*1 Aug. F. No. 21577. In Bank. [S. 1965.] LIFE COMPANY, FRANKLIN INSURANCE Plaintiff and Appellant, v. BOARD OF EQUALIZATION, STATE Respondent. Defendant *2 McCutchen, Doyle, Brown, Enersen, Trautman & John N. Hauser Appellant. and Frederick H. Stone Plaintiff and Levit, Long Bert Victor W. B. Levit and & as Amici Levit Appellant. Curiae on behalf Plaintiff and Attorneys Lynch, General, Stanley Mosk and Thomas C. Attorneys Haas, and Harold Assistant Dan Kaufmann B. Respondent. General, for and Defendant Asserting the unconstitutionality of TOBRINER, J. (Ins. Code, 685) or, in retaliatory tax the alterna- § tive, application in unconstitutional the instant its plaintiff Company (hereinaftеr Franklin Life Insurance Company) sought unsuccessfully called trial court Equal- to recover taxes assessed defendant State Board of (hereinafter Board). specifically, ization called the More retaliatory (1) contends: tax statute conflicts authorizing provision with the constitutional (2) computed tax,- improperly the Board imposed upon applica- Company; the Board’s protection tion Company equal of the tax denies the explained laws. For the reasons below we conclude that none arguments may prevail. of these (a)-(d), 14%, XIII of the Subdivisions section article provide companies California Constitution annually in California are to be taxed at the per gross rate of 2.35 premiums, cent the “amount of less *3 year return in premiums, by upon received such insurer such State, premiums its business done in this other than received (Subd. reinsurance and for ocean marine insurance.” (e).) gross premium This in tаx “is lieu of all other taxes” personal property such property as taxes and and most other (Cal. Const., XIII, (f).) license 14%, taxes. art. subd. § Although gross premium the tax is not levied in lieu of real property taxes, company may the insurance deduct from the gross premium property paid tax the amount of real taxes on principal (Subd. (e).) its or home officein California. specifically provides gross pre-
The Constitution
that the
in
retaliatory
mium tax
of
lieu
the
tаx. Article
14%,
(f) (3)
section
of the
Constitu-
California
tion, prior
amendment,1
states,
by
the recent
“When
the
any
country
laws of
any taxes,
penalties,
other state or
fines,
licenses, fees, deposits money
obliga-
of
or securities or other
prohibitions
imposed
tions or
are
on insurers of this State
1We discuss this
in
ease
terms of the
it
California Constitution as
prior
requirement
existed
to a 1964 amendment which eliminated the
company
that
home
the
state of the insurance
discriminate
Cali
fornia insurers.
doing
in such
country,
upon
business
other state or
or
their
agents therein,
in
imposed upon
excess of those
insurers of
such
country
upon
agents
other state or
or
their
therein, so
long
such
in force,
obligations
as
laws continue
the same
and
prohibitions
may
imposed by
of whatsoever kind
Leg-
the
upon
islature
of
country doing
such other state or
insurers
in
State,
upon
agents
business
or
their
herein.”
Ostensibly acting under
the
authorization,
constitutional
Legislature
in 1959 enacted Insurance Code sections 685
impose
to 685.32
retaliatory
which
upon foreign
taxes
in-
surers
impose
whenever
their home states
taxes on similar
higher
California
insurers
than California
assesses those
’
states insurers.3
In 1960
Company,
corporation
an Illinois
licensed to
do
in California,
filed a tax return and a
tax statement which
aggregate
showed that
its
California
taxes,
licenses and fees for 1959
$191,223.25.
totaled
This
figure represents
the sum
premium
total of
($121,-
taxes
833.72),
rеal estate
($69,354.53),
filing
fee for
annual
statement of financial condition ($25), and fee for
2The
challenged
ground
cannot be
on the
it
(Art.
violates the commerce clause of the United States Constitution.
I,
§
3.)
cl.
The United States
Court
Supreme
has held that
the states
have
foreign
the power
to impose discriminatory
taxes on insurers
of
Congress,
states
(15
1011-1015)
because
in
§§
the McCarran Act
U.S.C.
