Document: 470 U.S. 869 105 S.Ct. 1676 84 L.Ed.2d 751 METROPOLITAN LIFE INSURANCE COMPANY, et al., Appellantsv.W.G. WARD, Jr., al. No. 83-1274. Argued Oct. 31, 1984. Decided March 26, 1985. Rehearing Denied May 20, See 471 1120, 2370. Syllabus An Alabama statute imposes a substantially lower gross premiums tax rate on domestic insurance companies than out-of-state (foreign) companies. The permits foreign to reduce but not eliminate the differential by investing in assets and securities. Appellant filed claims for refunds of taxes paid, contending that statute, as applied them, violated Equal Protection Clause. State Commissioner Insurance denied claims. On consolidated appeals county Circuit Court, which several intervened, was upheld summary judgment. court ruled did violate Clause because, addition raising revenue, it served legitimate state purposes encouraging formation new capital investment securities, distinction between rationally related those purposes. Court Civil Appeals affirmed finding purposes, remanded an evidentiary hearing issue rational relationship. certiorari Supreme appellants waived their rights such hearing, entered judgment intervenors appellants' equal protection challenge statute. Held: preference violates appellants. Pp. 874-883. (a) Under circumstances this case, promotion business discriminating against nonresidents is purpose. Western & Southern Life Ins. Co. v. Board Equalization California, 451 648, 101 2070, 68 514 distinguished. Alabama's aim promote industry purely completely discriminatory, designed only favor within State, no matter what cost corporations also seeking do there. purpose constitutes very sort parochial discrimination intended prevent. A may constitutionally its own residents taxing at higher solely because residence. Although McCarran-Ferguson Act exempts from Commerce restrictions, does purport limit applicability restraints are applicable even though effect similar type burden with would be concerned. 876-882. (b) Nor encouragement securities Domestic insurers remain entitled more favorable regardless whether they invest assets. Moreover, since incentive provision enable statute's discriminatory effect, cure reaffirms impermissible classification based 882-883. 447 So.2d 142 (Ala.), reversed remanded. Matthew J. Zinn, Washington, D.C., Warren B. Lightfoot, Birmingham, Ala., appellees. Justice POWELL delivered opinion Court. 1 This case presents question Ala.Code §§ 27-4-4 27-4-5 (1975), companies, 2 * Since 1955,1 has granted imposing them companies.2 current statutory provisions, life pay received conducted three percent, selling other types four percent. § 27-4-4(a) (1975). All contrast, one percent all premiums. 27-4-5(a).3 As result, company doing same volume generally will times much competitor. 3 provide prescribed percentages worldwide specified 27-4-4(b). By 10 or total investments, example, insurer Similarly, property casualty Smaller reductions available smaller company's Ibid. Regardless how places can never level paid comparable These one-percent if have investments State. Thus, reduce, eliminate, inherent II 4 Appellants, group incorporated outside Alabama, Department 1981, They sought years 1977 through 1980. July 8, 1981. 5 Appellants appealed Montgomery County, declaring unconstitutional requiring make appropriate refunds. Several appeals, selecting two lead cases4 tried binding claimants. cross-motions judgment, 17, 1982, constitutional. Relying Court's (1981), "at least revenue: (1) (2) governmental set forth statute." App. Juris. Statement 20a-21a. found created Legislature reasonably could believed promoted Id., 21a. 6 After motion trial denied, Appeals. It rulings existence relationship, concluding inappropriate evidence conflict. 437 535 (1983). petitioned affirmance issue, review remand order. then right bore relationship legitimate, requested final determination legal issues respect again joint parties rehearing entry granted, intervenors. appeal followed, we noted probable jurisdiction. 