Source: https://supreme.justia.com/cases/federal/us/275/87/
Timestamp: 2019-04-19 10:25:52+00:00

Document:
Compania General de Tabacos de Filipinas v.
1. A foreign corporation which has property and does business through agents in the Philippine Islands is subject to the taxing power of the Island government as a quasi-sovereign, but the power is limited by the Organic Act. P. 275 U. S. 92.
2. The liberty secured by the Organic Act embraces the right to make contracts and accumulate property and do business outside of the Philippine Islands and beyond its jurisdiction without prohibition, regulation, or governmental exaction. P. 275 U. S. 92.
3. A merchandising corporation organized and having its headquarters in a foreign country, with property and local agents in the Philippines, cannot be taxed by the Philippine government upon the premiums for the insurance of it goods shipped from the Islands, paid abroad upon a marine policy entered into abroad with a foreign insurance company having no license or agent in the Islands, and to be performed abroad. P. 275 U. S. 92.
4. This is true whether the imposition be regarded as a penalty or a a tax, and regardless of its amount. The purpose in either case is to discourage insurance in outside companies by regulating the conduct of the insured not within the local jurisdiction. P. 275 U. S. 95.
5. Where a foreign corporation doing business in the Philippine Islands insures goods in the Islands against fire, in a foreign insurance company which is licensed to do business there, the premiums paid are subject to taxation by the Philippine government even though the policy was executed and the payments made in a foreign country where the assured had its headquarters. P. 275 U. S. 98.
48 P.I. 35 reversed in part; affirmed in part.
Certiorari, 271 U.S. 655, to a judgment of the Supreme Court of the Philippine Islands which affirmed a judgment dismissing an action brought by the present petitioner to recover the money demanded of it by the respondent as taxes on insurance premiums, and which the petitioner paid under protest.
or other representative of the companies doing business in the Philippine Islands. The collector in 1923 assessed and collected from the Tobacco Company a tax of one percent upon the premiums paid by it to the London Company of 4,832.25 pesos, or 48 32/100 pesos, and on those paid by it to the Paris Company 100,050.44 pesos, or 1,000 50/100 pesos. These sums were paid under protest in writing. The protests were overruled on the 27th day of July, 1923, and on the 16th of August, the plaintiff filed this action for the recovery of the taxes.
The taxes were collected under § 192 of Act No. 2427, as amended by Act No. 2430, of the Statutes of the Philippines. 9 Public Laws 292. That section provides that it shall be unlawful for any person or corporation in the Philippines to procure, receive, or forward applications for insurance in, or to issue or to deliver or accept policies of or for, any company or companies not having been legally authorized to transact business in the Philippine Islands, and that any person or company violating this section shall be guilty of a penal offense, and upon conviction shall be punished by a fine of 200 pesos, or imprisonment for two months, or both, in the discretion of the court. The section contains a proviso that insurance may be placed by authority of a certificate of the insurance commissioner to any regularly authorized fire or marine insurance agent of the Islands, subject to revocation at any time, permitting the person named therein to procure policies of insurance on risks located in the Philippine Islands in companies not authorized to transact business in the Philippine Islands. Before the agent named in the certificate shall procure any insurance in such company, it must be shown by affidavit that the person desiring insurance, after diligent effort, has been unable to procure in any of the companies authorized to do business in the Philippine Islands the amount of insurance necessary.
The agent is to make a yearly report to the Collector of Internal Revenue of all premiums received by the company he represents under the previous authority, and he is to pay to the Collector of Internal Revenue a tax equal to twice the tax imposed by § 79 of Act No. 2339 (i.e., 1 percent thereof), which tax shall be paid at the same time and be subject to the same penalty for delinquency as the tax imposed by Act No. 2339. 9 Public Laws of Philippine Islands, February 27, 1914, p. 296. It is provided further that the prohibitions of the section shall not prevent an owner of property from applying for and obtaining for himself policies in foreign companies in cases where he does not make use of an agent residing in the Philippine Islands. In such cases, it shall be his duty to report to the insurance commissioner each case where the insurance has been effected, and shall pay a tax of one percentum on premiums paid in the manner required by law of insurance companies, and shall be subject to the same penalties for failure to do so.
The Philippine Organic Act (39 Stat. 545, 546, c. 416, § 3) imposes upon the Legislature of the Philippine Islands the same limitation by which the Fourteenth Amendment restrains the states of the Union, to-wit, that no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due process of law, or deny to any person the equal protection of the laws. The question of the validity of the tax on the premiums differs in respect to those paid the two insurance companies.
