Hon. William A. Harrison Opinion No. WW-525

Commissioner of Insurance State Board ofInsurance Re: Proper interpretation of Austin, Texas Article 21.46, Texas Insurance Code--retaliaDear Sir: tory statute.

You have requested an opinion ofthis office concerning the proper construction ofArticle 21.46 ofthe Insurance Code, Acts 55th Leg., R.S. 1957, p. 1184, ch. 396, Sec. 1. This article provides:

“Whenever by the laws ofany other state or territory ofthe United States any taxes, licenses, fees, fines, penalties, deposit requirements or other obligations, prohibitions or restrictions are imposed upon any insurance company organized in this State and licensed and actually doing business in such other state or territory which, in the aggregate are in excess of :fzsagdgregate oftaxes, licenses, fees, fines, penaleposlt requirements or other obllgatlons, prohibiiions or restrictions directly imposed upon asimilar insurance company of such other state or territory doing business in this State, the Board ofInsurance Commissioners ofthis State shall impose juponany similar company of such state or territory in the same manner andfor the **same** purpose, the same taxes, licenses, fees, fines, penalties, deposit requirements or other obligations, prohibitions or restrictions; provided, however, the a gre ate oftaxes, licenses, fees, fines, penalties or oaations imposed by this State pursuant to this Article 21.46 on an insurance company ofanother state or territory shall not exceed the aggregate of such charges imposed by such other state or territory on a similar insurance company of this State actually licensed and doing business therein; ”

. . . Inyour opinion request you state:

“We find it quite difficult tofind the ‘aggregate’ ofsuch diverse items as taxes, licenses, fees, fines, penalties, deposit requirements, obligations, prohibitions or restrictions. Itis much like trying tofind the aggregate ofapples, oranges, bananas, potatoes and tomatoes.Hon. William A. Harrison, page 2 (WW-525)

“We are ofthe opinion that the only practical construction and interpretation ofthe statute is that each enumerated item contained in the statute must be viewed and computed separately, determine the aggregate of such separate item, and apply the retaliatory law to each separate item. Inother words, it is our opinion that proper construction ofthe statutewould be to consider and total all taxes as such, determine the aggregate ofthe taxes, and then apply the retaliatory law to these taxes. Wewould then consider all licenses todetermine the aggregate of such licenses, and apply the retaliatory law to licenses. A similar procedure would then be used with respect to each ofthe other items enumerated and mentioned inArticle 21.46.” Your first question is whether this interpretation is correct. Itis the opinion ofthis office that the construction as stated is incorrect, The legislative history ofthis article is pertinent: In 1909 the Legislature enacted **a statute**  which was designated as Article 4758, V.C.S. (Acts 1909, p, 192, $29as amended inActs 44th Leg., 1935, p. 713. ch. 307, $ 1)which was also a retaliatory act. Article 4758 did not expressly require an “aggregate” method ofcomputation; however, theAttorney General in Opinion No. 0-1997-A approved July 11, 1940, held that aconstruction ofthe statute comparing fees against fees, taxes against taxes, penalties against penalties, was erroneous and the total or aggregate ofall taxes, fines, penalties, fees and other charges imposed by the foreign state should be compared with the aggregate imposed by the Texas law on aforeign corporation for the purpose ofapplying the act. Although Article 4758 was repealed in 1951 (Acts 1951, 52nd Leg., p, 868, ch. 491, 54) substantially identical language to that ofArticle 4758 was incorporated inHouse Bill 278, Section 1(later enacted as Article 21.46) when itwas introduced. The word “aggregate” was later added by committee amendments and by House floor amendments (Daily House Journal, pp. 2407. 2409. April 29, 1957) which incorporated substantially the language now set out inthe text ofArticle 21.46. Therefore, the construction placed by our former opinion would apply tothe bill as itwas originally introduced and the addition ofthe amendments would further militate for the construction set out inAttorney General’s Opinion 0-1997-A.

