Franklin Life Ins. Co. v. State Bd. of Equalization

• Decision Date: 19 August 1965
• Citation: 63 Cal.2d 222,404 P.2d 477,45 Cal.Rptr. 869
• Parties: , 404 P.2d 477 FRANKLIN LIFE INSURANCE COMPANY, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. S. F. 21577.
• Court: California Supreme Court

Page 869

45 Cal.Rptr. 869

63 Cal.2d 222, 404 P.2d 477

FRANKLIN LIFE INSURANCE COMPANY, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

S. F. 21577.

Supreme Court of California, In Bank.

Aug. 19, 1965.

Rehearing Denied Sept. 15, 1965.

McCutchen, Doyle, Brown, Trautman & Enersen, John N. Hauser, San Francisco, and Frederick H. Stone, Springfield, Ill., for plaintiff and appellant.

Bert W. Levit, Victor B. Levit and Long & Levit, San Francisco, as amici curiae on behalf of plaintiff and appellant.

Stanley Mosk and Thomas C. Lynch, Attys. Gen., Dan Kaufmann and Harold B. Haas, Asst. Attys. Gen., for defendant and respondent.

TOBRINER, Justice.

Asserting the unconstitutionality of the retaliatory tax statute (Ins.Code, § 685) or, in the alternative, its unconstitutional application in the instant case, plaintiff Franklin Life Insurance Company (hereinafter called the Company) sought unsuccessfully in the trial court to recover taxes assessed by defendant State Board of Equalization (hereinafter called the Board). More specifically, the Company contends: (1) the retaliatory tax statute conflicts with the constitutional provision authorizing the retaliatory tax; (2) the Board improperly computed the retaliatory tax imposed upon the Company; and (3) the Board's application of the tax denies the company equal protection of the laws. For the reasons explained below we conclude that none of these arguments may prevail.

Subdivisions (a)-(d), section 14 4/5, article XIII of the California Constitution provide that insurance companies doing business in California are to be annually taxed at the rate of 2.35 per cent of the 'amount of gross premiums, less return premiums, received in such year by such insurer upon its business doen in this State, other than premiums received for reinsurance and for ocean marine insurance.' (Subd. (c).) This gross premium tax 'is in lieu of all other taxes' such as personal property taxes and most other property and license taxes. (Cal.Const., art. XIII, § 14 4/5, subd. (f).) Although the gross premium tax is not levied in lieu of real property taxes, the insurance company may deduct from the gross premium tax the amount of real property taxes paid on its principal or home office in California. (Subd. (e).)

The Constitution specifically provides that the gross premium tax is not in lieu of the retaliatory tax. Article XIII, section 14 4/5, subdivision (f)(3) of the California Constitution, prior to the recent amendment, ¹ states, 'When by the laws of any other state or country any taxes, fines, penalties, licenses, fees, deposits of money or securities or other obligations or prohibitions are imposed on insurers of this State doing business in such other state or country, or upon their agents therein, in excess of those imposed upon insurers of such other state or country or upon their agents therein, so long as such laws continue in force, the same obligations and prohibitions of whatsoever kind may be imposed by the Legislature upon insurers of such other state or country doing business in this State, or upon their agents herein.'

Ostensibly acting under the constitutional authorization, the Legislature in 1959 enacted Insurance Code sections 685 to 685.3 ² which impose retaliatory taxes upon foreign insurers whenever their home states impose taxes on similar California insurers higher than California assesses those states' insurers. ³

In 1960 the Company, an Illinois corporation licensed to do business in California, filed a tax return and a retaliatory tax statement which showed that its aggregate California taxes, licenses and fees for 1959 totaled $191,223.25. This figure represents the sum total of the premium taxes ($121,833.72), real estate taxes ($69,354.53), fee for filing the annual statement of financial condition ($25), and fee for the renewal of the certificate of authority ($10). The Company also declared in the statement that Illinois would impose insurance taxes, licenses and fees in the aggregate amount of $176,173.41 upon a California insurer transacting the same amount of business in Illinois as the Company transacted in California, but would impose taxes and fees in the aggregate amount of $107,942.29 upon a domestic insurer transacting the same quantity of business in Illinois.

The Board assessed the Company retaliatory taxes in the amount of $54,304.69, which represented the difference between the hypothetical Illinois tax upon a California insurer ($176,173.41) and the Company's aggregate California taxes, licenses and fees, after subtracting the real estate taxes on its principal office in California ($121,868.72). The board subtracted the real estate tax on the principal office, since, pursuant to article XIII, section 14 4/5, subdivision (e) of the California Constitution, the Company had deducted this real estate tax from the tax on gross premiums.

