Sponsors (3)
The bill encourages and simplifies a federal/state tax framework to support catastrophic risk transfer companies and some foreign investment by providing exclusive state taxing authority, capped taxes, and withholding exemptions, but it does so at the likely cost of reduced local/state/federal revenues, shifted tax bases toward low‑tax states, and added compliance complexity for payors and withholding agents.
Residents and governments of the organizing State and catastrophic risk transfer companies gain clear, exclusive state taxing authority over these companies’ reinsurance premiums, simplifying which government levies taxes.
Catastrophic risk transfer companies and their investors get a predictable, capped tax rate (tied to 26 U.S.C. § 4371) for the organizing State, reducing tax uncertainty and potentially lowering tax bills.
Nonresident alien and foreign corporate holders of qualifying stock can receive certain dividends from qualifying catastrophic risk transfer companies without U.S. withholding tax, benefiting foreign investors and cross-border capital flows.
Local governments and other non-organizing jurisdictions lose the ability to tax reinsurance premiums for these companies, reducing local revenue that typically funds public services.
By narrowing which jurisdictions can tax and by capping taxes for organizing States, the bill creates incentives for companies to incorporate in low‑tax States, risking concentration of industry activity and erosion of tax bases elsewhere.
States that host a catastrophic risk transfer company are limited to the capped tax level, which may yield less premium tax revenue than uncapped local taxation and constrain state budgets.
Based on analysis of 3 sections of legislative text.
Introduced February 21, 2025 by Darin Lahood · Last progress February 21, 2025
Creates a new tax and state-tax framework for a category of entities called "catastrophic risk transfer companies." It exempts certain dividends those companies pay to non-U.S. investors from U.S. withholding tax when the dividend qualifies as "qualified investment income dividend," and it prevents most jurisdictions other than the entity's state of organization from applying premium taxes on reinsurance premiums paid to those companies (or, if they do, caps that tax at a rate comparable to the federal code rule for foreign insurers). The measure adds new rules to the Internal Revenue Code defining the qualified dividend treatment, updates withholding rules for nonresident aliens and foreign corporations, and defines taxable and taxed terms by reference to new tax-code sections for catastrophic risk transfer companies. It changes how states and localities may tax reinsurance premiums paid to these companies, effectively limiting state premium-tax revenue on those transactions.