Many other states have retaliatory statutes which are similar in language as well as in nature. The cases hold that the purpose of the retaliatory statutes is toprovide that aninsurance corporation incorporated under the laws ofthe retaliating states can enter into and operate in other states onparity with their domestic insuranceHon. William A. Harrison, page 3 (WW-525)

corporations. They are calculated to equalize the burden aforeign corporation must carry with that imposed by the state ofits domicile upon adomestic corporation ofthe retaliating state doing business in that foreign state. The statutes are based onthe principle of comity between the states. State v. Reinmund, 45 Ohio State 214, 13N.E. 30 (1887). Lie and Casualty Insurance Company of Tennessee v. Coleman, 233 Ky. 350, 25SW2d 748 (1930) timployers Casualty Company v. Hobbs, 149Kansa; ;74, 89P.2d 9i3 (1939) Occidental Life Insurance Company v. Holmes, 80 P.2d 383 (Mont&a Sup.Ct. 1938) Pacific Mutual Life Insurance Company v. State, 161Wash. 135. i96 P. 813 (1931). Thus, the statute is designed toplace onthe foreign corporation coming into Texas aburden equal to the burden imposed by the state of such foreign corporation’s domicile upon any similar Texas insurance company licensed to do business and actually doing business inthe foreign, state. Itis the total and ultimate effect ofthe “taxes, licenses, fees, fines, penalties, deposit requirements or other obligations, prohibitions or restrictions” directly imposed by the foreign state upon a similar Texas corporation which must be compared with the total and :iltimate effect ofthe “taxes, licenses, fees, etc.,” which would be directly imposed by the Texas statutes other than Article 21.46 .Ipon the foreign insurance company. An item by item comparison ofthe aggregate taxes with aggregate taxes, aggregate fees with aggregate fees, etc. does not total burdens. While the aggregate taxes imposed by the foreign state might exceed the aggregate taxes imposed by Texas inthe absence ofArticle 21.46, the aggregate fees imposed by the foreign state might be so much less than the aggregate fees imp,osed by Texas so that the excess ofthe aggregate Texas fees over the aggrega.te foreign fees vyozid exceed the excess ofthe aggregate foreign tax over the aggregate Texas tax. The construction suggested byyour department wcl;ld not allow for this offset and would not be a comparison ofthe total burdens with an aim towards equalizing them, and thus would not be in harmony with the purposes ofthe stakte.

Inthe case’ ofEmployers Casualty Company v. Hobbs, 149 Kansas 774. 89P.2d 923, 926 (1939). the Court exoresslv reiected a construction ofthe Kansas statute in the manner your opinion request suggests is the proper construction for the Texas statute. The Court stated:

“There can be no equalization ofthe burden

unless the taxes levied or the obligations imposed are the same in the aggregate.” The Court inthat case held that the total offees, taxes, licenses, etc., shoald be aggregated or totaled. The Kansas statute significantly does not expressly require aggregation.

Occidental Life Insurance Company v. Holmes, 80P.Zd 383 (Sup.Ct.Mont. 1938). concerned the construction of the Montana statute..‘

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Hon. William A. Harrison, page 4 (WW-525)

The issue was whether the statute should be applied at all. The company contended the proper construction was one involving a totaling ofall exactions imposed. The Court in upholding the company’s position said:

“To arrive at afair and equitable adjustment and to give the statute such an effect, the total exactions must be taken into account irrespective ofhow such exactions may be characterized or named.‘ The Maryland statute, apparently, has also been construed to require computation ofthe total or aggregate of ‘taxes, fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions’

. See 38 Opin. A.C. 202, Dec. 21, 1953, wherein examination fees ofa Texas corporation doing business in Maryland paid tothe Maryland Department of Insurance were allowed as an offset against the retaliatory tax calculated onthe base ofthe excess ofTexas tax over Maryland tax; and see also 39 Opin. A.G. 191, Sept. 7, 1954, which allows an offset the cost ofpublication ofan annual statement against the retaliatory tax.

InArizona the Attorney General (Opin. 56-l 19, dated July 3, 1956) has held that their retaliatory statute and the use ofthe phrase

“aggregate

. ~.requirements or other obligations , . .directly imposed upon similar insurers

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. , ” is conclusive that the intent ofthe Legislature was toallow for all burdens directly imposed upon companies tobe deducted.

We recognize the administrative difficulties involved inmaking such a comparison. We also recognize that a comparison ofthe total ofall burdens was intended by the Legislature instead ofthe method presently used.

Your second question is predicated upon anegative answer to the first. You ask us as tothe proper interpretation and construction ofthe statute. Because there is no specific fact situation submitted with the request, we will not be able to answer the question.

