Republic Insurance Co. v. Commissioner of Taxation
| Citation | 272 Minn. 325,138 N.W.2d 776 |
| Decision Date | 24 September 1965 |
| Docket Number | No. 39546,39546 |
| Parties | REPUBLIC INSURANCE COMPANY and Vanguard Insurance Company, Respondents, v. COMMISSIONER OF TAXATION, Relator. |
| Court | Supreme Court of Minnesota (US) |
Syllabus by the Court
1. Retaliatory insurance laws are enacted by states to protect their own insurance companies doing business in other states. The policy of the law is that foreign insurance companies doing business in the taxing state should be subject to the same burdens as domestic insurance companies doing business in any foreign state.
2. The difficulties which arise from lack of uniformity in the provisions of retaliatory laws of the various states require a policy of restraint, reasonableness, and practical judgment on the part of the administrative authorities charged with the obligation of the enforcement of such laws.
3. The Minnesota retaliatory act, Minn.St. 71.23, subd. 1, provides that when taxes imposed by the law of another state are 'in addition to or in excess of those imposed by the laws of this state' upon similar insurance companies, the same tax will be paid in Minnesota by companies of that state doing business here. Our statute requires a comparison of what Minnesota companies are required to pay by a foreign state and what, on the other hand, Minnesota requires similar foreign companies doing business in Minnesota to pay and imposes retaliation if the foreign tax be higher.
4. A retaliatory statute will not be invoked unless restrictions or burdens imposed by the foreign state can be clearly proved.
5. Under the Texas retaliatory insurance law a company doing business in Texas, qualified for a reduced rate on the basis of investments in Texas securities, in fact pays the full tax imposed by law. The credit allowed for investments in Texas securities provides an alternative way of paying the full premium tax imposed upon all companies operating there.
Robert W. Mattson, Atty. Gen., Jerome J. Sicora, Asst. Atty. Gen., St. Paul, for relator.
W. H. Oppenheimer, St. Paul, for respondents.
Thomas C. Lynch, Atty. Gen. of California, Harold B. Haas, Asst. Atty. Gen., San Francisco, Cal., amici curiae.
Certiorari to review an order of the Board of Tax Appeals reversing an order of the commissioner of taxation denying respondents' claims for refund. The issue involves the application to out-of-state insurance companies doing business in Minnesota of subd. 1 of Minn.St. 71.23, the so-called Minnesota retaliatory law.
From the record it appears that both respondents, Republic Insurance Company and Vanguard Insurance Company, are organized under the laws of the State of Texas and authorized to transact all types of insurance, except life insurance, personal accident insurance, life and accident insurance, or health and accident insurance. Both are authorized to transact business in the State of Minnesota. For the year 1960 Republic paid to the State of Minnesota a tax equal to 2 percent of the gross premiums of all direct business received by it in this state. That tax is imposed by Minn.St. 60.63. The commissioner of insurance assessed retaliatory taxes against Republic for an additional sum of $8,436.62. This amount was paid to the state treasury and a claim for refund made. The commissioner of insurance also assessed retaliatory taxes against Vanguard in the sum of $563.57 for the same year. This amount was also paid and a claim for refund filed. Both claims were denied by the commissioner of taxation.
Under Texas statutes insurance companies doing business in that state pay a gross premium tax at a basic rate of 3.85 percent. Vernon's Ann.Texas Civil Stat. Art. 7064. This rate may be reduced by investment in certain defined Texas securities. The amount of reduction depends upon the ratio of Texas assets to assets invested Investment Ratio Rate of Tax
in the state where the company has its highest percentage of admitted assets. The reduction is shown by the following scale:
---------------- -----------
75-80% 3.025
80-85% 2.75
85-88% 2.2
88-90% 1.65
Republic and Vanguard each had its highest percentage of admitted assets invested in Texas and each had in excess of 90 percent of its investments invested in Texas securities as defined by Vernon's Ann.Texas Civil Stat. Art. 7064.
During the calendar year 1960 eight Minnesota fire and casualty companies doing business similar to that of Republic and Vanguard were licensed to do business in Texas. Of the eight, six paid gross premium tax to the State of Texas at a 3.85 percent rate. Two paid that tax at the 1.1 percent rate because of their investment in Texas securities.