Coming, then, to the tax on the premiums paid to the Paris Company, the contract of insurance on which the premium was paid was made at Barcelona, in Spain, the headquarters of the Tobacco Company, between the Tobacco Company and the Paris Company, and any losses arising thereunder were to be paid in Paris. The Paris Company had no communication whatever with anyone in the Philippine Islands. The collection of this tax involves an exaction upon a company of Spain lawfully doing business in the Philippine Islands effected by reason of a contract made by that company with a company in Paris on merchandise shipped from the Philippine Islands for delivery in Barcelona. It is an imposition upon a contract not made in the Philippines, and having no situs there, and to be measured by money paid as premium in Paris, with the place of payment of loss, if any, in Paris. We are very clear that the contract and the premiums paid under it are not within the jurisdiction of the government of the Philippine Islands. The taxpayer, however, is resident in the Philippine Islands, and within the governmental jurisdiction of those Islands. Its property in the Islands and its agents doing business there are within the reach of the government of the Islands. The company may be compelled to pay what the government, in its quasi-sovereignty, chooses to exact as a matter of power, unless restrained by law. A legal restriction upon the taxing power of the Philippine government over citizens and residents of the Islands is found in the liberty secured by the Organic Act which embraces the right to make contracts and accumulate property and do business outside of the Philippine Islands and beyond its jurisdiction without prohibition, regulation, or governmental exaction.
insurance on property then in that state in any marine insurance company which had not complied in all respects with the laws of the state should be subject to a fine of $1,000 for each offense. Allgeyer was sued for violating the statute, because he had mailed a letter in New Orleans to the Atlantic Mutual Insurance Company of New York advising that company of a shipment of 100 bales of cotton to foreign ports, with bill of lading and an insurance certificate in accordance with the terms of an open marine policy of its issuing. Action was brought to recover for three such violations of the act the sum of $3,000. The answer was that the act was unconstitutional in that it deprived the defendant of its liberty without due process of law; that the business concerning which the defendants were sought to be made liable and the contracts made in reference to such business were beyond the jurisdiction of the state, because the contract of insurance was made with an insurance company in the State of New York, where the premiums were to be paid and where the losses thereunder, if any, were to be paid. This Court held that citizens of a state had a right to contract outside the state for insurance on their property, a right of which the state legislature could not deprive them, because coming within the "liberty," protected by the Fourteenth Amendment, and that the letter sent to the company was a proper act, which the state legislature had no right to prevent; this even though the property which was the subject of the insurance had been within the state.
"The short question is whether this so-called tax is saved because of the name given to it by the statute when it has been decided, in Allgeyer v. Louisiana, 165 U. S. 578, that the imposition of a round sum, called a fine, for doing the same thing, called an offense, is invalid under the Fourteenth Amendment. It is argued that there is a distinction because the Louisiana statute prohibits (by implication) what this statute permits. But that distinction, apart from some relatively insignificant collateral consequences, is merely in the amount of the detriment imposed upon doing the act. . . . Here, it is 5 percent upon the premiums, which is 3 percent more than is charged for insuring in authorized companies. Each is a prohibition to the extent of the payment required. The Arkansas tax manifests no less plainly than the Louisiana fine a purpose to discourage insuring in companies that do not pay tribute to the state. This case is stronger than that of Allgeyer in that here, no act was done within the state, whereas there, a letter constituting a step in the contract was posted within the jurisdiction. It is true that the state may regulate the activities of foreign corporations within the state, but it cannot regulate or interfere with what they do outside."
to pay tribute to it for contracts or money paid to secure the benefit of contracts made and to be performed outside of the state.
"In Louisiana, the detriment was $1,000. Here, it is five percent upon the premiums, which is three percent more than is charged for insuring in authorized companies. Each is a prohibition to the extent of the payment required. The Arkansas tax manifests no less plainly than the Louisiana fine a purpose to discourage insuring in companies that do not pay tribute to the state."
within its local jurisdiction. Taxation is regulation, just as prohibition is.
impossible to say that the rule adopted in Pennsylvania goes beyond what the Constitution allows."
It is true that, in considering the question of the measure of the tax, this Court referred to the argument of the Supreme Court of Pennsylvania that the tax might be properly measured by New York contracts because Pennsylvania protected the individuals insured therein during their lives in Pennsylvania. Our court accepted this as one of several reasons for including such individuals in the measure of the tax because of the incidental business done by the insurance company in Pennsylvania which the living of such individuals in that state after the making of the contract brought into its performance and consummation. But such reference cannot be made a basis for an argument that such protection as the government of the Philippine Islands gave to the merchandise while being shipped at Manila furnished any jurisdiction for a tax by that government on the premiums paid in Barcelona upon the insurance contract.
