Legal Document

451 U.S. 648 101 Supreme Court Reporter 2070 68 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 514 WESTERN AND SOUTHERN LIFE INSURANCE COMPANY, Appellant,v.STATE BOARD OF EQUALIZATION CALIFORNIA. Number 79-1423. Argued Jan. 12, 1981. Decided May 26, Syllabus California, in addition to imposing a premiums tax on both foreign and domestic insurance companies doing business the State, imposes "retaliatory" such insurer when insurer's State of incorporation higher taxes California insurers that than would otherwise impose State's California. Appellant, an Ohio after unsuccessfully filing administrative refund claims for retaliatory paid, brought suit Superior Court, alleging violates Commerce Clause Equal Protection Fourteenth Amendment. The ruled unconstitutional, but Appeal reversed. Held: 1. does not violate Clause. McCarran-Ferguson Act, which leaves regulation taxation States, removes entirely any restriction upon California's power business. Neither language nor history Act suggests it permit, as appellant argues "anti-competitive state discriminates against out-of-state insurers." Pp. 652-655. 2. Nor 655-674. (a) Whatever extent authority exclude corporations from within justify imposition more onerous or other burdens those imposed corporations, unless discrimination between bears rational relation legitimate purpose. 655-668. (b) purpose promote interstate by deterring discriminatory excessive is And Legislature rationally could have believed purpose, being immaterial whether fact will accomplish its objectives. Assuming lawmakers each are motivated part desire interests their industry, reasonable suppose induce lower order spare cost 668-674. 99 Cal.App.3d 410, 159 Cal.Rptr. 539, affirmed. Alan R. Vogeler, Cincinnati, Ohio, appellant. Timothy G. Laddish, San Francisco, Cal., appellee. Justice BRENNAN delivered opinion Court. 1 two State. A tax, set at fixed percentage paid policies issued response laws home some companies. This case presents question constitutionality assessed Western & Southern Life Insurance Co., corporation, under protest years 1965 through 1971. 2 * Section 685 Code California.1 In computing owed given insurer, subtracts due total be hypothetical similar company incorporation. If greater amount difference imposed. less equal taxes, however, exacts no insurer. 3 Southern, corporation headquartered has engaged since 1955. During question, $977,853.57 taxes. After refunds with appellee Board Equalization, initiated this arguing Clauses Constitution.2 4 tried stipulated facts without jury, unconstitutional. It ordered full plus interest costs. App. 78-79. reversed, upholding tax. 539. denied Southern's petition hearing. 89. filed notice appeal we noted probable jurisdiction. 449 817, 66, 66 18 (1980). We affirm. II 5 provides "The Congress shall Power . To regulate among several States." U.S.Const., Article I, § 8, cl. 3. terms, grant Congress, explicit limitation States. long line cases stretching back early days Republic, recognized contains implied interfere commerce.3 Even absence congressional action, courts may decide regulations challenged impermissibly burden commerce. See, e. g., Minnesota versus Clover Leaf Creamery 456, 715, 659 (1981); Philadelphia New Jersey, 437 617, 98 2531, 57 475 (1978). 6 Our decisions do not, limit commerce sees fit. exercise plenary authority, "confe[r] ability restrict flow they enjoy." Lewis BT Investment Managers, Inc., 447 27, 44, 100 2009, 2020, 64 702 (1980); see Haw. Hawai‘i KFH45 A2 Pacific KF135 P2 Hood Sons, Incorporated DuMond, 336 525, 542-543, 69 657, 667, 93 L.Ed. 865 (1949). ordains freely aspect commerce, action taken scope authorization rendered invulnerable challenge. 7 removed all limitations passed 59 Statutes-at-Large 33, 15 KF62 1011 et seq., acknowledged Todd Shipyards Corp., 370 451, 452, 82 1380, 1381, 8 620 (1962). See also Group Health Royal Drug 440 205, 219, n. 18, 1067, 1076 261 (1979); Wilburn Boat Firemen's Fund 348 310, 319, 75 368, 373, 337 (1955). Nevertheless, joined Solicitor General amicus curiae, permit Brief Appellant 28; Amicus Curiae 16. find Act. 1011, declaration policy: 9 "Congress declares continued public interest, silence construed barrier 10 2(a), 1012(a), declares: subject relate business." unequivocal exceptions. 11 was wake South-Eastern Underwriters Assn., 322 533, 1162, 88 1440 (1944), held "commerce" meaning Prior South-East- ern Underwriters, considered Clause, York Deer Lodge County, 231 495, 34 167, 58 332 (1913); Paul Virginia, Wall. 168, 19 357 (1869), thus "negative implication clause place over [insurance] Prudential Benjamin, 328 408, 414, 1142, 1147, 90 1342 (1946) (emphasis added). Believing "a local matter, regulated States," H.R.Rep.No.143, 79th Cong., 1st Sess., (1945), explicitly intended restore taxing regulatory powers pre-South-Eastern scope. supra, 3; SEC National Securities, 393 453, 459, 89 564, 568, 21 668 (1969); Maryland Casualty Cushing, 347 409, 412-413, 74 608, 609-610, 806 (1954). 