Philadelphia Life Ins. Co. v. Commonwealth
| Decision Date | 04 October 1973 |
| Citation | 309 A.2d 811,454 Pa. 157 |
| Parties | PHILADELPHIA LIFE INSURANCE CO., Appellant, v. COMMONWEALTH of Pennsylvania et al. |
| Court | Pennsylvania Supreme Court |
Herbert A. Fogel, David F. Maxwell, Philadelphia (Joseph M. Hartley, Philadelphia, of counsel), for Philadelphia Life Ins. Co.
Eugene J. Anastasio, Deputy Atty. Gen., Dept. of Revenue Harrisburg, for appellees.
Before JONES C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
The narrow issue presented by this appeal is whether the Gross Premiums Tax Act of 1961 [1] is unconstitutional when applied to renewal premiums received by insurance companies from non-particpating life insurance policies [2] written prior to January 1, 1961, the effective date of the tax.
The appellant, Philadelphia Life Insurance Company is a Pennsylvania stock life insurance company which receives 80% Of its revenues from non-participating policies. On June 21 1961, appellant instituted this equity action seeking to restrain the collection of the tax. [3] After a trial, the lower court entered a Decree Nisi denying the requested relief and appellant filed exceptions which were overruled by the Court en Banc. This appeal followed.
Appellant contends that the Gross Premiums Receipt Tax, insofar as it is applied to non-participating policies written prior to 1961, is unconstitutionally retroactive. [4]
It is well established that:
'An Act of Congress or an Act of the legislature of Pennsylvania which imposes a retroactive tax is not unconstitutional per se merely because it is retroactive in its language or in its operation: Billings v. United States, 232 U.S. 261, 282, 34 S.Ct. 421, 58 L.Ed. 596; Milliken v. United States, 283 U.S. 15, 21, 51 S.Ct. 324, 75 L.Ed. 809; Welch v. Henry, 305 U.S. 134, 59 S.Ct. 121, 83 L.Ed. 87; Shirks Motor Express Corp. v. Messner, 375 Pa. 450, 462, 100 A.2d 913.'
Commonwealth v. Budd Co., 379 Pa. 159, 170--171, 108 A.2d 563, 568 (1954). See also, Commonwealth v. Rockwell Mfg. Co., 392 Pa. 339, 140 A.2d 854 (1958). However, after making the above statement in Budd, this Court went on to note that there must be some limit to the legislature's ability to reach events buried in the distant past.
379 Pa. at 171--172, 108 A.2d 563, 568--569.
The Gross Premiums Tax Act was passed in February of 1961, and was made applicable only to premiums received after January 1, 1961. On its face, the retroactive effect of the tax covers a period of one month, well within the bounds established in Budd.
Appellant contends however that in practice this tax reaches contracts written many years prior to 1961 and it therefore is effectively retroactive beyond the limits established in Budd. Appellant relies upon two facts stipulated in the record: (1) That premiums received from non-participating policies written prior to 1961 were fixed by contract; and (2) That there is no method by which the cost of this tax can be passed on to policy holders. We do not find the tax to be retroactive in the manner suggested by the appellant.
Two important policies dictate against invalidating tax legislation on the grounds of retroactivity. The first is the paramount state interest in obtaining adequate revenues which lends every tax statute a presumption of validity. See generally, Commonwealth v. Life Assurance Co., 419 Pa. 370, 376--377, 214 A.2d 209, 214 (1965). The second is that taxation is not in the nature of a penalty or a contractual obligation, but rather a means of apportioning the costs of government among those who benefit from it. See, Welch v. Henry, 305 U.S. 134, 146, 59 S.Ct. 121, 83 L.Ed. 87 (1938); Philip Wagner Inc. v. Leser, 239 U.S. 207, 216--217, 36 S.Ct. 66, 60 L.Ed. 230 (1915).
