State v. Prudential Ins. Co. of America, Newark, N.J.

CourtSupreme Court of Indiana
Citation64 N.E.2d 150,224 Ind. 17
Docket Number28127.
PartiesSTATE v. PRUDENTIAL INS. CO. OF AMERICA, NEWARK, N. J.
Decision Date21 December 1945

Appeal from Marion Superior Court, in General Term sitting as a Court of Claims; Judson L. Starke, H. B. Pike Emsley W. Johnson, Jr., Walter Pritchard, and Ralph Hammell Judges.

James A. Emmert, Atty. Gen., Cleon H. Foust, First Deputy Atty Gen., and Winslow Van Horne, Deputy Atty. Gen., for appellant.

Baker & Daniels, William G. Davis, and Paul N. Rowe, all of Indianapolis, for appellee.

YOUNG, Chief Justice.

This action involves the constitutionality of Indiana's insurance premium tax law, which reads as follows:

'(a) Every insurance company not organized under the laws of this state and doing business within this state shall, on or before the first day of March of each year report to the department, under the oath of the president and secretary, the gross amount of all premiums received by it on policies of insurance covering risks within this state, or in the case of marine or transportation risks, on policies made written or renewed within this state during the twelve-months' (12) period ending on the thirty-first day of December of the preceding calendar year. From the amount of gross premiums, shown as above provided, shall be deducted (1) losses actually paid within this state, (2) considerations received for reinsurance of risks within this state from companies authorized to transact an insurance business in this state, (3) the amount of dividends paid or credited to resident insureds, or used to reduce current premiums of resident insureds, (4) the amount of premiums actually returned to residents on account of applications not accepted or on account of policies not delivered and (5) the amount of unearned premiums returned on account of the cancelation of policies covering risks within the state. At the time of making the report required above every such insurance company shall pay into the treasury of this state for the privilege of doing business in this state, an amount equal to three (3) per cent of the excess, if any, of the gross premiums over the deductions allowed herein.

'(b) Any insurance company failing or refusing, for more than thirty (30) days, to render an accurate account of its premium receipts as above provided and pay the tax due thereon, shall be subject to a penalty of one hundred dollars ($100) for each additional day such report and payment shall be delayed, to be recovered in an action in the name of the state of Indiana on the relation of the department of insurance, in any court of competent jurisdiction, and it shall be the duty of the department to revoke all authority of such defaulting company to do business within this state, or suspend such authority during the period of such default in the discretion of the department.' § 39-4802 Burns 1933.

While domestic Indiana insurance companies are not required to pay the three (3) per cent premium tax they are required (subject to statutory deductions not unlike the deductions in premium tax law) to pay a one (1) per cent tax upon gross income, including interest, rent, dividends and all income as well as premium receipts upon Indiana policies. This income tax is not applicable to foreign companies. Domestic companies are likewise subject to a capital stock tax based upon the difference between the value of their stock and the value of real estate and personal property upon which ad valorem taxes are paid and this capital stock tax is not required of foreign insurance companies. Ad valorem property taxes are assessed against both foreign and domestic insurance companies but in the natural course of events the foreign companies pay the bulk of their ad valorem property taxes in the states of their origin and the Indiana companies pay the bulk of such taxes in Indiana. The stipulation shows that in 1944 appellee, with total assets of almost $6,000,000,000, paid taxes of only $11,703.20 on real estate and $620.36 on tangible personal property in Indiana. Schedules in the stipulation indicate that the actual premium tax paid by appellee amounts to a little over $.0190 per premium dollar collected in Indiana and total taxes of all kinds per premium dollar on Indiana business of domestic companies average about $.0133.

Appellee is a corporation organized under the laws of New Jersey and is engaged in writing life and other insurance contracts throughout the nation under the direction of a board of directors and executive officers in the City of Newark, New Jersey. It has outstanding insurance contracts amounting to almost 23 billion dollars. The conduct of its business requires the movement of information, documents and money across state lines by mail, telephone, telegraph and express.

Appellee was first authorized and licensed to do business in Indiana in 1903 and at that time there was, and continuously since 1891 there has been, in effect in Indiana a premium tax law substantially the same as above quoted.

