Gallagher v. Motors Ins. Corp.Gallagher v. Motors Ins. Corp.
Kenneth R. Hart, Steven P. Seymoe and Robert A. Pierce of Ausley, McMullen, McGehee, Carothers & Proctor, Tallahassee, for appellees/cross appellants.
KOGAN, Justice.
We have on appeal a judgment declaring Florida‘s insurance premium tax scheme,
Prior to July 1, 1988,2
The Appellees/Cross Appellants (Taxpayers) are foreign corporations licensed to write insurance in Florida who were subject to Florida‘s insurance premium tax during the years 1983 through 1988. The Taxpayers sought a declaratory judgment that the premium tax scheme unconstitutionally discriminated against them and demanded a refund of all premium taxes paid for the years 1983 through 1988. The Taxpayers also sought relief under
In response, the Taxpayers amended their complaint to challenge
After an evidentiary trial, the trial court found, in connection with the challenge to the premium tax, that: 1) on its face, the premium tax statute discriminates against foreign insurance companies; 2) the purposes set forth in the statute are not legitimate; however, as a matter of law, the State is not limited to those purposes and may rely on purposes not contained in the statute; 3) the purpose advanced — to acquire a greater degree of regulatory control over insurance companies — is a legitimate state purpose; 4) regardless of the activities a foreign insurance company undertakes, the company may only attain the exemption provided to domestic companies if it changes its state of domicile to Florida; 5) forcing a company to change its state of domicile is not a legitimate state purpose for imposing a discriminatory tax; 6) based on the evidence, the premium tax does not, in fact, cause an insurance company to change its state of domicile; however, the legislature could have believed that the tax would have the effect of causing a company to do so and therefore increase the State‘s ability to regulate it;8 7) because the premium tax lacks a legitimate state purpose, it violates the Equal Protection and Due Process Clauses of the Fourteenth Amendment of the United States Constitution and the Due Process Clause of the Florida Constitution. The court also found the assessment of additional premium taxes void because the premium tax statute was invalid and rendered judgment in favor of the State on the Taxpayers claim under
Although the court found the proposed assessments of retaliatory tаx for the years 1983 and 1984 barred by
From 1869 to 1944 insurance was not considered “commerce” under the Commerce Clause of the United States Constitution. New York Life Ins. Co. v. Deer Lodge County, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332 (1913); Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357 (1869). During that period, state regulation and taxation of the business of insurance was free of Commerce Clause restraints. Then in 1944 the United States Supreme Court receded from its earlier rulings and held insurance to be commerce within the meaning of the Commerce Clause. United States v. South-Eastern Underwriters Ass‘n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). In response to South-Eastern Underwriters, Congress enacted the McCarran-Ferguson Act § 1,
After the enactment of the McCarran-Ferguson Act, it was clear that the Commerce Clause no longer limited a state‘s power to condition the right of foreign insurers to do business within its borders. State Bd. of Ins. v. Todd Shipyards Corp., 370 U.S. 451, 82 S.Ct. 1380, 8 L.Ed.2d 620 (1962); Prudential Ins. Co. v. Benjamin, Prudential Ins. Co. v. Hobbs, 328 U.S. 822, 66 S.Ct. 1360, 90 L.Ed. 1602 (1946). However, it was not until 1981 that the United States Supreme Court explicitly held that the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution limits a state‘s authority to exclude a foreign corporation from doing business within its boundaries. The Court explained that under this provision more onerous taxes or other burdens on foreign corporations than those imposed on domestic corporations are justified only where “the discrimination between foreign and domestic corporations bears a rational relation to a legitimate state purpose.” Western & Southern Life, 451 U.S. at 668, 101 S.Ct. at 2083. Applying this rational basis test, the Western & Southern Life Court upheld a California retaliatory tax which was imposed on foreign insurers when the insurers’ home states imposed a discriminatory tax on California insurers doing business within their borders. Four years after Western & Southern Life, a premium tax scheme similar to that at issue in this case was held violative of the Equal Protection Clause in Metropolitan Life Ins. v. Ward, 470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985).
