Allstate Insurance Company v. United States

• Decision Date: 12 December 1969
• Docket Number: No. 410-65.,410-65.
• Citation: 419 F.2d 409
• Parties: ALLSTATE INSURANCE COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

419 F.2d 409 (1969)

ALLSTATE INSURANCE COMPANY v. The UNITED STATES.

No. 410-65.

United States Court of Claims.

December 12, 1969.

William A. Cromartie, Chicago, Ill., attorney of record, for plaintiff. Glen H. Kanwit, Chicago, Samuel H. Horne, Washington, D. C., and Hopkins, Sutter, Owen, Mulroy, Wentz & Davis, Chicago, Ill., of counsel.

Gilbert W. Rubloff, Washington, D. C., with whom was Asst. Atty. Gen., Johnnie M. Walters, for defendant. Philip R. Miller, Washington, D. C., of counsel.

Before COWEN, Chief Judge, LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON, and NICHOLS, Judges.

ON PLAINTIFF'S MOTION AND DEFENDANT'S CROSS MOTION FOR SUMMARY JUDGMENT

SKELTON, Judge.

This is an income tax case and is before the court on cross motions for summary judgment of the parties.

The plaintiff, Allstate Insurance Company, is an Illinois corporation with its principal office at Skokie, Illinois. It is a stock casualty insurance company. During the year 1958 it sold insurance policies in each of the provinces of the Dominion of Canada and by reason thereof, incurred liability of $278,693.08 in premiums taxes imposed by the provinces of Canada upon the gross amount of premiums it collected in that country. It paid these taxes in Canada and thereafter claimed the same amount as a business expense deduction on its income tax return for 1958 in the United States, which was allowed, and plaintiff paid its taxes then due. Later on, plaintiff decided to claim the taxes it had paid in Canada in the sum of $278,693.08 as a foreign tax credit on its 1958 income taxes in the United States. If allowed, this would reduce its income tax liability for 1958 in the sum of $133,772.68. It took the position that it had overpaid its income taxes for 1958 in this amount and accordingly, filed a claim for its refund, plus interest of not less than $31,471.39, or a total of not less than $165,244.07, together with any additional interest that may be due.

The claim for refund was denied by the Internal Revenue Service, and this suit followed. An agreed statement of facts has been filed by the parties. The sole question before the court is whether plaintiff is entitled to a credit on its 1958 United States income tax, instead of a deduction from its income, for the Canadian taxes on the gross amount of its premiums collected in that country because: (1) such taxes were paid in lieu of income taxes within the meaning of Section 903 of the Internal Revenue Code of 1954,¹ or (2) such taxes were income taxes within the meaning of Section 901 of the Code.²

Both parties agree that this question has been thoroughly and exhaustively considered and dealt with by this court with respect to mutual life insurance companies doing business in Canada in the following cases: Prudential Ins. Co. of America v. United States, 319 F.2d 161, 162 Ct.Cl. 55 (1963); Prudential Ins. Co. of America v. United States, 337 F.2d 651, 167 Ct.Cl. 598 (1964), cert. denied, 386 U.S. 1018, 87 S.Ct. 1375, 18 L.Ed.2d 457 (1967); Equitable Life Assurance Soc'y of the United States v. United States, 366 F.2d 967, 177 Ct.Cl. 55 (1966), cert. denied, 386 U.S. 1021, 87 S.Ct. 1375, 18 L.Ed.2d 457 (1967); Metropolitan Life Ins. Co. v. United States, 375 F.2d 835, 179 Ct.Cl. 606 (1967). In each of these cases, the Canadian premiums taxes were allowed as a credit on income taxes due the United States by mutual life insurance companies. The Ninth Circuit Court of Appeals reached the same result in Occidental Life Ins. Co. of Calif. v. United States, 385 F.2d 1 (9th Cir. 1967), aff'g 250 F.Supp. 130 (S.D.Cal.1965), in a case involving a stock life insurance company. This is the first time the question has been presented to this court in a case in which a stock casualty insurance company is involved.

The plaintiff argues that all insurance companies should be treated alike and since the credit has been allowed to life insurance companies it should likewise be allowed to a stock casualty insurance company. Unfortunately, this cannot be done because there is a difference, at least taxwise, between the two types of companies and the way they are treated under Canadian laws. This difference is found in the laws which exempt life insurance companies from the payment of all income taxes but require stock casualty insurance companies (such as the plaintiff here) to pay income taxes. In our opinion, this difference in the Canadian laws governs the disposition of this case. This is especially true with reference to plaintiff's first argument to the effect that the premiums taxes were paid in lieu of income taxes. We will consider that argument first.

