State v. Travelers Ins. Co.
| Decision Date | 08 March 1951 |
| Docket Number | 3 Div. 586 |
| Parties | STATE v. TRAVELERS INS. CO. |
| Court | Alabama Supreme Court |
A. A. Carmichael, Atty. Gen., and Willard W. Livingston and M. Roland Nachman, Jr., Asst. Attys. Gen., for appellant.
Spain, Gillon, Grooms & Young, Frank E. Spain, and Ralph B. Tate, all of Birmingham, for appellee.
The State has appealed from a decree overruling its demurrer to the bill of appellee filed in the circuit court, in equity, to challenge an assessment made by the Department of Revenue for its annual franchise tax.
The assessment was for the year 1949 and under the law the appellee was required to pay an annual franchise tax of $2.00 on 'each one thousand dollars of the actual amount of capital employed in this state.' Code 1940, Title 51, § 348; Constitution 1901, § 232.
The constitutional provision relating to the subject is: '* * * The legislature shall, by general law, provide for the payment to the State of Alabama of a franchise tax by such corporation [foreign], but such franchise tax shall be based on the actual amount of capital employed in this state. * * *' Constitution 1901, § 232.
The statute implementing this constitutional provision reads as pertinent: 'Every corporation organized under the laws of any other state, nation or territory and doing business in this state, except strictly benevolent, educational or religious corporations, shall pay annually to the state an annual franchise tax of two dollars on each one thousand dollars of the actual amount of capital employed in this state. * * *' § 348, supra.
The bill shows that the appellee insurance company is a foreign corporation with its home office in Connecticut and was engaged in an interstate business by and through independent contractors called agents, who were residents of Alabama; that it was a stock insurance company, the principal business of which was the writing of life and accident insurance; that the authority of these agents was limited to soliciting applications for insurance, submitting these applications for acceptance or rejection and collecting and remitting to appellee the premiums collected on the policies of insurance, less the agent's commission; usually the premiums collected by appellee's agent were deposited in Alabama banks in the name of the agent and at stated intervals the agent would draw checks on the bank in appellee's favor in payment of the amount due appellee for the premiums collected, less the agent's commission thereon; no salary or wage was paid the agent, the only compensation being the agreed percentage commissions on the individual premiums collected; the agent paid all expenses of maintaining an office and all other expenses incident to the securing of the policy; appellee exercised no control whatsoever over when, how and where its agent should secure an application for himself; that each of appellee's so-called agents in Alabama during the year 1949 was an independent contractor engaged in building and operating his own business in the manner aforesaid.
The bill also shows that the State Department of Revenue, purporting to act under these provisions, assessed appellee's franchise tax for 1949 on the basis of the proportionate total assets of the company by the use of a so-called 'allocation formula,' which we will attempt to thus briefly describe: The department determined from the records of the corporation the total assets of the corporation to be $1,775,026,769.03. From these total assets there was deducted the 'total amount of all liabilities except capital,' as shown by the records of the company, to produce a capital figure of $182,376,634.27; this total capital figure was divided into two parts, the physical property used in the business amounting to $13,310,454.51 and the 'other capital' amounting to $169,066,179.76; the physical property used in the business was allocated to Alabama upon a so-called situs basis, producing for the state $1050.68; Alabama's part of the 'other capital' was apportioned to the state by means of an allocation fraction and the result added to the $1050.68 to produce the actual amount of capital employed in Alabama of $478,662.68. The assessment seems to show that the allocation fraction was developed by the use of two criteria of Alabama business activity, premiums received by the company from Alabama and commissions allegedly paid by the company to its Alabama agents. The Alabama premium income of the company was divided by the total premium income of the company to get the Alabama percentage of premium income, and the figure representing the Alabama commissions was divided by the figure representing the total commissions of the company to get the Alabama payroll percentage. The Alabama premium percentage was averaged with the Alabama payroll percentage to get the allocation fraction.
The formula devised is a rather complicated theory and the chart is here reproduced as it was applied to the instant assessment and as exhibited with the bill.
'Permit Fee Information
For Foreign Insurance Corporation
To the State Department of Revenue:
'The _____, a corporation organized under the laws of _____, being desirous of securing from the State of Alabama a 1949 Permit for the transaction of business therein, files the following under Revenue Code of Alabama, Approved May 31, 1940, Title 51, Section 345, and Under The General Provisions of Said Title 51:
The essence of the bill's allegations makes the contention that the theory of the State's assessment is erroneous; that the only capital actually employed in Alabama amounted to the aforesaid $1050.68, consisting of office furniture and fixtures, typewriters, stationery, and other office equipment used in the office of appellee's claim adjustor in Birmingham; that the basis of taxation as interpreted by our court is upon the capital of which the state had actual possession; that it employed no other capital in Alabama; that it owned no property of any kind in Alabama it had no property subject to legal execution and levy in Alabama; it had no loans of money secured by existing mortgages to it on real estate in Alabama; had no investments of any kind in Alabama; and had no money on deposit in Alabama banks.
No issue of fact is up for consideration on this appeal, but only the determination of the sufficiency vel non of the allegations of the bill, the court assuming as true all well-pleaded facts stated therein. State v. Alabama Power Co., 254 Ala. 327, 48 So.2d 445.
Solution of the question necessarily entails the determination of just what constitutes 'actual amount of capital employed' in the state within the meaning of these statutory and constitutional mandates, as applied to appellee's business.
To restate the State's contention, it is that the term 'actual amount of capital employed' in the state includes a relative proportion of assets of a foreign corporation (tangible and intangible) used in the conduct of its business, regardless of where situated, and that regardless of the lack of statutory authorization to use the 'formula method' of proportion, the department was authorized to devise the formula as establishing the correct admeasurement in apportioning to Alabama the proportionate amount of its total capital or assets as the actual amount of capital employed.
We do not think the position of the State can be sustained under the decisions governing. We have said the words 'actual amount of capital employed' are used in their natural and ordinary signification and in the generally accepted sense they have application to the properties and monies set apart from other uses and invested or employed in the operation of the business in the state with the view to...
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