A: In addition to receiving a discount on tax credit purchases, the captive has no ownership interest in the housing project. Because credits are not tied to financial performance or regulatory compliance of the affordable housing project, they cannot be recaptured. Finally, a purchase of the tax credits helps Vermonters with lower income access affordable housing.

Q: What are the steps in the process to purchase the tax credits?
A: The steps are as follows: 1) The captive insurer notifies the eligible housing project (EHP) that it desires to purchase tax credits. 2) EHP drafts a subscription letter to be reviewed and signed by the captive and returned to EHP. 3) EHP secures an opinion letter from an attorney certifying that the properties to which the tax credits are being applied are eligible, and drafts tax certificates for the captive’s review. 4) The captive reviews the documents and makes payment to EHP. 5) EHP coordinates the issuance of the final tax certificates to the captive insurer.

For more information, connect with Molly Lambert, of Champlain Housing Trust (CHT) one of Vermont’s housing nonprofits that creates permanently affordable housing for low income Vermonters.

Article by: Magali Welch, Burlington, VT

return to top