American Alliance Ins. Co. v. State Bd. of Equalization

• Decision Date: 02 August 1982
• Court: California Court of Appeals Court of Appeals
• Parties: , 30 A.L.R.4th 865 AMERICAN ALLIANCE INSURANCE COMPANY, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. Civ. 62898.

Page 674

184 Cal.Rptr. 674

134 Cal.App.3d 601, 30 A.L.R.4th 865

AMERICAN ALLIANCE INSURANCE COMPANY, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

Civ. 62898.

Court of Appeal, Second District, Division 1, California.

Aug. 2, 1982.

Burkley, Moore, Greenberg & Lyman and Richard C. Greenberg, Torrance, for plaintiff and appellant.

George Deukmejian, Atty. Gen., Edmond B. Mamer and Herbert A. Levin, Deputy Attys. Gen., for defendant and respondent.

DALSIMER, Associate Justice.

This case requires that we construe, apparently for the first time, certain language contained in the California Constitution, article XIII, section 28, subdivision (f), paragraph (3), ¹ as well as virtually the same language contained in California Insurance Code section 685.1. ²

The constitutional and Insurance Code sections referred to are part of the so-called "retaliatory insurance tax" levied by California and most of the other states of the union. California's law was held to be constitutional in Western & Southern L. I. Co. v. Bd. of Equalization (1981) 451 U.S. 648, 101 S.Ct. 2070, 68 L.Ed.2d 514. The court determined, inter alia, that, "... the principal purpose of retaliatory tax laws is to promote the interstate business of domestic insurers by deterring other States from enacting discriminatory or excessive taxes." (Id., at p. 668, 101 S.Ct., at p. 2083.) Likewise, the California Assembly Interim Committee on Revenue and Taxation in volume 4, number 15 of The Insurance Tax, part 8 (Dec. 1964) page 66, stated, "The actual rationale for the provision is that the application of the retaliatory laws acts as a deterrent to state taxation on the insurance industry." Decisions by the courts of this state are in accord. The court in Western & Southern Life Ins. Co. v. State Bd. of Equalization (1970) 4 Cal.App.3d 21, 34, 84 Cal.Rptr. 88, stated, "The primary object of retaliatory acts against foreign corporations is to secure for the insurance companies of the enacting state even-handed treatment by the Legislatures of other states. [Citations.]"

Simply stated, the retaliatory tax provides that if a foreign state charges a California insurance company a greater tax for doing business in that state than is levied by California on an insurance company doing business in California, then California will levy an additional tax upon insurers domiciled in that foreign state and doing business in California. The additional tax will be in an amount equal to the difference between the two taxes.

In the case at bench, the State Board of Equalization determined that appellant, a citizen of the State of Arizona, had to pay less tax in the State of California for the years 1971 and 1972 than a hypothetical citizen of this state would have had to pay for the privilege of doing business in Arizona. The respondent, State Board of Equalization, therefore imposed a retaliatory insurance assessment for each of those years. Appellant paid the assessments under protest and filed claims for refund. Treating the failure of the board to act upon the claims as a disallowance thereof, appellant filed complaints to recover said sums for each of the two years. Said actions were consolidated and tried, and appellant has appealed from the judgment in favor of respondent.

The dispute between the parties centers on the interpretation of that portion of the constitutional and Insurance Code provisions which state that the retaliatory tax "shall not apply as to personal income taxes nor as to ad valorem taxes on real or personal property nor as to special purpose obligations or assessments heretofore imposed by another state or foreign country in connection with particular kinds of insurance ...." (Cal.Const., art. XIII, § 28, subd. (f), par. (3); Ins.Code, § 685.1; italics supplied.)

Appellant contends that the entire tax levied by the State of Arizona against workers' compensation insurance carriers such as appellant constitutes exclusively a special purpose obligation and therefor may not be taken into account in determining the retaliatory tax. For reasons we shall explain, we disagree with this contention and therefor affirm the judgment.

