Commerce v. Dep't of Treasury
| Decision Date | 06 June 2013 |
| Docket Number | Docket No. 311104. |
| Citation | 836 N.W.2d 695,301 Mich.App. 256 |
| Parties | COMMERCE AND INDUSTRY INSURANCE COMPANY v. DEPARTMENT OF TREASURY. |
| Court | Court of Appeal of Michigan — District of US |
OPINION TEXT STARTS HERE
Miller Canfield Paddock and Stone, P.L.C. (by Gregory A. Nowak and Jackie J. Cook, Detroit), and Sidley Austin LLP (by Tracy D. Williams, Peter D. Edgerton, and William M. Sneed) for plaintiffs.
Bill Schuette, Attorney General, John J. Bursch, Solicitor General, Richard A. Bandstra, Chief Legal Counsel, and Kevin T. Smith, Assistant Attorney General, for defendant.
Before: M.J. KELLY, P.J., and MARK J. CAVANAGH and MURRAY, JJ.
The question presented in this appeal is whether certain assessments placed upon insurance companies doing business in New York constitute a “burden” upon the insurance companies for purposes of Michigan's retaliatory tax. For the reasons that follow, we conclude that they do, and we therefore reverse the trial court's order granting plaintiffs' motion for summary disposition and remand for entry of an order granting defendant summary disposition of plaintiffs' complaint.
Plaintiff Commerce and Industry Insurance Company (C & I), a New York corporation, filed its complaint against defendant, the Michigan Department of Treasury (the department), seeking a tax refund of $2,787,358 for tax year 2003. In its complaint, C & I explained that Michigan's retaliatory tax imposes a tax on a foreign insurer approximately equal to the burden imposed by the foreign state (here, New York) on a Michigan insurer. C & I contended that three separate payments made by insurers to the former New York Workmen's Compensation Board, now the New York Workers' Compensation Board (the board), should be excluded from calculating the burden imposed by New York, thereby reducing its Michigan retaliatory tax obligation. On October 25, 2010, the parties stipulated to consolidating related cases involving plaintiffs AIU Insurance Company (AIU) and American Home Assurance Company (AHA). Using the same theory as C & I, AIU sought a tax refund of $291,686 for tax year 2003, and AHA sought tax refunds for tax years 1995–1998 and 2003.1
These consolidated cases involve three separate statutory assessments imposed by New York: a Workers' Compensation Board assessment, which covers the administrative expenses of the board; a Special Disability Fund assessment, which finances a special fund for previously injured workers; and a Reopened Cases Fund assessment, which finances a special fund for certain stale claims filed after a delay. Plaintiffs claimed that these three New York assessments should not be included as part of Michigan's retaliatory tax because they were not burdens on insurance companies doing business in New York. The department, of course, took the opposite view.
Plaintiffs eventually filed a motion for summary disposition. The trial court entered a written opinion and order granting plaintiffs' motion, setting forth two reasons for its decision. First, the trial court concluded that the three assessments were actually imposed on policyholders, not the insurers themselves. The trial court reasoned that the practical effect of the New York schemes was that insurers were ultimately responsible only for the administrative task of remitting to the board the surcharge received from policyholders, so the assessments were not a “burden” on the insurers.
Second, the trial court alternatively concluded that even if the three assessments were “burdens” for purposesof the retaliatory tax, they were excluded from the retaliatory tax calculation by a separate statute. That statute, the trial court explained, provides that charges in a foreign state “similar” to charges in Michigan for associations or facilities are excluded from the retaliatory tax calculation. MCL 500.134(5). The trial court reasoned that the three assessments were “similar” to those for the Michigan placement facility because the three assessments generally supported the New York workers' compensation system. Accordingly, the trial court granted plaintiffs' motion for summary disposition, and this appeal followed.
The standard of review is always a critical aspect of appellate review. Here, this Court “reviews de novo a decision by the Court of Claims on a motion for summary disposition and issues requiring statutory interpretation.” Midwest Bus Corp. v. Dep't of Treasury, 288 Mich.App. 334, 337, 793 N.W.2d 246 (2010).
