Source: http://supreme.nolo.com/us/470/869/case.html
Timestamp: 2020-01-25 16:21:07
Document Index: 239025721

Matched Legal Cases: ['§ 27', '§ 27', '§ 1011', '§ 27', '§ 1011', '§ 27', '§ 27', '§ 3']

METROPOLITAN LIFE INS. CO. V. WARD, 470 U. S. 869 - Volume 470 - 1985 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 470 > METROPOLITAN LIFE INS. CO. V. WARD, 470 U. S. 869 (1985) > Full Text
METROPOLITAN LIFE INS. CO. V. WARD, 470 U. S. 869 (1985)
Held: The Alabama domestic preference tax statute violates the Equal Protection Clause as applied to appellants. Pp. 470 U. S. 874-883.
(a) Under the circumstances of this case, promotion of domestic business by discriminating against nonresidents is not a legitimate state purpose. Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U. S. 648, distinguished. 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 intended to prevent. A State may not constitutionally favor its own residents by taxing foreign corporations at a higher rate solely because of their residence. Although the McCarran-Ferguson Act exempts the insurance industry from Commerce Clause
restrictions, it does not purport to limit the applicability of the Equal Protection Clause. Equal protection restraints are applicable even though the effect of the discrimination is similar to the type of burden with which the Commerce Clause also would be concerned. Pp. 470 U. S. 876-882.
(b) Nor is the encouragement of the investment in Alabama assets and securities a legitimate state purpose. Domestic insurers remain entitled to the more favorable tax rate regardless of whether they invest in Alabama assets. Moreover, since the investment incentive provision does not enable foreign insurers to eliminate the statute's discriminatory effect, it does not cure, but reaffirms, the impermissible classification based solely on residence. Pp. 470 U. S. 882-883.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, BLACKMUN, and STEVENS, JJ., joined. O'CONNOR, J., filed a dissenting opinion, in which BRENNAN, MARSHALL, and REHNQUIST, JJ., joined, post p. 470 U. S. 883.
Since 1955, [Footnote 1] the State of Alabama has granted a preference to its domestic insurance companies by imposing a substantially lower gross premiums tax rate on them than on out-of-state (foreign) companies. [Footnote 2] Under the current statutory provisions, foreign life insurance companies pay a tax on their gross premiums received from business conducted in Alabama at a rate of three percent, and foreign companies selling other types of insurance pay at a rate of four percent. Ala.Code § 27-4-4(a) (1975). All domestic insurance companies, in contrast, pay at a rate of only one percent on all types of insurance premiums. § 27-4-5(a). [Footnote 3] As a result, a foreign
Appellants appealed to the Circuit Court for Montgomery County, seeking a judgment declaring the statute to be unconstitutional and requiring the Commissioner to make the appropriate refunds. Several domestic companies intervened, and the court consolidated all of the appeals, selecting two claims as lead cases [Footnote 4] to be tried and binding on all claimants. On cross-motions for summary judgment, the court ruled on May 17, 1982, that the statute was constitutional. Relying on this Court's opinion in Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U. S. 648 (1981), the court ruled that the Alabama statute did not violate the Equal Protection Clause because it served
protection challenge to a California statute imposing a retaliatory tax on foreign insurance companies doing business within the State, when the home States of those companies imposed a similar tax on California insurers entering their borders. We concluded that Lincoln was no more than "a surprising throwback" to the days before enactment of the Fourteenth Amendment and in which incorporation of a domestic corporation or entry of a foreign one had been granted only as a matter of privilege by the State in its unfettered discretion. 451 U.S. at 451 U. S. 665. We therefore rejected the longstanding but "anachronis[tic]" rule of Lincoln, and explicitly held that the Equal Protection Clause imposes limits upon a State's power to condition the right of a foreign corporation to do business within its borders. 451 U.S. at 451 U. S. 667. We held that
Id. at 451 U. S. 667-668.
Because appellants waived their right to an evidentiary hearing on the issue whether the classification in the Alabama domestic preference tax statute bears a rational relation to the two purposes upheld by the Circuit Court, the only question before us is whether those purposes are legitimate. [Footnote 5]
The cases cited lend little or no support to the State's contention. In Western & Southern, the case principally relied upon, we did not hold as a general rule that promotion of domestic industry is a legitimate state purpose under equal protection analysis. [Footnote 6] Rather, we held that California's purpose
in enacting the retaliatory tax -- to promote the interstate business of domestic insurers by deterring other States from enacting discriminatory or excessive taxes -- was a legitimate one. 451 U.S. at 451 U. S. 668. In contrast, Alabama asks us to approve its purpose of promoting the business of its domestic insurers in Alabama by penalizing foreign insurers who also want to do business in the State. Alabama has made no attempt, as California did, to influence the policies of
The crucial distinction between the two cases 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, contrary to California's, constitutes the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent. As JUSTICE BRENNAN, joined by Justice Harlan, observed in his concurrence in Allied Stores of Ohio, Inc. v. Bowers, 358 U. S. 522 (1959), 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." Id. at 358 U. S. 533. 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.
