Douglass v. Koontz

• Decision Date: 24 June 1952
• Docket Number: No. CC,CC
• Citation: 71 S.E.2d 319,137 W.Va. 345
• Court: West Virginia Supreme Court
• Parties: DOUGLASS et al. v. KOONTZ, State Tax Com'r. 788.

Page 319

71 S.E.2d 319

137 W.Va. 345

DOUGLASS et al. v. KOONTZ, State Tax Com'r.

No. CC 788.

Supreme Court of Appeals of West Virginia.

Submitted April 22, 1952.

Decided June 24, 1952.

Syllabus by the Court.

1. Where a controversy arises between a state officer and an individual or private corporation, concerning the officer's duty, the Declaratory Judgments Act, Acts of the Legislature, 1941, Chapter 26, Article 13, furnishes an appropriate remedy.

2. A suit against the state tax commissioner for a declaratory judgment to determine whether the Business and Occupation Tax, imposed by Chapter 11, Article 13, as amended, is applicable to a given state of facts, which suit seeks only to construe the statute and direct the parties, is not a suit against the State within the provisions of Article VI, Section 35, of the Constitution of West Virgina.

3. A corporation or individual, operating and duly licensed to operate, an insurance agency as resident agent in the representation of named insurance companies under various insurance agency agreements, which agreements authorize the agent to solicit and procure insurance policies (other than life insurance) and insurance idemnity contracts, with the unlimited right of the resident agent to place the insurance with any one or more of the insurance companies with which the agent has agreements, whose only duties are to collect and account for the premiums to the company or companies issuing the policy or policies, and to cancel any contract at the direction of the insurer named therein, having the right to cancel, is engaged in a service business or calling, as defined by Section 1, Article 13, Chapter 11, of the Code of West Virginia, as amended, and is subject to the imposition of the one per cent Business and Occupation Tax of his gross business, as provided by Section 2h, Article 13, Chapter 11, of the Code of West Virginia, incorporated in the Official Code by Chapter 86, Acts of the Legislature, Regular Session, 1935.

4. Where an insurance agency contract between an insurance company and a resident agent provides that the agent shall deduct from the premiums paid by the insured on the insurance company's account the amount of stated commissions, the imposition of the tax of two per cent of the gross premiums received by the insurance company under Code, 33-2-37, as amended, and the tax of one per cent of the gross income of the agency business does not constitute double taxation so as to violate the constitutional provision, "Taxation shall be equal and uniform throughout the State, * * *", contained in Article X, Section 1, of the Constitution of West Virginia.

Boreman & Stealey, H.S. Boreman, R. E. Stealey, Parkersburg, for plaintiffs.

Chauncey Browning, Atty. Gen., Joseph E. Hodgson, Asst. Atty. Gen., King S. Kearns, Charleston, for defendant.

RILEY, President.

In this certified case, Andrew E. Douglass, doing business as Chancellor Insurance Agency, who sues on behalf of himself and all other duly licensed fire and casualty insurance agents, doing business in the State of West Virginia who are similarly situated, instituted this proceeding in the Circuit Court of Kanawha County against C.H. Koontz, State Tax Commissioner of West Virginia, for the purpose of obtaining a declaratory judgment determining whether the plaintiff is engaged in a "service business or calling" within the meaning of the Business and Occupation Tax, Code, 11-13-1, as amended, and thereby subject to the one per cent tax imposed by Section 2h of said Chapter 11, Article 13, incorporated in the Official Code by Chapter 86, Acts of the Legislature, Regular Session, 1935.

The pertinent provisions of Chapter 11, Article 13, as amended, are as follows:

Section 1: " 'Service business or calling' shall include all nonprofessional activities engaged in for other persons for a consideration, which involve the rendering of a service as distinguished from the production or sale of tangible property, but shall not include the services rendered by an employee to his employer."

* * * * * *

Section 2h: "Upon every person engaging or continuing within this State in any service business or calling not otherwise specifically taxed under this law, there is likewise hereby levied and shall be collected a tax equal to one per cent of the gross income of any such business."

