American Home Assur. v. Texas Dept. of Ins.

• Decision Date: 20 September 1995
• Docket Number: No. 03-94-00498-CV,03-94-00498-CV
• Citation: 907 S.W.2d 90
• Parties: AMERICAN HOME ASSURANCE; Birmingham Fire Insurance Company of Pennsylvania; and The Insurance Company of the State of Pennsylvania, Appellants, v. TEXAS DEPARTMENT OF INSURANCE; J. Robert Hunter, Commissioner of Insurance; Claire Korioth, Chairman, Allene D. Evans, and Deece Eckstein, Members, State Board of Insurance; Martha Whitehead, Texas State Treasurer; Dan Morales, Texas Attorney General; John Sharp, Texas Comptroller; and Texas Public Finance Authority, Appellees.
• Court: Texas Court of Appeals

Page 90

907 S.W.2d 90

AMERICAN HOME ASSURANCE; Birmingham Fire Insurance Company

of Pennsylvania; and The Insurance Company of the

State of Pennsylvania, Appellants, v. TEXAS DEPARTMENT OF INSURANCE; J. Robert Hunter,

Commissioner of Insurance; Claire Korioth, Chairman, Allene

D. Evans, and Deece Eckstein, Members, State Board of

Insurance; Martha Whitehead, Texas State Treasurer; Dan

Morales, Texas Attorney General; John Sharp, Texas

Comptroller; and Texas Public Finance Authority, Appellees.

No. 03-94-00498-CV.

Court of Appeals of Texas,

Austin.

Sept. 20, 1995.

Rehearing Overruled Oct. 25, 1995.

Anthony Icenogle, DeLeon & Boggins, P.C., Austin, for appellants.

Dan Morales, Attorney General, William E. Storie, Assistant Attorney General, Taxation Division, Austin, for appellees.

Before POWERS, JONES and KIDD, JJ.

POWERS, Justice.

American Home Assurance, Birmingham Fire Insurance Company of Pennsylvania, and The Insurance Company of the State of Pennsylvania appeal from a take-nothing judgment in favor of appellees ¹ in a tax-protest suit brought pursuant to article 5.76-5 of the Insurance Code. See Tex.Ins.Code art. 5.76-5 (West Supp.1995) (the "Code"). We will affirm the trial-court judgment.

THE CONTROVERSY

In 1991, the Legislature created the Texas Workers' Compensation Insurance Fund as a corporate body for the purpose of providing workers' compensation coverage to Texas employers. See Act of August 25, 1991, 72d Leg., 2d C.S., ch. 12, §§ 18.07-.19, 1991 Tex.Gen.Laws 342, 342-61 (Tex.Ins.Code Ann. arts. 5.76-3-.76-5, since amended). In order to raise money for the Fund, the Texas Public Finance Authority issued $300 million dollars in bonds to be discharged through maintenance-tax surcharges assessed against: "(1) each insurance company writing workers' compensation insurance in this state; (2) each certified self-insurer ...; and (3) the fund." Tex.Ins.Code Ann. art. 5.76-5, § 10(a) (West 1995). ² The Texas Department of Insurance promulgated section 1.411 of the Texas Administrative Code in order to carry out the purposes of article 5.76-5. See 28 Tex.Admin.Code § 1.411 (1993) ("Rule 1.411"). Rule 1.411 required that the 1992 maintenance-tax surcharge be calculated based upon 1991 premiums and established recoupment procedures by which insurance companies could "pass through" the maintenance-tax surcharge to their policyholders. Id. In protesting their 1992 and 1993 tax payments, appellants contested this method of calculating the surcharge. In five points of error, appellants complain the recoupment scheme is unconstitutional and the trial court erred in upholding it.

"[W]e begin with a presumption of validity. It is to be presumed that the Legislature has not acted unreasonably or arbitrarily; and a mere difference of opinion, where reasonable minds could differ, is not a sufficient basis for striking down legislation...." Texas Workers' Compensation Comm'n v. Garcia, 893 S.W.2d 504, 520 (Tex.1995); see also Prudential Health Care Plan, Inc. v. Commissioner of Ins., 626 S.W.2d 822, 827 (Tex.Civ.App.--Austin 1982, writ ref'd n.r.e.). If a legislative scheme or design can be justified under any possible state

of facts, we will assume the existence of those facts. Garcia, 893 S.W.2d at 520; Massachusetts Indem. & Life Ins. Co. v. Texas State Bd. of Ins., 685 S.W.2d 104, 109 (Tex.Civ.App.--Austin 1985, no writ). It is also presumed that the legislature, in enacting a statute that regulates business activity, was familiar with the manner in which the business was conducted. Massachusetts Indem., 685 S.W.2d at 109.