The validity of the view that a State may not constitutionally favor its own residents by taxing foreign corporations at a higher rate solely because of their residence is confirmed by a long line of this Court's cases so holding. WHYY, Inc. v. Glassboro, 393 U.S. at 393 U. S. 119-120; Wheeling Steel Corp. v. Glander, 337 U.S. at 337 U. S. 571; Hanover Fire Ins. Co. v. Harding, 272 U.S. at 272 U. S. 511; Southern R. Co. v. Greene, 216 U.S. at 216 U. S. 417. See Reserve Life Ins. Co. v. Bowers, 380 U. S. 258 (1965) (per curiam). As the Court stated in Hanover Fire Ins. Co. with respect to general tax burdens on business, "the foreign corporation stands equal, and is to be classified with domestic corporations of the same kind."
272 U.S. at 272 U. S. 511. In all of these cases, the discriminatory tax was imposed by the State on foreign corporations doing business within the State solely because of their residence, presumably to promote domestic industry within the State. [Footnote 7] In relying on these cases and rejecting Lincoln in Western & Southern, we reaffirmed the continuing viability of the Equal Protection Clause as a means of challenging a statute that seeks to benefit domestic industry within the State only by grossly discriminating against foreign competitors.
nonresident businesses an exemption that residents did not share. Since the foreign and domestic companies involved were not competing to provide warehousing services, granting the former an exemption did not even directly affect adversely the domestic companies subject to the tax. On its facts, then, Allied Stores is not inconsistent with our holding here that promotion of domestic business within a State, by discriminating against foreign corporations that wish to compete by doing business there, is not a legitimate state purpose. See 358 U.S. at 358 U. S. 532-533 (BRENNAN, J., concurring).
The State argues nonetheless that it is impermissible to view a discriminatory tax such as the one at issue here as violative of the Equal Protection Clause. This approach, it contends, amounts to no more than "Commerce Clause rhetoric in equal protection clothing." Brief for Appellee Ward 22. The State maintains that, because Congress, in enacting the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, intended to authorize States to impose taxes that burden interstate commerce in the insurance field, the tax at issue here must stand. Our concerns are much more fundamental than as characterized by the State. Although the McCarran-Ferguson Act exempts the insurance industry from Commerce Clause restrictions, it does not purport to limit in any way the applicability of the Equal Protection Clause. As noted above, our opinion in Western & Southern expressly reaffirmed the viability of equal protection restraints on discriminatory taxes in the insurance context. [Footnote 8]
Moreover, the State's view ignores the differences between Commerce Clause and equal protection analysis, and the consequent different purposes those two constitutional provisions serve. Under Commerce Clause analysis, the State's interest, if legitimate, is weighed against the burden the state law would impose on interstate commerce. In the equal protection context, however, if the State's purpose 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. See Western & Southern, 451 U.S. at 451 U. S. 674 (if purpose is legitimate, equal protection challenge may not prevail so long as the question of rational relationship is "at least debatable'" (quoting United States v. Carolene Products Co., 304 U. S. 144, 304 U. S. 154 (1938))).
The two constitutional provisions perform different functions in the analysis of the permissible scope of a State's power -- one protects interstate commerce, and the other protects persons [Footnote 9] from unconstitutional discrimination by the States. See Bethlehem Motors Corp. v. Flynt, 256 U. S. 421, 256 U. S. 423-424 (1921). The effect of the statute at issue here is to place a discriminatory tax burden on foreign insurers who desire to do business within the State, thereby also incidentally placing a burden on interstate commerce. Equal protection restraints are applicable even though the effect of the discrimination in this case is similar to the type of burden with which the Commerce Clause also would be concerned. We reaffirmed the importance of the Equal Protection Clause in the insurance context in Western & Southern, and see no reason now for reassessing that view.