12 squarely rejected argument despite supra; Hobbs, 822, 1360, 1602 (per curiam ). South Carolina solely found unnecessary "would valid dormancy Congress' power," U.S., 427, S.Ct., 1153, sense exaction forbidden clause," id., 428, 1154. Expressly assuming discriminatory, 429, 1155, enactment "put weight [Congress'] behind existing future legislation sustain attack whatever done force it, only exceptions expressly provided for." Id., 431, 1155. sustained challenge Kansas indistinguishable California's.4 had "left matter states." re Tax Cases, 160 Kan. 300, 313, 161 Reporter, 2nd 726, 735 (1945). summarily affirmed, citing Benjamin companion case, Robertson 440, 1160, 1366 (1946). 1360.5 13 must therefore reject tax: III 14 Ordinarily, there three provisions Constitution taxpayer allegedly tax:6 see, Complete Auto Transit, Brady, 430 274, 97 1076, 51 326 (1977); Privileges Immunities IV, 2, Toomer Witsell, 334 385, 1156, 92 1460 (1948); Wheeling Steel Corporation Glander, 562, 1291, 1544 (1949).7 assumes unusual posture, because inapplicable insurance, Part II,supra, Hemphill Orloff, 277 537, 548-550, 48 577, 578, 72 978 (1928). Only remains possible ground invalidation tax.8 Amendment forbids "deny person [their] jurisdiction protection laws," prevent making classifications persons. Lehnhausen Lake Shore Parts 410 356, 359-360, 1001, 1003-04, 35 351 (1973); Allied Stores Bowers, 358 522, 526-527, 79 437, 480 (1959). Thus, should if classification related achievement 16 But points out, directed parties always been subjected scrutiny. Rather, most recently exemplified Lincoln Read, 325 673, 65 1220, 1861 holds "privilege" requirement basis. Since defined 21, 35, 84 88, 97-98 (1970), application reasoning these require us further inquiry into first inquiry. 17 Some past acquiring holding property borders. E. Asbury Hospital Cass 207, 211, 61, 63, (1945); Bank Augusta Earle, Pet. 519, 588-589, 592, 274 (1839). From principle arisen theory attach conditions chooses privilege Wall., 181. While suggest exact condition, how desiring unconstitutional privilege. Sherbert Verner, 374 398, 404, 83 1790, 1794, 965 (1963); Wieman Updegraff, 344 183, 192, 73 215, 216 (1952); Frost Trucking Railroad Comm'n, 271 583, 592-593, 46 605, 606-07, 70 1101 (1926). These principles obvious tension. cannot privilege, then right withhold absolute. absolute, one terms right. view tension, surprising Court's attempt accommodate produced results seem inconsistent illogical. Compare Doyle Continental 94 535, 24 148 (1877), Morse, 20 445, 22 365 (1874); compare Hanover Fire Harding, 272 494, 47 179, 71 372 doctrine unfettered discretion return granting originated decided months effective date Virginia statute required purchase file specified bonds security persons insured. No insurers. Several refused comply, agent accordingly license engage Virginia. prosecuted selling license; he defended Clause.9 statute. Viewing recipients "special privileges," 181, believing "it might highest number limited," 182, assent creation entry "may granted think proper impose." 181.10 Under view, need consider arbitrary, irrational, discriminatory. "[The States] entirely; particular localities, performance contracts citizens judgment best interest. whole rests discretion." Ibid. important respects, legal underpinnings were soon eroded. First, advent general incorporation, swept country late 19th century, Louis K. Liggett Lee, 288 517, 557-564, 53 481, 493-94, 77 929 (1933) (Brandeis, J., dissenting), altered very nature corporation. Such laws, stimulated largely "the equality dread special privilege[s]," 549, 4, 490, permitted form freely, generally applicable requirements limitations. Incorporation lost status Henderson 68.11 Second, Amendment, ratified 1868, introduced constitutional protection, prohibiting acting arbitrarily treating similarly situated differently even respect privileges formerly dispensed discretion. combination necessarily undermined incorporate ceases fit, becomes available exactions "privilege taxes" destroyed. 23 slow recognize consequences developments. Assn. York, 119 110, 108, 30 342 (1886), relevant decision governed unhesitatingly applied "person [the State's] jurisdiction," 116, 111, purposes compliance placed assents effect time entry. 