From the petition it appears that plaintiff has entered into agreements with certain listed insurance companies, each captioned "Agency Agreement", in which plaintiff is designated as "the Agent", and in which he is authorized to represent the listed insurance company in the solicitation and issuance of policies of insurance (other than life insurance) and contracts for indemnity bonds. These agreements are of two general types: (1) Those under which plaintiff writes policies of fire insurance; and (2) those under which plaintiff writes other forms of insurance, generally casualty and indemnity contracts. Under the fire insurance agreements plaintiff is authorized to "receive and accept proposals for insurance covering such classes of risks as the company may authorize to be insured." Under the second type of contract plaintiff's authority is limited to the solicitation and submission of applications for insurance to the insurance company.

Under these agency agreements with the various listed insurance companies, plaintiff's sole remuneration consists of a designated commission retained by him from premiums on policies of insurance and indemnity bonds, which he may write in the listed insurance companies.

The petition alleges that under his trade name, "Chancellor Insurance Agency", plaintiff solicits the public generally to purchase through him policies of insurance (other than life insurance) and indemnity bonds. Sometimes plaintiff advises his clients, or prospective clients, as to their need for insurance or indemnity bonds; and after loss the plaintiff may on occasion aid his clients in securing adjustments, though he does not act as an insurance adjuster. For these services he receives no compensation, his sole income being from commissions on the premiums for policies of insurance and indemnity bonds which he writes.

Upon receipt of an order for insurance or an indemnity bond plaintiff is free either to accept or reject the same and to issue the policy of insurance or indemnity bond in any one of the companies with which he has an agency agreement. Plaintiff is wont to countersign and deliver the policies, notifying his principal thereof, and, when he collects, he remits the amount of the premium, less his commission, to his principal. The agency agreements provide that the amount of money due to the principal named in each agreement on the business placed by him with the principal are to be rendered monthly, so as to reach the latter's office not later than the tenth day of the following month, and the balance therein shown to be due to his principal shall be paid not later than sixty days after the end of the month for which the account is rendered.

Under these agency agreements plaintiff is obligated to pay the premiums on insurance policies and indemnity bonds which he writes, regardless of whether he collects for them.

The petition alleges that the companies with which plaintiff has the agency agreements have no right to exercise any control over his solicitation of business or the placing of business secured by him as the result of such solicitation; and that plaintiff accepts orders by writing the policy on a form supplied by the insurance company, in which he has elected to place the insurance, countersigning it himself, as agent for the company, and delivering it to his client.

The agency agreements, copies of which are filed with the petition as exhibits, as the petition alleges, authorize the plaintiff in selling and writing insurance to act as the agent of the company for whose account he may issue the policy, and not as the agent of his client, who later becomes the insured.

Plaintiff alleges in his petition that he is engaged in the business of selling, for a commission, intangibles, choses in action in the nature of contracts to protect the insured in the event of possible loss. On this basis plaintiff asserts that he is not engaged in a "service business or calling" within the meaning of Sections 1 and 2h of Chapter 11, Article 13, as amended, of the Code of West Virginia (the Business and Occupation Tax), and, therefore, is not subject to the tax equalling one per cent of the gross income of plaintiff's business, which it is alleged the defendant, C.H. Koontz, tax commissioner as aforesaid, is attempting to collect.

The defendant filed a demurrer to plaintiff's petition, setting up two grounds:

"1. The business activities of the plaintiff as set forth by the allegations in his petition do not legally constitute engaging in the business of selling intangible personal property.

"2. The business activities of the plaintiff as set forth by the allegations in his petition legally constitute a service, business or calling as defined in Section 1, Article 13, Chapter 11 of the Official Code of West Virginia of 1931, as amended, and thus subject him to the imposition of the Business and Occupation Tax as provided by said Article 13, Chapter 11, of the said Code, and more particularly Section 2h thereof."

The circuit court sustained the first ground of demurrer, relating to the sale of intangibles, and overruled the second ground of demurrer that the plaintiff's activities, as set forth in the allegations of his petition, legally constitute a "service business or calling", as provided in Code, 11-13-1, as amended. This ruling of the circuit court being decisive of the case, the court overruled defendant's demurrer to the petition and certified its ruling to this Court. The only certified question is:

"Do the business activities of the plaintiff as set forth by the allegations in his petition...