City of Charleston v. Government Employees Ins. Co.

Decision Date29 November 1994
Docket NumberCiv. A. No. 2:93-1666-18.
CourtU.S. District Court — District of South Carolina
PartiesCITY OF CHARLESTON, Plaintiff, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant.

869 F. Supp. 378

CITY OF CHARLESTON, Plaintiff,
v.
GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant.

Civ. A. No. 2:93-1666-18.

United States District Court, D. South Carolina, Charleston Division.

November 29, 1994.


869 F. Supp. 379

Robert G. Clawson, Jr., Timothy A. Domin, Charleston, SC, for plaintiff.

William Jefferson Leath, Jr., Charleston, SC, for defendant.

ORDER

NORTON, District Judge.

This matter is before the court on Plaintiff's and Defendant's Motions for Summary Judgment. The court held a hearing on these motions on August 9, 1994. Defendant Government Employees Insurance Company (GEICO) asserts that application of the City of Charleston's Business License Ordinance to it in the circumstances under which it conducts business violates the Commerce Clause of the United States Constitution.

I. FACTUAL BACKGROUND

GEICO is an insurance company with headquarters in Chevy Chase, Maryland, and in Macon, Georgia. GEICO insures risks located in the City of Charleston (City). Specifically, GEICO writes automobile liability insurance, physical damage insurance, comprehensive personal liability insurance, allied and fire lines, and homeowner's and boat owner's insurance on risks located in the City of Charleston.

GEICO transacts all of its sales business and receives premiums outside of South Carolina by the use of interstate mail and telephone. Any advertising done in the City of Charleston is done by the use of interstate publications. GEICO has no office, agent, or business location, nor does it own any real property in the City.

Adjusting and appraising claims is a significant part of GEICO's business. All GEICO claims originating in South Carolina are handled from either the Macon or Chevy Chase office through the mail, by telephone, or by facsimile. Dispatchers from Macon or Chevy Chase fax claims to resident appraisers at their homes for handling. The appraisers appraise the loss, complete the appropriate claims forms, and send the materials back to the Macon or Chevy Chase office. GEICO's appraisers are licensed and regulated by the South Carolina State Insurance Commission.

GEICO currently has two auto damage appraisers in the Charleston area: Mike Hillery, who resides in the City of North Charleston in Dorchester County, and Allen Owen, who lives in Ladson in Berkeley County. Together they share a territory of approximately a 50 to 60 mile radius around the North Charleston area. Hillery comes into the City two or three times a week, while Owen comes into the City two to three times per month. In addition to these trips, Owen, once every two or three months, goes to

869 F. Supp. 380
Crosby's and Jennings' tow yards, which are located in the City. This is typical of the activity which has been conducted by GEICO automobile damage appraisers over the last two or three years

When appraisers are in the field, they carry a variety of tools to help them do their job. Each uses a company Ford Taurus, a lap top computer, a printer, a set of books called "Mitchell Matics," a camera, a beeper or mobile telephone, and a variety of forms. Each adjuster carries a set of forms which they use when appraising auto damage in the field. Each appraisal lasts from thirty minutes to an hour.

Both appraisers have arrangements with car dealerships in North Charleston where appointments are scheduled one day a week to adjust losses. Owen and Hillery travel in the City if an auto is taken to a tow yard in the City or if a policy holder is unable to get to one of the stationary locations for a scheduled appointment.

GEICO occasionally utilizes the services of independent contractors to appraise claims in the area. These independent contractors are also licensed and regulated by the South Carolina State Insurance Commission. For the last three years, GEICO has used Wilson Appraisers for all overflow adjusting work. Wilson is paid on a per claim fee which is based on the claim being a partial or total loss. The number of claims handled by Wilson for GEICO in the area are as follows: 189 claims in 1991 (estimate); 166 claims in 1992; 71 claims in 1993; and 27 claims as of August 1994. Wilson does not maintain separate records that indicate the number of claims handled within the City limits, nor are there figures available regarding how often a Wilson adjuster travels into the City.

GEICO is licensed, regulated and certified by the State of South Carolina to conduct the business of insurance, specifically, accident & health, property, casualty, surety and marine. GEICO pays taxes on insurance premiums to the State of South Carolina pursuant to Title 38 of the South Carolina Code.

The City provides municipal services to persons and property within the City. These services include fire protection, police protection, animal control, construction permitting and inspection, garbage collection, electrical permitting and inspections, housing code enforcement, rodent control, street maintenance, drainage maintenance, towing company control, traffic control, traffic signaling, and zoning enforcement.

