Captive Insurance and Self-Procurement Tax: Key Considerations

Summary

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The Edge of Risk Podcast by IRMI

Episode: Captive Insurance and Self-Procurement Tax: Key Considerations
Host: Joel Applebaum
Guest: Ellen Autry, CPA, Partner, Johnson Lambert
Date: June 24, 2026

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Episode Overview

This episode explores the often-overlooked world of self-procurement tax and its impact on captive insurance programs. Host Joel Applebaum interviews Ellen Autry, a leading expert on captive insurance taxation, to break down what self-procurement tax is, how it interacts with other tax structures, and practical considerations for compliance, especially for companies operating in multiple jurisdictions.

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Key Discussion Points & Insights

Ellen Autry’s Background and Perspective

• [01:04] Ellen shares her journey from graduate studies at North Carolina State University to her longstanding career with Johnson Lambert, where she specializes in taxation for captive insurers.
• Her team currently serves approximately 450 captive insurance companies.
• Ellen is drawn to the field for its "complexities and varieties," testifying to the intricacy of captive insurance taxation.

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What is Self-Procurement Tax?

[01:58 – 02:30]

• Insurance companies usually pay premium tax in lieu of state income tax; around 10 states require both.
• Self-procurement tax (also known as direct or independent procurement tax) is imposed when an insured secures coverage directly from a non-admitted carrier in their home state.
• The tax falls on the insured, not the carrier, due to the insurer being outside of the state's regulatory jurisdiction.

Quote:

"Self-procurement tax is imposed at the insured level due to the insurance company being out of the state's jurisdiction."
— Ellen Autry [01:58]

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When Do Self-Procurement Tax Obligations Arise?

[02:45 – 04:09]

• Obligations arise whenever an insured purchases insurance from an insurer that’s not admitted in their home state.
• The Dodd Frank Act (Non-Admitted and Reinsurance Reform Act, 2010) dictates that only the insured's home state can levy the self-procurement tax.
• Original intent was for states to share the tax, but in practice, the home state retains it all.
• Determining Home State: Typically, it is the principal place of business, but for affiliated groups, it is established by premium allocation.

Quote:

"The home state is determined by looking at the principal place of business or, in the case of an individual, the individual's principal residence."
— Ellen Autry [03:33]

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Common Misconceptions

[04:31 – 04:59]

• Many do not understand state enforcement or assume no tax applies if the insurer isn't qualified federally.
• There can be situations where self-procurement tax is due even if the company isn’t recognized as an insurance company for federal purposes.

Quote:

"A common misconception is a lack of understanding of how it is enforced... self procurement tax may still be due."
— Ellen Autry [04:40]

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Compliance and Reporting

[05:17 – 05:42]

• Taxes are tracked policy-by-policy.
• Companies must identify the applicable home state, the tax rate, and deadlines for each policy.
• Ellen’s Advice:

  "If you're ever in doubt, ask a professional to come in and do an analysis on potential self procurement tax obligations."
  — Ellen Autry [05:36]

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Double Taxation and Regulatory Overlap

[05:59 – 06:24]

• Both the insured (self-procurement tax) and the insurer (premium tax) may owe tax on the same dollar, to two different jurisdictions.
• Sometimes premium tax rates differ, but the overlap can be significant and create compliance traps.

Quote:

"From an overall perspective of the organizational structure, it may seem like there is double taxation going on."
— Ellen Autry [05:59]

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Triggers for Reassessment of Tax Obligations

[06:24 – 07:01]

• Adding policies, expanding geographically, or re-structuring a company may change self-procurement tax obligations.
• Annual Analysis Recommended:

  "I would suggest having analysis done on an annual basis just to make sure the company stays in compliance."
  — Ellen Autry [06:48]

• If the obligation is burdensome, consider re-domesticating the captive.

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Self-Procurement Tax in Feasibility Studies

[07:01 – 07:34]

• Companies frequently omit self-procurement tax consideration during feasibility analysis.
• Tax rates can exceed 5% depending on the home state, which can materially alter the case for forming a captive.

Quote:

"Self procurement tax is often missed or left out when looking in feasibility studies... it can be in excess of 5%, which could be material."
— Ellen Autry [07:14]

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The Road Ahead and Proactive Strategies

[08:05 – 08:42]

• States are getting more aggressive in investigating and collecting self-procurement tax.
• When forming a captive, consider domicile options to optimize (or avoid) tax obligations.
• Fronting Arrangements:
  Using an admitted fronting carrier can shift the premium tax duty to the carrier and eliminate self-procurement tax for the insured.

Quote:

"An insured can secure insurance using a fronting carrier that is admitted in the insured's home state and then have the front reinsure the risk to its captive insurance company."
— Ellen Autry [08:21]

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Fronting Fees and Cost Considerations

[09:01 – 09:12]

• Fronting carriers charge a fee, which includes their premium tax obligations.