We recognize that aforeign state may impose on a Texas company aburden such as arecommendation that the company be licensed in doing business inTexas for five years prior to its admission tothe foreign state. Since we have declined toanswer your second question, this opinion should not be construed as prescribing how burdens such as this, which by their nature may not be capable ofbeing reduced to a common denominator with other burdens for the purpose ofcomparison. should be treated when applying Article 21.46 except to say that the present interpretation ofthe Department of Insurance is incorrect.I

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1 Hon. William A. Harrison, page 5 (WW-525) ._ _

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Inyour third question you inquire as to the data and time when such items are to be aggregated. The statute is silent insofar as this matter is concerned. Article 21.46 and Senate Bill 222, Acts 55th Leg., R.S. 1957. p. 1454. ch. 499, when construed together vest enforcement ofArticle 21.46 in the State Board of Insurance and direct that the duties therein set out be executed and carried out by the Commissioner of Insurance who acts under the supervision and rules and regulations ofthe State Board of Insurance. (Art. 1.04(b) and Art. 1.09(a)) Senate Bill 222 empowers the State Board of Insurance to make rules and regulations for the purpose ofcarrying out its duties and functions. (Art. 1.04(c)) Itis our opinion that this is a matter lying within the sound discretion ofthe State Board of Insurance and the Commissioner and may properly be resolved by adoption’of appropriate rules and regulations; provided, however, that the rules and regulations conform to the language and purposes ofArticle 21.46 and other applicable statutes.

Inyour opinion request you state:

“As mentioned above, Article 21.46 became effective on January 1, 1958. As we understand Attorney General’s Gpinion dated August 16, 1949, written by Assistant Attorney General Ned McDaniel tothe Honorable George B. Butler, Chairman ofthe Board of Insurance Commissioners, and Attorney General’s Opinion dated December 3, 1936, appearing in book 374, page 496, written by the Honorable W. W. Heath,to the Honorable R. L. Daniel, Chairman ofthe Board ofInsurance Commissioners, the taxes which are now due from foreign casualty andfire companies under Article 7064, Revised Civil Statutes, would be subject tothe retaliatory law. These same opinions lead us to the concl-sion that taxes now due from foreign life insurance companies under Article 4769, Revised Civil Statutes, would not be subject tothe retaliatory law.” Your final question is whether the present interpretation and construction ofthese opinions and the construction ofArticle 21.46 is correct. We have carefully examined the opinions referred to, together with the present text ofArticle 4769 and Article 7064, Vernon’s Civil Statutes. Itis the opinion ofthis office that basic features ofboth of these tax statutes have not been changed since the issuance of these two opinions. The principles stated in those opinions are still applicable. Therefore, since the gross premium tax levied under Article 7064 is an occupation tax for the privilege ofdoing business in this State, payable in advance, the tax presently due under this article would be atax for doing business during 1958, subsequent to the effective date ofthe retaliatory act. Accordingly, these taxes shouldI

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Hon. William A. Harrison, page 6(WW-525)

be taken into consideration inapplying the retaliatory act. Incontrast, the taxes now due under Article 4769 are imposed for doing business in 1957 prior tothe effective data ofthe retaliatory act and should not be taken into consideration in applying the retaliatory act. SUMMARY

The Retaliatory Act, Article 21.46, requires acomparison oftotal burdens imposed by Texas laws onaforeign insurance company with the total burdens imposed by the State of its domicile upon similar Texas corporations licensed todo business and actually doing business inthe foreign state; accordingly, the method of “‘aggregating” the items enumerated inArticle 21.46 that are set out in the opinion request are incorrect. The date and time onwhich these vari.ous items are tobe aggregated rest within the discretion ofthe State Board ofInsurance and may be determined by rules and regulations. The Retaliatory Act should be applied tothe taxes now due p,ursuant toArticle 7064, Vernon’s Civil Statutes, but should not be applied to the taxes now due under Article 4769, Vernon’s Civil Statutes.

WPF:lm APPROVED: OPINION COMMITTEE: Geo. P. Blackburn, Chairman J. C. Davis, Jr. Tom I. McFarling L. P. Lollar Very txly yozs,

wILL wILSON Attorney Gene

BYAssistant

REVIEWED FOR THE ATTORNEY GENERAL BY: W. V. Geppert