Only serious countervailing prejudice will override these significant policy considerations. For example, where at the time of the transaction in dispute the taxpayer could not reasonably have foreseen that a tax would be imposed, and, where he would have been likely to alter his conduct to avoid the tax had he foreseen it, the United States Supreme Court has granted relief based on the Due Process Clauses. See, E.g., Untermyer v. Anderson, 276 U.S. 440, 48 S.Ct. 353, 72 L.Ed. 645 (1928); Blodgett v. Holden, 275 U.S. 142, 48 S.Ct. 105, 72 L.Ed.2d 206 (1927); Modified, 276 U.S. 594, 48 S.Ct. 105, 72 L.Ed. 206 (1928). Cf., Milliken v. United States, 283 U.S. 15, 21, 51 S.Ct. 324, 75 L.Ed. 809 (1931); Reinecke v. Northern Trust Co., 278 U.S. 339, 49 S.Ct. 123, 73 L.Ed. 410 (1929). Such a rationale is particularly applicable to gift and estate taxes because the donor's intent is frequently guided by tax considerations. However, the Supreme Court has consistently refused to invalidate an income tax on the grounds of retroactivity. [5] It is thought that the taxpayer would have elected to receive the income even if he had known of the subsequent tax, and that he in no way relied upon the non-taxability of the income. See, e.g., Welch v. Henry, 305 U.S. 134, 59 S.Ct. 121, 83 L.Ed. 87 (1938); United States v. Hudson, 299 U.S. 498, 57 S.Ct. 309, 81 L.Ed. 370 (1937); Lichter v. United States, 334 U.S. 742, 68 S.Ct. 1294, 92 L.Ed. 1694 (1948). The prejudice to the taxpayer in income tax cases is not therefore considered significant.
In the instant case, we grant that the appellant may not have been able to foresee the imposition of this tax. That fact alone however does not warrant relief. A tax is not considered retroactive merely because its application depends upon events which pre-date the tax. United States v. Manufacturers National Bank, 363 U.S. 194, 200, 80 S.Ct. 1103, 4 L.Ed.2d 1158 (1959). As with other corporate income taxes, we will not assume that the taxpayer would not have chosen to enter into the contracts producing the income had it been aware of the tax.
'The imposition of a new tax, or an increase in the rate of an old one, is one of the usual hazards of business enterprise: seldom, if ever does such an event impair the obligation of a pre-existing contract.'
McShain v. District of Columbia, 92 U.S.App.D.C. 358, 205 F.2d 882, 883 (1953); Cf. Stadtfeld Estate, 359 Pa. 147, 154, 58 A.2d 478 (1958); Commonwealth v. New York L.E. & W. Railroad Co., 150 Pa. 234, 24 A. 609 (1892); Maltby v. Reading Columbia Railroad, Co., 52 Pa. 140 (1866).
In judging the impact of this tax, it is significant to note that, with respect to the participating policies written by this company, appellant could have passed the tax onto policyholders by way of decreased dividends but elected not to do so. The fact that appellant opted against such an alternative is a strong indication of its ability to absorb this tax without significant detriment.
In contrast, there is a singificant state interest in reaching the premiums at issue in this case. Legislatures have long used gross receipts as a measure of an insurance company's ability to pay tax and they have imposed taxes on those receipts accordingly. To accept appellant's position would limit the legislature's ability to tax premiums to policies written after the enactment of the tax. By logical extension, all income generated from employment or any other types of contracts written prior to the adoption of a tax would be exempt from that tax. Such a rule would cripple the legislature's ability to raise revenue.
Due Process does not require such a result.
The Decree of the Court below is affirmed, each party to pay own costs.
The disposition of appellant's claim is governed by this Court's decision in Commonwealth v. Life Assurance Co., 419 Pa. 370, 214 A.2d 209, appeal dismissed for want of a substantial federal question, 384 U.S. 268, 86 S.Ct. 1476, 16 L.Ed.2d 524 (1965).
Life Assurance, like the instant case, involved a constitutional attack on the very statute at issue here, the act of February 21, 1961. [1] As part of that challenge this Court construed the Act of 1961. In doing so we stated:
'(T)he receipt of renewal premiums in practical effect amounts to no more than the resale of insurance coverage for an additional period of time. As the court below noted, '(an insurance company's) business is broader than just selling policies; it also extends to the collection of premiums whether in the year in which the policy is sold initially or in subsequent years on the renewal of the policy."
Id. at 390 214 A.2d at 221 (footnote omitted). The plain meaning of our holding in Life Assurance is that the Act of...
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