Springfield Ins. Co. v. State Tax Commission

• Decision Date: 01 May 1961
• Citation: 342 Mass. 505,174 N.E.2d 455
• Parties: SPRINGFIELD INSURANCE COMPANY v. STATE TAX COMMISSION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 455

174 N.E.2d 455

342 Mass. 505

SPRINGFIELD INSURANCE COMPANY v. STATE TAX COMMISSION.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 3, 1961.

Decided May 1, 1961.

William Shelmerdine, Jr., Boston (Stephen A. Moore, Boston, with him), for taxpayer.

Herbert E. Tucker, Jr., Asst. Atty. Gen., for State Tax Commission.

Before WILKINS, C. J., and SPALDING, WILLIAMS and CUTTER, JJ.

CUTTER, Justice.

The insurance company (Springfield) was incorporated in Massachusetts and is subject to G.L. c. 175. It has its home office and principal place of business here.

Springfield is a member of American Foreign Insurance Association (AFIA) which develops for twenty-four member companies insurance business covering risks in certain foreign territory. AFIA acts as a foreign manager for Springfield in such territory and Springfield there insures risks through AFIA. In 1952, Springfield through AFIA entered into insurance covering risks in Hong Kong and Surinam and received from these risks in premiums $71,946.86 and $4,067.13 respectively. The contracts 'were entered into through a foreign branch * * * of' AFIA or through AFIA agents soliciting in foreign countries. 'Policies were delivered' by AFIA to each purchaser at his residence or place of business. Premiums were paid to AFIA and were deposited at the place of purchase to meet claims and expenses. Balances, after deducting normal operating costs, were transmitted to AFIA's home office to be distributed to its member companies, including Springfield.

Springfield was qualified to do business in Hong Kong and Surinam, neither of which imposes a gross premium tax or excise. AFIA paid in each place stamp taxes imposed upon documents of insurance as well as other documents.

On February 27, 1953, Springfield filed its premium excise return, G.L. c. 63, § 25 (as amended through St.1945, c. 721, § 4; see later amendment, St.1953, c. 654, § 53), but did not include in computing the measure of the excise (see § 22, discussed infra) the 1952 premiums from risks in Hong Kong and Surinam. An additional 1953 excise of $2,189.20 was later imposed based upon the inclusion of these 1952 premiums within the measure of the 1953 excise levied under G.L. c. 63, § 22 (as amended through St.1946, c. 387, § 1). ¹ Springfield applied for abatement of the additional excise contending 'that the assessment based upon premiums for business written in foreign countries imposes an undue burden on foreign or interstate commerce and therefore violates' art. 1, § 8, of the Federal Constitution. The State Tax Commission denied the application. Before the Appellate Tax Board, Springfield also contended that the additional excise was in violation of art. 1, § 10, cl. 2, and of the Fourteenth Amendment to the Federal Constitution. The Appellate Tax Board entered a decision for the commission. Springfield appealed.

1. The history of the excise now imposed by G.L. c. 63, § 22 (see footnote 1, supra), reviewed in Commissioner of Corporations and Taxation v. Boston Ins. Co., 328 Mass. 641, 105 N.E.2d 382, need not be repeated. The tax is 'an excise upon the franchise of * * * a company as existing at a given date.' See Commissioner of Insurance v. Commonwealth Mut. Liab. Ins. Co., 308 Mass. 385, 396, 32 N.E.2d 231, 237. That case dealt with § 22, as appearing in G.L. (Ter.Ed.) c. 63, but the same principles are applicable to the present § 22, despite more recent minor amendments. See St.1945, c. 721, § 1; St.1946, c. 387, § 1. It was recognized (308 Mass. at pages 394-395, 32 N.E.2d at pages 235, 236) that the insurance excise was in nature and impact comparable to the excise on savings banks originally also imposed by the same statute. See St.1982, c. 224, §§ 1, 4, 8. Accordingly, the language in Commonwealth v. People's Five Cents Sav. Bank, 5 Allen, 428, 437-438, describing the early savings bank excise, is applicable to the excise imposed under § 22, viz. '[t]he subject to be taxed was the * * * existing value of the franchises * * * that is, the amount of benefit * * * which the charter * * * conferred on those who held it and enjoyed its privileges. * * * The excise is not laid on the business which each * * * [company] has transacted' during a preceding period, but 'upon the value of the franchise' at the end of the period. See also Commonwealth v. Provident Inst. for Savings, 12 Allen, 312, 314-315, affirmed sub nom. Provident Inst. for Savings v. Massachusetts, 6 Wall. 611, 18 L.Ed. 907.

In the Boston Ins. Co. case, this court held that a domestic insurance company, which paid no premium tax in Canada on policies issued there, must include the premiums for such policies within the measure of the excise imposed by § 22, regardless of the circumstance that the company paid various license and registration taxes and fees in Canada. The court (328 Mass. at pages 644-646, 105 N.E.2d at page 384) said that, under § 22, premiums of domestic companies are to be exempt only where 'a tax on [such] premiums' is actually paid in another jurisdiction. 'The purpose * * * is to avoid double taxation.' In the light of these decisions, we hold that under § 22 the measure of the franchise tax includes the additional premiums now in dispute.

2. Springfield first submits that Massachusetts imposes an unconstitutional burden on interstate and foreign commerce by including within the excise measure premiums on Hong Kong and Surinam risks. For many years, in reliance upon Paul v. State of Virginia, 8 Wall. 168, 182-183, 19 L.Ed. 357, insurance contracts were regarded not as 'inter-state transactions' but as 'local transactions' not constituting 'commerce between the States.' This view was unsettled by United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, holding in effect that the Congress did not intend that insurance should be exempt from the operation of the Sherman Act [15 U.S.C.A. §§ 1-7, 15 note] and that insurance was interstate commerce. The 'Congress then enacted the McCarran act,' now found in 15 U.S.C. §§ 1011-1015 (1958) [15 U.S.C.A. §§ 1011-1015]. See Insurance Co. of North America v. Commissioner of Ins., 327 Mass. 745, 747-748, 101 N.E.2d 335, 337. Pertinent provisions of the McCarran Act are set out in the margin. ² The purpose of the act was stated (House Rep. No. 143, 79th Cong. 1st Sess., U.S.Code Cong.Service 1945, p. 670) by the House Committee on the Judiciary. The committee pointed out that the South-Eastern Underwriters case had 'raised questions * * * as to the validity of State tax laws as well as State regulatory provisions; thus making desirable legislation by the Congress.' The legislation was recommended 'so that the several States may know that the Congress desires to protect the continued regulation and taxation of the business of insurance by the several States.' The committee said, however, that the legislation was not intended 'to clothe the States with any power to * * * tax * * * insurance beyond that which they had been held to possess prior to the' South-Eastern Underwriters decision, but announced that it desired to 'provide for the continued regulation and taxation of insurance by the States, subject always, however, to the limitations set out in' in controlling decisions of the Supreme Court, as for instance, in Allgeyer v. State of Louisiana, 165 U.S. 578, 591-593, 17 S.Ct. 427, 41 L.Ed. 832; St. Louis Cotton Compress Co. v. State of Arkansas, 260 U.S. 346, 348, 43 S.Ct. 125, 67 L.Ed. 297, and Connecticut General Life Ins. Co. v. Johnson, 303 U.S. 77, 81-82, 58 S.Ct. 436, 82 L.Ed. 673, 'which hold, inter alia, that a State [may] not * * * tax contracts of insurance * * * entered into outside its jurisdiction by [persons] * * * domiciled therein covering risks within the State,' a situation different from that here presented.

In Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 66 S.Ct. 1142, 90 L.Ed. 1342, the Supreme Court held valid a South Carolina tax of three per cent upon premiums from interstate and local business done within that State by foreign insurance companies although no similar tax was imposed on South Carolina corporations. The court said (328 U.S. at page 427, 66 S.Ct. at page 1154) that it was 'not required to determine whether South Carolina's tax would be valid [under the commerce clause] in the dormancy of Congress' power. * * * Congress has expressly stated its intent * * * in the [McCarran] Act.' The court assumed (328 U.S. at page 429, 66 S.Ct. at page 1154) 'that the tax would be discriminatory * * * and that [Prudential's] business [taxed] in South Carolina * * * [was] interstate commerce.' It assumed also (328 U.S. at page 430, 66 S.Ct. at page 1155) that the 'Congress * * * had full knowledge of the nation-wide existence of [S]tate systems of regulation and taxation; [and] of the fact that they differ greatly * * * its purpose was * * * to throw the whole weight of its power behind the [S]tate systems, notwithstanding these variations.' The court, however, did not view the McCarran Act as necessarily validating 'every * * * [S]tate * * * tax. For in all that mass of legislation must have lain * * * provisions * * * subject to serious question on the score of other constitutional limitations in addition to commerce clause objections arising in the dormancy of Congress' power.' On these assumptions, the court held that the McCarran Act 'necessarily was a determination by Congress that [S]tate taxes, which in its silence might be held invalid as discriminatory, do not place on interstate insurance business a burden which it is unable generally to bear or should not bear in the competition with local business.'

We interpret the Prudential case (328 U.S. 408, esp. 427-430, 66 S.Ct. 1142, 1153-1155) as declaring that an excise measured by premiums, even if discriminatory, imposes no invalid or forbidden burden ³ upon interstate commerce, and as sustaining the McCarran Act's...