The City of Charleston's Business License Ordinance provides:

Every person engaged or intending to engage in any calling, business, occupation, or profession listed in the classification index portion of this ordinance, in whole or in part, within the limits of the City of Charleston, South Carolina, is required to pay an annual license fee and obtain a business license in compliance with the terms and conditions of this ordinance.

Business License Ordinance § 1.

Insurance companies doing business within the City are required to apply for a business license on April 1 of each year. Before 1994, this license provided for a business license tax on insurance companies as follows:

6300 — Insurance Companies
On gross premiums collected through offices or agents locations in the city, wherever the risk is located, or collected on policies written on property or risks located within the City, wherever the premiums are collected:
* * Fire, Casualty, Surety, Title and all others except Life, Health & Accident.... (Declining Rates apply to all gross Premiums in excess of $1,000,000).... 1.29 percent

B. Amount (in Millions) Percent of
                 Gross Income Rates
                 0-1...................... 100
                 1-2...................... 70
                 2-3...................... 40
                 3-4...................... 10
                 Over 4 .................. 5
                

As of 1994,1 the City's Business License Ordinance requires insurance companies to pay a percentage license fee as follows:

869 F. Supp. 381
6300 — Insurance Companies
On gross premiums collected on policies written on property or risks located in the City, wherever the premiums are collected:

Fire, Casualty, except Reinsurance
                Facility premiums, Surety, Title and
                all others except Life, Health and
                Accident 2.0 percent
                Reinsurance Facility Premiums 1.0 percent
                

Before 1991, the Business License Ordinance exempted interstate commerce from its taxation scheme. In 1991, the City deleted this exemption. From that date forward, GEICO has not paid the City's assessments. Thus, the City is suing GEICO for back taxes. The fees and penalties sought from GEICO amount to Two Hundred and Seventy Thousand Four Hundred and Sixty Dollars and forty-nine cents ($270,460.49).

GEICO claims the business license tax is unconstitutional because it impermissably restrains interstate commerce. The City claims it is allowed to restrain interstate commerce when regulating the business of insurance. The constitutional question to be answered here is whether the City of Charleston Business License Ordinance violates the Commerce Clause when used to tax interstate insurance business.

II. ANALYSIS

A taxpayer claiming immunity from a tax has the burden of establishing an exemption. Norton Co. v. Department of Revenue, 340 U.S. 534, 537, 71 S.Ct. 377, 380, 95 L.Ed. 517 (1951). A validly enacted municipal ordinance, including a business license ordinance, enjoys the same presumption of constitutional validity as any other duly enacted law. Eli Witt Co. v. West Columbia, 425 S.E.2d 16 (S.C.1992). "An ordinance is a legislative enactment and is presumed to be constitutional. The burden is upon the taxpayer to prove unconstitutionality beyond a reasonable doubt. The burden requires the attacker to `... negate every conceivable basis which might support it.'" North Charleston Land Corp. v. North Charleston, 281 S.C. 470, 316 S.E.2d 137 (1984) (quoting Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973)).

The Commerce Clause provides that "Congress shall have Power ... To regulate Commerce ... among the several States." U.S. Const. Art. I, § 8, cl. 3. This Clause is a grant of authority to Congress, not an explicit limitation on the power of the states. The Supreme Court has long recognized, however, that the Commerce Clause contains an implied limitation on the power of the states to interfere with or burden interstate commerce. See Cooley v. Board of Wardens, 53 U.S. 299, 12 How. 299, 13 L.Ed. 996 (1852). This implied limitation is known as the "dormant Commerce Clause."

Despite this implied limitation, Congress may regulate commerce among the states as it sees fit and, in doing so, may "confer upon the States an ability to restrict the flow of interstate commerce that they would not otherwise enjoy." Lewis v. BT Investment Managers, 447 U.S. 27, 44, 100 S.Ct. 2009, 2020, 64 L.Ed.2d 702 (1980). If Congress invests in the states the power to regulate an aspect of interstate commerce, any action taken by a state within the scope of the congressional authorization is rendered invulnerable to Commerce Clause challenge. Western & Southern Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 653, 101 S.Ct. 2070, 2075, 68 L.Ed.2d 514 (1981); see also Alleghany Corp. v. Pomeroy, 898 F.2d 1314, 1320 (8th Cir.1990).

Historically, insurance was not considered "commerce" for Commerce Clause purposes. See Paul v....

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