In whatever light the State's position is cast, acceptance of its contention that promotion of domestic industry is always a legitimate state purpose under equal protection analysis would eviscerate the Equal Protection Clause in this context. A State's natural inclination frequently would be to prefer domestic business over foreign. If we accept the State's view here, then any discriminatory tax would be valid if the State could show it reasonably was intended to benefit domestic business. [Footnote 10] A discriminatory tax would stand or fall depending primarily on how a State framed its purpose -- as benefiting one group or as harming another. This is a distinction without a difference, and one that we rejected last Term in an analogous context arising under the Commerce Clause. Bacchus Imports, Ltd. v. Dias, 468 U.S. at 468 U. S. 273. See n 6, supra. We hold that, under the circumstances of this case, promotion of domestic business by discriminating against nonresident competitors is not a legitimate state purpose.
We conclude that neither of the two purposes furthered by the Alabama domestic preference tax statute and addressed by the Circuit Court for Montgomery County, see supra at 470 U. S. 873, is legitimate under the Equal Protection Clause to justify the imposition of the discriminatory tax at issue here. The judgment of the Alabama Supreme Court accordingly is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.
As the dissent finds our failure to resolve whether Alabama may continue to collect its tax "baffling," post at 470 U. S. 887, we reemphasize the procedural posture of the case: it arose on a motion for summary judgment. The Court of Civil Appeals upheld the Circuit Court's ruling that the two purposes identified by it were legitimate, but the appellate court remanded on the issue of rational relationship as to those purposes because it found the evidence in conflict. In order to obtain an expedited ruling, appellants waived their right to an evidentiary hearing only as to the purposes "which the lower courts have determined to be legitimate." 447 So.2d 142, 143 (Ala.1983). Thus, for this Court to resolve whether Alabama may continue to collect the tax, it would have to decide de novo whether any of the other purposes was legitimate, and also whether the statute's classification bore a rational relationship to any of these purposes -- all this, on a record that the Court of Civil Appeals deemed inadequate.
We find the other cases on which the State relies also to be inapposite to this inquiry. Bacchus Imports, Pike, and Parker discussed whether promotion of local industry is a valid state purpose under the Commerce Clause. The Commerce Clause, unlike the Equal Protection Clause, is integrally concerned with whether a state purpose implicates local or national interests. The Equal Protection Clause, in contrast, is concerned with whether a state purpose is impermissibly discriminatory; whether the discrimination involves local or other interests is not central to the inquiry to be made. Thus, the fact that promotion of local industry is a legitimate state interest in the Commerce Clause context says nothing about its validity under equal protection analysis. See infra at 470 U. S. 880-881.
Moreover, neither Bacchus nor Pike ruled that a State's ability to promote domestic industry was unlimited, even under the Commerce Clause. Thus, in Bacchus, although we observed as a general matter that "a State may enact laws pursuant to its police powers that have the purpose and effect of encouraging domestic industry," 468 U.S. at 468 U. S. 271, we held that, in so doing, a State may not constitutionally impose a discriminatory burden upon the business of other States, merely to protect and promote local business, id. at 468 U. S. 272-273. Accord, Armco Inc. v. Hardesty, 467 U. S. 638, 467 U. S. 642 (1984). Likewise, in Pike, the Court held that the state statute promoting a legitimate local interest must "regulat[e] evenhandedly." 397 U.S. at 397 U. S. 142.
Other cases cited by the State are simply irrelevant to the legitimacy of promoting local business at all. Carmichael relates primarily to the validity of a state unemployment compensation scheme, and Board of Education deals with the State's ability to regulate matters relating to probate. Bowers is the only one of the State's cases that involves the validity under the Equal Protection Clause of a tax that discriminates on the basis of residence of domestic versus foreign corporations. That case does little, however, to support the State's contention that promotion of domestic business is a legitimate state purpose. It was concerned with encouraging nonresidents -- who are not competitors of residents -- to build warehouses within the State. See infra at 470 U. S. 879-880.
In fact, as we noted in Western & Southern, the legislative history of the McCarran-Ferguson Act reveals that the Act was Congress' response only to United States v. South-Eastern Underwriters Assn., 322 U. S. 533 (1944), and that Congress did not intend thereby to give the States any power to tax or regulate the insurance industry other than what they had previously possessed. Thus Congress expressly left undisturbed this Court's decisions holding that the Equal Protection Clause places limits on a State's ability to tax out-of-state corporations. See 451 U.S. at 451 U. S. 655, n. 6.
It is well established that a corporation is a "person" within the meaning of the Fourteenth Amendment. E.g., Western & Southern, 451 U.S. at 451 U. S. 660, n. 12.
