Neptune Mut. Ass'n, Ltd. of Bermuda v. U.S., Nos. 88-1275

CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit
Writing for the CourtBefore ARCHER and MICHEL, Circuit Judges, and NICHOLS; NICHOLS
Parties-870, 88-2 USTC P 16,469 The NEPTUNE MUTUAL ASSOCIATION, LTD. OF BERMUDA, Plaintiff-Appellant, v. The UNITED STATES, Defendant/Cross-Appellant.
Decision Date30 November 1988
Docket NumberNos. 88-1275,88-1276

Page 1546

862 F.2d 1546
63 A.F.T.R.2d 89-870, 88-2 USTC P 16,469
The NEPTUNE MUTUAL ASSOCIATION, LTD. OF BERMUDA, Plaintiff-Appellant,
v.
The UNITED STATES, Defendant/Cross-Appellant.
Nos. 88-1275, 88-1276.
United States Court of Appeals,
Federal Circuit.
Nov. 30, 1988.

Page 1547

John C. Richardson, John C. Richardson, P.C., LeBoeuf, Lamb, Leiby and MacRae, New York City, argued for plaintiff-appellant. With him on the brief were Alison E. Clapp and Alexander Chmelev, New York City, of counsel.

David I. Pincus, Dept. of Justice, Washington, D.C., argued for defendant/cross-appellant. With him on the brief were William S. Rose, Jr., Asst. Atty. Gen., Gary R. Allen and Michael J. Roach, Washington, D.C.

Before ARCHER and MICHEL, Circuit Judges, and NICHOLS, Senior Circuit Judge.

NICHOLS, Senior Circuit Judge.

The Neptune Mutual Association, Ltd. of Bermuda (Neptune) appeals from the judgment of the United States Claims Court (Nettesheim, J.), Neptune Mut. Ass'n, Ltd. of Bermuda v. United States, 13 Cl.Ct. 309 (1987), granting in part and denying in part cross-motions for summary judgment. We affirm in part, vacate in part, and remand.

Page 1548

I. Proceedings in the Claims Court

The facts underlying the present federal tax case are set forth in the opinion of the Claims Court, id. at 310, which enables us to omit a background statement here. The court extended appropriate deference to the understanding of the IRS respecting the meaning of statutes it administers. Briefly, Neptune, the taxpayer, was organized by Massachusetts fishing companies to provide casualty insurance on their vessels, as a cooperative venture, because they found themselves unable to obtain affordable insurance from regular companies authorized to do business in Massachusetts. Neptune was located and organized in foreign territory, at first Luxembourg, then Bermuda in the years under review. The Claims Court held that Neptune was liable under 26 U.S.C. Sec. 4371 * for Federal Excise Tax (FET) on policies it had issued for the taxable periods ending June 30 in years 1979 and 1980, and that the assessment of FET for periods ending prior to 1979 was barred by the statute of limitations. The court further held that Neptune did not satisfy the criteria of 26 U.S.C. Sec. 4373(1) which grants an exemption from the FET imposed by section 4371.

Neptune appeals under 28 U.S.C. Sec. 1295(a)(3) from that portion of the judgment holding it taxable under section 4371 and further appeals from the holding that it does not satisfy the exemption criteria of 26 U.S.C. Sec. 4373(1). The trial court's disposition of a penalty issue is not appealed.

The United States (government or IRS) appeals under 28 U.S.C. Sec. 1295(a)(3) from that portion of the judgment holding that the statute of limitations bars its claim for FET for taxable periods ending on or before June 30, 1978.

II. Issues

The issues before us on appeal are:

(A) Whether later-enacted 26 U.S.C. Sec. 842 preempts imposition of FET under 26 U.S.C. Sec. 4371 on a foreign insurer who does business in the United States.

(B) Whether Neptune satisfies the exemption criteria of 26 U.S.C. Sec. 4373(1).

(C) Whether the statute of limitations on assessment of Neptune's FET liability started running upon the filing of an income tax return.

