Rekerdres & Sons Ins. Agency, Inc. v. Hegar
| Decision Date | 24 September 2020 |
| Docket Number | No. 07-19-00209-CV,07-19-00209-CV |
| Citation | 611 S.W.3d 88 |
| Parties | REKERDRES & SONS INSURANCE AGENCY, INC., Appellant v. Glenn HEGAR, Comptroller of Public Accounts of the State of Texas and Ken Paxton, Attorney General of the State of Texas, Appellees |
| Court | Texas Court of Appeals |
Quinn T. Ryan, for Appellees.
Dan E. Martens, Plano, Stephen Dobbs, for Appellant.
Before PIRTLE, PARKER, and DOSS, JJ.
Appellant, Rekerdres & Sons Insurance Agency, Inc., appeals from the trial court's orders granting the motion for partial summary judgment filed by Appellees, Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken Paxton, Attorney General of the State of Texas, and denying its first amended motion for summary judgment.1 Appellant challenges the trial court's orders through three issues: (1) whether the tax imposed at issue violated the Commerce Clause of the United States Constitution, (2) whether the tax imposed at issue violated the Import-Export Clause of the United States Constitution, and (3) whether the insurance at issue falls within the definition of "Export Property," as defined by Title 28, section 5.5002(2)(B) of the Texas Administrative Code, thus taking it out of the purview of the surplus lines insurance premiums subject to taxation. We will affirm the rulings of the trial court.2
Appellant is a Texas corporation operating from an office in Dallas, Texas. Appellant brokered insurance policies with various Texas warehouses to insure bales of cotton temporarily stored at their facilities. The policies were underwritten by insurers not licensed to conduct business in Texas. Appellant received premiums from the Texas warehouses under these policies. There were two types of premiums, "Texas Warehouse Receipts" and "Texas Merchant Receipts." Both types of premiums covered the same risks to cotton stored at the warehouses but did so at different valuations.3
Appellee, the Texas Comptroller of Public Accounts, Glenn Hegar, audited Appellant for insurance premium tax compliance, for the period 2008 through 2011.4 This audit resulted in the Texas Notification of Audit Results , dated August 22, 2012, and reflected a tax due of $65,646.60, a penalty of $6,564.66, and interest of $5,595.03. The penalty was subsequently waived. Appellant timely filed a Petition for Redetermination on September 21, 2012. Appellant later paid, under protest, $82,862.05, an amount that included interest as provided in the Texas Tax and Government Codes. In December 2016, Appellant filed suit against Appellees, seeking a refund of the insurance premium tax paid. In its petition, Appellant asserted, among other things, that the tax imposed was in violation of the Commerce Clause of the United States Constitution,5 that the tax imposed was in violation of the Import-Export Clause of the United States Constitution,6 and that the insurance at issue was not "surplus lines insurance" subject to taxation, but rather "Ocean Marine Insurance" to which the tax did not apply. On July 5, 2018, Appellant filed its First Amended Traditional and No-Evidence Motion for Summary Judgment arguing it was entitled to summary judgment, as a matter of law, based on the same legal arguments raised in its petition. On August 6, 2018, Appellees filed their Motion for Partial Summary Judgment , seeking summary judgment that the State may tax both types of premiums involved in this case, i.e., Texas Warehouse Receipts and Texas Merchant Receipts, without violating the Commerce Clause or the Import-Export Clause of the United States Constitution.7
The trial court entered its orders denying Appellant's Motion for Summary Judgment and granting Appellees' Motion for Partial Summary Judgment on October 1, 2018. On March 25, 2019, the trial court signed a Final Judgment indicating that both the Texas Warehouse Receipts and Texas Merchant Receipts received by Appellant during the relevant tax period were subject to surplus lines insurance premium tax. The order also included the parties' agreement concerning the amounts of the Texas Merchants Receipts and the resulting tax amount.8 The trial court ordered that Appellant take nothing against Appellees and that Appellees were entitled to retain Appellant's protest payment. The trial court also ordered that Appellant was liable to Appellees for the additional tax on the Texas Merchant Receipts. Appellant challenges the trial court's rulings through this appeal.
When, as here, parties file cross-motions for summary judgment, each party in support of its motion necessarily takes the position that there is no genuine issue of fact in the case and that it is entitled to judgment as a matter of law. Sw. Bell Tel. Co. v. Combs , 270 S.W.3d 249, 259-60 (Tex. App.—Amarillo Oct. 28, 2008, pet. denied) (citing City of Pflugerville v. Capital Metro. Transp. Auth. , 123 S.W.3d 106, 109 (Tex. App.—Austin 2003, pet. denied) ). When both parties move for summary judgment on the same issues and the trial court grants one motion and denies the other, the reviewing court considers the summary judgment evidence presented by both sides, and determines all questions presented. Combs , 270 S.W.3d at 260 ().