FLORIDA‘S PREMIUM TAX
The Taxpayers base their challenges to Florida‘s premium tax on the United States Supreme Court‘s decision in Ward. Florida‘s premium tax scheme is similar to that struck down in Ward. As was the case in Ward, under the Florida scheme, foreign insurance companies were taxed at a higher rate than domestic companies and regardless of actions taken by a foreign company, it could never reduce its gross premiums tax rate to the level paid by
The Taxpayers correctly point out that since the Ward decision similar tax schemes have been held unconstitutional in a number of states. See, e.g., Principal Mutual Life Ins. Co. v. Division of Ins., 780 P.2d 1023 (Alaska 1989); Penn Mutual Life Ins. Co. v. Dept. of Licensing and Regulation, 162 Mich. App. 123, 412 N.W.2d 668 (1987); State v. American Bankers Ins. Co., 374 N.W.2d 609 (S.D. 1985); Metropolitan Life Ins. Co. v. Commissioner of the Dept. of Ins., 373 N.W.2d 399 (N.D. 1985). However, based on the trial court‘s findings in this case, we find Florida‘s premium tax scheme distinguishable from those found unconstitutional.
The crucial difference between this case and those in which similar tax schemes were held violative of the Equal Protection Clause are the trial court‘s findings that 1) the purpose advanced by the State of acquiring a greater degree of regulatory control over insurance companies is a legitimate state purpose and 2) “the Legislature could have believed” that the differential tax treatment “would have the effect of causing a company to change its state of domicilе and therefore increase the State‘s ability to regulate such companies.” It appears that despite these findings, which are supported by competent substantial evidence, the trial court accepted the Taxpayers contention that under Ward, legitimate regulatory goals cannot be pursued by distinguishing between insurers on the basis of residency. In other words, the trial court appears to have found Florida‘s premium tax unconstitutional based on the misconception that all otherwise legitimate state purposes are rendered illegitimate if pursued by residency based distinctions. We find this reading of Ward too broad.
In Western and Southern Life, the United States Supreme Court explained that under the Equal Prоtection Clause, a state may not impose “more onerous taxes or other burdens on foreign corporations than those imposed on domestic corporations, unless the discrimination between foreign and domestic corporations bears a rational relation to a legitimate state purpose.” 451 U.S. at 668, 101 S.Ct. at 2083. Thus, a tax scheme, such as the retaliatory tax at issue in Western and Southern Life, that distinguishes based on residency should be sustained if the classification is found to be “rationally related to achievement of a legitimate state purpose.” Id. at 657, 101 S.Ct. at 2077. The Court further explained that in making this determination, there are two questions that must be answered: “(1) Does the challenged legislation hаve a legitimate purpose? and (2) Was it reasonable for the lawmakers to believe that use of the challenged classification would promote that purpose?” Id. at 668, 101 S.Ct. at 2083.
The Court later reaffirmed these principles in Ward, recognizing that “the Equal Protection Clause forbids a State to discriminate in favor of its own residents solely by burdening ‘the residents of other state members of our federation.‘” 470 U.S. at 878, 105 S.Ct. at 1681 (quoting Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 533, 79 S.Ct. 437, 444, 3 L.Ed.2d 480 (1959)). In considering Alabama‘s discriminatory premium tax, the Ward Court recited the appropriate standard of review to be
if the State‘s purpose [for the residency based classification] is found to be legitimate, the state law stands as long as the burden it imposes is found to be rationally related to that purpose, a relationship that is not difficult to establish.