466 935, 104 1905, 80 455 (1984). We now reverse. III 7 Prior our decision supra, jurisprudence statutes had somewhat checkered history. Lincoln National Read, 325 673, 65 1220, 89 L.Ed. 1861 (1945), held so-called "privilege" taxes, required corporation before permitted were immune challenge. That stood stark however, prior decisions R. Greene, 216 400, 30 287, 54 536 (1910), Hanover Fire Harding, 272 494, 47 179, 71 372 (1926), well later decisions, recognized placed limits forms taxation imposed See, e.g., WHYY, Inc. Glassboro, 393 117, 286, 21 242 (1968); Allied Stores Ohio, Bowers, 358 522, 79 437, 480 (1959); Wheeling Steel Corp. Glander, 337 562, 69 1291, 93 1544 (1949). 8 In Southern, reviewed these cases deciding permit California retaliatory when home States entering borders. concluded "a surprising throwback" days enactment Fourteenth Amendment incorporation been privilege unfettered discretion. U.S., 665, S.Ct., 2081. therefore rejected longstanding "anachronis[tic]" rule explicitly upon State's power condition 667, 2082. "[w]e consider established that, whatever extent authority exclude boundaries, justify imposition onerous burdens corporations, unless bears relation purpose." 667-668, 2082-2083. 9 Because us legitimate.5 11 first reason encourages Alabama. agreeing Appeals, contends long industry, itself, survive scrutiny. so contending, relies series cases, including said taxes. Bacchus Imports, Ltd. Dias, 468 263, 3049, 82 200 (1984); Pike Bruce Church, Inc., 397 137, 90 844, 25 174 (1970); supra; Parker Brown, 317 341, 63 307, 87 315 (1943); Carmichael Coal Coke Co., 301 495, 57 868, 81 1245 (1937); Education Illinois, 203 553, 27 171, 51 314 (1906). 12 cited lend little support contention. principally relied upon, hold general under analysis.6 Rather, California's enacting tax—to interstate deterring excessive taxes—was one. 668, 2083. asks approve promoting penalizing who want made attempt, did, influence policies order enhance companies' ability operate interstate; rather, erected barriers wish improve insurers' compete home. 13 crucial lies fact purpose, contrary California's, BRENNAN, joined Harlan, observed his concurrence (1959), always forbids discriminate burdening "the members federation." 533, 444. Unlike involved outsiders, gives "home team" advantage do. 14 validity view residence confirmed line holding. 119-120, 287; 571, 1296; 511, 183; 417, 291. Reserve 380 258, 85 951 (1965) (per curiam ). stated business, stands equal, classified kind." 183. residence, presumably State.7 relying rejecting reaffirmed continuing viability means challenging seeks benefit grossly competitors. 15 shows principle true. merchandiser challenged grounds Ohio exempted value merchandise storage tax, build warehouses analysis. 16 disagree interpretation find inconsistent rely. agree holding goal bringing often admirable. not, legitimate. involves instead nonresidents—who competitors outsiders; nonresident exemption share. competing warehousing services, granting former directly affect adversely subject tax. facts, then, here there, 532-533, 443-444 (BRENNAN, J., concurring). 17 18 argues nonetheless violative approach, contends, amounts "Commerce rhetoric clothing." Brief Appellee Ward 22. maintains Congress, Act, U.S.C. 1011-1015, authorize impose commerce field, must stand. Our concerns fundamental characterized any way above, expressly context.8 19 ignores differences analysis consequent different constitutional provisions serve. analysis, interest, weighed law commerce. context, difficult establish. 674, 2086 (if prevail " 'at debatable' (quoting United Carolene Products 304 144, 154, 58 778, 784, 1234 (1938)). 