Arizona taxes workers' compensation insurers by means of a premium tax. (Ariz.Rev.Stats., § 23-961(F).) Other classes of insurers also pay a premium tax (Ariz.Rev.Stats., § 20-224), but the taxes paid by other insurers are placed in the state treasury to the credit and for the use of the general fund (Ariz.Rev.Stats., § 20-227), while taxes paid by workers' compensation insurers are held by the state treasurer in the general fund for the credit of the administrative fund. (Ariz.Rev.Stats., §§ 23-961(F), 23-961.01.) The administrative fund defers the expenses of the Arizona Industrial Commission, which is the tribunal charged with adjudicating workers' compensation claims. The administrative fund is subject to the same budgetary review and legislative appropriation as are all other state funds. (Ariz.Rev.Stats., § 23-1081(A).) Beginning on April 1, 1970, any administrative fund surplus is transferred annually to a special fund established to provide additional compensation to various classes of injured employees. (Ariz.Rev.Stats., §§ 23-1065, 23-1081(B).) The special fund also reimburses the state compensation fund for paying workers' compensation claims that an insurer or self-insured employer should but does not pay to injured employees. (Ariz.Rev.Stats., § 23-966(A).) Because of this earmarking of the taxes that are assessed against workers' compensation insurers, appellant claims that the Arizona tax constitutes a "separate special purpose obligation or assessment."

The distinction between taxes and assessments is clear. Taxes are imposed for the general public good. On the contrary, assessments are levied for benefits conferred. (County of Santa Barbara v. City of Santa Barbara (1976) 59 Cal.App.3d 364, 379, 130 Cal.Rptr. 615.) The character of a levy as a tax or an assessment depends upon whether such levy is exacted in compensation for a benefit to the property upon which it is made a charge. (Cedars of Lebanon Hosp. v. County of L. A. (1950) 35 Cal.2d 729, 748, 221 P.2d 31.) A special assessment is not, in a constitutional sense, a tax at all. (Spring Street Co. v. City of Los Angeles (1915) 170 Cal. 24, 29, 148 P. 217; Northwestern etc. Co. v. St. Bd. Equal. (1946) 73 Cal.App.2d 548, 554, 166 P.2d 917.)

Appellant relies on County of Fresno v. Malmstrom (1979) 94 Cal.App.3d 974, 983, 156 Cal.Rptr. 777, for the proposition that special assessments are different from special taxes. As we read County of Fresno v. Malmstrom, the court therein supports the view of the respondent rather than of the appellant. The portion quoted by appellant in its brief very carefully omits the telling words of the County of Fresno court. That court stated, "A 'special tax' is a tax collected and earmarked for a special purpose, rather than being deposited in a general fund. [Citations.] A special assessment is charged to real property to pay for benefits that property has received from a local improvement and, strictly speaking, is not a tax at all. [Citation.]" (Id., at pp. 983-984, 156 Cal.Rptr. 777.) The County of Fresno court goes on to state, "A special assessment is distinguishable from a property-related special tax by the fact that a special assessment, being a charge for benefits conferred upon the property, cannot exceed the benefits the assessed property receives from the improvement; a special tax on real property need not so specifically benefit the taxed property. [Citations.]" (Id., at p. 984, 156 Cal.Rptr. 777.) This language reinforces the trial court's conclusion that the tax imposed on workers' compensation carriers by the State of Arizona is not a special purpose obligation or assessment "within the meaning of the California Constitution or Insurance Code," for the reason that it is not a charge for benefits conferred upon the taxpayer. We concur with the trial court's conclusion.

Remembering that the purpose of the retaliatory tax is "... to apply pressure on other States to maintain low taxes on California insurers," (Western & Southern L. I. Co. v. Bd. of Equalization, supra, 451 U.S. 648, 669-670, 101 S.Ct. 2070, 2083-2084, 68 L.Ed.2d 514), it is evident that this purpose would not be served by permitting other states to avoid the effect thereof by merely earmarking the result of such taxes to be used for specific state purposes. If, of course, the application of the tax revenue were applied in such a manner as to confer a benefit upon the taxpayer in exchange for the tax, then to such an extent the California insurer would not be burdened by the tax and there would be no occasion to apply the retaliatory tax. The maintenance of the Arizona Industrial Commission, the providing of compensation to various classes of injured employees, and the providing of reimbursement to the Arizona State Compensation Fund in no way benefits the workers' compensation insurers who pay such taxes.

Appellant argues that Atlantic Ins. Co. v. State Board of Equalization (1967) 255 Cal.App.2d 1, 62 Cal.Rptr. 784, app. dism. and cert. den., 390 U.S. 529, 88 S.Ct. 1208, 20 L.Ed.2d 86, held that a certain special additional tax imposed by the State of Texas on premiums from motor vehicle insurers constituted a special purpose obligation or assessment. We disagree with appellant's reading of the Atlantic...