470 U.S. at 881, 105 S.Ct. at 1683.
The Ward Court went on to hold that the two purposes considered in that case — promotion of domеstic business and encouragement of capital investment in the state — were not legitimate when furthered by discrimination. 470 U.S. at 882-83, 105 S.Ct. at 1684; see also Div. of Alcoholic Beverages v. McKesson Corp., 524 So. 2d 1000, 1009 n. 2 (Fla. 1988) (promotion of domestic business when accomplished by imposing discriminatory tax against out-of-state competitors is not legitimate state purpose under Equal Protection Clause), rev. on other grounds, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990). Ward
However, the Ward Court did not address whether an otherwise legitimate state rеgulatory purpose, such as that found to exist in this case, may be furthered by imposing higher taxes on nonresident insurers where it is reasonable for lawmakers to believe the imposition of the tax differential will promote the regulatory purpose. The only purposes considered in that decision were promotion of domestic business and encouragement of capital investment in state assets and securities. We find it most instructive that the cause was remanded for consideration of fifteen additional purposes advanced by the State of Alabama for the discriminatory tax. 470 U.S. at 875 n. 5, 105 S.Ct. at 1680 n. 5.
If Ward had held, as the Taxpayers contend, that no state purpose is legitimate when furtherеd by differential tax treatment based on residency, there would have been no need to remand for consideration of the other purposes advanced. This conclusion is consistent with the Court‘s recognition in Northeast Bancorp, Inc. v. Board of Governors, 472 U.S. 159, 177, 105 S.Ct. 2545, 2555, 86 L.Ed.2d 112 (1985), that Ward stands for the limited proposition that
encouraging the formation of new domestic insurance companies within a State and encouraging capital investment in the State‘s assets and governmental securities were not, standing alone, legitimate state purposes which could permissibly be furthered by discriminating against out-of-state corporations in favor of local corporations.
(Emphasis added.)
Decisions from other states finding similar taxing schemes unconstitutional under Ward are also distinguishable. In those cases, the purposes advanced for the discriminatory taxes that were not substantially the same as those rejected in Ward were found to be pretextual or the discriminatory taxes were found not to be rationally related to the stated purposes. See, e.g., Principal Mutual Life Ins. Co. v. Division of Ins., 780 P.2d 1023 (Alaska 1989) (even if legitimacy of purposes for discriminatory premium tax scheme were accepted, there was no evidence that those purposes were advanced by the differential tax rates); Penn Mutual Life Ins. Co. v. Dept. of Licensing and Regulation, 412 N.W.2d 668 (Mich. App. 1987) (although making insurance coverage available to residents was legitimate state purpose, differential premium tax rate was not rationally related to promoting that purpose); State v. American Bankers Ins. Co., 374 N.W.2d 609 (S.D. 1985) (purpose advanced for discriminatory premium tax found to be pretextual); Metropolitan Life Ins. Co. v. Commissioner of the Dept. of Ins., 373 N.W.2d 399 (N.D. 1985) (purposes advanced for differential premium tax rates were not legitimate or, if legitimate, premium tax scheme was not rationally related to achievement of those purposes).
We reject the Taxpayers contentions that 1) the only purposes for the taxing scheme that may be considered are those set forth in the statute and 2) even if other purposes may be considered, the State‘s newly asserted regulatory purpose is merely pretextual. As we recently reiterated in Coy v. Florida Birth-Related Neurological Injury Compensation Plan, 595 So. 2d 943, 945 (Fla. 1992) (Quoting Eastern Air Lines, Inc. v. Department of Revenue, 455 So. 2d 311, 314 (Fla. 1984), appeal dismissed, 474 U.S. 892, 106 S.Ct. 213, 88 L.Ed.2d 214 (1985)):
“When the state legislature, acting within the scope of its authority, undertakes to exert the taxing power, every presumption in favor of the validity of its action is indulged. Only clear and demonstrated usurpation of power will authorize judicial interference with legislative action. In the field of taxation particularly, the legislature possesses great freedom in classification. The burden is
on the one attacking the legislative enactment to negate every conceivable basis which might support it.”
(emphasis added); see also, Dandridge v. Williams, 397 U.S. 471, 485, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970) (statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it); McGowan v. Maryland, 366 U.S. 420, 426, 81 S.Ct. 1101, 1105, 6 L.Ed.2d 393 (1961) (same). It is likewise clear that where there is a “plausible” reason for a legislative enactment, it is “‘constitutionally irrelevant whether this reasoning in fact underlay the legislative decision.‘” United States R.R. Retirement Board v. Fritz, 449 U.S. 166, 178-79, 101 S.Ct. 453, 461, 66 L.Ed.2d 368 (1980) (quoting Fleming v. Nestor, 363 U.S. 603, 612, 80 S.Ct. 1367, 1373, 4 L.Ed.2d 1435 (1960)).