20 perform functions permissible scope power—one protects commerce, persons9 States. Bethlehem Motors Flynt, 256 421, 423-424, 41 572, 1029 (1921). place desire thereby incidentally placing importance context see reassessing view. light position cast, acceptance contention eviscerate context. natural inclination frequently prefer over foreign. If accept here, valid show business.10 stand fall depending primarily framed purpose—as benefiting harming another. without difference, last Term analogous arising 273, 3056. n. 6, supra. B 22 second courts below furthered discrimination. No still cure, reaffirms, plainly manner serves IV 23 conclude neither addressed 873, here. accordingly reversed, further proceedings opinion. 24 ordered. O'CONNOR, whom MARSHALL, REHNQUIST join, dissenting. 26 simple question: Is use encourage borders? astonishing, determines illegitimate. unsupported precedent subtly distorts balance, threatening freedom both federal legislative bodies fashion classifications economic legislation. I method conclusion, respectfully dissent. legislature chosen maintain principal seq. Metropolitan Company, many insurers, alleges Amendment, provides shall "deny person jurisdiction laws." rely "citizens" protected Privileges Immunities Clauses Constitution. Hemphill Orloff, 277 537, 548-550, 48 577, 579, 72 978 (1928). cannot claim Congress 59 Stat. 33, amended 1011 seq., suspended regulation firmly purview 655, 2076, (1981). 28 precedents heavy local grounds. long-established requires defer legislature's Yet evades careful framework melding proper two-step inquiry regarding classification's into single unarticulated tactic enables characterize goals legitimated itself improper disagrees concededly selected legislature. unorthodox approach leads error. most cursory attention factual bases supporting significant record establishing legitimacy. Most troubling, discovers implied prohibition whose give where authorized advantages. Ante, 878. 29 overlooks unequivocal language decisions. "Unless trammels personal drawn inherently suspect distinctions race, religion, alienage, presume constitutionality discriminations require interest." New Orleans Dukes, 427 297, 303, 96 2513, 2516, 49 511 (1976). Lehnhausen Lake Shore Auto Parts 410 356, 1001, 35 351 (1973). Judicial deference strongest alleged infringe protection. "[I]n taxation, fields, legislatures possess greatest classification." Madden Kentucky, 309 83, 88, 60 406, 408, 590 (1940). "Where public interest left untaxed another taxed, restrict suppress other." 512, (1937) (citations omitted). emphatically 528, 441, (1959) omitted): "[I]t repeatedly appears entirely settled location needed useful industries exempting others, arbitrary Amendment. classification, facts conceived sustain it." 441 31 2086; Minnesota Clover Leaf Creamery 449 456, 464, 715, 723, 66 659 32 conceded services Thus dispute legitimacy obviously seek attract investment, surely animate wide range legislation 50 33 majority obvious refusing acknowledge background bearing address collateral benefits advanced Instead, dismisses appellees' arguments merely stating below. 875-876, 5. point fact, full documented argued Record, Vols. 6-8. 20a-21a (emphasis added). concede, simply step achieving "larger [whose] premise . whole, ways not." 31. 34 event, appellee assert argument favor, Dandridge Williams, 471, 475, 1153, 1156, 491 (1970). failure actually resolve continue collect ante, 882, 10, baffling, took exceptional conceding assure speedy resolution numerous pending lawsuits disruptive stability. Alaska Amici Curiae 1-2. condone miserly adjusting burdens. 528-529, 441-442; McGowan Maryland, 366 420, 425, 1101, 1104, (1961); 152-153, 783-84, (1938); Borden's Farm Baldwin, 293 194, 209, 55 187, 191, 281 (1934). consistently "may policy Legislature, adopting proviso." 441-442. turn. Appellees revenue promotes large multistate currently occupy some 75% 85% market. 