If that were to be admitted, then neither the Allgeyer nor the Compress case could be sustained, for the property in each of those cases was protected by the government seeking to impose the forbidden exactions upon the owner who obtained the insurance out of the state on that property within it. The tax here is not on the property insured. It is a tax on the contract or its proceeds, which were not in the Philippines or expected to be there. The Equitable Society case does not control or affect the question we are considering. Unless we are to reverse the Compress and Allgeyer cases, the judgment of the Supreme Court of the Philippines in respect to the tax on the premiums paid to the Paris Company must be held to be erroneous.
reached in the latter case, we affirm the judgment of the court below in respect to the tax upon the premium paid to the London Company.
The judgment of the Supreme Court of the Islands is reversed in part and affirmed in part.
This is a suit to recover the amount of a tax alleged to have been illegally imposed. The plaintiff is a Spanish corporation licensed to do business in the Philippine Islands and having an office in Manila. In 1922, from time to time it bought goods and put them into its Philippine warehouses. It notified its head office in Barcelona, Spain, of the value of the goods, and that office thereupon insured them under open policies issued by a company of London. From time to time also, the Philippine branch shipped the goods abroad for sale and secured insurance upon the shipments in the same manner, the premiums being charged to it in both cases. By § 192 of the Philippine Insurance Act No. 2427, as amended by Act No. 2430, where owners of property obtain insurance directly with foreign companies, the owners are required to report each case to the Collector of Internal Revenue and to "pay the tax of one percentum on premium paid, in the manner required by law of insurance companies." The defendant Collector collected this tax on the above mentioned premiums from the plaintiff against its protest. The plaintiff bases its suit upon the contentions that the statute is contrary to the Act of Congress of August 29, 1916, c. 416, § 3 (the Jones Act), 39 Stat. 545, 546, 547, as depriving it of its property without due process of law, and also as departing from the requirement in the same section that the rules of taxation shall be uniform. The Supreme Court of the Philippines upheld the tax. A writ of certiorari was granted by this Court. 271 U.S. 655.
The plaintiff's reliance is upon Allgeyer v. Louisiana, 165 U. S. 578, in which it was held that a fine could not be imposed by the state for sending a notice similar to the present to an insurance company out of the state. But it seems to me that the tax was justified, and that this case is distinguished from that of Allgeyer and from St. Louis Cotton Compress Co. v. Arkansas, 260 U. S. 346, by the difference between a penalty and a tax. It is true, as indicated in the last cited case, that every exaction of money for an act is a discouragement to the extent of the payment required, but that which, in its immediacy, is a discouragement may be part of an encouragement when seen in its organic connection with the whole. Taxes are what we pay for civilized society, including the chance to insure. A penalty. on the other hand. is intended altogether to prevent the thing punished. It readily may be seen that a state may tax things that, under the Constitution as interpreted, it cannot prevent. The constitutional right asserted in Allgeyer v. Louisiana to earn one's livelihood by any lawful calling certainly is consistent, as we all know, with the calling being taxed.
Sometimes there may be a difficulty in deciding whether an imposition is a tax or a penalty, but generally the intent to prohibit, when it exists, is plainly expressed. Sometimes, even when it is called a tax, the requirement is shown to be a penalty by its excess in amount over the tax in similar cases, as in St. Louis Cotton Compress Co. v. Arkansas. But, in the present instance, there is no room for doubt. The charge not only is called a tax, but is the same in amount as that imposed where the right to impose it is not denied.
The government has the insured within its jurisdiction. I can see no ground for denying its right to use its power to tax unless it can be shown that it has conferred no benefit of a kind that would justify the tax, as is held with regard to property outside of a state belonging to one within it. Frick v. Pennsylvania, 268 U. S. 473, 268 U. S. 489.
But here, an act was done in the Islands that was intended by the plaintiff to be, and was, an essential step towards the insurance, and, if that is not enough, the government of the Islands was protecting the property at the very moment in respect of which it levied the tax. Precisely this question was met and disposed of in Equitable Life Assurance Co. v. Pennsylvania, 238 U. S. 143, 238 U. S. 147.
The result of upholding the government's action is just. When it taxes domestic insurance, it reasonably may endeavor not to let the foreign insurance escape. If it does not discriminate against the latter, it naturally does not want to discriminate against its own.
The suggestion that the rule of taxation is not uniform may be disposed of in a few words. The uniformity required is uniformity in substance, not in form. The insurance is taxed uniformly, and although, in the case of domestic insurance, the tax is laid upon the company, whereas here it is laid upon the insured, it must be presumed that, in the former case, the company passes the tax on to the insured as an element in the premium charged.

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