State v. Life Ins. Co. of Georgia, 19064

• Decision Date: 11 June 1970
• Docket Number: No. 19064,19064
• Citation: 254 S.C. 286,175 S.E.2d 203
• Parties: STATE of South Carolina, Appellant. v. LIFE INSURANCE COMPANY OF GEORGIA, Respondent.
• Court: South Carolina Supreme Court

Page 203

175 S.E.2d 203

254 S.C. 286

STATE of South Carolina, Appellant. v. LIFE INSURANCE COMPANY OF GEORGIA, Respondent.

No. 19064.

Supreme Court of South Carolina.

June 11, 1970.

Atty. Gen. Daniel R. McLeod and Glen E. Craig, Columbia, for appellant.

Turner, Paget, Graham & Laney, Columbia, for respondent.

BUSSEY, Justice.

The respondent, Life Insurance Company of Georgia, is a foreign insurance company licensed to write both life and accident and health insurance in South Carolina. This action was instituted by the State on May 27, 1968, pursuant to Sec. 37--127 of the Code, to recover certain additional license fees alleged to be due by the respondent under Sections 37--122 and 37--124 of the Code, as well as interest and penalties.

The complaint contained five causes of action based on alleged deficiencies for five different years as follows: first, 1958; second, 1960; third, 1961; fourth, 1964; and fifth, 1965. The respondent by answer denied it owed the amounts alleged to be due but admitted that certain license fees were due with respect to its premium income during 1958 and 1961. Additionally, respondent alleged the overpayment of license fees with respect to its premium income during 1959 and 1960, as to which the respondent counterclaimed. Respondent also pled the statute of limitations, Code Sec. 10--143(2), with respect to the second and third causes of action based on the years 1960, 1961. The respondent also specifically denied that it was liable for any interest or penalties. The appellant filed two demurrers, one relating to respondent's defense to interest and penalties, and the other to respondent's plea of the statute of limitations.

The parties stipulated that the pleadings raised two questions for decision by the lower court, as to the proper construction of Code Sec. 37--123. The lower court decided both of these questions, which will be hereinafter dealt with in detail, adversely to the appellant, and also overruled both of appellant's demurrers.

Sec. 37--122 of the Code imposes an additional and graded license fee in an amount equal to two per cent of life insurance premiums collected by the respondent, and Code Sec. 37--124 imposes a like additional license fee on accident and health insurance premiums. Sections 37--123 and 37--125 of the Code provide for certain reductions in the amount of the additional license fees imposed upon an insurer complying with the provisions thereof. Section 37--123 reads as follows:

'Reduction of such fee on account of local investments.--If the executive officer making a return for a company required to pay the additional fee provided by § 37--122 shall file with the Commissioner a sworn statement showing that at least one fourth of the reserve on all policies issued in this State is invested in any or all of the following securities or property, to wit, (a) notes or bonds of this State or of counties or municipalities of this State or subdivisions thereof, (b) first mortgage bonds of real estate in this State or first mortgage bonds of solvent domestic or domesticated corporations whose improved property is situate entirely within this State and which are owned and controlled independently of foreign corporations and operated entirely within the State, (c) average daily balance on deposits in banks of this State maintained continuously for twelve months next preceding the date of the return or (d) any property situate within the State and returned for taxes therein, at the value at which it is returned, then the additional license fee on premiums collected during the time such investments have been actually made and maintained shall be one and three fourths per cent. Under like conditions if such investment be one half of such reserve, the additional license fee shall be one and one half per cent. Under like conditions if such investment be three fourths of such reserve, the additional license fee shall be one and one fourth per cent. And if the entire reserve be so invested, under like conditions, the additional license fee on such premium receipts shall be one per cent.'

Section 37--125, in brief, provides for a like reduction with respect to the additional license fee on accident and health insurance premiums but conditioned upon investment of premiums collected rather than 'the reserve on all policies.'

The respondent admittedly has substantial investments in the State of South Carolina and for the years in question was entitled to some reduction in its additional license fees by virtue of the provisions of Sections 37--123 and 37--125, but just how great a reduction is dependent upon the construction of the provisions of Code Sec. 37--123. Before proceeding to the contention of the parties as to the proper construction of Code Sec. 37--123, it is appropriate to consider the nature of that section, as well as the nature of Sections 37--122 and 37--124.

