437 Mass. 241 | Mass. | 2002
The plaintiff, ACE Property & Casualty Insurance Company (ACE), brought the present action seeking a declaration that the Federal Crop Insurance Act, 7 U.S.C. §§ 1501 et seq. (2000) (Act), preempts G. L. c. 63, § 23, with respect to any tax imposed on premiums for crop insurance policies that are reinsured by the Federal Crop Insurance Corporation (FCIC).
1. Facts. ACE is a Pennsylvania corporation with its principal place of business in Philadelphia. As a foreign insurance company, ACE is subject to the tax imposed by G. L. c. 63, § 23, on premiums for policies insuring property or interests located in the Commonwealth.
Believing that premiums on FCIC-reinsured policies are exempt from State taxation under the Act, see 7 U.S.C. § 1511, ACE did not include those premiums on its premium excise return for 1995. The commissioner audited ACE’s 1995 excise return and issued an assessment based on the crop insurance premiums that ACE had excluded from its return. ACE filed an application for abatement and, after the commissioner denied such application, ACE appealed to the Appellate Tax Board (board). While that appeal was pending, ACE commenced the present action for declaratory relief in the county court.
2. Exhaustion of administrative remedies. Although the commissioner has not raised the issue (see note 2, supra), we first
Here, the commissioner agrees that the preemption question raised by this case affects other taxpayers, who are asserting the identical preemption argument in applications for abatement and appeals to the board. Absent a judicial determination that the tax is preempted, the commissioner intends to enforce the tax against all insurers whose crop insurance policies are reinsured by the FCIC. The facts are not in dispute, and the issue is purely a matter of law. As such, we conclude that this case comes within that “narrow set of circumstances” that makes a declaratory judgment action appropriate despite the failure to exhaust administrative remedies, New England Legal Found, v. Boston, supra at 607 n.5, and we exercise our discretion to
3. Statutory and regulatory background. The Act, which dates back to 1938, seeks “to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and providing the means for the research and experience helpful in devising and establishing such insurance.” 7 U.S.C. § 1502(a). The FCIC, a Federal corporation comprising an agency within the Department of Agriculture, is charged with implementing the Federal crop insurance program. See 7 U.S.C. § 1503. The FCIC provides some crop insurance directly, entering into insurance contracts with agricultural producers. See 7 U.S.C. § 1508(a). More commonly, however, it provides reinsurance for crop insurance policies issued to producers by private insurance companies. See 7 U.S.C. § 1508(k)(l) (FCIC “shall, to the maximum extent practicable, provide reinsurance to insurers approved by the [FCIC] that insure producers of any agricultural commodity”). Pursuant to its reinsurance agreements, the FCIC reimburses the private insurance companies for operating and administrative costs incurred in connection with the reinsured policies. See 7 U.S.C. § 1508(h)(5)(A)(ii) and (k)(4).
From the inception of the crop insurance program, Congress exempted the FCIC from all taxation “imposed by the United States or by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority.” 7 U.S.C. § 1511, as appearing in c. 30, Title V, § 511, 52 Stat. 75 (1938). The Act also contains a general preemption provision, expressly conferring on the FCIC the power to preempt State law: “State and local laws or rules shall not apply to contracts, agreements, or regulations of the [FCIC] or the parties thereto to the extent that such contracts, agreements, or regulations provide that such laws or rules shall not apply, or to the extent that such laws or rules are inconsistent with such contracts, agreements, or regulations” (emphasis added). 7 U.S.C. § 1506(Z). The FCIC is also authorized to issue regulations “as are necessary to carry out [the Act].” 7 U.S.C. § 1506(p).
Despite the express tax preemption in 7 U.S.C. § 1511, the FCIC found that, as of 1990, “many States have been asserting
The regulations, issued in 1990, first set forth a broad statement of preemption: “No State or local governmental body or non-governmental body shall have the authority to promulgate rules or regulations, pass laws, or issue policies or decisions that directly or indirectly affect or govern agreements, contracts, or actions authorized by this part unless such authority is specifically authorized by this part or by the [FCIC].” 7 C.F.R. § 400.352(a).
Shortly after the 1990 regulations became effective, the State of Kansas challenged their validity, claiming that the FCIC had exceeded its statutory authority. See State ex rel. Todd v. United States, 791 F. Supp. 1491, 1496 (D. Kan. 1992), aff'd, 995 F.2d 1505 (10th Cir. 1993). Kansas conceded that it could not tax policies issued directly by the FCIC, but argued that the FCIC
The following year, Congress amended the Act, adding the following clause to the general taxation preemption provisions of § 1511: “A contract of insurance of the [FCIC], and a contract of insurance reinsured by the [FCIC], shall be exempt from taxation imposed by any State, municipality, or local taxing authority.” 7 U.S.C. § 1511, as amended, Pub. L. 103-354, Tide I, § 108, 108 Stat. 3197 (1994).