After a hearing, the Board denied the plaintiff's application to reduce the retaliatory tax to zero. On October 14, 1960, the Company paid to the State of California under protest the retaliatory tax of $54,304.69, plus interest from June 15, 1960. The Company then commenced the instant action to recover the taxes paid under protest.

The Company first contends that the retaliatory tax statute (Ins.Code, §§ 685-685.3) directly conflicts with article XIII, section 14 4/5, subdivision (f)(3) of the California Constitution and therefore fails entirely as a constitutional measure. As we have noted, the Constitution provides that the gross premium tax shall be in lieu of all other taxes except certain specified taxes, one of which is a tax on foreign insurers of states discriminating against California insurers. (Cal.Const., art. XIII, § 14 4/5, subd. (f).) Consequently, the Company argues, the Legislature is only authorized to enact that type of retaliatory tax legislation which is specified by the Constitution.

We recognize that the retaliatory tax statute appears to impose a tax upon the foreign insurer without regard to whether the foreign state discriminates against California insurance companies. Of course, any attempt to assess a retaliatory tax against an insurer from a state which did not discriminate against California insurers would constitutionally fail.

The Company, however, may not escape liability because of any conflict in the literal terms of the Insurance Code and the Constitution. The Company's home state, Illinois, not only imposed a higher tax on California insurers than California assessed the Company, but it also discriminated against California insurers. Thus, although the terms of the Constitution and the statute may vary in the abstract, no conflict between the Constitution and the statute arises as to the facts of this case. The Constitution permits and the statute requires that plaintiff be taxed.

The possibility of hypothesizing an unconstitutional application of the statute does not save the Company from its actual constitutional operation in the instant case. The valid employment of the statute in the present situation does not fail because the statute might be improperly invoked in other situations. As this court stated in sustaining the validity of the California Fair Trade Act (Bus. & Prof.Code, §§ 16900-16905), 'Respondent presents several hypothetical situations under which enforcement of the act would be inequitable or difficult, or perhaps, even unconstitutional. It is elementary, of course, that a statute may be invalid as applied to one set of facts, yet valid as applied to another. Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 42 S.Ct. 106, 66 L.Ed. 239. The situations conjured up by respondent are not here involved, and respondent is limited in his attack to the application of the statute to the factual situation now before the court.' (Max Factor & Co. v. Kunsman (1936) 5 Cal.2d 446, 468, 55 P.2d 177, 187; see also In re Cregler (1961) 56 Cal.2d 308, 313, 14 Cal.Rptr. 289, 363 P.2d 305; People v. Perry (1931) 212 Cal. 186, 193, 298 P. 19, 76 A.L.R. 1331; Paul v. Allied dairymen, Inc. (1962) 209 Cal.App.2d 112, 124, 25 Cal.Rptr. 595; People v. Naumcheff (1952) 114 Cal.App.2d 278, 280, 250 P.2d 8; 2 Sutherland, Statutory Construction (3d ed. 1943) §§ 2413-2415; Stern, Separability and Separability Clauses in the Supreme Court (1937) 51 Harv.L.Rev. 76, 82-106.

Although this court, in certain circumstances, will hold a statute unconstitutional on its face without regard to the particular facts of the case, such circumstances are not involved here. Thus when the application of the statute is invalid in certain situations we cannot enforce it in other situations if such enforcement entails the danger of an uncertain or vague future application of the statute (see, e. g., In re Blaney (1947) 30 Cal.2d 643, 653-656, 184 P.2d 892; Seaboard Acceptance Corp. v. Shay (1931) 214 Cal. 361, 368, 5 P.2d 882). We have been particularly aware of fomenting such danger of uncertainty in the application of a statute which would inhibit the exercise of a constitutional right (In re Blaney, supra) or impose criminal liability (People v. Stevenson (1962) 58 Cal.2d 794, 26 Cal.Rptr. 297, 376 P.2d 297). As the United States Supreme Court has said in rejecting an argument that a statute violative of the Fifth Amendment could be constitutionally applied to the case before it, such a 'course would not be proper, or desirable, in dealing with a section which so severely curtails personal liberty.' (Aptheker v. Secretary of State (1964) 378 U.S. 500, 516, 84 S.Ct. 1659, 1669, 12 L.Ed.2d 992; see NAACP v. Button (1963) 371 U.S. 415, 83 S.Ct. 328, 9 L.Ed.2d 405; Thornhill v. State of Alabama (1940) 310 U.S. 88, 60 S.Ct. 736, 84 L.Ed. 1093.)

We face no such problem of uncertainty in the future application of the tax statute which is involved in the instant case. Its application within a constitutional ambit presents no possibility of the...