Republic Ins. Co. v. Oakley
Court | Supreme Court of Tennessee |
Citation | 637 S.W.2d 448 |
Parties | REPUBLIC INSURANCE COMPANY, A Texas Corporation, and Vanguard Insurance Company, A Texas Corporation, Plaintiffs-Appellants, v. Honorable Millard H. OAKLEY, Commissioner of Insurance of the State of Tennessee, Defendant-Appellee. |
Decision Date | 17 May 1982 |
Wilson Sims, William W. Berry, Jr., Nashville, for plaintiffs-appellants.
Joe C. Peel, Asst. Atty. Gen., Nashville, for defendant-appellee; William M. Leech, Jr., Atty. Gen., Nashville, of counsel.
The plaintiff insurance companies brought this action to recover retaliatory insurance taxes, penalties and interest which they paid under protest; the Chancellor denied relief and the plaintiffs have appealed.
Each of the plaintiff companies is a Texas corporation that has been duly qualified to engage in the insurance business in Tennessee and has done so for a number of years; each of the companies writes primarily fire and casualty insurance and workers' compensation insurance in Tennessee.
During the taxable years in question, 1974 through 1977, the state of Tennessee, pursuant to T.C.A., § 56-408 (now T.C.A., § 56-4-205), levied upon the plaintiffs a tax at the rate of 2% of the gross premium receipts received from policy holders residing in this state or upon property located in this state; this tax was the same, of course, upon all such companies, whether or not they were Tennessee corporations or corporations domiciled in other states. During these same taxable years Texas imposed upon companies selling the same kind of insurance in Texas a similar tax in an amount equal to 3.85% of gross premium receipts. During the taxable period both Tennessee and Texas reduced the tax liability thus imposed if the taxpayer insurance company invested a certain portion of its assets in securities and other property of the taxing state. In Tennessee, this reduction for investment in Tennessee securities and other properties was in the form of "a reduction of or credit upon its gross premiums tax," as provided in T.C.A., § 56-414 (now T.C.A., § 56-4-210). For a taxpayer insurance company that had invested in Tennessee securities to the same extent each of the plaintiffs had invested during the taxable period in question, the amount of the credit due was as follows:
The comparable Texas statute, Article 7064 of the Texas Revised Statutes, for the same taxable period provided:
"If the report shows such insurance organization had invested in such Texas securities on such date an amount which is in excess of ninety percent (90%) of the amount that it had invested in similar securities in the state in which it then had the highest percentage of its admitted assets invested, its tax shall be 1.1% of such gross premium receipts."
The "retaliatory" tax provision under which the defendant Commissioner of Insurance imposed the disputed taxes upon the plaintiff companies is T.C.A., § 56-423 1 (now § 56-4-218), which, in pertinent part, provided:
2
During the period from 1974 through 1977 the plaintiffs paid Tennessee taxes at the rate of 2% on their gross premium receipts from Tennessee business; but, the defendant commissioner, concluding that Texas imposed a higher gross premium receipts tax upon Tennessee companies doing business in Texas, i.e., 3.85%, than Tennessee imposed upon the plaintiff Texas companies, i.e., 2%, proceeded, under the above quoted retaliatory tax provisions, to assess retaliatory taxes equal to 1.85% (3.85%-2.00%) against each of the plaintiffs for the years in question. The plaintiffs paid these additional assessments under protest and brought suit against the commissioner to recover the same; the Chancellor found the issues in favor of the commissioner and decreed accordingly.
The argument of the plaintiffs is that a Tennessee company, operating in Texas with the same in-state premium income as the plaintiff companies and investing in Texas securities to the same extent as the plaintiffs have invested in Tennessee securities, would be taxed at a rate of only 1.1% of its gross premium receipts, whereas, each of the plaintiffs is being taxed in Tennessee at the rate of 2% on their gross premium receipts; therefore, they conclude that the Texas tax burden is less than the Tennessee tax burden and, thus, there is no basis for the Commissioner to assess retaliatory taxes. The defendant Commissioner refutes the plaintiffs' argument, contending that, in determining whether or not Texas imposes a greater tax liability than does Tennessee, the favorable treatment afforded by both Texas and Tennessee to companies which invest a certain percentage of their assets in securities and other property of the taxing state must be ignored as being immaterial and that the only basis for comparison is the basic tax rate of each state, that is, 3.85% in Texas and 2% in Tennessee. The Commissioner concludes that since the Texas rate exceeds the Tennessee rate by 1.85%, his duty under the retaliatory taxing statute is to assess additional taxes at the rate of that differential of 1.85%. Our conclusion is that the Commissioner is correct; we affirm the decree of the Chancellor.
The plaintiffs, in a manner of speaking, are asking us to compare apples and oranges; thus, they urge that we compare the Texas tax rate, after it has been reduced from 3.85% to 1.1% as a credit for the taxpayer's investment in Texas securities, to the Tennessee tax rate of 2%, before its 75% reduction from 2% to .5% for investment in Tennessee securities. 3 Obviously, such a "comparison" is not authorized or justified under the law and the facts of this case.
If credits allowed for investment in the taxing state's securities were to be recognized in determining whether retaliatory taxes should be assessed, the plaintiffs would still lose their argument because the 1.1% Texas rate would exceed the .5% Tennessee rate. However, we agree with the Commissioner that credits allowable to insurance company taxpayers are not properly to be considered and that a determination whether or not retaliatory taxes are called for is to be based solely upon a comparison of the basic tax rate of the two states in question. In Williams v. Thomas Jefferson Ins. Co., 215 Tenn. 356, 385 S.W.2d 908 (1965), this Court considered the Tennessee statutes here involved, T.C.A., §§ 56-408, 56-414, 56-423, and their relation with each other. Apparently the issue in that case was whether or not an out-of-state insurance company, authorized to do business in Tennessee, would be entitled to the credit authorized by T.C.A., § 56-414, for investment in Tennessee securities. We quote pertinent excerpts from the opinion in the Williams case:
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