Indeed, under the State's analysis, any discrimination subject to the rational relation level of scrutiny could be justified simply on the ground that it favored one group at the expense of another. This case does not involve or question, as the dissent suggests, post at 470 U. S. 900-901, the broad authority of a State to promote and regulate its own economy. We hold only that such regulation may not be accomplished by imposing discriminatorily higher taxes on nonresident corporations solely because they are nonresidents.
place of business or invest assets within the State. Ala.Code § 27-4-4 et seq. (1975). This tax seeks to promote both a domestic insurance industry and capital investment in Alabama. App. to Juris. Statement 20a-21a. Metropolitan Life Insurance Company, joined by many other out-of-state insurers, alleges that this discrimination violates its rights under the Equal Protection Clause of the Fourteenth Amendment, which provides that a State shall not "deny to any person within its jurisdiction the equal protection of the laws." Appellants rely on the Equal Protection Clause because, as corporations, they are not "citizens" protected by the Privileges and Immunities Clauses of the Constitution. Hemphill v. Orloff, 277 U. S. 537, 277 U. S. 548-550 (1928). Similarly, they cannot claim Commerce Clause protection because Congress, in the McCarran-Ferguson Act, 59 Stat. 33, as amended, 15 U.S.C. § 1011 et seq., explicitly suspended Commerce Clause restraints on state taxation of insurance, and placed insurance regulation firmly within the purview of the several States. Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U. S. 648, 451 U. S. 655 (1981).
and significant evidence in the record establishing their legitimacy. Most troubling, the Court discovers in the Equal Protection Clause an implied prohibition against classifications whose purpose is to give the "home team" an advantage over interstate competitors even where Congress has authorized such advantages. Ante at 470 U. S. 878.
New Orleans v. Dukes, 427 U. S. 297, 427 U. S. 303 (1976). See, e.g., Lehnhasen v. Lake Shore Auto Parts Co., 410 U. S. 356 (1973). Judicial deference is strongest where a tax classification is alleged to infringe the right to equal protection. "[I]n taxation, even more than in other fields, legislatures possess the greatest freedom in classification." Madden v. Kentucky, 309 U. S. 83, 309 U. S. 88 (1940).
Carmichael v. Southern Coal & Coke Co., 301 U. S. 495, 301 U. S. 512 (1937) (citations omitted). As the Court emphatically noted in Allied Stores of Ohio, Inc. v. Bowers, 358 U. S. 522, 358 U. S. 528 (1959) (citations omitted):
See also Western & Southern Life Ins. Co. v. State Board of Equalization of California, supra, at 451 U. S. 674; Minnesota v. Clover Leaf Creamery Co., 449 U. S. 456, 449 U. S. 464 (1981).
The majority evades the obvious by refusing to acknowledge the factual background bearing on the legitimacy of the State's purpose or to address the many collateral public benefits advanced by Alabama. Instead, the Court dismisses appellees' arguments by merely stating that they were not ruled on by the courts below. Ante at 470 U. S. 875-876, n. 5. In point of fact, the full range of purposes documented before this Court was also argued and documented before the Alabama Circuit Court. See Record, Vols. 6-8. That court found
Dandridge v. Williams, 397 U. S. 471, 397 U. S. 475, n. 6 (1970). The Court's failure actually to resolve whether Alabama may continue to collect its tax, see ante at 470 U. S. 882, n. 10, is all the more baffling, since appellants took the exceptional step of conceding the factual issues to assure a speedy resolution of numerous pending lawsuits disruptive of industry stability. See Brief for State of Alaska et al. as Amici Curiae 1-2. Our precedents do not condone such a miserly approach to review of statutes adjusting economic burdens. See, e.g., Allied Stores of Ohio, Inc. v. Bowers, supra, at 358 U. S. 528-529; McGowan v. Maryland, 366 U. S. 420, 366 U. S. 425 (1961); United States v. Carolene Products Co., 304 U. S. 144, 304 U. S. 152-153 (1938); Borden's Farm Products Co. v. Baldwin, 293 U. S. 194, 293 U. S. 209 (1934). The Court has consistently reviewed the validity of such statutes based on whatever "may reasonably have been the purpose and policy of the State Legislature, in adopting the proviso." Allied Stores of Ohio, Inc. v. Bowers, supra, at 358 U. S. 528-529. It is to that inquiry that I now turn.
