303 U.S. 77 (1938), 316, Connecticut Gen. Life Insurance Co. v. Johnson

Docket Nº:No. 316
Citation:303 U.S. 77, 58 S.Ct. 436, 82 L.Ed. 673
Party Name:Connecticut Gen. Life Insurance Co. v. Johnson
Case Date:January 31, 1938
Court:United States Supreme Court
 
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Page 77

303 U.S. 77 (1938)

58 S.Ct. 436, 82 L.Ed. 673

Connecticut Gen. Life Insurance Co.

v.

Johnson

No. 316

United States Supreme Court

Jan. 31, 1938

Argued January 14, 1938

APPEAL FROM THE SUPREME COURT OF CALIFORNIA

Syllabus

1. A corporation which is allowed to come into a State and there carry on its business may claim, as an individual may claim, the protection of the Fourteenth Amendment against a subsequent application to it of state law. P. 79.

2. A Connecticut corporation conducted part of its life insurance business in California under license from that State and also entered into contracts with other insurance corporations likewise licensed to do business in California, reinsuring them against loss on policies of life insurance effected by them in California and issued to residents there. These reinsurance contracts were entered into in Connecticut, where the premiums were paid and where the losses, if any, were payable.

Held that, as applied to such reinsurance business, a California tax on the privilege of the corporation to do business within the State, measured by the gross premiums received, was void under the due process clause of the Fourteenth Amendment. Pp. 78, 82.

3. A State may not tax the property and activities of a foreign corporation which are not within its boundaries. P. 80.

The limits placed by the Fourteenth Amendment on the State's jurisdiction to tax are to be ascertained by reference to the incidence of the tax upon its objects, rather than the ultimate thrust of the economic benefits and burdens of transactions within the State which it might, but does not, tax.

93 Cal.Dec. 4650; 67 P.2d 675, reversed.

Appeal from judgments affirming the dismissal on demurrer of two actions by the above named insurance company against Johnson, State Treasurer of California, to recover taxes paid under protest. The cases were heard together in the court below.

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STONE, J., lead opinion

MR. JUSTICE STONE delivered the opinion of the Court.

Appellant is a Connecticut corporation, admitted to do an insurance business in California. In addition to its business conducted within that state, it has entered into contracts with other insurance corporations likewise licensed to do business in California, reinsuring them against loss on policies of life insurance effected by them in California and issued to residents there. These reinsurance contracts were entered into in Connecticut, where the premiums were paid and where the losses, if any, were payable. The question for decision is whether a tax laid by California on the receipt by appellant in Connecticut of the reinsurance premiums during the years 1930 and 1931 infringes the due process clause of the Fourteenth Amendment.

In suits brought in the state court by appellant against respondent, state treasurer to recover the taxes paid, the Supreme Court of California sustained demurrers to the complaints and gave judgments for the respondent. The cases, having been consolidated, come here on a single appeal under section 237(a) of the Judicial Code, 28 U.S.C. § 344(a).

Section 14 of Art. XIII of the California Constitution, as supplemented by Act of March 5, 1921 (Stats.1921, c. 22, pp. 20, 21, Political Code, § 3664b), fixing the rate of tax, lays upon every insurance company doing business within the state an annual tax of 2.6 percent

upon the amount of the gross premiums received upon its business done in this state, less return premiums and reinsurance in companies or associations authorized to do business in this state.

The Supreme Court of California has declared that the constitutional provision imposes

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"a franchise tax exacted for the privilege of doing business" in the state. Consolidated Title Securities Co. v. Hopkins, 1 Cal.2d 414, 419, 35 P.2d 320, 323; compare Carpenter v. People's mutual Life Insurance Co., 74 P.2d 708.

Although, in terms, the "gross premiums received upon . . . business done in this state," less the specified deductions, are made the measure of the tax, the state court in this, as in an earlier case, Connecticut General Life Insurance Co. v. Johnson, 3 Cal.2d 83, 43 P.2d 278, appeal dismissed for want of a properly presented federal question, 296 U.S. 535, has held that the measure includes the premiums on appellant's reinsurance policies effected and payable in Connecticut. In this case, it has declared also that the policy of the state, expressed in the constitutional provision, is "to avoid double taxation without any loss of revenue to the state." To accomplish that end, the deduction of reinsurance premiums paid to companies authorized to do business within the state is allowed, it is said, on the theory that the benefit of the deduction will be passed on to the reinsurer, who, being authorized to do business within the state, may be taxed on the reinsurance premiums as a means of equalizing the tax and as an offset against the benefit of the deduction which he ultimately enjoys.

No contention is made that appellant has consented to the tax imposed as a condition of the granted privilege to do business within the state. Nor could it be, for it appears that appellant had conducted its business in California under state license for many years before the taxable years in question, and before the taxing act was construed by the highest court of the state, in Connecticut General Life Insurance Co. v. Johnson, supra, to apply to premiums received in Connecticut from reinsurance contracts [58 S.Ct. 438] effected there. A corporation which is allowed to come into a state and there carry on its business may

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claim, as an individual may claim, the protection of the Fourteenth Amendment against a subsequent application to it of state law. Hanover Fire Insurance Co. v. Harding, 272 U.S. 494, compare Kentucky Finance Corp. v. Paramount Auto Exchange Corp., 262 U.S. 544.

It is said that the state could have lawfully accomplished its purpose if the statute had further stipulated that the deduction should be allowed only in those cases where the reinsurance is effected in the state or the reinsurance premiums paid there. But, as the state has placed no such limitation on the allowance of deductions, the end sought can be attained only if the receipt by appellant of the reinsurance premiums paid in Connecticut upon the Connecticut policies is within the reach of California's taxing power. Appellee argues that it is, because the reinsurance transactions are so related to business carried on by appellant in California as to be a part of it and properly included in the measure of the tax, and because, in any case, no injustice is done to appellant, since the effect of the statute, as construed, is to redistribute the tax, which the state might have exacted from the original insurers, but did not, by assessing it upon appellant to the extent to which it has received the benefit of the allowed deductions.

But the limits of the state's legislative jurisdiction to tax, prescribed by the Fourteenth Amendment, are to be ascertained by reference to the incidence of the tax upon its objects, rather than the ultimate thrust of the economic benefits and burdens of transactions within the state. As a matter of convenience and certainty, and to secure a practically just operation of the constitutional prohibition, we look to the state power to control the objects of the tax as marking the boundaries of the power to lay it. Hence it is that a state which controls the property and activities within its boundaries of a foreign corporation admitted to do business...

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