Johnson & Johnson v. Director, Division of Taxation, And Commissioner, 120720 NJSC, A-51-19

Docket NºA-51-19
Opinion JudgePER CURIAM
Party NameJohnson & Johnson, Plaintiff-Respondent, v. Director, Division of Taxation, and Commissioner, Department of Banking and Insurance, Defendants-Appellants.
AttorneyWilliam B. Puskas, Jr., Deputy Attorney General, argued the cause for appellants (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel, and William B. Puskas, Jr., on the brief). Margaret C. Wilson argued the cause for respondent (Wilson Law Group...
Judge PanelJUSTICE LaVECCHIA, dissenting CHIEF JUSTICE RABNER and JUSTICES ALBIN, FERNANDEZ-VINA, SOLOMON, and PIERRE-LOUIS join in this opinion. JUSTICE LaVECCHIA filed a dissent. JUSTICE PATTERSON did not participate. CHIEF JUSTICE RABNER and JUSTICES ALBIN, FERNANDEZ-VINA, SOLOMON, and PIERRE-LOUIS join ...
Case DateDecember 07, 2020
CourtSupreme Court of New Jersey

Johnson & Johnson, Plaintiff-Respondent,

v.

Director, Division of Taxation, and Commissioner, Department of Banking and Insurance, Defendants-Appellants.

No. A-51-19

Supreme Court of New Jersey

December 7, 2020

Argued October 27, 2020

On certification to the Superior Court, Appellate Division, whose opinion is reported at 461 N.J.Super. 148 (App. Div. 2019).

William B. Puskas, Jr., Deputy Attorney General, argued the cause for appellants (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel, and William B. Puskas, Jr., on the brief).

Margaret C. Wilson argued the cause for respondent (Wilson Law Group, attorneys; Margaret C. Wilson, on the brief).

The Court considers the Appellate Division's determination that, in light of the Legislature's 2011 amendment to N.J.S.A. 17:22-6.64, respondent Johnson & Johnson (J&J) was required to pay an insurance premium tax (IPT) based only upon its premium for risks localized in New Jersey rather than upon its total United States premium.

J&J is insured through Middlesex Assurance, which it wholly owns and which provides insurance exclusively to J&J. Middlesex is not a licensed or authorized insurance dealer in New Jersey. As a result, J&J's IPT requirements are governed by the statutes regulating New Jersey's "nonadmitted" or "unauthorized" insurance market.

The nonadmitted market is comprised of two main types of unauthorized insurance markets, which are separate and distinct from each other: the surplus lines market and the self-procured market. The principal difference is that surplus lines insurance is purchased through a surplus lines agent who bears responsibility for paying any insurance premium taxes, N.J.S.A. 17:22-6.59, while the insured is responsible for paying premium taxes on self-procured insurance, N.J.S.A. 17:22-6.64.

Prior to 2011, New Jersey collected IPT on both surplus lines and self-procured insurance that covered risks located in New Jersey. See N.J.S.A. 17:22-6.59 (2010) and -6.64 (2010). If the insurance covered risks located in other states as well, those other states could each assess IPTs based on the premium for the risk located there.

In 2011, Congress enacted the Nonadmitted and Reinsurance Reform Act (NRRA), 15 U.S.C. §§ 8201 to 8206. Most relevant here, the NRRA provides that, in cases where nonadmitted insurance covers multistate risks, "[n]o State other than the home State of an insured may require any premium tax payment for nonadmitted insurance." 15 U.S.C. § 8201(a).

That new Home State Rule prompted the New Jersey Legislature to amend certain state insurance laws. See L. 2011, c. 119. As relevant here, a sentence was added to both N.J.S.A. 17:22-6.59 and -6.64: "If a surplus lines policy covers risks or exposures in this State and other states, where this State is the home state, . . . the tax payable pursuant to this section shall be based on the total United States premium for the applicable policy."

Although that sentence was added to N.J.S.A. 17:22-6.64, the rest of that statute was left unchanged, including the statute's requirements that every holder of self-procured insurance report when it procures or continues coverage "upon a subject of insurance resident, located or to be performed within this State, other than insurance procured through a surplus lines agent pursuant to the surplus lines law of this State," and pay a five-percent IPT for such coverage.

Here, it is undisputed that J&J's insurance is self-procured. Prior to the 2011 Amendments, J&J accordingly paid IPT based on its New Jersey-located risks. The question here is whether, in light of the 2011 Amendments, J&J is now also required to pay IPT to its home state of New Jersey on its nationwide coverage. In other words, did the 2011 Amendments extend an obligation to pay IPT based on the total United States premium solely to holders of surplus lines policies, or did they also impose that obligation upon holders of self-procured policies, like J&J?

In the wake of the 2011 Amendments, J&J increased its IPT payments to reflect the amount due on its nationwide insurance premiums "as a precautionary measure." J&J continued to make those voluntary payments until November 2015, when it filed a claim with the Department of Banking and Insurance (DOBI) and the Director of the Division of Taxation (Division) seeking a refund of IPT in the amount of nearly $56 million, plus interest. The Division denied J&J's refund claim in August 2016.