4. Preemption analysis. Under its plenary power to regulate interstate commerce, Congress can preempt State taxes that interfere with interstate commerce. National Private Truck Council, Inc. v. Commissioner of Revenue, 426 Mass. 324, 330 (1997), cert. denied, 523 U.S. 1137 (1998). “The critical question in any preemption analysis is always whether Congress intended that federal [law] supersede state law.” Archambault v. Archambault, 407 Mass. 559, 565 (1990), quoting Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 369 (1986). “To discern Congress’ intent we examine the explicit statutory language and the structure and purpose of the statute.” Commonwealth v. College Pro Painters (U.S.) Ltd., 418 Mass. 726,
The explicit language of § 1511, as amended, clearly evinces Congress’s intent to preempt State taxation of policies reinsured by the FCIC. As the statute now reads, “[a] contract of insuranee of the [FCIC], and a contract of insurance reinsured by the [FCIC], shall be exempt from taxation imposed by any State, municipality, or local taxing authority” (emphasis added). 7 U.S.C. § 1511. Coming on the heels of the Todd decision, it is apparent that Congress intended this amendment of § 1511 to solidify the court’s holding and foreclose further challenges to the FCIC’s preemption regulations as they applied to the taxatian of contracts reinsured under the crop insurance program. That the private contracts are exempt from taxation once they are reinsured by the FCIC is now expressly stated in the Act.
Meanwhile, of course, the FCIC regulations remain in effect, and still operate to preclude State taxation of any premiums
The commissioner argues that the preemption in 7 U.S.C. § 1511 extends only to the FCIC itself, not to private entities, and that the 1994 amendment to § 1511 merely “codifies the constitutional bar against certain forms of direct taxation of the FCIC and its property and obligations.” This argument is contrary to the wording of § 1511, and ignores the history of the 1994 amendment to that section. The statute exempts from taxation not only the contracts of the FCIC, but also any “contract of insurance reinsured by the [FCIC].” 7 U.S.C. § 1511. Any underlying “contract of insurance” that the FCIC reinsures is, by definition, an insurance policy issued by an entity other than the FCIC. The States may tax those private entities, but they may not tax the insurance policies issued by those entities that the FCIC has reinsured. The commissioner’s interpretation would also make the amendments to § 1511
The commissioner also argues that the premium excise tax imposed by G. L. c. 63, § 23, is not a tax “on” any contract re-insured by the FCIC that would be prohibited by 7 U.S.C. § 1511, or a tax “on” any premium for such an insurance contract that would be prohibited by 7 C.F.R. § 400.352(b)(2), but rather an excise tax for the privilege of doing business in Massachusetts that is merely “measured by” reference to the premiums for such contracts. The actual wording of G. L. c. 63, § 23, does not support the commissioner’s theory, as it requires foreign insurance companies to “pay an excise upon the gross premiums for all policies written or renewed.” More importantly, the preemption of State taxation set forth in 7 U.S.C. § 1511 is not parsed in the technical manner proposed by the commissioner. That section provides that the entire “contract” (including any insurance contract reinsured by the FCIC) “shall be exempt from taxation imposed by any State, municipality, or local taxing authority.” 7 U.S.C. § 1511. By exempting FCICreinsured contracts “from taxation,” Congress intended to prohibit any form of taxation of such contracts. Nor does the FCIC’s preemption regulation hinge on the technical distinction suggested by the commissioner. Rather, it provides that States may not “[t]ax premiums associated with policies issued” under the Act, 7 C.F.R. § 400.352(b)(2), and preempts State laws (including tax laws) “that directly or indirectly affect” policies reinsured by the FCIC, 7 C.F.R. § 400.352(a). The “contracts” and “premiums” are thus “exempt” from any form of taxation (or any State law that even “indirectly affect[s]” them), whether
The commissioner’s suggested distinction, if adopted, would eviscerate the preemption provisions and render them useless. The pragmatic purpose behind preventing taxation on the reinsured contracts was to avoid having the FCIC effectively pay State and local taxes that were being passed through to it as an expense under its reinsurance program. “Congress did not intend for the federal crop insurance program to be subject to state premium taxes that reduce the savings anticipated by Congress, that siphon away federal funds from their intended use, and that create an operating cost which would have not existed if the FCIC had issued the policy.” State ex rel. Todd v. United States, 791 F. Supp. 1491, 1497 (D. Kan. 1992). The preemption provisions were not aimed at preventing only some particular type of tax, but were intended to preclude all forms of taxation affecting the reinsured contracts, as all such taxes, however denominated, would effectively be paid by the FCIC. The commissioner’s argument that the tax imposed by G. L. c. 63, § 23, is somehow not the kind of tax that is preempted
5. Conclusion. The case is remanded to the single justice for entry of a judgment declaring that the Act preempts any tax imposed by G. L. c. 63, § 23, on premiums from crop insurance policies that are reinsured by the FCIC.
