272 U.S. 494 (1926), 179, Hanover Fire Insurance Company v. Harding

Docket Nº:No. 179
Citation:272 U.S. 494, 47 S.Ct. 179, 71 L.Ed. 372
Party Name:Hanover Fire Insurance Company v. Harding
Case Date:November 23, 1926
Court:United States Supreme Court

Page 494

272 U.S. 494 (1926)

47 S.Ct. 179, 71 L.Ed. 372

Hanover Fire Insurance Company



No. 179

United States Supreme Court

Nov. 23, 1926

Argued October 18, 1926




1. While a state may forbid a foreign corporation to do business within its jurisdiction, or to continue it, and may fix conditions under which the exercise of the privilege may be allowed, it may not do so by imposing upon the corporation a sacrifice of its rights under the federal Constitution. Pp. 507-509

2. At the end of the period for which a license to do local business has been granted to a foreign corporation, the state may impose as a condition precedent to a renewed license that its valid laws shall have been complied with in the past. P. 514.

3. But the state may not make past compliance with an unconstitutional tax a condition precedent to renewal of the license. P. 514.

4. A decision of a state supreme court construing a local law taxing foreign corporations as imposing a privilege tax, rather than a property tax, is binding on this Court; but this Court, in determining

Page 495

the applicability of the equal protection clause of the Fourteenth Amendment, must decide independently whether the tax is part of the condition upon which admission to do business in the state is permitted, and is merely a regulating license by the state to protect the state and its citizens in dealing with such corporation, or whether it is a tax law for the purpose of securing contributions to the revenue of the state as they are made by other taxpayers of the state. Pp. 509-511.

5. A foreign corporation which is duly admitted to do business in a state is to be classified with similar domestic corporations in testing the equality of the laws enacted for the purpose of raising revenue. P. 511.

6. An Illinois tax on the local net receipts of foreign insurance companies was long construed and applied as a tax on personal property; and, like other personal property taxes, partly by law and partly by custom, was assessed on only 30% of the full value; but afterwards, by a change of construction, it was held to be an occupation or privilege tax, laid on such corporations annually, as a condition to their right to do business in Illinois, with the result that all of their local net income was taxed at the rate applicable to personal property, while domestic corporations of the same class and engaged in the same kinds of business paid only a tax on their personal property, assessed at the reduced valuation. Held a discrimination which denied the equal protection of the laws to a foreign corporation which had renewed its license in Illinois from year to year, built up a large business and goodwill in that state, and had many agents there and extensive records containing information concerning its policies and policyholders. P. 516.

317 Ill. 366 reversed.

Error to a judgment of the Supreme Court of Illinois which affirmed a judgment dismissing the bill of the Insurance Company, a New York corporation, against Carr, the treasurer and tax collector of Cook County, Illinois. The bill prayed an injunction to prevent distraint of the plaintiff's property under a warrant for taxes due under an Illinois law which the bill challenged as unconstitutional under the state constitution and the equal protection clause of the Fourteenth Amendment. Harding, treasurer of Cook County, was substituted in this Court for Carr, his predecessor in office.

Page 501

TAFT, J., lead opinion

MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.

This is a writ of error under § 237 of the Judicial Code to the judgment of the Supreme Court of Illinois affirming a decree of the Superior Court of Cook County dismissing the bill of the Hanover Fire Insurance Company, a corporation of New York, against Patrick J. Carr, County Treasurer and ex officio tax collector of Cook county, Illinois. The prayer was for an injunction to prevent the distraint of the property of the complainant under a warrant for the collection of $10,678.50 as taxes due under a law of Illinois, which law, the bill averred, denied to the complainant the equal protection of the laws under the Fourteenth Amendment of the federal Constitution.

The defendant filed an answer denying the claims of the bill and, after a reply, the case was heard by the trial court, which made findings of fact in its decree based on a stipulation by the parties, and entered a decree as set forth below.