At the outset, it should be pointed out that the plaintiff, as a stock casualty insurance company, was subject to the payment of income taxes in each of the 10 provinces of Canada during the year in question (1958). These income taxes were imposed under two different systems or plans, namely: (1) The Provinces of Ontario and Quebec levied and collected their own income taxes; and (2) The other eight provinces had entered into tax rental agreements with the Dominion whereby they participated in the Federal-Provincial Tax Sharing Arrangements Act under which the provinces suspended the collection of income taxes and allowed the Dominion to collect such taxes, which, in turn, made tax rental payments out of its income tax receipts to such provinces. In addition, the plaintiff was subject to the payment of the premiums taxes in all of the 10 provinces. Actually, the income of the plaintiff in 1958 was not sufficient to require it to pay income taxes to the Dominion or to Ontario or Quebec under their income tax laws. The defendant agrees that if the plaintiff had actually paid income taxes which were required to be paid by the Canadian income tax laws, it would be entitled to the foreign tax credit for such income taxes. But the taxes involved here were collected as premium taxes and not as income taxes. We held in Metropolitan Life Ins. Co. v. United States, supra:

The sovereign inquiry, then, is "whether the tax was levied by the foreign country in place of or instead of or as a substitute for some existing income or profits tax." * * * Id. 375 F.2d at 839, 179 Ct.Cl. at 612.

In that case we held that the effect of the tax rental agreements between the provinces and the Dominion was that the Dominion's income tax became the "generally imposed income tax" of the provinces. In that case the plaintiff was not subject to income taxes but was exempt therefrom. However, it was required to pay premium taxes. We held that income taxes were generally imposed in Canada and since the plaintiff was exempt from paying such taxes but was required to pay the premiums taxes, such taxes were "in lieu of" income taxes.

The situation in the case before us is different. The plaintiff is not exempt from the payment of income taxes but is required to pay them. The premiums taxes could not be "in lieu of," or as a substitute for income taxes, because the plaintiff had to pay the income taxes in addition to the premiums taxes. These facts appear to fall within the "four corners" of our decision in the Metropolitan Life Insurance Company case, supra, where we said:

* * * If the premiums tax is disallowed, it will because the court concludes that — for those firms, in contrast to mutual life companies — the particular pattern of the Canadian legislation shows that this tax is not "in lieu" of "a tax upon income * * otherwise generally imposed * * *", but is simply an additional levy. Id. 375 F.2d at 841, 179 Ct.Cl. at 614.

In our opinion, the premiums taxes in the case before us were not "in lieu" of income taxes otherwise generally imposed, but were an additional levy which the plaintiff was required to pay over and above and apart from its payment of income taxes.³

This brings us to a consideration of plaintiff's alternative contention that the premiums taxes were actually income taxes under Section 901 of the Code, supra. We did not pass on this question in the two Prudential Insurance Company cases, supra, nor in the Equitable Life Assurance Soc'y of the United States and Metropolitan Life Insurance Company cases, cited above. In all of those cases we held that the premiums taxes were "in lieu" of income taxes and it was not necessary for us to decide whether the premiums taxes were themselves income taxes. We said in Prudential Ins. Co. of America v. United States, 319 F.2d 161, 162 Ct.Cl. 55 (1963):

* * * The tax on insurance premiums which plaintiff paid * * * was "a tax paid in lieu of a tax upon income * * *." Accordingly, we need not also determine whether these premiums taxes were "income taxes paid or accrued during the taxable year" to the Canadian jurisdictions, within the meaning of sec. 131(a). Id. 319 F.2d at 165, 162 Ct.Cl. at 62-63.⁴

This is the first time this court has been called upon to pass on this question. However, other courts have decided the issue contrary to the plaintiff's contention here. In the case of United States v. Occidental Life Ins. Co. of Calif., 385 F.2d 1, 10 (9th Cir. 1967), both the trial court and the Court of Appeals held that Canadian life insurance premiums taxes were not income taxes.

In St. Paul Fire & Marine Ins. Co. v. Reynolds, 44 F.Supp. 863 (D. Minn. 1952), the court held that a Canadian premiums tax paid by a casualty insurance company was an excise tax and not an income tax within the meaning of Section 131(a) (now Section 901) of the Code. To the same effect is the holding in Continental Ins. Co. v. Commissioner of Internal Revenue, 40 B.T.A. 540 (1939) with respect to the premiums tax paid to Canada in that case. Essentially the same result was reached by the court in Helvering v. Queen Ins. Co., 115 F.2d 341 (2d Cir. 1940). There the company was subject to both premiums taxes as well as income taxes (as here). However, the Canadian laws there allowed it to deduct the premiums taxes from the income...