American Southern Ins. Co. v. State, Dept. of Revenue, 95-2588

• Decision Date: 13 May 1996
• Docket Number: No. 95-2588,95-2588
• Citation: 674 So.2d 810
• Parties: 21 Fla. L. Weekly D1217 AMERICAN SOUTHERN INSURANCE COMPANY, Appellant, v. STATE of Florida, DEPARTMENT OF REVENUE, J. Thomas Herndon and Lawrence Fuchs, Appellees.
• Court: Florida District Court of Appeals

Page 810

674 So.2d 810

21 Fla. L. Weekly D1217

AMERICAN SOUTHERN INSURANCE COMPANY, Appellant, v. STATE of Florida, DEPARTMENT OF REVENUE, J. Thomas Herndon and Lawrence Fuchs, Appellees.

No. 95-2588.

District Court of Appeal of Florida,

First District.

May 13, 1996.

Rehearing Denied June 19, 1996.

Daniel C. Brown and J. Riley Davis of Katz, Kutter, Haigler, Alderman, Marks, Bryant & Yon, Tallahassee, for appellant.

Robert A. Butterworth, Attorney General; C. Lynne Overton, Assistant Attorney General, for appellees.

Andrew L. Granger of Igler & Dougherty, P.A., Tallahassee, and David A. Rabin of Morris, Manning & Martin, L.L.P., Atlanta, Georgia, for Amicus Curiae Omni Insurance Company; Daniel D. Richardson of LeBoeuf, Lamb, Greene & MacRae, L.L.P., Jacksonville, for Amicus Curiae Atlanta Casualty Company.

KAHN, Judge.

American Southern Insurance Company (American Southern) appeals from a final judgment in favor of the Department of Revenue (Department) involving the Department's construction and application of section 624.5091(1), Florida Statutes (1991). Because the Department's construction is a reasonable interpretation of the statutory language at issue and does not deny American Southern equal protection, we affirm.

I. Factual Background

American Southern, a property and casualty insurer organized under the laws of and domiciled in Georgia, is authorized to do business in Florida. In June 1990, the Department issued a notice of intent to audit American Southern for the taxable years 1985 through 1989. On June 12, 1992, pursuant to the audit, the Department assessed a retaliatory tax of $1,349,604 under section 624.5091(1), Florida Statutes (1991). ¹ This amount was subsequently reduced by credits and adjustments to $1,184,895. American Southern paid the amount it determined to be due and denied liability for the remaining $866,788.

In December 1992, American Southern filed a complaint for declaratory and injunctive relief in circuit court, contesting the remaining assessment of $866,788 in retaliatory tax. American Southern challenged the assessment as contrary to the intent and purpose of section 624.5091 and, in the alternative, asserted that the statute, as applied, violated equal protection rights under the Florida and federal constitutions.

Specifically, American Southern challenged the Department's calculation of the tax based on its construction of the term "similar insurer" contained in section 624.5091(1). American Southern asserted that because it received a rate abatement of its gross premium tax under section 33-8-5 of the Georgia Code, based on its investments in Georgia property, the Department should have used that rate in calculating the retaliatory tax instead of the pre-abatement rate. Under the Georgia statute, if an insurer invests at least 75% of its nonfederal assets in Georgia property, Georgia reduces the amount of gross premium tax the insurer owes from 4.75% to 3%. See § 33-8-5, Ga.Code Ann. The Florida rate is effectively 1.75%. See § 624.509(1)(a), Fla.Stat. (1991). In assessing the retaliatory tax, however, the Department determined that even though American Southern had enough Georgia assets to qualify for the Georgia rate abatement, it did not have a comparable amount of assets invested in Florida; therefore, a similar insurer to American Southern would be a Florida insurer operating in Georgia without enough Georgia assets to qualify for the rate abatement.

After both parties filed motions for summary judgment, the circuit court, on January 5, 1994, verbally announced its decision to grant summary judgment in favor of American Southern. On April 6, 1994, the circuit court entered a final judgment granting American Southern's motion for summary judgment and declining to reach the constitutional issues. On April 12, 1994, the Florida Legislature passed a bill amending section 624.5091 to include a definition of "similar insurer" at subsection (4). ²

The Department then filed a motion for rehearing asserting that the Legislature had passed clarifying statutory language supporting the Department's position. American Southern also filed a motion for rehearing, asserting that the amendment "may, if valid, affect the summary judgment in this case" and requesting leave to serve a supplemental complaint. The circuit court granted both motions.

