Blue Cross and Blue Shield of Utah v. State

• Decision Date: 19 July 1989
• Docket Number: No. 19676,19676
• Citation: 779 P.2d 634
• Parties: BLUE CROSS AND BLUE SHIELD OF UTAH, a nonprofit corporation, Plaintiff and Appellant, v. STATE of Utah, Utah State Tax Commission, and Utah State Insurance Department, Defendants and Appellees.
• Court: Utah Supreme Court

Page 634

779 P.2d 634

BLUE CROSS AND BLUE SHIELD OF UTAH, a nonprofit corporation Plaintiff and Appellant, v. STATE of Utah, Utah State Tax Commission, and Utah State Insurance Department, Defendants and Appellees.

No. 19676.

Supreme Court of Utah.

July 19, 1989.

Rehearing Denied Sept. 19, 1989.

David R. Money, Salt Lake City, for plaintiff and appellant.

David L. Wilkinson, Stephen G. Schwendiman, Bruce H. Pettey, Mary Beth Walz, Salt Lake City, for defendants and appellees.

ZIMMERMAN, Justice:

Plaintiff Blue Cross and Blue Shield of Utah ("Blue Cross"), a nonprofit health service corporation, appeals from a summary judgment granted against it and in favor of defendants State of Utah, Utah State Tax Commission, and Utah State Insurance Department (collectively, "the State"). This judgment upheld against state and federal constitutional challenge a pair of Utah tax statutes. Taken together, these statutes levied a 2.25 percent tax on subscription income received by nonprofit health service corporations and on premium income received by all other insurance companies in the state, but exempted from the tax the premium income received by insurance companies organized as mutual benefit associations ("MBAs"). Utah Code Ann. §§ 31-14-4(1), 31-37-9(2) (Supp.1981). ¹ We conclude that the tax scheme enacted by these statutes is constitutional; therefore, the trial court's ruling is affirmed.

Blue Cross initiated this action against the State, challenging the taxing scheme represented by sections 31-14-4(1) and 31-37-9(2) of the Code. It contended that MBAs were in all material respects indistinguishable from Blue Cross, a health service corporation, against which the MBAs competed directly. It also contended that by exempting MBAs from the 2.25 percent tax imposed on all other insurers, the legislature had placed Blue Cross at a competitive disadvantage and that in treating the MBAs and Blue Cross differently, the legislature had created a classification that bore no reasonable relation to the purpose of the taxing scheme, which was to raise revenue. Blue Cross attacked the taxing scheme under the equal protection clause of the fourteenth amendment to the United States Constitution as well as under the uniform operation of the laws provision and the special laws ban contained in the Utah Constitution. U.S. Const. amend. XIV, § 1; Utah Const. art. I, § 24; Utah Const. art. VI, § 26. Both Blue Cross and the State filed motions for summary judgment. The trial court granted the State's motion and denied that of Blue Cross, holding that as a matter of law, Blue Cross had not demonstrated the taxing scheme's unconstitutionality. Blue Cross appeals that determination.

A grant of summary judgment is appropriate only when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Utah R.Civ.P. 56(c); see, e.g., Ron Case Roofing and Asphalt Paving, Inc. v. Blomquist, 773 P.2d 1382, 1384 (1989). In considering an appeal from a grant of summary judgment, we view the facts in a light most favorable to the losing party below. E.g., Seftel v. Capital City Bank, 767 P.2d 941, 946 (Utah Ct.App.1989); Payne ex rel. Payne v. Myers, 743 P.2d 186, 187-88 (Utah 1987). And in determining whether those facts require, as a matter of law, the entry of judgment for the prevailing party below, we give no deference to the trial court's conclusions of law: those conclusions are reviewed for correctness. E.g., Bonham v. Morgan, --- P.2d ----, ---- 102 Utah Adv.Rep. 8, 9 (Feb. 23, 1989); Scharf v. BMG Corp., 700 P.2d 1068, 1070 (Utah 1985).

Blue Cross renews on appeal all the challenges it made below. We consider first its claims that the taxing scheme violates both the equal protection clause of the federal constitution and the uniform operation of the laws provision of the Utah Constitution. U.S. Const. amend. XIV, § 1; Utah Const. art. I, § 24. We will then treat the assertion that the tax violates the special laws ban of article VI, section 26.

The principles and concepts embodied in the federal equal protection clause and the state uniform operation of the laws provision are substantially similar. Mountain Fuel Supply Co. v. Salt Lake City Corp., 752 P.2d 884, 888 (Utah 1988); Malan v. Lewis, 693 P.2d 661, 669-70 (Utah 1984). However, our examination into the reasonableness of economic legislation under article I, section 24 of the Utah Constitution is at least as vigorous as that required by the federal equal protection clause, and probably more so. Mountain Fuel Supply, 752 P.2d at 889, 890; see Recent Developments, 1989 Utah L.Rev. 143, 317. Therefore, if the statutes under attack can withstand scrutiny under article I, section 24, they will not be found to violate the federal equal protection clause. 752 P.2d at 890. Accordingly, we will consider Blue Cross's claims under article I, section 24.