In its first issue, Appellant argues the trial court erred by denying Appellant's First Amended Motion for Summary Judgment and granting Appellees' Motion for Partial Summary Judgment because Appellant showed the tax imposed by Appellees against Appellant for the Texas Warehouse Receipts and the Texas Merchant Receipts was in violation of the Commerce Clause of the United States Constitution.
The Commerce Clause limits the states from interfering with interstate commerce. Westcott Commc'ns., Inc. v. Strayhorn , 104 S.W.3d 141, 147 (Tex. App.—Austin 2003, pet. denied) (citing U.S. CONST. art. I, § 8, cl. 3 ; Freeman v. Hewit , 329 U.S. 249, 252, 67 S. Ct. 274, 91 L. Ed. 265 (1946) ; Rylander v. Bandag Licensing Corp. , 18 S.W.3d 296, 298-99 (Tex. App.—Austin 2000, pet. denied) ). In Complete Auto Transit, Inc. v. Brady , 430 U.S. 274, 279, 97 S. Ct. 1076, 51 L. Ed. 2d 326 (1977), the Supreme Court set forth the applicable test for analyzing whether a state tax affecting interstate commerce is consistent with the Constitution. Consistent with that guidance, a tax affecting interstate commerce will be sustained if it (1) is applied to an activity with a substantial nexus with the taxing state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services provided by the state. Id. If the tax is on foreign commerce, in addition to the Complete Auto criteria, the tax must also not create a substantial risk of international multiple taxation or prevent the federal government from speaking with one voice in its regulation of commercial relations with foreign governments. Vinmar, Inc. v. Harris Cnty. Appraisal Dist. , 947 S.W.2d 554, 555 (Tex. 1997) (citing Japan Line, Ltd. v. Los Angeles County , 441 U.S. 434, 451, 99 S. Ct. 1813, 60 L. Ed. 2d 336 (1979) ).
To establish that a state tax is unconstitutional, the taxpayer is required only to prove that the tax fails any one of the six criteria announced in Complete Auto and Japan Line. Vinmar , 947 S.W.2d at 555 (citing Container Corp. of Am. v. Franchise Tax Bd. , 463 U.S. 159, 175-76, 103 S. Ct. 2933, 77 L. Ed. 2d 545 (1983) ). The "one-voice prong of the test used to analyze state taxes under the Commerce Clause is the same as the one-voice prong of the test used to analyze cases under the Import-Export Clause." Vinmar , 947 S.W.2d at 555 (citing Itel Containers Int'l Corp. v. Huddleston , 507 U.S. 60, 77, 113 S. Ct. 1095, 122 L. Ed. 2d 421 (1993) ).
In 1945, Congress removed all Commerce Clause limitations on the authority of the states to regulate and tax the business of insurance when it passed the McCarran-Ferguson Act ( 15 U.S.C. §§ 1011 - 1015 ). W & S Life Ins. Co. v. State Bd. of Equalization of California , 451 U.S. 648, 653, 101 S. Ct. 2070, 68 L. Ed. 2d 514 (1981) (citing 59 Stat. 33, 15 U.S.C. § 1011 et seq. ). That Act provides in relevant part that, "The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business." 15 U.S.C.S. § 1012(a). In passing the McCarran-Ferguson Act, it was the intent of Congress to restore state taxing and regulatory authority over the insurance business to the scope it had enjoyed before the U.S. Supreme Court holding in United States v. S-E Underwriters Ass'n , 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944), which held that insurance is "commerce" within the meaning of the Commerce Clause. W&S Life Ins. Co. , 451 U.S. at 653-54, 101 S.Ct. 2070 (citations omitted).
As noted by the Supreme Court in W & S Life Ins. Co. , the McCarran-Ferguson Act removed any restriction on a state's power to tax the insurance business. Id. at 655, 101 S. Ct. 2070. Other courts have also determined that the McCarran-Ferguson Act "left the matter of regulation and taxation of insurance companies to the states." Id. (citing In re Ins. Tax Cases , 160 Kan. 300, 313, 161 P.2d 726, 735 (1945) ). Accordingly, assessed taxes like that before us are not subject to challenge based upon the Commerce Clause. W & S Life Ins. Co. , 451 U.S. at 655, 101 S.Ct. 2070. Furthermore, even if the taxes could be challenged under the Commerce Clause, we find, as discussed in our analysis under Appellant's second issue, the tax assessed here was not unconstitutional. Consequently, we overrule Appellant's first issue.
In its second issue, Appellant argues the trial court erred by failing to recognize that the tax imposed by Appellees also violated...
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