So ordered.
General Laws c. 63, § 23, provides in pertinent part:
“Every foreign insurance company . . . shall annually pay an excise upon the gross premiums for all policies written or renewed, all additional premiums charged, and all assessments made during the preceding calendar year for insurance of property or interests in this commonwealth ... at the rate of two per cent but not less in amount than would be imposed by the laws of the state or country under which such company is organized upon a like insurance company incorporated in this commonwealth . . . .”
The commissioner agreed that a declaratory judgment action was an appropriate way to resolve the underlying preemption issue. By agreement, all
The breadth of the term “agreements, contracts, or actions authorized by this part,” 7 C.F.R. § 400.352(a), is specified in 7 C.F.R. § 400.351, which makes the regulations applicable “to all policies of insurance, insured or reinsured by the [FCIC], contracts, agreements, or actions authorized by the Act and entered into or issued by FCIC.”
In 2001, the FCIC issued further regulations, amending the procedures for the submission of policies or plans of insurance for FCIC reinsurance approval. See 66 Fed. Reg. 47,949 (2001). Those regulations similarly provide that “[a] policy or plan of insurance that is approved by the Board for FCIC reinsuranee is preempted from state and local taxation.” 7 C.F.R. § 400.710 (2002).
Section 1506(k) was redesignated as § 1506(l) in 1994. See Pub. L. 103354, Title I, § 104(1), 108 Stat. 3181 (1994).
Because we are considering statutory and regulatory language that preempts State taxation, we view as irrelevant the commissioner’s citation to precedent concerning Federal contractors’ very limited constitutional immunity from State taxation. See United States v. New Mexico, 455 U.S. 720, 736-737 (1982), quoting Department of Employment v. United States, 385 U.S. 355, 359-360 (1966) (private contractors and agents of Federal government do not enjoy constitutional immunity from State taxation unless private entity is “virtually ... an arm of the Government”).
This is consistent with the understanding of those charged with regulating insurance in the various States. The year after the amendments to § 1511, the general counsel of the National Association of Insurance Commissioners (NAIC) opined that the amendments “codified” State ex rel. Todd v. United States, 995 F.2d 1505, 1509 (10th Cir. 1993), and that “[a]ll taxation of the [FCIC’s] contracts of insurance or any contract reinsured by the [FCIC] is preempted by this provision.” Memorandum from Susan E. Martin, NAIC
Although we are not bound by decisions of Federal courts (other than the United States Supreme Court) on matters of Federal law, see Commonwealth v. Montanez, 388 Mass. 603, 604 (1983), “we give respectful consideration to such lower Federal court decisions as seem persuasive.” Commonwealth v. Hill, 377 Mass. 59, 61 (1979), quoting Commonwealth v. Masskow, 362 Mass. 662, 667 (1972).
The commissioner relies on American Bank & Trust Co. v. Dallas County, 463 U.S. 855, 858 (1983) (American Bank), quoting Society for Sav. v. Bowers, 349 U.S. 143, 148 (1955), in support of his proposed distinction between a tax “on” premiums paid under FCIC-reinsured policies and an excise tax “measured by” such premiums, claiming that that distinction is “firmly embedded in the law.” In American Bank, supra at 859-861, 873, the United States Supreme Court held that former 31 U.S.C. § 742 (currently codified at 31 U.S.C. § 3124[a] [1994]), preempted a Texas bank shares tax that was measured, in part, by the value of tax-exempt Federal obligations held by the banks. The Court acknowledged that its prior precedent had distinguished between taxes imposed “on” Federal obligations and taxes on discrete property interests, such as corporate shares or business franchises, that were “measured by” the underlying assets. Id. at 858, 862. However, the Court noted that Congress’s 1959 amendment to § 742 had done away with this “formal but economically meaningless” distinction. Id. at 858. “The 1959 amendment rejected and set aside this Court’s rather formalistic pre-1959 approach to [§ 742].” Id. at 862. Thus, while the distinction that the commissioner now proposes was “firmly imbedded in the law” over forty years ago, id. at 858, quoting Society for Sav. v. Bowers, supra, it is a distinction that was rejected by Congress in 1959 and demeaned by the Court as “formalistic” and “meaningless” in 1983. Id. at 858, 862. There is no reason to believe that, in amending 7 U.S.C. § 1511, in 1994, Congress intended to resurrect that defunct distinction.