Article I, section 24 of the Utah Constitution commands that "[a]ll laws of a general nature shall have uniform operation." Utah Const. art. I, § 24. The concept underlying this provision is "the settled concern of the law that the legislature be restrained from the fundamentally unfair practice" of classifying persons in such a manner that those who are similarly situated with respect to the purpose of a law are treated differently by that law, to the detriment of some of those so classified. Mountain Fuel Supply, 752 P.2d at 888. In scrutinizing a legislative measure under article I, § 24, we must determine whether the classification is reasonable, whether the objectives of the legislative action are legitimate, and whether there is a reasonable relationship between the classification and the legislative purposes. 752 P.2d at 890; see Malan, 693 P.2d at 670-75.

It is important to note at the outset that our uniform operation of the laws analysis is guided by the well-settled proposition that all statutes are presumed to be constitutional and the party challenging a statute bears the burden of proving its invalidity. City of West Jordan v. Retirement Bd., 767 P.2d 530, 537 (Utah 1988); Baker v. Matheson, 607 P.2d 233, 236 (Utah 1979); State Tax Comm'n v. Wright, 596 P.2d 634, 636 (Utah 1979). It is also important to note that although the broad outlines of the analytical model used in determining compliance with the uniform operation of the laws provision remain the same in all cases, the level of scrutiny we give legislative enactments varies. See, e.g., Mountain Fuel Supply, 752 P.2d at 888 n. 3; Condemarin v. University Hospital, 775 P.2d 348, 353-57 (Utah 1989) (opinions of Durham and Stewart, JJ.). In the tax area, as in other areas of purely economic regulation, we give broad deference to the legislature when scrutinizing the reasonableness of its classifications and their relationship to legitimate legislative purposes. City of West Jordan, 767 P.2d at 537; Mountain Fuel Supply, 752 P.2d at 888; Baker, 607 P.2d at 236. That broad deference leads us to sustain a classification if "facts can reasonably be conceived which would justify the distinctions or differences in state policy [expressed by the challenged legislation] as between different persons." Baker, 607 P.2d at 244 (citing Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 31 S.Ct. 337, 55 L.Ed. 369 (1911)). We do not, however, "accept any conceivable reason for the legislation.... Rather, we judge such enactments on the basis of reasonable or actual legislative purposes." Malan, 693 P.2d at 671 n. 14.

Having stated the legal principles that govern our review of Blue Cross's claims, we proceed to the analysis, beginning with the statutory scheme, for it determines the classification at issue. Normally there would be little dispute about the definition of the class to be tested. Here, however, where two sections of the Code combine to impose the taxes under attack, the classification issue is complicated. Section 31-37-9(2) ² taxes at a 2.25 percent rate the premium income of all health service corporations, while section 31-14-4(1) ³ taxes at the same rate the premium income of all other insurers, but exempts MBAs. ⁴ The question is whether these two sections should be viewed separately, thereby placing Blue Cross in one class and all other insurers, including MBAs, in another, with members of each class subject to being compared only with other members of the same class, or whether the two sections should be viewed as part of one taxing scheme that classifies all insurers together, thereby permitting comparison of the law's treatment of subgroups within that larger class, such as all insurers but the MBAs, and the MBAs. Under our cases, if the legislature has classified all insurers but the MBAs in one group and the MBAs in another, those are the classifications we must examine. We are not free to break out groups that might be distinguishable if the legislature has not. See Crowder v. Salt Lake County, 552 P.2d 646, 647 (Utah 1976); see also State v. Breed, 111 Idaho 497, 725 P.2d 202, 205 (Ct.App.1986); Aetna Life Ins. Co. v. Washington Life & Disability Ins. Guar. Ass'n, 83 Wash.2d 523, 527 n. 6, 520 P.2d 162, 165 n. 6 (1974) (en banc). To resolve this issue, a brief history of the premium income tax is necessary.

As early as 1907, the legislature passed laws regulating "insurance corporations." Utah Compiled Laws tit. 14, ch. 7, §§ 403-422 (1907). Those laws imposed a tax on "[e]very insurance company doing business in this state" of 1.5 percent of the gross premiums received, less any property tax paid to the state. Id. at §§ 419, 421. "Social," "benevolent," and "religious" organizations were excluded from these insurance laws, including the premium tax provision. Id. at § 418. We are unaware of whether any of the then-existing social, benevolent, or religious organizations offered insurance to any of their members at the time, although the specific exemption would suggest that this is a distinct...