RETROACTIVE LAWS

Appellants' first point of error complains that Rule 1.411 results in a retroactive tax that is unconstitutional under article I, section 16 of the Texas Constitution ³ and therefore beyond the Department's delegated power to promulgate under sections 5.76-5 and 5.68 of the Code. ⁴

There is a distinction between a direct tax on property ⁵ and a tax imposed on the privilege of conducting business within the state. "A gross premiums tax is not a property tax, but is an excise tax, or, otherwise stated, a privilege or franchise tax which a company must pay for the privilege of doing business within the state." 19B John A. Appleman & Jean Appleman, Insurance Law and Practice § 10938 (1982); see Houston Oil Co. v. Lawson, 175 S.W.2d 716, 723 (Tex.Civ.App.--Galveston 1943, writ ref'd); Neild v. District of Columbia, 110 F.2d 246, 253 (D.C.Cir.1940). The Department asserts the maintenance-tax surcharge described in article 5.76-5 of the Code differs from a direct property tax in that the surcharge is assessed only against "each insurance company writing workers' compensation insurance in this state." Code art. 5.76-5, § 10(a)(1) (emphasis added). Thus, the Department argues, the maintenance-tax surcharge is in the nature of a franchise tax assessed for the privilege of doing business in the state. ⁶ We agree.

We find persuasive the court's discussion in Neild. In Neild, plaintiffs challenged a revenue statute imposed on the corporate privilege to conduct business, contending the statute was unconstitutionally retroactive because the tax was based on gross receipts collected in the preceding year. Upholding the statute, the court held that because the tax was levied only on taxpayers exercising the privilege of doing business in the taxable year and was not exclusively a tax on the gross receipts of the preceding year, the tax was not impermissibly retroactive. Id. at 255. The court reasoned that a statute Appellants argue that Rule 1.411 results in a direct tax on gross premiums that cannot be for the privilege of engaging in business in Texas because: (1) self-insurers are taxed, and (2) insurers are taxed even after they leave the workers' compensation market. See Code art. 5.76-5, §§ 10(a)(2), (e). The pertinent parts of article 5.76-5, section 10 provide as follows:

should not be construed to operate retrospectively if it may be construed in a manner that avoids such operation. Neild, 110 F.2d at 254 (citing Shwab v. Doyle, 258 U.S. 529, 535, 42 S.Ct. 391, 392, 66 L.Ed. 747 (1921)). "A statute is not retroactive merely because it draws upon antecedent facts for its operation." Neild, 110 F.2d at 255 (quoting Lewis v. Fidelity & Deposit Co., 292 U.S. 559, 571, 54 S.Ct. 848, 853, 78 L.Ed. 1425 (1933)); see also Reliance Ins. Co. v. Nutt, 403 S.W.2d 828, 830-31 (Tex.Civ.App.--Austin 1966, writ ref'd n.r.e.) ("surviving company" that merged with former insurance company liable for taxes based on gross premiums collected by defunct company in preceding year).

(a) A maintenance tax surcharge is assessed against: (1) each insurance company writing workers' compensation insurance in this state; (2) each certified self-insurer as provided in [Tex.Lab.Code Ann. §§ 407.001-.133 (West Supp.1995) ]; and (3) the fund.

....

(e) As a condition of engaging in the business of insurance in this state, an insurance company writing workers' compensation insurance in this state agrees that if the company leaves the workers' compensation insurance market in this state it remains obligated to pay, until the bonds are retired, the company's share of the maintenance tax surcharge assessed under this section in an amount proportionate to that company's share of the workers' compensation insurance market in this state as of the last complete reporting period before the date on which the company ceases to engage in the insurance business in this state. The proportion assessed against the company shall be based on the company's workers' compensation insurance gross premiums for the company's last reporting period. However, a company is not required to pay the proportionate amount in any year in which the surcharge assessed against insurance companies continuing to write workers' compensation insurance in this state is sufficient to service the bond obligation. The abolition of the fund under Section 2(d), Article 5.76-3, Insurance Code, does not affect the liability of an insurance company for a maintenance tax surcharge assessed under this section.

Code art. 5.76-5, §§ 10(a)(2), (e) (emphasis added).

We reject appellants' argument as it pertains to the taxing of self-insurers. Like their insurance-company counterparts, self-insurers are taxed for the privilege of engaging in the analogous practice of self-insurance. We also disagree with appellants' argument regarding the constitutionality of section 10(e). The maintenance-tax surcharge is assessed in the year the company ceases to do business. ⁷ An insurance company may not escape payment of maintenance-tax surcharges assessed in the year it ceased to conduct business in the state. See Nutt, 403 S.W.2d at 831. We overrule appellants' first point of error.

PUBLIC FUNDS FOR PRIVATE PURPOSES

Appellants' second point of error complains the taxation scheme is unconstitutional because it purports to authorize the use of public funds for private purposes. See Tex. Const. art. VIII, § 3 ("Taxes shall be levied and collected by general laws and for public purposes only."); Tex. Const. art. XVI, § 6 ("No appropriation for private or individual purposes shall be made, unless authorized by this Constitution"). Appellants' We reject the argument. Firstly, the Fund is a "state agency" for purposes relevant to the present discussion. ⁸ Secondly, one may not conclude that the Fund expends money for private purposes in violation of Article VIII, section 3 and Article XVI, section 6 of the Constitution. No inexorable rule marks the division between a public purpose or use and a private purpose or use. "Obviously no such rule could be laid down." Bland v. City of Taylor, 37 S.W.2d 291, 293 (Tex.Civ.App.--Austin 1931), aff'd sub nom., Davis v. City of Taylor, 123 Tex. 39, 67 S.W.2d 1033 (1934). Rather, any issue in that regard must be decided in another way entirely. "The determination of what constitutes a public purpose is primarily a legislative...