(Prudential
regulation
consented to such state
Insurance
of insurance.
Benjamin
the renewal of pany authority ($10). the certificate of The Com- in also declared the statement that Illinois would im- pose taxes, aggregate licenses fees $176,173.41upon amount of a California insurer transacting the same amount of Company Illinois as the in California, impose transacted but would taxes and fees aggregate $107,942.29upon amount of a domestic insurer transacting quantity the same of business Illinois. Company The Board retaliatory assessed the taxеs in the $54,304.69, represented amount of which the difference be- hypothetical tween upon Illinois tax a California insurer ($176,173.41) Company’s aggregate and the California taxes, subtracting fees, licenses and after the real estate taxes principal on its ($121,868.72). office California The Board subtracted the real principal since, estate tax on the office, pursuant to XIII, 14%, article section (e) subdivision Constitution, Company California had deducted this gross premiums. real estate tax from the tax on hearing, After a plaintiff’s applica- the Board denied the retaliatory tion to reduce the tax to On October zero. Company paid to the State California under protest retaliatory $54,304.69, plus tax of interest from Company June 1960. The then commenced the instant paid protest. action to recover the taxes Company retaliatory first contends that the tax (Ins. Code, directly 685-685.3) conflicts with ar §§ 14%, section (f)(3) ticle of the Cali entirely fornia Constitution and therefore fails aas consti noted, pro tutional As we have measure. the Constitution gross premium vides that the tax shall be in lieu of all other except specified taxes, certain of which a tax one is on foreign discriminating against insurers states California (Cal. XIII, §14%, (f).) Const., insurers. art. subd. Conse argues, Legislature quently, the author type legislation ized to tax enact that which is specifiedby the Constitution. recognize appears
We that the tax statute impose upon foreign regard a tax insurer without foreign against whether the discriminates California in- state attempt companies. course, any surance Of to assess a retali- atory against an insurer from a state which did not dis- constitutionally criminate insurers fail.
227 escape liability however, may Company, not because of The of the Insurance any conflict in the literal terms Code and Company’s Illinois, state, home not the Constitution. The higher only imposed tax on insurers than California Cali- Company, but it also fornia assessed against discriminated although Thus, insurers. the terms of the California may vary abstract, in Constitution and the statute no and the conflict between the Constitution statute arises as to permits of case. The Constitution and the the facts this stat- plaintiff requires ute be taxed. possibility hypothesizing an of unconstitutional
application
of the statute does not save the
from its
operation in
actual constitutional
еmployment
the instant case. The valid
present
in
of the statute
situation does not
might
improperly
fail
statute
because the
be
invoked in other
sustaining
this court
in
validity
As
stated
of
situations.
the
16905),
(Bus.
Fair
&
Code,
Trade Act
Prof.
16900-
§§
“Respondent presents
hypothetical
several
situations
inequitable
under which enforcement of the act would be
or
difficult,
perhaps,
or
even unconstitutional. It
elementary,
course,
may
applied
of
that a
be
invalid as
to one set
yet
facts,
applied
(Dahnke-Walker
valid as
to another.
Milling
Bondurant,
Co.
282
v.
257 U.S.
106,
S.Ct.
66
[42
239].)
conjured up by respondent
L.Ed.
The situations
are
respondent
involved,
not here
and
is limited in his attack to
application
of the statute to the factual situation now
(Max
the court.”
before
Factor & Co. v. Kunsman (1936) 5
446,
Cregler (1961)
Cal.2d
468
P.2d
In re
177]; see also
[55
308,
Cal.Rptr.
56 Cal.2d
313
289,
; People
363 P.2d
[14
305]
Perry
212
(1931)
186,
v.
19,
Cal.
193
P.
76 A.L.R.
[298
; Paul v.
Dairymen,
(1962)
Cal.App.2d
Allied
Inc.
209
1331]
Cal.Rptr.
112,
People
124
595];
(1952)
v.