Appellees claim that Alabama's insurance tax, in addition to raising revenue and promoting investment, promotes the formation of new domestic insurance companies and enables them to compete with the many large multistate insurers that currently occupy some 75% to 85% of the Alabama insurance market. App. 80. Economic studies submitted by the State document differences between the two classes of insurers that are directly relevant to the wellbeing of Alabama's citizens. See id. at 46-129. Foreign insurers typically concentrate on affluent, high volume, urban markets and offer standardized national policies. In contrast, domestic insurers such as intervenors American Educators Life Insurance Company and Booker T. Washington Life Insurance Company are more likely to serve Alabama's rural areas, and to write low-cost industrial and burial policies not offered by the larger national companies. [Footnote 2/1] Additionally, appellees argue
Morey v. Doud, 354 U. S. 457, 354 U. S. 472 (1957) (dissenting). A thoughtful look at the "actualities of [this] legislation" compels the conclusion that the State's goals are legitimate by any test.
Issues and Needed Improvements in State Regulation of the Insurance Business, GAO Report B-192813, p. 5 (Oct. 9, 1979) (GAO Report). In 1944, however, this Court overruled a long line of cases holding that the business of insurance was an intrastate activity beyond the scope of the Commerce Clause. United States v. South-Eastern Underwriters Assn., 322 U. S. 533.
"The decision provoked widespread concern that the States would no longer be able to engage in taxation and effective regulation of the insurance industry. Congress moved quickly, enacting the McCarran-Ferguson Act within a year of the decision in South-Eastern Underwriters."
St. Paul Fire & Marine Insurance Co. v. Barry, 438 U. S. 531, 438 U. S. 539 (1978). See H.R.Rep. No. 143, 79th Cong., 1st Sess., 2 (1945); 91 Cong.Rec. 479-480 (1945) (remarks of Sen. Ferguson); id. at 487 (remarks of Sen. Ellender).
"Prudential Insurance Co. v. Benjamin, 328 U. S. 408, 328 U. S. 429 (1946)."
St. Paul Fire & Marine Insurance Co. v. Barry, supra, at 438 U. S. 539.
any power to tax or regulate the insurance industry other than they already possessed. But the legislative history cited by the majority, ante at 470 U. S. 879, n. 7, relates not to differential taxation, but to decisions of this Court that had invalidated state taxes on contracts of insurance entered into outside the State's jurisdiction. See H.R.Rep. No. 143, 79th Cong., 1st Sess., 3 (1945). The Court fails to mention that, at the time the Act was under consideration, the taxing schemes of Alabama, Arizona, Arkansas, Illinois, Kansas, Kentucky, Maine, Michigan, Mississippi, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Washington, and Wisconsin all incorporated tax differentials favoring domestic insurers. See App. 377-379.
Any doubt that Congress' intent encompassed taxes that discriminate in favor of local insurers was dispelled in Prudential Insurance Co. v. Benjamin, 328 U. S. 408 (1946). Cf. Note, Congressional Consent to Discriminatory State Legislation, 45 Colum.L.Rev. 927 (1945) (discussing the issues of constitutional power posed by the Act). There, a foreign insurer challenged a tax on annual gross premiums imposed on foreign, but not domestic, insurers as a condition for renewal of its license to do business. Congress, the foreign insurer argued, was powerless to sanction the tax at issue because "the commerce clause, by its own force,' forbids discriminatory state taxation." 328 U.S. at 328 U. S. 426. A unanimous Court rejected the argument that exacting a 3% gross premium tax from foreign insurers was invalid as "somehow technically of an inherently discriminatory character." Id. at 328 U. S. 432. The Court concluded that the McCarran-Ferguson Act's effect was "clearly to sustain the exaction and that this can be done without violating any constitutional provision." Id. at 328 U. S. 427 (emphasis added).
Benjamin expressly noted that nothing in the Equal Protection Clause forbade the State to enact a law such as the tax at issue. Id. at 328 U. S. 438, and n. 50. In this regard, the Court relied in part on Hanover Fire Ins. Co. v. Harding,
272 U. S. 494 (1926), a decision that explicitly recognized that differential taxation of revenues of foreign corporations may not be arbitrary or without reasonable basis. See Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U.S. at 451 U. S. 664, n. 17. The Commerce Clause, Benjamin emphasized, is not a "one-way street," but encompasses congressional power "to discriminate against interstate commerce and in favor of local trade," "subject only to the restrictions placed upon its authority by other constitutional provisions." 328 U.S. at 328 U. S. 434. Where the States and Congress have acted in concert to effect a policy favoring local concerns, their action must be upheld unless it unequivocally exceeds
Id. at 328 U. S. 435-436.