Although the regulatory goal now asserted by the State is not expressly set forth in
All of the insurance experts who testified in this case agreed that the objective of gaining control and influence over insurers doing business within the state is reasonable and desirable from an insurance regulator‘s perspective. The record supports the conclusion that Florida has more control and regulatory influence over a domestic insurer than over a foreign insurer and that Florida is in a better position to protect the interests of Florida policyholders in the event of an insurer‘s financial instability if the insurer is domiciled in Florida. Because there is no bankruptcy protection for policyholders under federal law,
Indeed, the challenged tax scheme rewarded varying degrees of submission by insurers to the regulatory power and jurisdiction of this state. Insurers that elected to own and occupy a regional office in Florida brought valuable and fixed assets within this state‘s jurisdiction and maintained records of regional activities within the state and thereby enabled Florida to obtain access to and in rem control over such assets and records without the aid of other jurisdictions. Such regional cоmpanies were rewarded by a fifty-percent reduction in premium tax under
On this record, it cannot be said that Florida‘s premium tax was designed solely to promote domestic industry and economy and we do not believe that taxing foreign insurers at a higher rate than domestics in order to gain greater regulatory control is the type of “parochial discrimination that the Equal Protection Clause was intended to рrevent.” Ward, 470 U.S. at 878, 105 S.Ct. at 1681. Ward does not require a contrary conclusion. See, e.g., Associated General Contractors of California, Inc. v. City and County of San Francisco, 813 F.2d 922, 943 (9th Cir.1987) (city ordinance giving various preferences to local businesses in an attempt to remove burden on local businesses that was not shared by nonresident businesses was upheld because it did not discriminate against nonresidents solely because they were nonresident).
Finally, on this record, it is “at least debatable” that a rational relationship exists between the premium tax and the objective of increased regulatory control. See Ward, 470 U.S. at 881, 105 S.Ct. at 1683 (equal protection challenge cannot prevail where it is at least debatable that there is a rational relationship betweеn challenged statute and legitimate state purpose); Western & Southern Life, 451 U.S. at 674, 101 S.Ct. at 2086 (same). A rational relationship exists where, as here, it is found that the legislature rationally could have believed that the challenged statutory scheme would promote the asserted legislative objective. Whether the statutory scheme in fact would promote the legislative objective is not dispositive. Western & Southern Life, 451 U.S. at 672-73, 101 S.Ct. at 2085.
Accordingly, having determined that Florida‘s premium tax scheme was rationally related to a legitimate state purpose, we reverse the judgment of the trial court to the extent that it finds
RETALIATORY TAX
Next, we affirm that portion of the judgment under review that upholds
As noted by the trial court, Florida‘s retaliatory tax is similar in structure to the retaliatory tax that was upheld against similar challenges in Western & Southern Life.
The Taxpayers’ Privileges and Immunities challenge was properly rejected in light of the clear pronouncement in Western & Southern Life that the Privileges and Immunities Clause of the United States Constitution is inapplicable to corporations such as the Taxpayers. 451 U.S. at 656, 101 S.Ct. at 2077.
Western & Southern Life also made clear that retaliatory taxes, which “have been a common feature of insurance taxation for over a century,” are rationally related to the states’ legitimate interest in promoting “the interstate business of domestic insurers by deterring other States from enacting discriminatory or excessive taxes.” Id. at 668, 101 S.Ct. at 2083. Because it is at least fairly debatable that the Florida legislature enacted
Next, the Taxpayers contend that by tying the retaliatory tax to the laws of other jurisdictions, which may change from year to year, the legislature has unconstitutionally delegated to other legislatures its authority to determine the amount of tax due the State of Florida. We do not agree.