80. Economic studies submitted document classes relevant well-being citizens. id., 46-129. Foreign typically concentrate affluent, high volume, urban markets offer standardized national policies. American Educators Company Booker T. Washington likely serve rural areas, write low-cost industrial burial offered larger companies.1 Additionally, argue persuasively readily regulate effectively safeguard solvency domiciled having 36 Ignoring considerations, insists labels invidious. shown welfare, strong Note, Taxing Out-of-State Corporations Southern: Analysis, Stan.L.Rev. 877, 896 (1982). regard, Frankfurter wisely observed: 37 "[T]he great divide [equal protection] difference emphasizing actualities abstractions 38 ". To recognize marked exist living law; disregard practical abstract identities lifeless logic." Morey Doud, 354 457, 472, 77 1344, 1353, 1485 (1957) (dissenting). 39 thoughtful look "actualities [this] legislation" compels conclusion test. 40 favoring insurance, condemns illegitimate, recent invention initiated early 1851. Report Comptroller General, Issues Needed Improvements Regulation Business, GAO B-192813, p. (Oct. 9, 1979) (GAO Report). 1944, overruled intrastate activity beyond South-Eastern Underwriters Assn., 322 64 1162, 88 1440. "The provoked widespread concern longer able engage effective industry. moved quickly, year Underwriters." St. Paul Marine Barry, 438 531, 539, 98 2923, 2928, 932 (1978). H.R.Rep. 143, 79th Cong., 1st Sess., (1945); 91 Cong.Rec. 479-480 (1945) (remarks Sen. Ferguson); 487 Ellender). drafters sensitive vainly bring attention: greater responsiveness conditions, needs States, special advantages constraints state-by-state regulation, license fees major source revenues. Hearings S. 1362 Senate Subcommittee Judiciary, 78th 3, 16-17 (1943) (letter Gov. Sharpe South Dakota stressing role "poor man" adapted farming concerns); 6564 (1944) Rep. Vorhis). "As shortly afterward, '[o]bviously Congress' broadly existing future systems regulating insurance.' Prudential Benjamin, 328 429, 1142, 1154, 1342 (1946)." 2928. 42 correctly notes intend already possessed. But history majority, 879, 7, relates invalidated contracts U.S.Code Cong. Admin.Serv.1945, 670. fails mention time consideration schemes Arizona, Arkansas, Kansas, Maine, Michigan, Mississippi, Oklahoma, Oregon, Dakota, Tennessee, Texas, Wisconsin differentials insurers. 377-379. 43 Any doubt intent encompassed dispelled (1946). Cf. Congressional Consent Discriminatory Legislation, 45 Colum.L.Rev. 927 (discussing posed Act). There annual renewal business. argued, powerless sanction clause 'by force' taxation." 426, 1153. unanimous exacting 3% premium invalid "somehow technically character." 432, 1156. Act's "clearly exaction done violating provision." 427, 1153 44 Benjamin nothing forbade enact issue. 438, 50, 1159, 50. regard part revenues reasonable basis. 664, 2081, 17. Clause, emphasized, "one-way street" encompasses congressional "to trade," "subject restrictions provisions." 434, 1157. Where acted concert concerns, action unequivocally exceeds "some explicit compelling limitation outlaw taken framework." 435-436, 1158. undermines force Benjamin. confirms teaches Constitution bear clearly differentially consonant Act. 46 contemporary realities uniquely perspective. social assuring reliability providing might free market, poor, small businesses, family farms. 10-13; Regulation, Hearing Antitrust, Monopoly Business Rights Committee 96th 19-21 (1979) (hereinafter Regulation). Currently employ combination incentives policyholders' partially shelter competition 66. commissions vary widely manpower expertise. 14. practice, exercises primary oversight 36-38. Dunne, Risk, Reality, Reason Financial Services Deregulation: Legislative Perspective, J.Ins.Reg. 342 (1984) (prepared Conference Legislators). 27-2-21 (Supp.1984); Ill.Rev.Stat., ch. 73, ¶ 745 (1983) (power examine books insurers); 27-32-1 (1975); &Par; 799, 800 (commissioner's assume control prevent insolvency); Wis.Stat.Ann., 620, Prefatory Comment—1971, pp. 536, 546 (1980) (noting lesser nondomestic's financial operations). Even incorporation's efforts seriously hampered difficulty gaining access records 356. security citizens purchase depend diligence commissioner, limited influence. event levying Carolina ex rel. Phoenix McMaster, 237 63, 504, 507, 839 (1915). each guarantee fund, admitted ultimately forced absorb losses. 