The Board of Tax Appeals concluded that since the Texas companies qualify under Texas law for a rate lower than the Minnesota prescribed rate of 2 percent, and since certain Minnesota companies with large investments in Texas have also qualified for the lower rate there, the commissioner was without authority to assess additional taxes against the Texas companies under the Minnesota retaliatory law.
The commissioner of taxation on the other hand contends that as a matter of fact the rate of taxation in the State of Texas is 3.85 percent and since that rate is in excess of the rate imposed by the State of Minnesota, Texas insurance companies operating in this state should be taxed on the same basis as they are taxed in the State of Texas.
The issue presented requires an interpretation of the Minnesota retaliatory act. This act, Minn.St. 71.23, provides:
'Subdivision 1. When by the laws of any other state or country any taxes, fines, deposits, penalties, licenses, or fees, in addition to or in excess of those imposed by the laws of this state upon foreign insurance companies and their agents doing business in this state, are imposed on insurance companies of this state and their agents doing business in that state or country, or when any conditions precedent to the right to do business in that state are imposed by the laws thereof, beyond those imposed upon these foreign companies by the laws of this state, the same taxes, fines, deposits, penalties, licenses, fees, and conditions precedent shall be imposed upon every similar insurance company of that state or country and their agents doing or applying to do business in this state so long as these foreign laws remain in force.
'Subd. 2. In the event that a domestic insurance company, after complying with all reasonable laws and rulings of any other state or country, is refused permission by that state or country to transact business therein after the commissioner of insurance of Minnesota has determined that that company is solvent and properly managed and after he has so certified to the proper authority of that other state or country, then, and in every such case, the commissioner may in his discretion forthwith suspend or cancel the certificate of authority of every insurance company organized under the laws of that other state or country to the extent that it insures, or seeks to insure, in this state against any of the risks or hazards which that domestic company seeks to insure against in that other state or country. Without limiting the application of the foregoing provision, it is hereby determined that any law or ruling of any other state or country which prescribes to a Minnesota domestic insurance company the premium rate or rates for life insurance The Texas Insurance Code contains a retaliatory act, Vernon's Ann.Texas Civil Stat. Art. 21.46, which differs from the Minnesota act in that it applies where the 'taxes, licenses, fees, fines, penalties, deposit requirements or other obligations, prohibitions or restrictions' imposed by another state on a Texas insurance company doing business there are 'in the aggregate' in excess of such burdens imposed upon similar out-of-state companies doing business in Texas. The act also provides that--
issued or to be issued outside that other state or country shall not be deemed reasonable.'
'* * * wherever under any law of this State the basic rate of taxation of any insurance company of another state * * * is reduced if any such insurance company has made investments in Texas securities then in computing the aggregate Texas premium tax burdens of any such insurance company of any other state * * * each shall for purpose of comparison with the Premium tax laws of their home states be considered to have assumed and paid an aggregate premium tax burden equal to the basic rate * * *.' (Italics supplied.)
1. Certain preliminary observations may be made with reference to the general subject of retaliatory insurance laws. It may be said generally that states have enacted these laws to protect their own insurance companies doing business in other states. The theory of the state is that foreign insurance companies doing business in the taxing state should be subject to the same burdens as domestic insurance companies doing business in any foreign state. These statutes are primarily regulatory, the taxing feature being regarded as incidental. In some instances, statutes of various states so complement each other as to achieve an equalization on the basis of reciprocity. But in the absence of such an accommodation, the application of retaliatory sanctions results.
Difficulties in the application of retaliatory laws grow out of the lack of uniformity of insurance regulations among the states. Because of the varying provisions in insurance statutes, an exact comparison cannot always be achieved. If each state were to impose the same taxes with variance only as to rate, and other burdens were equal, there would be little difficulty. A helpful examination of the various retaliatory statutes is found in an article by George A. Pelletier, Jr., appearing in 39 Notre Dame Lawyer 243. This article contains an able and exhaustive review of the leading authorities on the issue, including State v....
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