119, 112.12 having entirely, change admission time, future, condition payment new fee. fee prerequisite until pays fee, admitted outside, threshold, seeking admission, consent yet given. By going 1872, Association] assented York." 119-120, 112-113. 25 Harlan dissented. Acknowledging prescribe certain insisted "that settled court, so prescribed repugnant secured instrument." 125, 116. "Can be," asked, estopped claim benefit provision securing simply voluntarily entered remained enacted denying like same State?" 127, 117. 26 Although dicta supported Harlan's Ducat Chicago, 415, 972 (1871); 540, challenging Roberts, 171 658, 665-666, 58, 43 323 (1898); Horn Silver Mining 143 305, 312-315, 403, 404-405, 36 164 (1892); Pembina Consol. Milling Pennsylvania, 125 184-185, 737, 738, 31 650 (1888). Nonetheless, quarter century saw "an almost complete disintegration" 111. became evident October Term 1909, four conflict possess unlimited corporations.13 significant our Greene, 400, 287, 54 536 (1910), contention sufficient different taxation." 417, 291.14 27 plaintiff, Railway, Alabama invested permanent facilities At franchise corporations. Later, additional Railway grounds. bear "reasonable just relation" Noting whose stated "[i]t fanciful distinction say real taxed [the] corporation." 417-418, 291. "to carrying circumstances shown, much rule used denial laws." 418, 291.15 28 (1926), extended protections short-term licenses, substantial State.16 508, 509, 514-515, 184-185. With business, stands equal, classified kind." 511, 183.17 29 little left (1886). replaced doctrine: "It necessary proposition that, rule, state, deny altogether, fit impose. unlimited; relinquishment rights. compel surrender favor, may, manner, all. inconceivable guaranties embedded manipulated out existence." 593-594, 607-608. Manufacturing Saunders, 497, 678, 680, 1165 (1927). 32 throwback York. There, seemed adopt precisely Co.: discriminate admitting them ." 677, 1222, cf. 507, 182.18 "proves too much." 1222. "If adopted," said, "then long-established go discard." Ibid.19 So "levied entering engaging there," though corporation's 33 implicitly least subsequent cases. (1949), struck down Ohio's ad valorem law intangible non-Ohio identical concluded violated inequality treatment "not slightest decisive transaction, residence owner." 572, 1296.20 directly National, "ad franchise, occupation, income tax." 1296. However, National: declared limited Constitution; "exac[t] rights derived 571, 1296 (citing 182). (1959), exempting non-residents storage warehouse, residents Without alluding possibility legislative based standard "must proceed basis resort palpably arbitrary." 527, 441.21 Finally, WHYY, Glassboro, 117, 286, 242 (1968), Jersey nonprofit incorporated exemption Disregarding follows: "This consistently while once enter, 'the adopted entitled state's own corporate progeny, equally favorable basis.' 571-572 [69 1296, 1544]. Reserve 380 258 [85 951, 959]; 372; 400 [30 536]." 287. 37 before difficult anachronism. now established boundaries, As 493-494, 679: 38 "No doubt subjects separately individuals dealt differently. course admissible, distinguishing rest differences pertinent made." IV 39 determining answer questions: (1) Does purpose? (2) Was believe use 461-463, 722-723; Vance Bradley, 93, 97-98, 939, 943, (1979). 40 discern, common feature century. variously expressed, principal enacting survey summarized: 41 "[W]hatever character, ultimate object punish retort placing therein heavier show consideration shown state." Annot., 91 American Law 795 (1934). 42 Accord, Bankers Richardson, 192 Rptr. (West’s) 113, 124-125, 218 586, 591 (1923); ex rel. Crittenberger 67 Ind.App. 536, 542, 116 Northeastern N59 929, 936 (1917); Phoenix Welch, 672, 674-675 (1883); Cas. Coleman, 233 Ky. 350, 351-352, 748, 749-750 (1930); North America, Neb. 320, 324, Northwestern N69 36, (1904); Massachusetts Mut. Knowlton, N.H. 412, Atlantic 163, 165 (1947); Commonwealth Fireman's 369 Pa. 560, 565-566, 87 255, Wash. 135, 137-138, 296 813, 814-815 (1931).22 model drafted virtually many Assembly Interim Committee Revenue Taxation, Tax, 15, Pages 64, (1964) (hereafter Tax). revenue raised relatively modest, 65, impetus passage comes nationwide clear generate expense insurers, apply pressure maintain low committee said: actual rationale acts deterrent industry." 66.23 44 Decisions lend analysis. instant "is put states companies, domestic, thereby encourage Cal.App.3d, 413, Cal.Rptr., 541. 34, 96; 255 Cal.App.2d 1, 62 784, 786 (1967), cert. dism'd, 390 529, 1208, 86 (1968). 