State insurance commissions vary widely in manpower and expertise. GAO Report 14. In practice, the State of incorporation exercises primary oversight of the solvency of its insurers. Id. at 36-38. See generally Dunne, Risk, Reality, and Reason in Financial Services Deregulation: A State Legislative Perspective, 2 J.Ins.Reg. 342 (1984) (prepared by the Conference of Insurance Legislators). See, e.g., Ala.Code § 27-2-21 (Supp.1984); Ill.Rev.Stat., ch. 73, 745 (1983) (power to examine books of domestic insurers); Ala.Code § 27-32-1 et seq. (1975); Ill.Rev.Stat., ch. 73, �� 799, 800 (1983) (commissioner's authority to assume control to prevent insolvency); see generally Wis.Stat.Ann., ch. 620, Prefatory Committee Comment -- 1971, pp. 536, 546 (1980) (noting lesser control over nondomestic's financial operations). Even the State of incorporation's efforts to regulate a multistate insurer may be seriously hampered by the difficulty of gaining access to records and assets in 49 other States. Dunne, supra, at 356. Thus the security of Alabama's citizens who purchase insurance from out-of-state companies may depend in part on the diligence of another State's insurance commissioner, over whom Alabama has no authority and limited influence. In the event of financial failure of a foreign insurer, the State may have difficulty levying on out-of-state assets. See, e.g., South Carolina ex rel. Phoenix Life Ins. Co. v. McMaster, 237 U. S. 63, 237 U. S. 73 (1915). Since each State maintains its own insurance guarantee fund, the domestic insurers of the States where a multistate insurer is admitted to do business may ultimately
Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U.S. at 451 U. S. 674, quoting United States v. Carolene Products Co., 304 U.S. at 304 U. S. 154. Moreover, appellants waived their right to challenge the tax measure's effectiveness.
Despite abundant evidence of a legitimate state purpose, the majority condemns Alabama's tax as "purely and completely discriminatory," and "the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent." Ante at 470 U. S. 878. Apparently, the majority views any favoritism of domestic commercial entities as inherently
suspect. The majority ignores a long line of our decisions. In the past, this Court has not hesitated to apply the rational basis test to regulatory classifications that distinguish between domestic and out-of-state corporations or burden foreign interests to protect local concerns. The Court has always recognized that there are certain legitimate restrictions or policies in which, "[b]y definition, discrimination against nonresidents would inhere." Arlington County Board v. Richards, 434 U. S. 5, 434 U. S. 7 (1977) (per curiam). For example, where State of incorporation or principal place of business affect the State's ability to regulate or exercise its jurisdiction, a State may validly discriminate between foreign and domestic entities. See G. D. Searle & Co. v. Cohn, 455 U. S. 404 (1982) (difficulty of obtaining jurisdiction over nonresident corporation provides a rational basis for excepting such corporations from statute of limitations); Metropolitan Casualty Ins. Co. v. Brownell, 294 U. S. 580 (1935) (domicile of insurer relevant to statute of limitations as foreign insurers' offices and funds generally located outside State); Board of Education v. Illinois, 203 U. S. 553, 203 U. S. 562 (1906) (State's greater control over domestic than foreign nonprofit corporations justifies discriminatory tax).
A State may use its taxing power to entice useful foreign industry, see Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. at 358 U. S. 528, or to make residence within its boundaries more attractive, see Zobel v. Williams, 457 U. S. 55, 457 U. S. 67-68 (1982) (BRENNAN, J., concurring). Though such measures might run afoul of the Commerce Clause,
Bacchus Imports, Ltd. v. Dias, 468 U. S. 263, 468 U. S. 271 (1984); Western & Southern Life Ins. Co. v. State Board of Equalization of California, supra, at 451 U. S. 668. Cf. Edgar v. MITE Corp., 457 U. S. 624, 457 U. S. 646 (1982) (POWELL, J., concurring in part) (noting State's interest in protecting regionally based corporations from acquisition by foreign corporations).
Moreover, the Court has held in the dormant Commerce Clause context that a State may provide subsidies or rebates to domestic, but not to foreign, enterprises if it rationally believes that the former contribute to the State's welfare in ways that the latter do not. Hughes v. Alexandria Scrap Corp., 426 U. S. 794 (1976). Although the Court has divided on the circumstances in which the dormant Commerce Clause allows such measures, see id. at 426 U. S. 817 (BRENNAN, J., dissenting), surely there can be no dispute that they are constitutionally permitted where Congress itself has affirmatively authorized the States to promote local business concerns free of Commerce Clause constraints. Neither the Commerce Clause nor the Equal Protection Clause bars Congress from enacting or authorizing the States to enact legislation to protect industry in one State "from disadvantageous competition" with less stringently regulated businesses in other States. Hodel v. Indiana, 452 U. S. 314, 452 U. S. 329 (1981). See also Western & Southern, supra, at 451 U. S. 669 (with congressional approval, States may promote domestic insurers by seeking to deter other States from enacting discriminatory or excessive taxes).