114
[25
Naumcheff
Cal.App.2d 278, 280
8];
Sutherland,
P.2d
2
Statutory
[250
(3d
1943)
Construction
Stern,
ed.
2413-2415;
Separability
§§
Separability
Supreme
(1937)
Court
Clauses
51
76,
Harv.L.Rev.
82-106.
Although
court,
circumstances,
certain
will
hold a
regard
statute unconstitutional on its face without
particular
facts of the
such circumstances are application
involved here. Thus when of the statute is
invalid
certain situations we cannot enforce it in other
danger
situations
such enforcement entails the
an un
vague
application
certain or
future
(see, e.g.,
the statute
(1947)
30 Cal.2d
653-656
Blaney
In
P.2d
;
re
[184
892]
Corp.
Shay
Aсceptance
(1931)
v.
Seaboard
Cal.
particularly
882]).
have been
aware of
We
foment
P.2d
[5
uncertainty
ing
danger
application
such
of a statute
right (In
inhibit the exercise of a constitutional
which would
impose
Blaney, supra)
liability (People
criminal
re
or
Cal.Rptr.
Another situation which we hold a statute which, unconstitutional on its face involves the statute when partially operative partially inoperative, held to be dis legislative rupts the overall intent. In such a if the legis does not in all likelihood conform severed statute to the design, would invalidate all of it lative rather than we leave fragment. (See County An an unintended Los force of geles Jessup (1938) 273, ; v. 11 Cal.2d 279 P.2d [78 1131] Angeles City 777, v. Lewis 175 Los Cal. 783 [167 of 390].) P. Legislature here indicated its desire thаt the The permissible by apply provid- full constitutional extent to the permitted by extent the Constitution this ing, “To the of hereby imposed upon the Commissioner State there is duty the enforcing provisions of the execution the of Section (Italics added.) (Ins. Code, 685.3.) Although, 685.” Company points as the §
out, Insurance Commissioner does not interpreting statute, per- the function of a task exercise by Equalization (Cal. Const., formed the Board of art. designate (h)), other sections of the сode §14%, subd. is to commissioner as the officer who enforce imposed by the Insurance Code. collect taxes and to laws 12921, 12976.) Code, (Ins. §§ to the shall be enforced provision that the statute The given a mean- by “must permitted the Constitution extent only un- something than an more ing of it that will make (Golden tautological addition to the act.” necessary and Public Com. Steamship Lines, v. Utilities Inc. Scenic Gate 257].) Cal.Rptr. 657, 369 P.2d 373, 377 (1962) 57 Cal.2d [19 enacting provi- Legislature in purpose of the of thе statute enforcement been to limit the sion could have Clearly the by permitted the Constitution.” “to the extent limiting of the merely the duties clause cannot be read as specified by Constitu- to those Insurance Commissioner any Insur- mention omits tion since Constitution statutory officer and whose Commissioner, who is ance by entirely statute. covered are therefore duties a constitu only if restricted to If can stand a tax statute give legis surely heed to a must dimension, then we tional per only to the extent it be enforced lative direction Superior Court (See Owens v. by mitted the Constitution. ; 822, 832 P.2d 78 A.L.R.2d (1959) 52 Cal.2d 388] [345 (1963) 59 Cal.2d v. Town Hamer cf. Ross may reasonably 375].) Moreover, Cal.Rptr. we P.2d Legislature prefer that the state col assume that the none all.4 tax monies rather than at lect some supra, Angeles Lewis, Language City Los Cal. incorporated in other upon by Company and 777, relied apply Company, situ- cited does decisions *7 city County plaintiff the In Lewis sued ation bеfore us. the pay Angeles compel him rent due of auditor to to Los county. city and the Under the a lease entered into between plant. The county acquired of a cement the the use the lease 4041, Code, section county purported act under Political to Attorney act, 4Shortly passage in an General of the after the the recently Code opinion enacted Insurance "to extent that the said that the charges provide where the in cases sections constitutional surance for exaction of applicable, Legislature the In authorization to the inoperable, . Under that extent. . . but to Code sections are permit circumstances, the that the court would the view we take these by scope operate outlined the constitutional but within the to sections is, retaliation, prescribe authorizing Legislature that provision to the specified in which the dis operation eases be limited to those would its criminations retaliation subject foreign insurer of the in the home state existed P. (Bankers 113 [218 Richardson Cal. Co. v. Life (1960).) (35 Ops.Cal.Atty.Gen. 586]).” 9a, permitted which county operate the a plant. cement The court held that county the oper- could not plant private ate purposes. the Although the court used language broad to the effect that the statute was unconsti- face, explained tutional on its court the that the in- lease volved in рlant. contemplated private the case of use the cement presented Thus the ease an actual conflict between application of the statute that ease and the Constitution, a wholly situation different from the instant one. language against judicial The Lewis warns rewriting the of statutes or intrusion courts into Legis the affairs of the In
