State v. Wilson
| Decision Date | 06 April 1918 |
| Docket Number | 21,338 |
| Parties | THE STATE OF KANSAS, ex rel. S. M. BREWSTER, as Attorney-general, etc., Plaintiff, v. CAREY J. WILSON, as Superintendent of Insurance of the State of Kansas, et al., Defendants |
| Court | Kansas Supreme Court |
Decided January, 1918.
Original proceeding in mandamus.
Writ denied.
SYLLABUS BY THE COURT.
INSURANCE COMPANIES -- State Tax upon Premiums Received -- Proper Method of Computation. The annual state tax of two per cent upon all premiums received by foreign insurance companies on account of their yearly business in this state, imposed by sections 5177, 5467 and 5468 of the General Statutes of 1915 should be computed upon the total amount of premiums collected, retained and devoted to the business of the insurance companies, but any surplus of premiums not so used, but returned to the policyholders or credited to them as abatements or dividends, should be excluded from the computation.
S. M. Brewster, attorney-general, John L. Hunt, and S. N. Hawkes, assistant attorneys-general, for the plaintiff.
Robert Stone, George T. McDermott, and H. O. Caster, all of Topeka, for the defendant; John Barnes, of Milwaukee, Wis., F. G. Dunham, William J. Tully, both of New York, N. Y., and William C. Craige, of Philadelphia, Pa., of counsel.
This is an original action to secure an authoritative interpretation of a statute relating to the taxation of insurance companies. It takes the form of mandamus to require the superintendent of insurance to pay into the state treasury certain moneys exacted by him from the defendant insurance companies, over their protest, pursuant to a debatable construction of section 5467 of the General Statutes of 1915, which reads:
"Every insurance, guaranty and accident company or association not organized under the laws of this state shall, as hereinafter provided, annually pay a state tax upon all premiums received, whether in cash or in notes, in this state, or on account of business done in this state, for insurance of life, property or interests in this state, or guaranty companies, at the rate of two per cent per annum, which amount of tax shall be assessed by the superintendent of the insurance department, as hereinafter provided."
Other related provisions of statute read:
". . . All insurance companies, partnerships and associations organized under any foreign government engaged in the transaction of the business of insurance in this state, as provided for in this act, shall annually, on or before the first day of March in each year, pay to the superintendent of insurance two per cent on all premiums received in cash or otherwise by their attorneys or agents in this state during the year ending on the preceding thirty-first day of December, which sum shall be paid, in addition to its other license fees, into the state treasury for the insurance fund. . . ." (Gen. Stat. 1915, § 5177.)
In his answer and return to the alternative writ, the superintendent of insurance says he merely awaits the court's direction and protection in the discharge of his duty. The real defense is made by the insurance companies. Their several answers only differ in details; their main contentions are alike. They say they have no quarrel with the statute, and that pursuant to its terms they pay to the state many thousands of dollars annually; but they claim that the computation of the precise sums due from them is made incorrectly. In substance, each company says it pays the two per cent tax willingly upon the net annual premiums exacted from its policyholders which are retained and used by the company, but each protests against the payment of the tax upon the surplus of the premiums which it returns to the policyholders when it develops at the close of the year's business that a surplus or overcharge of premiums has been collected which is not necessary to the financial demands of the company. One of the defendants illustrates the point thus: To insure its solvency its financial policy has three main factors of safety. First, it assumes that its death losses will be higher than the mortality tables of human experience commonly disclose; second, it assumes that its expense of administration, taxation, etc., will be higher than past experience would suggest; and third, that its income from assets, capital, reserves, and the like, will be less than past experience would suggest. On this broad leeway of assumptions, sometimes called "the loading," it fixes the premiums to be exacted from its policyholders, and its contracts of insurance so provide. But when at the close of the year's business it is disclosed that these broad precautions of safety were not necessary, that its business for the year has been normal, and that consequently the exaction of the full amount of premiums contracted for and collected was not necessary, it refunds or abates to its policyholders a part of the premiums--such part as it can spare without injury to its financial safety. It is the state's right to tax such returned or abated portions of the premium moneys which is questioned.
Another of defendants illustrates its contention by exhibiting a table relating to its account with one of its policyholders, whose stipulated premium was $ 609 per annum. Each year, after the first, part of his premium was returned to him as an abatement, commonly, but not quite accurately, designated as a "dividend." This table reads:
in policy.
subject to tax.
The question in this case, as applied to the policy in the table submitted, is whether the state's two per cent tax on premiums shall be exacted each year on the sum of $ 609, the stipulated premium which the company has the right to collect and the right to keep, or upon that amount less the dividend or abatement to the policyholder when, at the conclusion of the business of the year in which it was collected, it was disclosed that the company's financial condition did not require its retention?
With almost an entire unanimity the courts which have had occasion...
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