defended as taxes on the "privilege" of doing business. Ante at 470 U. S. 878-879. See, e.g., WHYY, Inc. v. Glassboro, 393 U. S. 117 (1968); Wheeling Steel Corp. v. Glander, 337 U. S. 562 (1949); Hanover Fire Ins. Co. v. Harding, 272 U. S. 494 (1926); Southern R. Co. v. Greene, 216 U. S. 400 (1910). These decisions were addressed in Western & Southern, and the classifications were characterized as impermissibly discriminatory because they did not "rest on differences pertinent to the subject in respect of which the classification is made.'" 451 U.S. at 451 U. S. 668, quoting Power Manufacturing Co. v. Saunders, 274 U. S. 490, 274 U. S. 494 (1927). As the majority concedes, none of these decisions intimates that the tax statutes at issue in the decisions rested on relevant differences between domestic and foreign corporations or had purposes other than the raising of revenue at the out-of-state corporations' expense.
In fact, the Court noted in several of these opinions that foreign corporations may validly be taxed at a higher rate if the classification is based on some relevant distinction. No such distinction, however, had been demonstrated or even alleged. See WHYY, Inc. v. Glassboro, supra, at 393 U. S. 120 ("This is not a case in which the exemption was withheld by reason of the foreign corporation's failure or inability to benefit the State in the same measure as do domestic nonprofit corporations"); Wheeling Steel Corp. v. Glander, supra, at 337 U. S. 572 ("[T]he inequality is not because of the slightest difference in Ohio's relation to the decisive transaction"); Southern R. Co. v. Greene, supra, at 216 U. S. 416-417 (parties conceded that the business of the foreign and domestic corporations was precisely the same). [Footnote 2/2] Lacking the threshold requirement of an articulated
distinction relevant to an asserted purpose, the classifications at issue in these decisions could never have survived rational basis scrutiny, and no such analysis was even attempted. These precedents do not answer the question posed by this case: whether a legislature may adopt differential tax treatment of domestic and foreign insurers not simply to raise additional revenue, but with the purpose of affecting the market as an "instrument of economic and social engineering." P. Hartman, Federal Limitations on State and Local Taxation § 3:2 (1981). The majority's suggestion that these cases necessarily decided the issue before us, as promotion of domestic business is "logically the primary reason for enacting discriminatory taxes such as those at issue [in the cited cases]," is mere speculation. See ante at 470 U. S. 879, n. 7.
In treating these cases as apposite authority, the majority again closes its eyes to the facts. Alabama does not tax at a higher rate solely on the basis of residence; it taxes insurers, domestic as well as foreign, who do not maintain a principal place of business or substantial assets in Alabama, based on conceded distinctions in the contributions of these insurers as a class to the State's insurance objectives. The majority obscures the issue by observing that a given "foreign insurance company doing the same type and volume of business in Alabama as a domestic company" will pay a higher tax. Ante at 470 U. S. 871-872. Under our precedents, tax classifications need merely "res[t] upon some reasonable consideration of difference or policy." Allied Stores of Ohio, Inc. v. Bowers,
358 U.S. at 358 U. S. 527. Rational basis scrutiny does not require that the classification be mathematically precise, or that every foreign insurer or every domestic company fit to perfection the general profile on which the classification is based. "[T]he Equal Protection Clause does not demand a surveyor's precision" in fashioning classifications. Hughes v. Alexandria Scrap Corp., 426 U.S. at 426 U. S. 814.
Because Alabama's classification bears a rational relationship to a legitimate purpose, our precedents demand that it be sustained. The Court avoids this clear directive by a remarkable evasive tactic. It simply declares that the ends of promoting a domestic insurance industry and attracting investments to the State, when accomplished through the means of discriminatory taxation, are not legitimate state purposes. This bold assertion marks a drastic and unfortunate departure from established equal protection doctrine. By collapsing the two prongs of the rational basis test into one, the Court arrives at the ultimate issue -- whether the means are constitutional -- without ever engaging in the deferential inquiry we have adopted as a brake on judicial impeachment of legislative policy choices. In addition to unleashing an undisciplined form of Equal Protection Clause scrutiny, the Court's approach today has serious implications for the authority of Congress under the Commerce Clause. Groping for some basis for this radical departure from equal protection analysis, the Court draws heavily on JUSTICE BRENNAN's concurring opinion in Allied Stores of Ohio, Inc. v. Bowers, supra, at 358 U. S. 530, as support for its argument that
Ante at 470 U. S. 878, quoting 358 U.S. at 358 U. S. 533.
