Commissioner of Corporations and Taxation v. Aetna Life Ins. Co.

• Decision Date: 14 February 1952
• Citation: 104 N.E.2d 140,328 Mass. 404
• Parties: COMMISSIONER OF CORPORATIONS AND TAXATION v. AETNA LIFE INS. CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 140

104 N.E.2d 140

328 Mass. 404

COMMISSIONER OF CORPORATIONS AND TAXATION v. AETNA LIFE INS. CO.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Nov. 5, 1951.

Decided Feb. 14, 1952.

H. W. Radovsky, Asst. Atty. Gen., for the Commissioner of Corporations and Taxation.

R. Wait, Boston, J. Dane, Jr., Boston, for the taxpayer.

Before QUA, C. J., and LUMMUS, RONAN, SPALDING and COUNIHAN, JJ.

RONAN, Justice.

This is an appeal by the commissioner of corporations and taxation from a decision of the Appellate Tax Board granting an abatement to the Aetna Life Insurance Company of an additional excise tax amounting to $10,702.52 alleged to be due upon the premiums collected by the company for the calendar year 1947 as shown by its return filed in 1948 and assessed to the company under G.L. (Ter.Ed.) c. 63, § 20, as appearing in St.1943, c. 531, § 1.

The company, a corporation organized under the laws of Connecticut and authorized to do business in this Commonwealth, filed a return in 1948 showing that the net value of its life and annuity policies allocable to residents of this Commonwealth amounted to a certain figure on which a tax computed at one fourth of one per cent amounted to $10,702.52 less than if a tax was computed at two per cent of the premiums received from policies issued to or assumed upon lives of residents of this Commonwealth during the calendar year 1947. The company contends that it is liable only for a tax measured by the net value and not, as the commissioner contends, by the permium basis. The parties have conceded that the proper basis for the tax in question is to be determined by the basis that was applicable to the 1943 business of the company. The return filed in 1944 for the previous year disclosed that a premium tax would exceed a tax on net value if the value of the annuities for that year were computed according to the tables used or approved by the commissioner of insurance of this Commonwealth or at a higher rate where the contract rate of the policy produced a higher rate. The books of the company disclosed that it had an aggregate of reserves against annuities amounting to $1,550,247 more than required by the method of computation prescribed by the commissioner of insurance. The commissioner of corporations and taxation contended that this sum should have been included in calculating the net value of the annuity contracts in its 1944 return and that, if it was, the value of these policies would be increased to such an extent that the tax on the net value basis would exceed the tax upon the premium basis. If this were true, the company would be liable for a premium tax for 1943 on its Massachusetts business and also for a tax on that basis in every subsequent year. See St.1943, c. 531, § 2. The question is whether that portion of the aggregate of reserves in excess of the amount computed in accordance with tables used and approved by the commissioner of insurance should be included in determining the net value of the annuity contracts.

The taxing statute, G.L. (Ter.Ed.) c. 63, § 20, as amended by St.1941, c. 509, § 5, required every life insurance company to pay annually an excise of one quarter of one per cent upon the net value of all policies in force of December 31 of the preceding year, issued or assumed by the company on lives of residents of this Commonwealth, 'as determined by the commissioner from the return required under this section and such other evidence as he may obtain.' 'In respect to ordinary business the aggregate net value so reported shall be the combined aggregate of the mean reserve computed for each policy, or each group of policies requiring a separate computation to determine their net value, on the basis of valuation used or approved by the commissioner of insurance under section nine of chapter one hundred and seventy-five.' Section 20 as qualifiedly amended by St.1943, c. 531, became effective January 1, 1944. Section 1 of this chapter substituted for an excise based on net value one based on premiums. The change of the tax base did not apply to all companies on its effective date, for by § 2 it provided that, beginning with the 1944 return for the year ending December 31, a company should compute the tax in its return on the basis of net value and also upon premiums, and that so long as the tax on net value was less than the tax on premiums the company was liable for a tax upon net value until in any year the tax on not value equalled or exceeded the tax on premiums, when the company should for that year and for all subsequent years pay the excise on the new premium basis.

