Alabama Farm Bureau Mut. Cas. Ins. Co., Inc. v. City of Hartselle

• Decision Date: 20 July 1984
• Docket Number: No. 82-1286,82-1286
• Citation: 460 So.2d 1219
• Parties: ALABAMA FARM BUREAU MUTUAL CASUALTY INSURANCE COMPANY, INC., a Corporation v. CITY OF HARTSELLE, Alabama, a Municipal Corporation.
• Court: Alabama Supreme Court

Page 1219

460 So.2d 1219

ALABAMA FARM BUREAU MUTUAL CASUALTY INSURANCE COMPANY, INC., a Corporation v. CITY OF HARTSELLE, Alabama, a Municipal Corporation.

No. 82-1286.

Supreme Court of Alabama.

July 20, 1984.

Rehearing Denied Nov. 30, 1984.

Norman W. Harris of Harris, Shinn, Phillips & Perry, Decatur, and J. Thaddeus Salmon and Gordon T. Carter, Montgomery, for appellant.

A.J. Coleman, Decatur, for appellee.

Richard B. Emerson, Anniston, for amicus curiae City of Anniston.

ADAMS, Justice.

This appeal arises from a suit filed by the City of Hartselle, Alabama (Hartselle) against Alabama Farm Bureau Mutual Casualty Insurance Company, Inc. (Farm Bureau), in which Hartselle sought to collect an amount of money representing a municipal license tax allegedly owed the plaintiff by Farm Bureau for the years 1972 through 1983. Farm Bureau appeals from a judgment in favor of Hartselle which ordered the insurance company to pay $19,839.97 in tax, interest, and penalties.

The case arose out of the following facts:

Hartselle is, and was during the years in question, a municipal corporation existing in the State of Alabama. Pursuant to state law and its own ordinance, Hartselle imposed a license tax on insurance companies for the privilege of doing business within the city limits.

Farm Bureau is an insurance company having its home office in Montgomery, Alabama, but it sells insurance policies to citizens of Hartselle and insures property located in Hartselle. There is no dispute that during the years in question Farm Bureau did business in Hartselle so as to fall within the ambit of the license tax ordinance.

What is in dispute, however, is the method by which the amount of license tax is determined. Both the Hartselle ordinance and the state statute authorizing municipal license taxes require that the tax be based on the premiums the insurance company received on policies issued during the preceding year. During each of the years in question, Farm Bureau reported to Hartselle, and paid tax on, the total amount of premiums on new policies actually issued during the preceding year. These totals did not include premiums on policies which were simply renewed during the preceding year.

Hartselle filed suit against Farm Bureau on December 30, 1976, alleging that the insurance company had failed to comply with the city license ordinance by inaccurately reporting premiums received and incorrectly computing the license tax payable to the city. Hartselle claimed that the tax should have been based on premiums received not only from new policies issued during the preceding year, but also from existing policies which were renewed during the preceding year.

Farm Bureau argued in defense that it had correctly computed the taxes due because existing policies, which were simply continued in force by payment of renewal premiums, were not policies "issued in the preceding year" within the meaning of both the Hartselle ordinance and the applicable state statutes. Further, Farm Bureau claimed that Hartselle did not require life insurance companies to include such renewal premiums in the total receipts for tax purposes, but, nevertheless, this requirement was imposed on Farm Bureau. This double standard, the defendant argued, was a denial of equal protection of the laws and, therefore, unconstitutional.

On August 27, 1982, the trial court denied Farm Bureau's motion for summary judgment and granted a motion for summary judgment in favor of Hartselle. With liability having been determined against Farm Bureau and without waiving the right to appeal, the parties stipulated that Farm Bureau owed $19,839.97 in tax, interest, and penalties, and that of this amount, $18,498.34 was attributable to the inclusion of renewal premiums in the tax computation. The trial court entered final judgment against Farm Bureau on August 29, 1983, and defendant herein appeals.

Farm Bureau asserts on appeal that the trial judge erred as a matter of law in granting summary judgment in favor of Hartselle and allowing the city to tax renewal premiums. Additionally, Farm Bureau claims that the trial judge erred in granting summary judgment in favor of Hartselle on the issue of unequal and unconstitutional application of the license tax ordinance.