451 U.S. at 451 U. S. 667, n. 21. More importantly, to the extent the Court today purports to find in the Equal Protection Clause an instrument of federalism, it entirely misses the point of JUSTICE BRENNAN's analysis. JUSTICE BRENNAN reasoned that
and that "the Equal Protection Clause, among its other roles, operates to maintain this principle of federalism." 358 U.S. at 358 U. S. 532. Favoring local business as an end in itself might be "rational," but would be antithetical to federalism. Accepting arguendo this interpretation, we have shown that the measure at issue here does not benefit local business as an end in itself, but serves important ulterior goals. Moreover, any federalism component of equal protection is fully vindicated where Congress has explicitly validated a parochial focus. Surely the Equal Protection Clause was not intended to supplant the Commerce Clause, foiling Congress' decision under its commerce powers to "affirmatively permit [some measure of] parochial favoritism" when necessary to a healthy federation. White v. Massachusetts Council of Construction Employers, Inc., 460 U. S. 204, 460 U. S. 213 (1983). Such a view of the Equal Protection Clause cannot be reconciled with the McCarran-Ferguson Act and our decisions in Western & Southern and Benjamin.
This conclusion is not drawn from the Commerce Clause, the textual source of constitutional restrictions on state interference with interstate competition. Reliance on the Commerce Clause would, of course, be unavailing here in view of the McCarran-Ferguson Act. Instead the Court engrafts its own economic values on the Equal Protection Clause. Beyond guarding against arbitrary or irrational discrimination, as interpreted by the Court today, this Clause now prohibits the effectuation of economic policies, even where sanctioned by Congress, that elevate local concerns over interstate competition. Ante at 470 U. S. 876-878.
Lochner v. New York, 198 U. S. 45, 198 U. S. 75-76 (1905) (Holmes, J., dissenting). In the heyday of economic due process, Justice Holmes warned:
Tyson & Brother v. Banton, 273 U. S. 418, 273 U. S. 445-446 (1927) (Holmes, J., dissenting, joined by Brandeis, J.).
The doctrine adopted by the majority threatens the freedom not only of the States but also of the Federal Government to formulate economic policy. The dangers in discerning in the Equal Protection Clause a prohibition against barriers to interstate business irrespective of the Commerce Clause should be self-evident. The Commerce Clause is a flexible tool of economic policy that Congress may use as it sees fit, letting it lie dormant or invoking it to limit as well as promote the free flow of commerce. Doctrines of equal protection are constitutional limits that constrain the acts of federal and state legislatures alike. See, e.g., Califano v. Webster, 430 U. S. 313 (1977); Cohen, Congressional Power to Validate Unconstitutional State Laws: A Forgotten Solution to an Old Enigma, 35 Stan.L.Rev. 387, 400-413 (1983). The Court's analysis casts a shadow over numerous congressional enactments that adopted as federal policy "the type of parochial favoritism" the Court today finds unconstitutional. White v. Massachusetts Council of Construction Employers, Inc., supra, at 460 U. S. 213. Contrary to the reasoning in Benjamin, the Court today indicates the Equal Protection Clause stands as an independent barrier if courts should determine that either Congress or a State has ventured the "wrong" direction down what has become, by judicial fiat, the one-way street of the Commerce Clause. Nothing in the Constitution or our past decisions supports forcing such an economic straitjacket on the federal system.
New Orleans v. Dukes, 427 U.S. at 427 U. S. 303-304 (citations omitted). Because I believe that the Alabama law at issue here serves legitimate state purposes through concededly rational means, and thus is neither invidious nor arbitrary, I would affirm the court below. I respectfully dissent.
The only cited authority that arguably addressed the issue raised in the instant case is a per curiam reversal and remand without opinion of a decision upholding a discriminatory ad valorem tax on a foreign insurer's fixtures and other tangible property. See Reserve Life Ins. Co. v. Bowers, 380 U. S. 258 (1965). A reversal and remand is more enigmatic even than a summary affirmance, which has precedential value only as to "the precise issues necessarily presented and necessarily decided." Mandel v. Bradley, 432 U. S. 173, 432 U. S. 176 (1977). Decisions without opinion may not be equated with "an opinion by this Court treating the question on the merits." See Edelman v. Jordan, 415 U. S. 651, 415 U. S. 670-671 (1974).
Fusari v. Stenberg, 419 U. S. 379, 419 U. S. 392 (1975) (BURGER, C.J., concurring).
Powered by Justia US Supreme Court Center: METROPOLITAN LIFE INS. CO. V. WARD, 470 U. S. 869 (1985)