The powers of the state government shall be divided into legislative, executive and judicial branches. No person belonging to one branch shall exercise any рower appertaining to either of the other branches unless expressly provided herein.
This mandate has been construed to prohibit the legislature, absent constitutional authority to the contrary, from delegating its legislative power to others. D‘Alemberte v. Anderson, 349 So. 2d 164 (Fla. 1977).
It is true that we have consistently held that it is an unconstitutional delegation of legislative power for the legislature to adopt future legislative or administrative actions of jurisdictions outside Florida. See, e.g., Eastern Air Lines, Inc. v. Dept. of Revenue, 455 So. 2d 311, 314 (Fla. 1984), appeal dismissed, 474 U.S. 892, 106 S.Ct. 213, 88 L.Ed.2d 214 (1985); State v. Welch, 279 So. 2d 11 (Fla. 1973); Freimuth v. State, 272 So. 2d 473, 476 (Fla. 1972). However, in this case, incorporation of future enactments of foreign jurisdictions into the formula for measuring Florida‘s retaliatory tax is entirely consistent with the recognized objective of such taxes — affecting the taxing poliсies of other jurisdictions. It is only logical that if the tax is to achieve its intended purpose, it must operate in relation to both current and future enactments and policies of other jurisdictions that burden Florida insurers. It follows that incorporation of future enactments of a foreign insurer‘s state of domicile as a reference point for determining the retaliatory tax due from that insurer in no way substantively changes the law. The legislature has merely set forth the manner, consistent with the underlying legislative objective, by which the Department of Revenue is to determine the tax due under
STATUTE OF LIMITATIONS
The State does not challenge that portion of the judgment finding the proposed assessment of retaliatory tax for the years 1983 and 1984 barred by
Accordingly, we reverse that portion of the judgment finding
It is so ordered.
BARKETT, C.J., and McDONALD, SHAW and GRIMES, JJ., concur.
HARDING, J., concurs in part and dissents in part with an opinion, in which OVERTON, J., concurs.
HARDING, Justice, concurring in part, dissenting in part.
I concur with the majority in holding that the retaliatory tax provided for in
The Alabama statute under scrutiny in Ward is virtually identical to the Florida statutes at issue here. In Ward, the United States Supreme Court held that:
The crucial distinction ... lies in the fact that Alabama‘s aim to promote domestic industry is purely and completely discriminatory, designed only to favor domestic industry within the State, no matter what the cost to foreign corporations also seeking to do business there. Alabama‘s purpose ... constitutes the very sort of parochial discrimination that the Equal Protection Clause was intеnded to prevent. As Justice Brennan, joined by Justice Harlan, observed in his concurrence in Allied Stores of Ohio, Inc. v. Bowers, this Court always has held that the Equal Protection Clause forbids a State to discriminate in favor of its own residents solely by burdening “the residents of other state members of our federation.” Unlike the retaliatory tax involved in Western & Southern, which only burdens residents of a State that imposes its own discriminatory tax on outsiders, the domestic preference tax gives the “home team” an advantage by burdening all foreign corporations seeking to do business within the State, no matter what they or their States do.
470 U.S. at 878, 105 S.Ct. at 1681-82 (citations omitted). The Supreme Court‘s reasoning applies to the Florida statutes as well.
I do not find that the record in this case supports the majority‘s conclusion that the premium tax statute advances a regulatory goal which would give the statute legitimacy.
I would affirm the trial court‘s determination that the premium tax is unconstitutional because it violates the Equal Protection Clause of the Constitution.
OVERTON, J., concurs.
Notes
624.509 Premium tax; rate and computation. —
(1) In addition to the license taxes provided for in this chapter, each insurer shall also annually ... pay to the Department of Revenue a tax on insurance premiums, risk premiums for title insurance, or assessments, including membership fees and policy fees and gross deposits received from subscribers to reciprocal or interinsurance agreements, and on annuity premiums or considerations, received during the preceding calendar year, the amounts thereof to be determined as set forth in this section, to wit:
(a) An amount equal to 2 percent of the gross amount of such receipts on account of life and health insurance policies covering persons resident in this state and on account of all other types of policies and contracts (except annuity policies or contracts taxаble under paragraph (b)) covering property, subjects, or risks located, resident, or to be performed in this state... .