The commissioner of insurance was annually required by G.L. (Ter.Ed.) c. 175, § 9, as appearing in St.1943, c. 227, § 1, to compute the reserve liability or net value on December 31 of the preceding year of every life insurance company with respect to policies and certain contracts issued prior to January 1, 1948, in accordance with certain enumerated rules. The fourth rule provides that the net value of all outstanding annuity contracts shall becomputed on the basis of an expressly designated set of mortality tables 'or on such higher table as the commissioner [of insurance] may prescribe, with interest at not more than four per cent per annum', except annuity contracts made before January 1, 1907, and that 'annuities deferred ten or more years and written in connection with life, endowment or term insurance shall be valued on the same mortality table from which the consideration or premiums were computed.'

'Net value of policies' is defined by G.L. (Ter.Ed.) c. 175, § 1, as 'the liability of a company upon its insurance contracts, other than accrued claims, computed by rules of valuation established by sections nine to twelve, inclusive.' The only section pertinent to our inquiry is § 9 to which we have already referred.

The taxing statute, St.1880, c. 227, § 1, in its original form provided for an excise upon a valuation equal to the aggregate net value of all policies on the thirty-first day of December, then next preceding, and this value basis continued until provision was made by St.1943, c. 531, for the new premium basis. It was provided by St.1915, c. 217, § 1, that 'in respect to ordinary business the aggregate net value reported [by the company in its return] shall be the combined aggregate of the mean reserve computed for each policy, or each group of policies requiring a separate computation to determine their net value, on the basis of valuation used or approved by the Massachusetts insurance department'. This method of determining the net value continued so long as a life insurance company is entitled, in accordance with St.1943, c. 531, to have its tax computed on the net value basis.

The validity of the taxing statute, St.1880, c. 227, was soon questioned after its enactment and upheld in Connecticut Mutual Life Ins. Co. v. Commonwealth, 133 Mass. 161. The taxing statute itself did not designate the method for the computation of the net value of its policies. The net value of a policy 'within the meaning of our statutes' was said to be 'represented by a sum which, with compound interest at the rate of four per cent per annum and with the addition of future net premiums, will provide for the payment of the policy when it matures, according to the 'combined experience' or 'actuaries' table of mortality. St.1866, c. 33.' 133 Mass. at page 164. We must therefore in the instant case go to the insurance statutes to determine the meaning of the words net value. Those words are not only defined in the insurance statute but provision is made for the ascertainment of such value. G.L.(Ter.Ed.) c. 175, §§ 1, 9, as amended. The board found in the case at bar that the company in making out its return in 1944 for 1943 computed the net value of its annuities and supplementary contracts according to the tables used or approved by the commissioner of insurance, or at a higher rate where the contract rate of the policy produced a higher value. This was exactly in compliance with the taxing statute. The reserve fund, in addition to the amounts required by the method of computation prescribed by the commissioner of insurance, was rightly omitted in calculating the net value of the annuity contracts. It well may be that a policy of a company having a large reserve is worth more than one from a company having less financial resources, but it must be remembered that the excise is not a property tax although measured by property, and that the value is not market or cash value but the value determined by the use of certain tables. Taxing statutes are strictly contrued, and no method other than the one designated by the statute is to be employed in determining the net value for the computation of the tax basis. DeBlois v. Commissioner of Corporations & Taxation, 276 Mass. 437, 177 N.E. 566; Commissioner of Corporations & Taxation v. Fopiano, 324 Mass. 304, 85 N.E.2d 776; Riesman v. Commissioner of Corporations & Taxation, 326 Mass. 574, 95 N.E.2d 656.

It follows that a tax on the net value for business done in 1943 was less than a premium tax, and that consequently for that year and (in that event as the parties...