lature. that the court said that to restrict sale of only public cement to destroy consumers be “to distinctly law itself and whiсh contrary to frame a law of that legislature deliberately advisedly formulated passed.” Angeles (City and 777, Los Lewis, supra, v. 175 Cal. of p. 783.) at preserve But here we within the constitu proper tional purpose framework the Legislature. of the When we hold that the in the instant case must demonstrate a true conflict between the Constitution and the application statute, of the application and when our of the statute does not purposes conflict with the overall of the stat ute, legislative we do not sphere. interfere with the (Cf. City Angeles Riley Los (1936) 6 Cal.2d P.2d of 903].) 106 A.L.R. sought In conclusion, the Board here to assess a retali- atory against tax an insurer from a which state did not dis- insurers, criminate we could not sustain sweep such an extended of the But the tax before statute. us actually upon does rest a factual foreign situation of the may discrimination; state’s properly ap- statute then be plied. coverage valid restrictеd danger Such does not a entail enveloped that the future use of the will statute become in a fog uncertainty; coverage nor will such limited violate legislative design. overall persuasively posited Amici curiae have invalidity upon point the tax type was different contemplated by than that Constitution, in that it “comparative” “discriminatory” is a rather than a tax en- actment. We nevertheless believe our task is to find whether application an aсtual conflict arises between the provision and the constitutional rather than to test the na- ture or the nomenclature of the enactment. *8 Company secondly contends that the Board un The erroneously the real
constitutionally subtracted estate and from place of business its California principal tax on its retaliatory tax. computing the gross premium tax compared Board determining tax the the In impose on a California tax which Illinois amоunt of plaintiff of business as amount the same insurer gross plaintiff’s receipts the tax on ($176,173.41) with paid for real estate taxes on ($191,223.25) less the deduction place ($69,354.53). principal of business Company’s must in- real estate taxes Company contends that purposes for of the com- part tax cluded as of the California any retaliatory parison not be liable for ; so, it would tax. provides that the re- of the Insurance Code Section 685.1 apply to” certain taxes on taliatory “shall not as tax statute premium “except deductions, from taxes property real payable, on allowed account real or other taxes otherwise property paid be taken into personal shall estate or determining propriety and extent of re- consideration in explain, taliatory article.” As we shall action this constitutionally applied correctly the statute Board taking arriving at deduction into consideration purposes comparison with the Illinois California tax tax. (f)(3), 14%, subdivision as article section We read engaging privilege referring taxes on the the insur- to (Cf. property and not as related to tax. ance Security Hopkins (1934) 1 Title Co. v. Cal.2d Consolidated People’s Carpenter v. Mutual Ins. 320]; P.2d [35 Life ; Summary 3 Witkin, P.2d Cal.2d 299 Co. 508] Moreover, (b) (1960) 2246.) subdivision of the of Cal. Law imposes on insurers “at the annual same section subject from the tax hereinafter rates, and specified.” Thus the California tax deductions compared to be with the purposes tax must be com- of the tax for Illinois puted “subject specified in deduction” (e). presents position an in- of the We believe the though argues the real estate anomaly. that, even It herent premium tax, nevertheless the real from the tax is deducted retaliatory computation in the must be included estate tax on that tax burden “part of the California it is because accept company.” If we premise, however, we *9 include in the Illinois proper