American Southern subsequently filed two amended complaints as well as a motion for summary judgment on rehearing. The Department also filed a motion for summary judgment on rehearing. The circuit court denied both motions and, after a bench trial on the disputed factual issues, entered final judgment in favor of the Department. American Southern has appealed, asserting that the Department's construction and application of section 624.5091(1) is erroneous as a matter of law.

II. Department's Construction Constitutes a Valid Interpretation and Application of Statute

The retaliatory tax statute, section 624.5091(1), Florida Statutes (1991), provides in pertinent part:

When by or pursuant to the laws of any other state or foreign country any taxes, licenses, and other fees, in the aggregate, ... are or would be imposed upon Florida insurers ... which are in excess of such taxes, licenses, and other fees, in the aggregate, ... directly imposed upon similar insurers ... of such other state or country under the statutes of this state, so long as such laws of such other state or country continue in force or are so applied, the same taxes, licenses, and other fees, in the aggregate, ... shall be imposed by the Department of Revenue upon the insurers ... of such other state or country doing business or seeking to do business in this state.

The statute thus imposes a retaliatory tax on a foreign insurer doing business in Florida when the foreign insurer's state of domicile imposes higher taxes on a similar Florida insurer doing business in that state than Florida would impose on a similar insurer of that state doing business in Florida.

The parties agree that the controversy in this case concerns the computation of the retaliatory tax based on the construction of the term "similar insurer" as used in the statute. During the audit period, as explained above, American Southern paid a reduced tax in Georgia because it qualified for a rate abatement of its gross direct premiums tax under section 33-8-5 of the Georgia Code. The Georgia statute allows such abatement if an insurer invests a certain percentage of its assets in Georgia property. See § 33-8-5, Ga.Code Ann. American Southern asserts that because Georgia allows any insurer, regardless of its state of domicile, to take advantage of the rate abatement, provided it has invested the requisite percentage of its assets in Georgia property, the Department should have taken into account the abatement American Southern received when it computed the tax a similar Florida insurer would pay in Georgia based on business activities identical to American Southern's in Florida. The Department maintains, however, that because American Southern had enough Georgia assets to qualify for the Georgia rate abatement but did not have a comparable amount of assets invested in Florida, it properly considered, as a similar insurer to American Southern, a Florida insurer operating in Georgia without enough Georgia assets to qualify for the rate abatement.

As the circuit court explained, the Department calculates retaliatory tax in the following manner:

Both prior and subsequent to the 1994 Legislative revision, the Department calculated the retaliatory tax by comparing the taxes paid by a foreign insurer in Florida with the taxes that would be paid on identical business activities in the foreign insurer's state of domicile. This calculation was derived by reviewing the taxes paid on the foreign insurer's business in Florida, and then filling out the foreign state's tax returns with identical business activity information, and then comparing the results.

This explanation is supported by the record. The Department's method of calculation, i.e., using the foreign state's tax returns, is not unreasonable or clearly erroneous as it does compare the tax imposed on a foreign insurer in Florida with the tax imposed by the foreign insurer's state of domicile on a Florida insurer with the same amount of business activity. Indeed, the circuit court noted that the Department had reported no previous compliance problems or disputes with this type of calculation method. ³

Further, the Department's interpretation of "similar insurer" is consistent with decisions from other states concerning a Texas statute substantially similar to the Georgia statute involved in this case. See Atlantic Ins. Co. v. State Bd. of Equalization, 62 Cal.Rptr. 784, 255 Cal.App.2d 1 (1967), appeal dismissed, cert. denied, 390 U.S. 529, 88 S.Ct. 1208, 20 L.Ed.2d 86 (1968); Republic Ins. Co. v. Commissioner of Taxation, 272 Minn. 325, 138 N.W.2d 776 (1965); Employers Casualty Co. v. Hobbs, 152 Kan. 815, 107 P.2d 715 (1940). See also Republic Ins. Co. v. Oakley, 637 S.W.2d 448, 449-50 (Tenn.1982) (Where both Tennessee and Texas reduced tax liability if a taxpayer insurance company invested a certain portion of its assets in property of the taxing state, the Tennessee Supreme Court agreed with the Tennessee Insurance Commissioner's decision that "credits allowable to insurance company taxpayers are not properly to be considered and that a determination whether or not retaliatory taxes are called for is to be based solely upon a comparison of the basic tax rate of the two states in question.").

Therefore, in light of the purpose of the statute, the Department's construction of the term "similar insurer" is not unreasonable or clearly erroneous. See Legal Envtl. Assistance Found., Inc. v. Board of County Comm'rs, 642 So.2d 1081, 1083-84 (Fla.1994) ("When an agency's construction amounts to an unreasonable interpretation, or is clearly...