Since 1903 appellee has developed a very large insurance business in Indiana. On December 31, 1944, it maintained 54 district offices in Indiana wherein 256 persons were employed and it had 636 agents engaged in selling insurance in Indiana and 347 physicians who examined applicants for policies. At that time, it had in force 1,332,785 policies insuring the lives of approximately 866,000 persons resident in Indiana for a total amount of over $726,000,000. During the year ending December 31, 1944, it sold and issued and delivered policies insuring the lives of approximately 74,000 persons resident in Indiana for a total amount of $81,915,223, and during that year it paid over $7,000,000 in claims on policies upon the lives of Indiana residents. It had over $619,000 deposited in Indiana banks.

Under appellee's method of transacting business applications for insurance policies are solicited and received by agents of appellee in Indiana. Examinations and investigations of prospective risks are made by local physicians and investigators. All applications and reports are transmitted by its agents in Indiana to the home office in Newark, New Jersey, where they are considered and acted upon and where all policies are signed and made ready for delivery. Policies are then transmitted from the home office to the agents of appellee in Indiana and by such Indiana agents are delivered in Indiana to the respective applicants insured under such policies. All premiums are paid to Indiana offices of appellee and deposited in Indiana banks.

On February 28, 1945, appellee filed reports with the Auditor of State showing gross premiums received during 1944 to be $23,574,055.17 with deductions of $8,495,473.07, or a taxable net of $15,078,582.10, upon which the tax at three (3) per cent was $452,357.44, which sum appellee paid to the Treasurer of Indiana under protest, after correspondence with the Auditor of State indicating that if same were not paid penalties would be assessed and its right to do business in Indiana would be challenged.

After paying this tax, appellee brought suit to recover same and obtained a judgment for the full amount, plus interest, in the sum of $8,848.86, and from this judgment this appeal has been taken.

Appellee contends that in the light of the Supreme Court opinion in United States v. South-Eastern Underwriters Ass'n, 1944, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, the premium tax authorized by the Indiana statute violates the commerce clause of the Federal Constitution art. 1, § 8, cl. 3 and the equal protection clause of the Fourteenth Amendment. In our consideration of these contentions we have had in mind, in addition to the facts already mentioned, that when appellee first entered Indiana to do business the same three (3) per cent premium tax was imposed by our statutes that is imposed today, and that it came and has stayed voluntarily and has prospered and has built up a business in Indiana that in 1944 was more than double the Indiana business of all life insurance companies organized in Indiana put together. It has paid this tax continuously every year without protest or objection. It has adjusted its Indiana business to the requirements of the statute without finding the burden too heavy or practically discriminating, and Indiana has adjusted its fiscal policy and governmental financing to the income so derived and has evolved through the years a tax structure of which this premium tax, with 108 foreign life insurance companies doing business in Indiana, has become an indispensable part.

The reason that this premium tax has gone unchallenged so long is that in Paul v. Virginia, 1869, 8 Wall. 168, 183, 19 L.Ed. 357, it was held that, 'issuing a policy of insurance is not a transaction of commerce' and that 'such contracts are not inter-state transactions, though the parties may be domiciled in different States,' but 'are, then, local transactions, and are governed by the local law.'

Paul v Virginia was accepted by the states as authorizing them to regulate the business of insurance in the case of New York Life Insurance Co. v. Deer Lodge County, 1913, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332, a premium receipts tax very similar to the Indiana tax was challenged and upon the authority of Paul v. Virginia, supra, and the cases following it, it was held that the state had not contravened the commerce clause of the Federal Constitution. Thereafter, until June 5, 1944, the Paul v. Virginia case, supra, and the New York Life Insurance Co. v. Deer Lodge County case, supra, were followed by still further decisions of the Supreme Court of the United States, and Indiana and 28 other states (according to the stipulation filed herein) have taxed foreign...

To continue reading

Request your trial
1 cases
  • State v. Prudential Ins. Co. of America
    • United States
    • Supreme Court of Indiana
    • December 21, 1945
    ...224 Ind. 1764 N.E.2d 150STATEv.PRUDENTIAL INS. CO. OF AMERICA, NEWARK, N. J.No. 28127.Supreme Court of Indiana.Dec. 21, Action by the Prudential Insurance Company of America, Newark, New Jersey, against the State of Indiana, to recover taxes paid under Insurance Premium Tax Act, Burns' Ann.......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT