State Tax Commission v. John Hancock Mut. Life Ins. Co.

• Decision Date: 10 February 1972
• Citation: 279 N.E.2d 656,361 Mass. 125
• Parties: STATE TAX COMMISSION v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 656

279 N.E.2d 656

361 Mass. 125

STATE TAX COMMISSION v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Oct. 19, 1971.

Decided Feb. 10, 1972.

Robert H. Quinn, Atty. Gen., and Sunny Seiler Dupree, Deputy Asst. Atty. Gen., for the State Tax Commn.

Albert L. Hyland, Boston, for John Hancock Mutual Life Ins. Co.

Before TAURO, C.J., and CUTTER, REARDON, QUIRICO and HENNESSEY, JJ.

QUIRICO, Justice.

This is an appeal by the State Tax Commission (commission) from a decision of the Appellate Tax Board (board) abating a portion of the life insurance premium excise tax assessed against and paid by the John Hancock Mutual Life Insurance Company (taxpayer) for the year 1963 ¹ under G.L. c. 63, § 20, as amended through St.1960, c. 558, § 4. ² The case was submitted to the board for decision on the basis of facts stipulated by the parties in writing plus thirty-two documentary exhibits submitted by agreement of the parties at the hearing before the board. The board's original decision was made without findings of fact. Thereafter, on request of the commission, the board made a report of its findings of fact in which it adopted the facts stipulated by the parties and summarized them in its report.

The factual basis from which the legal controversy arises may be stated very briefly, and in so doing it is not necessary to repeat the many detailed base figures, computations and dollar amounts included in the stipulations and the board's findings and decision. In years prior to 1963 the taxpayer declared dividends payable to its policyholders and in each such year it deducted the full amount of the dividends declared in computing its excise tax liability under § 20. The policyholders had the options of (a) withdrawing these dividends in cash, (b) using them to reduce insurance premiums in subsequent years, or (c) allowing them to accumulate with interest and to be withdrawn or otherwise used or applied at a later time. Some of the dividends and interest thus accumulated were used and applied by the policyholders to purchase paid up insurance and annuity contracts from the taxpayer. Except for the amounts involved, the factual basis is the same for the years 1964 and 1965.

The record in this case presents a single and simple issue for our decision. It is whether the taxpayer, having computed its excise for each year by deducting the full amount of the dividends which it declared in that year, may, as to the portion of those dividends which the policyholders left with the taxpayer for accumulation, deduct them a second time in later years when they are applied to the purchase of paid up insurance or annuity contracts from the taxpayer. ³ Our decision is that it may not.

Considerations of reason and common sense in the interpretation and application of the pertinent provisions of G.L. c. 63, § 20, as amended, compel the conclusion which we have reached. This is demonstrated by a detailed consideration of the several applicable portions of the statute.

1. The structure and content of § 20 indicate clearly that the starting point in the computation of the excise tax is the gross amount of the premiums received by the taxpayer. The first portion of the statute imposes an excise tax 'upon all new and renewal premiums received during the preceding calendar year for all policies allocable to this commonwealth.' In American Mut. Liab. Ins. Co. v. Commonwealth, 224 Mass. 299, at 301, 112 N.E. 868, at 869, we held that a statute imposing "a tax or excise . . . on all premiums received,' naturally is to be interpreted as meaning gross premiums, and not merely the net amount retained by the company after deducting such dividends, if any, as the board of directors may decide to repay to the policy holders.' After imposing the tax in the language quoted above, § 20 defines the word 'premiums' to 'include all amounts received as consideration for life insurance policies . . . (and also to) include dividends applied to purchase additional insurance or to shorten the premium paying period.' The broad sweep of this definition also requires the starting point in the computation of the excise tax to be the gross amount of premiums received by the taxpayer in the calendar year 1963, without regard to whether the premiums were received as the result of ordinary payments by policyholders or as the result of the election by policyholders to apply previously accumulated dividends and interest standing to their credit with the taxpayer toward the payment of premiums. To this point the parties to this case appear to be in agreement.

2. The point at which the parties disagree is in the interpretation and application of the part of § 20 which says that in determining the tax due thereunder, 'there shall be deducted, to the extent that they are properly allocable to premiums taxable hereunder, . . . (b) dividends which during said (preceding calendar) year have been paid or credited to policyholders or applied to purchase additional insurance or to shorten the premium paying period.'

The taxpayer contends that the board properly interpreted and applied this part of the statute and that the following language from the board's decision is 'a very accurate statement of this position': 'In passing the board notes that there seems to be no requirement in the statute that to qualify for the deduction a dividend must be declared and applied to purchase additional insurance in the same year. The pertinent year is the year the dividends were so 'applied'; and whether declared and applied in the same year or left to accumulate and applied in a later year seems to be immaterial. Nor does the statute appear to deny deduction for dividends so applied which have been previously deducted in prior years. The general intent of the Legislature was to base the excise upon premiums received and retained for actual insurance purposes, and the statutory deductions should be interpreted somewhat liberally with this purpose in mind.' The commission argues that such an interpretation would allow the taxpayer to deduct the identical accumulated dividends in two different years, once in the year they are declared, and again in the year they are used to purchase additional insurance, resulting in total exemption of the premiums thus...