We do not discuss all the points made in the Claims Court opinion. We see no error in them, but need not adopt them as ours to deal adequately with the arguments the parties urge in this court.

III. Discussion

The judgment below was rendered on cross-motions for summary judgment. To overturn summary judgment, the appellant must show that one or more of the facts on which the trial court relied was genuinely in dispute and was material to the judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Avia Group Int'l, Inc. v. L.A. Gear California, Inc., 853 F.2d 1557, 1561-62, 7 USPQ2d 1548, 1552 (Fed.Cir.1988). With regard to the issue of Neptune's liability for FET in 1979 and 1980, as well as the issue of exemption under section 4373(1), there are no disputed issues of material fact, and the grant of summary judgment was therefore proper. Id. With regard to the statute of limitations issue, there are disputed issues of material fact. Accordingly, summary disposition as to this issue is inappropriate.

A. FET liability under 26 U.S.C. Sec. 4371.

The dispute in the present case centers upon whether Neptune is liable for FET under I.R.C. Sec. 4371 or whether Neptune is liable for income tax under I.R.C. Sec. 842 in lieu of the FET. Section 4371 imposes on policies by foreign insurance companies an excise tax of "4 cents on each dollar, or fractional part thereof, of the premium paid on * * * [a] policy of casualty insurance." By section 4374 the maker, signer, issuer, or seller of the policy is liable for the tax. Section 842 provides:

Page 1549

If a foreign corporation carrying on an insurance business within the United States would qualify under part I, II, or III of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation, such corporation shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income, which is from sources within the United States, such a foreign corporation shall be taxable as provided in section 881.

Under the literal terms of sections 842 and 4371, Neptune is subject to both income and excise tax on the same insurance transactions. The government concedes that Neptune cannot be liable for both taxes and argues that only section 4371 applies. Further, the government contends that Neptune fails the exemption criteria of section 4373 and is therefore liable for FET.

Neptune argues that section 842, where it applies, excludes section 4371. According to Neptune, the legislative histories of sections 842 and 4371 express a clear intention by Congress that the FET is only to apply to insurers who do not come within the terms of the income tax provisions of section 842. Under Neptune's theory, section 842 is to apply in the first instance, and if it is inapplicable, then section 4371 applies. This view requires us to infer a drastic reduction in the scope of section 4371, nowhere stated but implied from the change effected in 1976 in the definition of doing business in the United States, as described below.

"The starting point in every case involving construction of a statute is the language itself." Watt v. Alaska, 451 U.S. 259, 265, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981); Johns-Manville Corp. v. United States, 855 F.2d 1556, 1559 (Fed.Cir.1988). Using the plain meaning of the statutes as our guide, we proceed only so far as to recognize that there is a problem. Under the literal terms of the statutes, Neptune is subject to double taxation on the same insurance transactions. Double taxation is never to be presumed, Tennessee v. Whitworth, 117 U.S. 129, 137, 6 S.Ct. 645, 647, 29 L.Ed. 830 (1886), and the IRS makes no claim to assess double taxation here. If the tax laws are to impose double taxation, it must be because the legislature has unmistakably so enacted. Id. The legislative histories of sections 842 and 4371 evince no clear intention by Congress to impose double taxation in the present circumstances. Because a literal interpretation of the statutes leads to a result at variance with the policy of the tax laws as a whole, we turn to the legislative histories of the statutes in question. With that aid, we determine, if we can, whether these laws were enacted for a purpose at variance with their literal terms. Reid v. Department of Commerce, 793 F.2d 277, 281-82 (Fed.Cir.1986); Trustees of Indiana University v. United States, 618 F.2d 736, 739, 223 Ct.Cl. 88 (1980). Clear evidence of legislative intent prevails over other principles of statutory construction. National R.R. Passenger Corp. v. National Ass'n of R.R. Passengers, 414 U.S. 453, 458, 94 S.Ct. 690, 693, 38 L.Ed.2d 646 (1974); Johns-Manville Corp. v. United States, 855 F.2d 1556, 1559 (Fed.Cir.1988).