We first consider the nature of Code Sections 37--122 and 37--124. Each of these sections imposes an 'additional license fee'. The term 'license fee' has a distinct meaning, although the distinction between that term and ordinary taxes is frequently disregarded both in statutes and judicial decisions. It is sometimes difficult to determine whether a sum imposed is a license fee proper or simply a tax, but in this case we are of the view that, although denominated a 'license fee', the sum imposed is actually a tax. 'Whether a fee exacted is a license fee proper or a tax for revenue depends on the purpose of the exaction and the the power, whether police or taxing power, by which it is exacted, and the denomination given to the fee or tax by the legislature is not controlling.' 53 C.J.S. Licenses § 3, p. 452.

'Where, however, it appears that revenue is the main objective of the tax, and the amount exacted is greatly in excess of the probable amount necessary to issue licenses and inspect and regulate the business, it is generally regarded as a tax for revenue and not a license tax. In determining the nature of the tax or fee, the distribution of the fund obtained as a result of the statute is one element which may be considered along with others, but it is not the determinative factor.' 53 C.J.S. Licenses § 3, p. 454.

It is, we think, a matter of common knowledge that the policy traditionally pursued in this State has been to exact from insurance companies doing business in this State, both foreign and domestic, license fees greatly in excess of any amount probably necessary, or actually expended, to issue licenses and inspect and regulate the insurance business. The license fees involved in this action are collected by the Commissioner and deposited with the State Treasurer and one half thereof is disbursed proportionately to the counties of the State, in which the premiums were collected, and appropriated to ordinary county purposes. See Code Sec. 37--126. Under these circumstances we have no hesitancy in concluding that the additional license fees here involved are primarily taxes for revenue, although denominated 'license fees' in the statutes by which they are imposed.

The obvious purpose of Code Sections 37--123 and 37--125 is to encourage foreign insurers to invest their reserves and premiums in South Carolina securities or property, but, as we view it, these statutes are clearly exemption, or partial exemption, provisions which bring into play the well settled rule that 'Constitutional and statutory language creating exemptions from taxation will not be strained or liberally construed in favor of the taxpayer claiming the exemption, he must clearly bring himself within the constitutional or statutory language upon which he relies.' York County Fair Assoc. v. South Carolina Tax Commission, 249 S.C. 337, 154 S.E.2d 361, 363 (1967). See also, Chronicle Publishers, Inc. v. South Carolina Tax Commission, 244 S.C. 192, 136 S.E.2d 261 (1964); Colonial Life and Accident Ins. Co. v. South Carolina Tax Commission, 248 S.C. 334, 149 S.E.2d 777 (1966), and Southern Soya Corp. of Cameron v. Wasson, et al., 252 S.C. 484, 167 S.E.2d 311 (1969).

We have not previously been called upon to consider the nature of Code Sec. 37--123 and know of only one case squarely in point from any other jurisdiction. In the Texas case of State Board of Insurance v. Southwest General Ins. Co., Tex.Civ.App., 401 S.W.2d 369 (1966), the Court was called upon to decide whether, under statutory language quite similar to ours, certain investments qualified as Texas securities for the purpose of obtaining a reduction in the taxes due. The court held that the particular investment was not a Texas security and stated, inter alia,

'The facts here also bring into application the rule that inasmuch as Article 7046 is a tax statute, any exemptions must be clearly stated and are not to be extended by implication.'

In the North Carolina case of Hatteras Yacht Co. v. High, 265 N.C. 653, 144 S.E.2d 821 (1965), the court held that a statute which taxed certain transactions at a lower rate than made applicable in general was a partial exemption and therefore subject to the rule of strict construction against the taxpayer. Although the respondent argues otherwise, no authority in point is cited in support of the contention that it is entitled to a liberal as opposed to a strict construction of the particular Code section. We conclude that Sec. 37--123 is a partial exemption statute which, according to the settled rule, has to be strictly construed against the taxpayer. As was said in Southern Soya Corp. of Cameron v. Wasson, supra, 'the deduction and benefit is allowed as a matter of legislative grace. In order to take advantage of this statute the respondent was required to meet the conditions of the statute which granted the benefit.'

We come now to the first question presented. In calculating the amount of reduction to which the respondent was entitled by virtue of the provisions of Code Sec. 37--123, the...