must likewise burden the upon building of real estate taxes a similar amount in Illi- computing Board, in the total Since Illinois tax on nois. insurers, any did not take into consideration California Illi- doing property nois tax on Illinois,5 of a California insurer in business did not reach an the Board unreasonable conclusion refusing Company with prop- to credit the the California principal determining erty officein tax on its the amount of retaliatory provision. paid purposes of the tax Although recognize that the failure to we include the real property foreign principal tax on a insurer’s office in the liability may, California tax instances, measure of some nugatory provided by the deduction render article sec- 14%, (e) Constitution, tion of the California result would not follow if did not Illinois discriminate against California or if total insurers Illinois insurance tax were than on California insurers less the total California insurers; appli- tax on Illinоis hence the Board’s insurance necessarily abroga- cation of the statute does entail the provided by tion of the deduction the Constitution. The merely computing figure Board considers the deduction in a may trigger retaliatory which tax. finally Company that statute,
The contends as applied by defendant, operates place retaliatory so as to a upon companies tax a few of the smaller Illinois insurance doing California, imposing business while not such a tax on other Illinois insurers business in California. points Company that The out California does not assess a against larger companies doing tax insurance per gross premium because the 2.35 this state cent imposes them, deducting after tax which it on even the real paid principal office, comparable estate tax on the exceeds the per gross premium cent tax on a Illinois doing California insurer a similar amount of business Illinois. a conse As operates only quence, Company argues, a the tax on small arbitrary companies group of because of an ratio holdings gross premiums. The real estate to argues equal thereby deprivation pro it a suffers tection of the laws. long Supreme Court, however, The United States has rec- 1021, 1027; (1961) 120, 499; 73, ¶ ¶¶ Ill. Stat. ch. ch. 5See Rev. Pacific (1961) 22 Co. [174 Gerber v. Ill.2d 196 N.E.2a 862]. Ins. Mutual Life ognized elementary principle that a distinction in tax parties equal protection bеtween does not violate the statutes upon if such distinction rests a rational clause basis. That equal protection said, process court has “Neither due nor upon imposes any rigid equality a state rule of the of tax legislature every ation. ... A is not bound member may degree a none. having class or It make distinctions of subjected basis, judicial scrutiny they rational when presumed any must to rest on that basis there con support (Carmichael ceivable state of which facts it.” Southern Coal Co. 301 U.S. S.Ct. Witkin, ; Summary L.Ed. 109 A.L.R. see 3 1327] (1960) 2129-2135.) Cal. Law California Constitution and tax statute contemplate retaliation in the event that the home state of the insurer a California insurer do- discriminates ing business in Illinois and taxes that insurer *10 more than California taxes an Illinois insurer a similar amount of business. These conditions are met the instant although they are not fulfilled the situations of larger may reasonably Illinois insurers. California retaliate against companies compаnies Illinois, small from or from high property-gross premium ratio, Illinois with and not real larger its ones the home state of those insurance companies, in discriminating against addition to insurers, taxes such smaller California insurers more than California such smaller insurers.
Furthermore, by the statute its terms does discriminate as to any the size of the insurer. Nor does discrimination necessity follow aas matter of of the statute. from terms Any possible operation discrimination in is attributable Compаny’s regard prin- with to its investment decision cipal place of business. judgment is affirmed. Traynor, J., Peters, J., J., C. Peek, Burke, J., and Schauer, J.,* concurred. McCOMB, judgment J. I dissent.I would reverse the by expressed Presiding
the reasons Mr. Justice Shoemaker opinion prepared by him for the District Appeal Court of Supreme sitting assign *Retired Associate Justice Court ment the Chairman of the Judicial Council. Equalization Board Ins. Co. State in Franklin Life Cal.Rptr. 773. (Cal.App.) 40 rehearing September denied petition for a was Appellant’s participate therein. Mosk, J., did not 15, 1965. Aug. In Bank. No. 8821. 1965.]
[Crim. Corpus. on Habeas In re NATHANIEL GAINES