372-373. Many sharply criticized piecemeal system, see, i-iii; Schmalz, Exemption: Can Modified Successfully?, ABA Antitrust L.J. 579 (1979), resisted suggestions modify intervention. 1; ignore exigencies outlined above uniform regulation. Given ease rendered dismiss illegitimate healthy regional composed subordinate themselves Commissioner's Though economists efficacy "[p]arties 'it evident considerations presented [the legislature], take judicial notice, debatable.' 2086, quoting 784. measure's effectiveness. Despite abundant "purely discriminatory" prevent." Apparently, views favoritism commercial entities suspect. past hesitated apply basis test regulatory distinguish interests protect concerns. there certain which, "[b]y definition, inhere." Arlington County Richards, 434 5, 24, (1977) For exercise jurisdiction, validly entities. G.D. Searle Cohn, 404, 102 1137, 250 (1982) (difficulty obtaining excepting limitations); Casualty Brownell, 294 580, 538, 1070 (1935) (domicile limitations offices funds located State); 173, (1906) (State's nonprofit justifies tax). entice boundaries attractive, Zobel 457 55, 67-68, 2309, 2316-2317, 672 measures run afoul "[n]o disputes laws pursuant police powers industry." 271, 3055, Edgar MITE Corp., 624, 646, 2629, 2643, 73 269 (POWELL, concurring part) protecting regionally acquisition corporations). dormant subsidies rebates enterprises believes contribute welfare latter not. Hughes Alexandria Scrap 426 794, 2488, 220 divided allows measures, 817, 2501 dissenting), affirmatively constraints. Neither nor bars authorizing "from disadvantageous competition" less stringently regulated businesses Hodel Indiana, 452 314, 329, 2376, 2385, 669, 2083 (with approval, deter taxes). 52 majority's attempts unconvincing. First suggests somehow theory exists. addresses suggest purpose's legitimacy, chameleon-like, changes according complaint pretext escape clear message precedents. 53 Next asserts residence," citing ad valorem defended 878-879. (1949); (1926); (1910). impermissibly 'rest pertinent made.' 2083, Power Manufacturing Saunders, 274 490, 678, 679, 1165 (1927). concedes, none intimates rested corporations' expense. opinions taxed distinction. distinction, demonstrated alleged. 120, 287 ("This withheld corporation's inability measure corporations"); 1296 ("[T]he inequality slightest Ohio's decisive transaction"); 416-417, 290-291 (parties precisely same).2 Lacking threshold requirement articulated asserted survived scrutiny attempted. answer case: adopt treatment raise additional affecting market "instrument engineering." P. Hartman, Federal Limitations Local Taxation 3:2 suggestion necessarily decided us, "logically [in cases]," mere speculation. 7. treating apposite authority, closes eyes facts. residence; foreign, substantial contributions class objectives. obscures observing given "foreign company" 871-872. precedents, need "res[t] policy." 527, 441. Rational mathematically precise every fit perfection profile based. demand surveyor's precision" fashioning classifications. 814, 2500. 56 sustained. avoids directive remarkable evasive tactic. declares ends attracting accomplished bold assertion marks drastic unfortunate departure doctrine. collapsing prongs one, arrives ultimate constitutional—without ever engaging deferential adopted brake impeachment choices. unleashing undisciplined form scrutiny, today serious implications Groping radical draws heavily BRENNAN's 530, 442, 'the federation.' 878, "which subsequently litigation." 21, 2082, 21. More importantly, purports instrument federalism, misses BRENNAN reasoned "[t]he furnishes structure operation Government other" among roles, operates federalism." 