Opinion ID: 1748304
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Heading: florida's premium tax

Text: 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 domestic companies. See Ward, 470 U.S. at 872, 105 S.Ct. at 1678-79. 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 domicile 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 Protection 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 have 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 domestic 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 makes clear that a state may not seek to promote and regulate its own economy by imposing discriminatorily higher taxes on nonresident corporations solely because they are nonresidents. 470 U.S. at 882 n. 10, 105 S.Ct. at 1683 n. 10. Such is the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent. 470 U.S. at 878, 105 S.Ct. at 1681. However, the Ward Court did not address whether an otherwise legitimate state regulatory 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 furthered 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 section 624.512, that section incorporates the regulatory requirements of section 628.271 [10] as conditions of the tax exemption to domestic insurers. Thus, when these statutes are read in pari materia, an intent to gain regulatory control is discernible from the statutory scheme itself. Moreover, the record in this case supports the conclusion that the regulatory goal advanced by the State clearly is a conceivable purpose for the premium tax. Eastern Air Lines, 455 So.2d at 314; see, also, Dandridge, 397 U.S. at 485, 90 S.Ct. at 1161-62. 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, 11 U.S.C. § 109(b)(2), (3), state action to place an insurer in rehabilitation or liquidation is the only protection available to policyholders under such circumstances. Because only the insurer's state of domicile can institute such proceedings, Florida can better safeguard Florida policyholders when it is the insurer's state of domicile. 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 companies were rewarded by a fifty-percent reduction in premium tax under section 624.514. Whereas, companies that elected to subject themselves to the plenary power of this state's in rem jurisdiction by establishing domicile in Florida and maintaining their records and the majority of their assets in this state were offered an exemption from the premium tax under section 624.512. 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 prevent. 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 between 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 sections 624.509, .512, .514 invalid under the United States and Florida Constitutions. [11] We also reverse that portion of the judgment that finds the proposed assessments of premium tax invalid.