624.512 Domestic insurers; exemption. —
(1)(a) An insurer which is organized and existing under the laws of this state and which maintains its home office in this state shall not be required to pay the tax on insurance and annuity premiums, assessments, or considerations as imposed under ss. 624.509 and 624.510, except as provided in s. 624.513.
(b) As used in this section, “home office” means an office performing or directing and supervising from this state the selling, underwriting, issuing, and servicing of insurance, including the following functions relating thereto: approval or rejection of applications for insurance and issuаnce of policies thereon; approval of payment of all types of claims; maintenance in this state of records to provide policyholder information and service and the records and materials required to be kept and prepared pursuant to ss. 628.271 and 628.281; advertising and publications; public relations; and supervision and training of sales and service forces.
624.514 Regional home offices of foreign insurers; credits on premium tax liability. —
(1) A foreign or alien insurer formed by or under the laws of any other state or foreign country which is subject to the taxes imposed by ss. 624.509 and 624.510 and which owns and substantially occupies any building in this state as a regional home office, as defined in subsection (2), shall be entitled to a credit against such tax in an amount equal to 50 percent of the amount of the tax as determined under such sections... .
(2) A “regional home office,” for the purposes of this section, means an office performing, for an area covering three or more states or covering two states and one or more foreign countries, the selling, underwriting, issuing, and servicing of insurance, including the following functions relating thereto: approval or rejection of applications for insurance and issuance of policies thereon; approval of payment of all tyрes of claims; maintenance of records to provide policyholder information and service; advertising and publications; public relations; and supervision and training of sales and service forces.
a premium tax exemption for domestic insurers promotes the public interest for the following reasons:
(a) Domestic insurers are required to pay corporate income tax in this state;
(b) Domestic insurers are required to invest their assets in this state;
(c) Domestic insurers are more likely to invest heavily in real estate in this state and thereby increase the local tax base;
(d) Domestic insurers employ many residents of this state;
(e) Domestic insurers contributе to the economy of the state by utilizing local services and local businesses.
Congress declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.
Section 2(a) of the act, 15 U.S.C. § 1012(a), provides:
The business of insurance ... shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
628.271 Office and records; penalty for unlawful removal of records. —
(1) Every domestic insurer shall have an office in this state and shall keep therein complete records of its assets, transactions, and affairs, specifically including:
(a) Financial records;
(b) Corporate records;
(c) Reinsurance documents;
(d) Access to all acсounting transactions and access in this state, upon demand by the department, to all original accounting documents;
(e) Claim files; and
(f) Payment of claims, in accordance with such methods and systems as are customary or suitable as to the kind or kinds of insurance transacted.
(2) Every domestic insurer shall have and maintain its assets in this State, except as to:
(a) Real property and personal property appurtenant thereto lawfully owned by the insurer and located outside this state, and
(b) Such property of the insurer as may be customary, necessary, and convenient to enable and facilitate the operation of its branch offices, regional home offices, and operations offices, located outside this state as referred to in s. 628.281.
624.429 Retaliatory provision, insurers. —
(1) When by or pursuant to the laws of any other state or foreign country any taxes, licenses, and other fees, in the aggregate, and any fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions are or would be imposed upon Florida insurers or upon the agents or representatives of such insurers, which are in excess of such taxes, licenses, and other fees, in the aggregate, or which are in excess of the fines, penalties, deposit requirements, or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers, or such other state or country under the statutes of this state, so long as such laws of such other state or country continue in force or are so applied, the same taxes, licenses, and other fees, in the aggregate, or fines, penalties, deposit requirements, or other material obligations, prohibitions, or restrictions of whatever kind shall be imposed by the department upon the insurers, or upon the agents or representatives of such insurers, of such other state or country doing business or seeking to do business in this state.