The issues to be decided in this case are 1) whether Farm Bureau's renewal of an existing policy constitutes "issuing" the policy, thus subjecting the renewal premiums to the municipal license tax, and 2) whether Hartselle has administered its municipal license tax ordinance in such an unequal manner as to constitute a violation of the equal protection guaranty of the fourteenth amendment to the United States Constitution.

I.

Municipalities have no inherent power of taxation. The state, however, having the power to tax, may delegate this power to a municipality. Town of Hackleburg v. Northwest Alabama Gas District, 277 Ala. 355, 170 So.2d 792 (1964). The authority of municipalities in Alabama to place a license tax on businesses and professions is found in Code 1975, § 11-51-90. This section reads in part as follows:

(a) All municipalities shall have the power: (1) To license any exhibition, trade, business, vocation, occupation or profession not prohibited by the Constitution or laws of the state which may be engaged in or carried on in the city or town.

Code 1975, § 11-51-90.

In addition to this general grant of licensing power to municipalities, the legislature has enacted specific provisions regulating municipal taxation of insurance companies. This case turns on the interpretation given to language used in both of these state provisions and in the provision in Hartselle's ordinance authorizing the licensing of insurance companies.

Code 1975, § 11-51-120, establishes the maximum amount of tax which a municipality may put on an insurance company which issues fire or marine insurance. The statute reads in relevant part as follows:

No license or privilege tax or other charge for the privilege of doing business shall be imposed by any municipal corporation upon any fire or marine insurance company doing business in such municipality except upon a percentage of each $100.00 of gross premiums, less return premiums, on policies issued during the preceding year on property located in such municipality. [Emphasis added.]

Code 1975, § 11-51-120.

Similar language is used in the succeeding provision, which sets the maximum amount of tax which a municipality may place on an insurance company which issues insurance other than fire or marine insurance. This section reads in part as follows:

(a) No license or privilege tax or other charge for the privilege of doing business shall be imposed by any municipal corporation upon any insurance company, other than fire and marine insurance companies, doing business therein or its agents which shall exceed for the company and its agents the following amounts:

(1) Each insurance company, in cities and towns having a population of 5,000 or less, $10.00 and $1.00 on each $100.00 and major fraction thereof of the gross premiums, less return premiums, received during the preceding year on policies issued during said year to citizens of said cities and towns. [Emphasis added.]

Code 1975, § 11-51-121.

While these provisions distinguish, for purposes of the actual amount of tax imposed, between insurance companies marketing fire and marine insurance on the one hand, and those marketing other types of insurance on the other hand, both provisions require a determination of the gross premiums received by the insurance company on policies which were issued during the preceding year.

Under the authority granted by these statutes, Hartselle enacted a similar ordinance imposing the maximum allowable license tax on insurance companies. Hartselle's ordinance uses substantially the same language as its state counterparts, stating in pertinent part as follows:

Each person engaged in the insurance business, except fire and marine, and fraternal benefit organizations, shall pay as a license tax $10.00 and also $1.00 on each $100.00 or major fraction thereof, of the gross premiums less the return premiums, received during the preceding year, on policies issued during such year, to citizens of this city.... Each person engaged in the business of fire or marine insurance shall pay four percent (4%) of the gross premiums, less the return premiums on policies issued during the preceding year on property located in the city. [Emphasis added.]

§ 9-1-118, Hartselle Municipal License Code (1970).

Therefore, in order to pay the required license tax in Hartselle, an insurance company must first determine its gross premiums less return premiums on policies which were issued during the preceding year to citizens of Hartselle or on property located in Hartselle, depending on the type of insurance marketed. The company then computes the tax due on those gross premiums, the amount again depending on the type of insurance involved.

The issue arising in this case involves the interpretation of the word "issued" as used in the Alabama statutes and the Hartselle ordinance. Is a policy of insurance "issued" within the meaning of the state statutes and Hartselle's ordinance when a policy is renewed by payment of a renewal premium? If such a renewal does not constitute the issuance of a policy of insurance, then those renewal premiums must not be included in the amount of gross premiums upon which the municipal license is based, and, if that is the case, the trial court incorrectly granted Hartselle's motion for summary judgment.

II.

Although Farm Bureau was taxed pursuant to Hartselle's ordinance, that ordinance is authorized by and uses the same language as the state statutes pertaining to the licensing of insurance companies. Thus, the resolution of this case requires the court to determine whether the state legislature intended the renewal of insurance policies to be equated with the issuance...