Quote:

"That does go into the cost of using a front. They normally charge a percentage and in that percentage they allocate to their premium tax obligations."
— Ellen Autry [09:12]

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Memorable Quotes

• "Figuring out where the primary location for an insured is a little bit gray... and I think you just gave our listeners some real gold there." — Joel Applebaum [04:09]
• "I would encourage those thinking of forming a captive to take self procurement tax into consideration when deciding on what domicile they choose." — Ellen Autry [07:19]
• "More and more states are being aggressive in how they're enforcing self procurement tax and going after those that might owe them." — Ellen Autry [08:05]

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Notable Timestamps

• [01:04] – Ellen’s personal background
• [01:58] – Self-procurement tax explained
• [02:45] – When and where the tax applies (NARRA and state roles)
• [04:40] – Common misconceptions about enforcement
• [05:17] – Compliance and policy tracking
• [05:59] – Double taxation factors
• [06:24] – Triggers for reevaluation
• [07:13] – Inclusion in feasibility studies
• [08:05] – Trends and the future of compliance
• [08:21] – Use of fronting carriers to avoid tax

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Takeaways for Listeners

• Self-procurement tax is complex and often overlooked in captive feasibility and cost-benefit analyses.
• Determining the "home state" is central and sometimes ambiguous.
• Both insureds and insurers may face overlapping tax obligations — annual reviews are recommended.
• Consider using fronting carriers when forming captives to potentially avoid self-procurement tax, but be aware of the cost trade-offs.
• States are enforcing these taxes more aggressively, so proactive compliance is increasingly important.

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Transcript

[A]

Foreign. Welcome to the Edge of Risk podcast. I'm your host, Joel Applebaum, the Chief Content Officer for ermi and captive.com and today we're diving into a topic that can often catch organizations off guard if not properly addressed self Procurement Tax and its Implications within Captive Insurance programs. Joining me today on the podcast is Ellen Autry, CPA and partner with Johnson Lambert. Allen brings deep expertise in captive insurance taxation and has helped many organizations navigate complex compliance and structuring considerations for captive taxes. So Alan, welcome to the podcast.

[B]

Joel, thank you for having me.

[A]

Our pleasure. To start us off. For those who may not have heard your previous episode that you did with us that was so popular, let's start with your story. What pulled you into the world of captive insurance and why does it still matter to you today?

[B]

Alan I went to graduate school for my Master's in Accounting at North Carolina State University in Raleigh and was lucky enough to start my career with Johnson Lambert's tax team in the Raleigh office in 2009. I've been here ever since. Johnson Lambert is the fifth largest auditor of insurance companies in the U.S. the tax team at JL serves the entire insurance industry, including the world of captive insurance. As I've made my way through my career, I've been drawn to the complexities and varieties the captive insurance industry presents. Currently, our tax team serves around 450 captive insurance companies.

[A]

Wow. Thanks for the background. Well, let's set the stage on today's topic. You know, for our listeners who may not be as familiar with the concept, could you explain what self procurement tax is and when it comes into play in a captive insurance arrangement?

[B]

Insurance companies pay premium tax in lieu of state income tax in most states. There are roughly 10 states that require both the premium tax and income tax filings with there being offering credits back and forth. However, self procurement tax can also be referred to as direct procurement tax or independent procurement tax. It is a tax imposed on insured securing insurance directly from a non admitted carrier in the insured home state. Self procurement tax is imposed at the insured level due to the insurance company being out of the state's jurisdiction.

[A]

Okay, I think that's a helpful overview when organizations are using a captive, particularly one domiciled offshore or in another state, right? Where do you typically see self procurement tax obligations arise?

[B]

Self procurement tax obligations arise when the insured directly secures insurance from an insurance company outside of its home state. Originally, self procurement tax was going to be imposed by any state the insured was doing business in and the insurance company was not registered. But then the Dodd Frank act established the Non Admitted and Reinsurance Reform act in 2010, often referred to as NARA, and it instituted that only the insured's home state can impose self procurement tax this way. The insured is only paying self procurement tax to one state. Originally, the intention was that the home state would collect the tax and then share it with the other states the insured is doing business with. However, the states never formally committed to that agreement and in reality the home state keeps the entire self procurement tax. The home state is determined by looking at the principal place of business or in the case of an individual, the individual's principal residence. If 100% of the insured risk is located outside of the state's principal place of business, then the state in which the greatest percentage of the insured's taxable premium for the insurance policy is allocated for determining self procurement tax for the obligation for an affiliated group. If there is more than one insured from an affiliated group that are named on the same insurance policy, the home state for the policy is the home state for the affiliate with the largest percentage of premiums attributed to it under the policy.