J&J then filed a complaint in the Tax Court. See 30 N.J. Tax 479, 490-91 (Tax Ct. 2018). The Tax Court found in favor of the Division and DOBI, concluding that the 2011 "amendments apply the Home State Rule to all nonadmitted insurance including self-procured captive insurance." Id. at 513. The court acknowledged that "the addition of a paragraph in the self-procurement statute relating to surplus lines policies is problematic, as is the failure to remove the original language allocating the IPT to the location of the risk." Ibid. "Nonetheless," the court reasoned, "the Legislature's intent is clear and purposeful. By amending both N.J.S.A. 17:22-6.59 and -6.64, the Legislature kept consistent its equal treatment of nonadmitted insurers, and maximized its nonadmitted IPT revenue stream under the NRRA." Ibid.

The Appellate Division reversed, finding that "J&J's IPT obligation should have continued to be based solely upon the risks it insured that were located within New Jersey" because N.J.S.A. 17:22-6.64 provided -- both before and after the 2011 Amendments -- "that IPT was to be calculated at the rate of '5% of the gross amount of such premium' paid for insurance procured 'upon a subject of insurance resident, located or to be performed within [New Jersey].'" 461 N.J.Super. 148, 151 (App. Div. 2019).

Stressing that the original plain language of N.J.S.A. 17:22-6.64 "clearly limited J&J's tax liability to the risks it insured in New Jersey [and] was not changed in any way, shape, or form in the 2011 amendment to" that section, the Appellate Division explained that it was "bound to follow and apply" that language. Id. at 163. The appellate court was not persuaded that the sentence added to both N.J.S.A. 17:22-6.59 and -6.64 extended the application of the Home State Rule to self-procured policies because that added sentence "is limited by its express terms to 'surplus lines polic[ies] cover[ing] risks or exposures in this State and other states.'" Id. at 164 (quoting N.J.S.A. 17:22-6.64). The court reasoned that, because "J&J does not procure surplus lines coverage from Middlesex Assurance," that added sentence "is simply inapplicable to J&J." Ibid.

The Appellate Division ultimately declared itself "unable to conclude that the Legislature, by specifically stating that the Home State Rule only applied to surplus insurance coverage obtained through surplus line agents, likewise intended to extend it to the types of insurance coverage procured by J&J from Middlesex Assurance." Ibid.

The Court granted certification. 241 N.J. 94 (2020).

HELD: The judgment of the Appellate Division is affirmed substantially for the reasons expressed in Judge Haas's thoughtful opinion, which rests heavily on the plain language of N.J.S.A. 17:22-6.64. 461 N.J.Super. at 162-64. The Legislature, of course, may amend the statute if it chooses to do so.

AFFIRMED.

JUSTICE LaVECCHIA, dissenting, finds that the plain language argument advanced here asks the Court to put on blinders and ignore the effort the Legislature has made to achieve taxation of premiums on nationwide risks insured by entities for which New Jersey is the home state. Stressing the primacy of legislative intent in statutory construction, as well as the deference due the Division's interpretation of tax statutes, the dissent explains that the only conceivable purpose for including the new clause in N.J.S.A. 17:22-6.64 was to impose nationwide premium taxation on home-state insureds with self-procured coverage. That purpose is further evidenced by the new provisions allowing the State to engage in compacts with other states for the collection of taxation under N.J.S.A. 17:22-6.64 as well as -6.59. Noting that the Legislature has at times referred to all nonadmitted insurance as surplus lines coverage, without distinguishing between surplus lines insurance and self-procured insurance, the dissent opines that reading the new clause in -6.64 to draw such a distinction renders the clause meaningless.

CHIEF JUSTICE RABNER and JUSTICES ALBIN, FERNANDEZ-VINA, SOLOMON, and PIERRE-LOUIS join in this opinion. JUSTICE LaVECCHIA filed a dissent. JUSTICE PATTERSON did not participate.

PER CURIAM

The judgment of the Appellate Division is affirmed substantially for the reasons expressed in Judge Haas's thoughtful opinion, which rests heavily on the plain language of N.J.S.A. 17:22-6.64. Johnson & Johnson v. Dir., Div. of Tax'n, 461 N.J.Super. 148, 162-64 (App. Div. 2019). The Legislature, of course, may amend the statute if it chooses to do so.

CHIEF JUSTICE RABNER and JUSTICES ALBIN, FERNANDEZ-VINA, SOLOMON, and PIERRE-LOUIS join in this opinion. JUSTICE LaVECCHIA filed a dissent. JUSTICE PATTERSON did not participate.

JUSTICE LaVECCHIA, dissenting.

I cannot join in the majority's affirmance of the Appellate Division's judgment in this matter. For the reasons expressed herein, I agree with the judgment of the Tax Court, which upheld the tax imposed on the corporate taxpayer in this matter. I write separately to add my reasons for believing that the Tax Court reached the correct outcome.

I.

This appeal requires the Court to review the State's tax treatment of certain premiums paid by Johnson & Johnson (J&J) for insurance...

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