MCL 500.476a is the codification of Michigan's retaliatory tax and reads, in relevant part, as follows:
(1) Beginning August 3, 1987, whenever, by a law in force outside of this state or country, a domestic insurer or agent of a domestic insurer is required to make a deposit of securities for the protection of policyholders or otherwise, or to make payment for taxes, fines, penalties, certificates of authority, valuation of policies, or otherwise, or a special burden or other burden is imposed, greater in the aggregate than is required by the laws of this state for a similar alien or foreign insurer or agent of an alien or foreign insurer, the alien or foreign insurer of that state or country is required, as a condition precedent to its transacting business in this state, to make a like deposit for like purposes with the state treasurer of this state, and to pay to the revenue commissioner for taxes, fines, penalties, certificates of authority, valuation of policies, and otherwise an amount equal in the aggregate to the charges and payments imposed by the laws of the other state or country upon a similar domestic insurer and the agents of a domestic insurer, regardless of whether a domestic insurer or agent of a domestic insurer is actually transacting business in that state or country....
(2) The purpose of this section is to promote the interstate business of domestic insurers by deterring other states from enacting discriminatory or excessive taxes. [Emphasis added.]
A retaliatory tax is a tax imposed by a state on foreign corporations, usually insurers, when the foreign state imposes a higher aggregate tax burden on actual or hypothetical out-of-state corporations. TIG Ins. Co., Inc. v. Dep't of Treasury, 464 Mich. 548, 551, 629 N.W.2d 402 (2001)( TIG Ins. II ). Our Supreme Court has explained:
Under the retaliatory tax, when an insurer's state of incorporation imposes a larger aggregate tax burden on a Michigan insurer doing business in that state than Michigan imposes on a company from that state doing business in Michigan, the foreign insurer must pay Michigan a tax equal to the difference in the aggregate tax burdens. See MCL 500.476a. Thus, to compute the retaliatory tax due from a foreign insurer, if any, Michigan tallies all the taxes, fines, penalties, and other burdens it otherwise imposes on the foreign insurer doing business in Michigan. Michigan then tallies the burden a hypothetical Michigan insurer would pay to that insurer's home state were the hypothetical Michigan insurer doing the same amount of business there. If the other state's total burden on the hypothetical Michigan insurer doing the same amount of business in that state would be larger than the burden Michigan imposed on the foreign insurer, the actual burden Michigan imposes is subtracted from the other state's burden on the hypothetical insurer, and the difference is the retaliatory tax the foreign insurer owes Michigan. [Id. at 551–552, 629 N.W.2d 402.]
The purpose of a retaliatory tax is to encourage states to impose equal tax burdens on all insurance companies, whether foreign or domestic, thereby promoting interstate business. See MCL 500.476a(2) and Western & Southern Life Ins. Co. v. State Bd. of Equalization of California, 451 U.S. 648, 670–671, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981).
In 1988, the Legislature realized that the actual revenue generated from the retaliatory tax as originally enacted by 1987 PA 261 and 262 was less than anticipated because foreign insurers were including assessments paid to private associations and facilities, such as the Worker's Compensation Placement Facility, in calculating their respective Michigan burdens. TIG Ins. II, 464 Mich. at 552–553, 629 N.W.2d 402. As a result, the Michigan burden was higher, and the retaliatory tax paid by the foreign insurers was lower. Id. at 553, 629 N.W.2d 402.
The Legislature responded by enacting 1988 PA 349, which “changed the method of calculating the [retaliatory] tax by providing that payments to private insurance associations and facilities are not counted as part of the Michigan burden when calculating retaliatory taxes.” TIG Ins. II, 464 Mich. at 553, 629 N.W.2d 402. Accordingly, MCL 500.134 reads, in relevant part:
(5) Any premium or assessment levied by an association or facility, or any premium or assessment of a similar association or facility formed under a law in force outside this state, is not a burden or special burden for purposes of a calculation under [MCL 500.476a], and any premium or assessment paid to an association or facility shall not be included in determining the aggregate amount a foreign insurer pays to the commissioner under [MCL 500.476a].
(6) As used in this section, “association or facility” means an association of insurers created under this act and any other association or facility formed under this act as a nonprofit organization of insurer members, including, but not limited to, the following:
(a) The Michigan worker's compensation placement facility created under [MCL 500.2301 et seq.].
(b) The Michigan basic property insurance association created under [MCL 500.2901 et seq.].
(c) The catastrophic claims association created under [MCL 500.3101 et seq.].
(d) The Michigan automobile insurance placement facility created under [MCL 500.3301 et seq.].
(e) The Michigan life and health insurance guaranty association created under [MCL 500.7701 et seq.].
(...
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