The law in question reads as follows:

Foreign Companies. -- Tax on Net Receipts. Section 30. Every agent of any insurance company incorporated by the authority of any other state or government shall return to the proper officer of the county, town, or municipality

Page 502

in which the agency is established, in the month of May annually, the amount of the net receipts of such agency for the preceding year, which shall be entered on the tax lists of the county, town, and municipality, and subject to the same rate of taxation, for all purposes -- state, county, town and municipal -- that other personal property is subject to at the place where located, said tax to be in lieu of all town and municipal licenses, and all laws and parts of laws inconsistent herewith are hereby repealed: Provided, that the provisions of this section shall not be construed to prohibit cities having an organized fire department from levying a tax, or license fee, not exceeding two percent in accordance with the provisions of their respective charters, on the gross receipts of such agency, to be applied exclusively to the support of the fire department of such city.

Cahill's Ill.Rev.Stat.1925, c. 73, § 159, p. 1405.

This had been in force since 1869, and was part of the Act of March 11 of that year, entitled "An act to incorporate and to govern fire, marine and inland navigation insurance companies doing business in the State of Illinois." The section was amended to the above form by an Act approved May 31, 1879.

By § 22 and other sections of the original Act of 1869 (Cahill's Ill.Rev.Stat.1925, c. 73, § 150, p. 1402), it was made unlawful for a foreign insurance company to transact any insurance business in the state unless it had a prescribed amount of capital, appointed an attorney in the state on whom process of law could be served, filed a properly certified copy of the charter or deed of settlement of the insurance company, showing its name and the place where located, the amount of its capital and a detailed statement of its assets, together with its indebtedness, the losses adjusted and unpaid, the amount incurred and in process of adjustment, and a copy of its last annual report. It was required also to deposit with the Director

Page 503

of Trade and Commerce of the state, for the benefit and security of the policyholders residing in the United States, a sum of not less than $200,000 in 6 percentum stock of the United States or the State of Illinois, or approved mortgage securities, with a provision that, so long as the company should [47 S.Ct. 181] continue solvent and comply with the laws of the state, it might collect the interest on these securities. The law provided that it should not be lawful for the agents of the company to transact business without procuring annually from the Director of Trade and Commerce the authority stating that such company had complied with all the requisitions of the act which applied to it, and that any violation of the provisions of the act should subject the one violating it to a penalty not exceeding $500 for each violation; that such insurance companies should make annual statements of their condition and affairs to the Director of Trade and Commerce in the same manner and in the same form as similar insurance companies organized under the laws of the state, on or before the first day of March in each year for the year ending on the preceding 30th of September. The insurance superintendent was given authority by the same act to investigate affairs of the foreign companies, such investigation to be at the expense of the company, and if he found the condition of any one unsound, to close up the business of the company by application to the circuit court of the county in which it had its principal office. By the same act, each foreign company was required to pay $30 for filing the charter, $10 for filing the annual statement required, and $2 for each certificate of authority for agents, and certain other fees of a similar character. Paragraphs 150, 152, 156, Cahill's Ill.Rev.Stat.1925, c. 73.

By the Act of June 28, 1919 (Cahill's Ill.Rev.Stat.1925, c. 73, § 79, p. 1390), it was provided that each nonresident corporation licensed and admitted to do an insurance

Page 504

business in the state should pay an annual state tax for the privilege of so doing, equal to 2 percentum of the gross amount of premiums received during the preceding calendar year on contracts covering risks within the state after certain reductions; that the tax should be in lieu of all license fees or privilege or occupation taxes levied or assessed by any municipality in the state, and that no municipality should impose any license fee, privilege, or occupation tax upon such corporation for the privilege of doing an insurance business therein, but this should not be construed to prohibit the levy and collection of any state, county, or municipal taxes upon the real and personal property of such corporations, or the levying and collection of taxes authorized by § 30, above quoted.

By § 12 of the same act (Cahill's Ill.Rev.Stat., c. 73, § 90, p. 1391), it was provided that, if any corporation should fail or neglect to make any report, or to refuse to pay any tax assessment within 30 days after the same became due, the Department of Trade and Commerce should have power to revoke its license to transact the business...

To continue reading