Before enactment of the predecessor statute to section 4371, foreign insurers who did not maintain a domestic agent could write casualty insurance on risks located in the United States without incurring any federal tax liability. Conversely, domestic insurers and insurers having domestic agents were subject to federal income tax. This scheme of taxation was changed by the Revenue Act of 1918, which provided that nonresident foreign insurers who were not subject to income tax on their underwriting income were liable for a 3 percent stamp tax. Revenue Act of 1918, Sec. 237, 40 Stat. 1057, 1080, 1138 (1919). The purpose of the 1918 stamp tax, retained by the Revenue Act of 1921, Sec. 1400, 42 Stat. 227, 320, was to equalize the tax burdens of domestic and foreign insurers. See Hearings on H.R. 8245 Before the Senate Comm. on Finance, 67th Cong.,

Page 1550

1st Sess. 318 (1921); S.Rep.No. 275, 67th Cong. 1st Sess. 18 (1921); 61 Cong.Rec. 7180-81 (1921). The 3 percent stamp tax enacted in 1918 is the predecessor to the current section 4371 FET. The legislative intent behind a predecessor statute is entitled to great weight in construing the successor statute. Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 380-381, 89 S.Ct. 1794, 1801, 23 L.Ed.2d 371 (1969); Glidden Co. v. Zdanok, 370 U.S. 530, 541, 82 S.Ct. 1459, 1468, 8 L.Ed.2d 671 (1962). See generally, Sutherland Stat. Const. Sec. 28.10 (4th Ed.).

In 1966, Congress modified the income tax laws applicable to foreign corporations. Prior to 1966, foreign corporations engaged in a trade or business in the United States were taxed at corporate rates on all U.S. source income. The corporate rate applied to all U.S. source...

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    ...Radzanower v. Touche Ross & Co., 426 U.S. 148, 154, 96 S.Ct. 1989, 48 L.Ed.2d 540 (1976) and Neptune Mut. Ass'n v. United States, 862 F.2d 1546, 1551 The CDA text relied on by Inter-Coastal hardly evokes the "clear and manifest" intent needed to find a repeal by implication of the more tran......
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18 cases
  • Ntp, Inc. v. Research in Motion, Ltd., No. 03-1615.
    • United States
    • United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
    • August 2, 2005
    ...Pharms., Inc., 340 F.3d 1367, 1371 (Fed.Cir.2003), and legislative history, see Neptune Mut. Ass'n Ltd. of Bermuda v. United States, 862 F.2d 1546, 1549 (Fed.Cir.1988), if necessary to construe the The question before us is whether the using, offering to sell, or selling of a patented inven......
  • US EX REL. STINSON, LYONS, ET AL. v. Blue Cross, Inc., No. CV 489-224.
    • United States
    • United States District Courts. 11th Circuit. United States District Court (Southern District of Georgia)
    • October 18, 1990
    ...of legislative intent prevails over other principles of statutory construction." E.g., Neptune Mut. Ass'n, Ltd. v. United States, 862 F.2d 1546, 1549 (Fed.Cir.1988) (emphasis added); Johns-Mansville Corp. v. United States, 855 F.2d 1556, 1559 (Fed. Cir.1988), cert. denied, 489 U.S. 1066, 10......
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    • May 26, 2015
    ...tax did not apply when insurance premiums were subject to U.S. income taxes, see Neptune Mut. Ass'n, Ltd. of Berm. v. United States, 862 F.2d 1546, 1549 (Fed.Cir.1988) ; 61 Cong. Rec. 7180–81 (1921) (discussing the predecessor to § 1804), an exemption carried forward in current section 4373......
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    • July 19, 2002
    ...Radzanower v. Touche Ross & Co., 426 U.S. 148, 154, 96 S.Ct. 1989, 48 L.Ed.2d 540 (1976) and Neptune Mut. Ass'n v. United States, 862 F.2d 1546, 1551 The CDA text relied on by Inter-Coastal hardly evokes the "clear and manifest" intent needed to find a repeal by implication of the more tran......
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