532, 443. Favoring end "rational" antithetical federalism. Accepting arguendo interpretation, important ulterior goals. federalism component fully vindicated validated focus. Surely supplant foiling "affirmatively [some of] favoritism" necessary federation. White Massachussetts Council Construction Employers, 460 204, 213, 103 1042, 1047, 75 Such reconciled markets. Nevertheless, concludes converse forbidden, striking down activities permitting turf. essence, declares: "We excuse unequal foster employed insurer's activities." textual interference competition. Reliance would, course, unavailing Instead engrafts values Beyond guarding irrational discrimination, interpreted prohibits effectuation policies, sanctioned elevate 876-878. "But constitution embody particular theory. people fundamentally differing views." Lochner York, 198 45, 75-76, 546-547, 937 (1905) (Holmes, dissenting). heyday due process, Holmes warned: "Courts should extend express] prohibitions [of Constitution] meaning reading conceptions happen entertain." Tyson Brother Banton, 273 418, 445-446, 433, 718 (1927) dissenting, Brandeis, J.). wisdom observation, fashions brand doing, supplants endorsed individual parochialism holds newly unveiled come surprise passed sustained attack. insurance. 61 doctrine threatens formulate policy. dangers discerning irrespective self-evident. flexible tool sees fit, letting lie invoking flow Doctrines constrain acts alike. Califano Webster, 430 313, 97 1192, 360 (1977); Cohen, Validate Unconstitutional Laws: Forgotten Solution Old Enigma, 387, 400-413 casts shadow enactments finds unconstitutional. Massachusetts 1047. Contrary reasoning indicates independent barrier determine either ventured "wrong" direction become, fiat, one-way street Nothing supports forcing straightjacket system. V 62 Today's charts ominous course. hope adventure away safety isolated episode. thought finally accepted judiciary sit superlegislature judge desirability determinations areas proceed along lines; sphere, invidious wholly act, Amendment." 303-304, 2516-2517 believe means, thus arbitrary, affirm origins date back 1849, earned chartered 1, 1849 Ala.Acts off throughout until 1945, restored equality response 1440 (1944). 156, 1945 196-197. 1955, reinstated, 77, 1955 193 (2d Spec.Sess.), minor amendments, remained present. defines office chief 27-4-1(3) meet criteria insurer. 27-4-1(2). exceptions rules concerning rates annuities, wet marine transportation three-quarters 27-4-6(a). York corporation, represent claimants, Property Jersey representative nonlife 314-315. express it. remand, advance relating dissent "baffling," post, 887, reemphasize procedural posture arose ruling identified appellate obtain expedited ruling, determined legitimate." 142, 143 (Ala.1983). decide de novo purposes—all this, deemed inadequate. inapposite inquiry. Pike, discussed unlike integrally concerned implicates interests. discriminatory; central made. says about infra, 880-881. unlimited, Bacchus, although industry," 272-273, 3055-3056. Accord, Armco Hardesty, 467 638, 642, 2620, 2622, 540 Likewise, "regulat[e] evenhandedly." 847. Other irrelevant all. unemployment compensation scheme, deals matters probate. Bowers discriminates versus corporations. little, residents—to 879-880. logically reveals (1944), previously undisturbed 6. "person" E.g., 660, 12, 2079, 12. Indeed, justified ground favored expense involve question, suggests, 900-901, broad economy. discriminatorily nonresidents. "Industrial insurance" trade term low face-value sold door-to-door maintained collection monthly weekly Burial popular exclusively Life, like discontinued writing whole-life face $15,000. 173-176. arguably raised instant per reversal upholding fixtures tangible property. (1965). enigmatic affirmance, precedential decided." Mandel Bradley, 432 176, 2238, 2240, 199 (1977). Decisions equated "an merits." Edelman Jordan, 415 651, 670-671, 94 1347, 1359, 662 (1974). "Indeed, fuller plenary review, discard affirmances appear established." Fusari Steinberg, 419 379, 392, 95 541, 521 (1975) (BURGER, C.J.,

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