[A]

Well, I'm going to say that's a helpful explanation right there, Alan, because you know, as long as I've been in insurance, figuring out where the primary location for an insured is a little bit gray. And I think you just gave our listeners some real gold there. And it seems like this is an area where misunderstanding is fairly common.

[B]

Right.

[A]

So from your experience, what are some of the most frequent misconceptions companies have when it comes to self procurement tax?

[B]

A common misconception is a lack of understanding of how it is enforced. Self procurement tax is enforced at the state level. Sometimes an insurance company may not qualify to be an insurance company for federal income tax purposes, but it can still be an insurance company from a state regulatory standpoint. When this happens, self procurement tax may still be due.

[A]

Okay, great. Well, let's talk about compliance then. How should companies be thinking about tracking, reporting and remitting self procurement taxes, especially when they're operating across multiple jurisdictions? Or like we were saying before, it's a little gray where the home state is.

[B]

For sure. Self procurement taxes are imposed on a policy by policy basis. So there needs to be tracking of the home state for each policy. If that policy is requiring self procurement tax, well, then we need to look at what the state rate is, when's the state filing due date, and so on. So my advice is, if you're ever in doubt, ask A professional to come in and do an analysis on potential self procurement tax obligations.

[A]

Great. I like that. How does self procurement tax interact with other premium taxes or regulatory requirements? Are there situations where companies might inadvertently be exposed to double taxation or gaps in compliance?

[B]

For sure. From an overall perspective of the organizational structure, it may seem like there is double taxation going on. Remember, self procurement tax is the obligation of the insured. However, the insurer is also responsible for premium tax to its state of domicile on those same premium dollars. In a lot of cases, the premium taxes are taxed at a significantly lower rate, but nonetheless taxed twice by two different jurisdictions.

[A]

Okay, so for organizations that already have an established captive, what are the key triggers such as adding a new risk or expanding geographically that should prompt a closer look at self procurement tax obligations?

[B]

As policies are added, new companies are added, or the company expands, a self procurement tax analysis should be done to see if obligations have changed. I would suggest having analysis done on an annual basis just to make sure the company stays in compliance. If the obligation becomes too much, maybe consider re domiciling the captive to the home state of the insured to avoid the self procurement tax.

[A]

Okay, so if I'm taking a step back, how should companies factor self procurement tax into the overall cost benefit? Analysis of forming or expanding a captive

[B]

self procurement tax is often missed or left out when looking in feasibility studies. Depending on the home state of the insured for a given policy, the self procurement tax can be in excess of 5%, which could be material. I would encourage those thinking of forming a captive to take self procurement tax into consideration when deciding on what domicile they choose.

[A]

Okay, I like that advice. You know, I think overall self procurement tax some of the things you shared with us. Very insightful. But before we wrap up, you know, I like to have my crystal ball type question here. What's one piece of advice you'd give to captive owners or risk managers to stay ahead of the curve? Or what's coming when it comes to self procurement tax and compliance issues? So look out, you know, this year, next year, what's coming down the pipeline?

[B]

More and more states are being aggressive in how they're enforcing self procurement tax and going after those that might owe them. So I would encourage captive owners and managers to examine self procurement tax obligations when doing the feasibility studies and when choosing what domicile they would like to form their captive in to potentially avoid the self procurement tax obligation. An insured can secure insurance using a fronting carrier that is omitted in the insured's home state and then have the front reinsure the risk to its captive insurance company. In this case, the front would be responsible for the premium tax to the state and the insured would not be responsible for the self procurement tax.

[A]

Okay, so you when you're using a fronting operation you don't really have to worry about self procurement tax.

[B]

Is that in most cases, yes, as long as it is admitted in the state. In your home state, the front would pay the premium tax to the state and the insured would not be responsible for self procurement tax.

[A]

Okay, maybe a surprise sneak question because I'm not that smart. Is that part of the cost of the fronting or yeah, exactly.

[B]

That does go into the cost of using a front. They normally charge a percentage and in that percentage they allocate to their premium tax obligations.

[A]

Now thank you so much Ellen. I appreciate you sharing your expertise and helping us break down what can be a complex and often overlooked area of captive insurance. So as we close today, I want to give a special thank you to Ellen Autry of Johnson Lambert. We would also like to extend our appreciation to Johnson Lambert for being a valued website sponsor of captive.com and their ongoing support of the captive insurance community. Their expertise and partnerships helps us continue to provide high quality, unbiased resources and insights to our audience for [e-mail] and for more resources and information on captives taxation, risk strategy or self procurement tax, you could visit captive. Com. Thanks for tuning in to the Edge of Risk podcast and thanks for listening.