45 Many wisdom tax; indeed often criticized distortion system impediment raising insurance. Council Governments, Retaliatory Taxation Industry 12-13 Task Force Report, Statement Policy Premium Proc. Nat. Comm'rs (1971); Report Comm., Pt. V, 47-48 (1972); Strickler, Mess Companies, Best's Rev. (1969). empowered second-guess policies. Ferguson Skrupa, 729, 1028, 1030, (1963). review confined legitimacy There can promotion industry barriers efforts profit level Parker Brown, 317 341, 363-367, 63 307, 319-321, 315 (1943), "protect enhance reputation" compete effectively market, Pike Bruce Church, 397 137, 143, 844, 847, 174 (1970). effort behalf legitimate. mere seeks influencing render illegitimate. said Multistate 434 478, 799, 815, 682 (1978): "Any adopts fiscal policy affects programs sister modify result. Unless transgresses bounds Austin Hampshire, 420 656, [95 1191, 530] (1975), federal structure implicated." 49 Having legitimate, turn second element analysis: acknowledge outset means accomplishment goal various Bodily, Effects Retaliation Insurers, Judge Risk Pelletier, Laws, Notre Dame Law. 243, 268-269 (1964); 71. objectives question: satisfied conclude objective. 466, 725; 950; Carolene Products 304 144, 154, 778, 1234 (1938). 50 conducted major study recommending amendment permitting enforcement present tax.24 That found: true disadvantaged short run, usually result paying retaliating states. But, group pay provisions, legislators, considering measures affecting effects instance instance." 66. 52 "have kept insurers' profits case." 67. recommended proposed amendment. ibid. Legislature's conclusions unreasonable. event, evidence overwhelming. Department Finance evaluated laws: 55 "Whether sponsored resistance benefitted it. home-owned half dozen able say, 'Don't raise you do, states.' effectiveness demonstrated states, increased rates last twelve years. None outstanding Finance, Budget Div., Highlights Proposal Quarterly Payments 56 examined issue, [retaliatory tax] discourage seems successful; event stayed close percent Cal.App.2d, 786. Authorities field mixed. leading empirical life 1935 1972, significantly absolute period; declined revenues;25 (3) period. Ins., 27-32. advocates predict, provide support theory. Statistical analysis data, failed verify conclusion: correlation observed statistically significant. 30-31. author "of questionable value." 34. Cf. Law., 267-269; Felton, Company Taxation: An Evaluation, 71, 77-78 (1961). Parties prevail considerations presented legislature], take judicial notice, debatable." 784. On standard, withstands strictures 60 Affirmed. 61 STEVENS, whom BLACKMUN joins, dissenting. practice hostages coerce another sovereign new; nor, my opinion, acknowledges jurisdic tion specifically favored Today coercive motivation acceptable justification nonresidents. disclosed record irregular simple preference pay. Those example, 2.5% rate, Montana 2.75% West Idaho 3% rate.1 prevailing rate 2.35%.2 Thus competing market flagrant discrimination. eliminate practiced All rate. meddled affairs impact scheme considers acceptable. needs concern California.3 Furthermore, justified actions pointed way taxpayers conduct problems charging others. admittedly insufficient reason disparate treatment,4 incremental collected measure.5 increment monetary penalty sovereign. Analytically, kind comparable ransom.6 vindicated requires every individuality essential jurisdiction; unrelated character behavior disapproval official payments who come cause plead legislature conform will.7 impartial administration unquestionably paramount parochial applying neighbors legislation. N Dec. Immigration Nationality respectfully dissent. "When pursuant licenses fees, aggregate, fines, penalties, deposit material obligations, prohibitions restrictions agents representatives excess prohibitions, statutes continue applied, penalties restrictions, Any obligation city, county, political subdivision agency deemed article." Cal.Ins.Code Ann. (West 1972). 1959, Constitution, XIII, 144/5(f)(3). Cal.Const., 144/5(f)(3) Supp.1964). 1964, amended whenever Supp.1966). Franklin Cal.2d 222, 225-227, 869, 872-873, 404 477, 480-481 (1965). challenges law, repealed, credit portion offices liability credit. Cal.Rev. Tax.Code §§ 12241(a) 1970). challenge, increase deduction merely trigger offsetting 86-87. Cooley Wardens, How. 299, 996 (1852); Gibbons Ogden, Wheat. 209, (1824). described "substantially identical" 685. 10, 790 controlled Hobbs : "We unable levied companies." Kan., 311, P.2d, 734. made inapplicable. reliance purported carries weight. appellee's standards House states: intention clothe beyond prior Southeastern Association case. Briefly, your always, controlling (1962), "Congress, course, final what constitutes process enforce [citing cases], purport so." 457, 1384. raises statement questions presented, address brief. assume subsumed issue. 470, 727, (1981). (1946), did resolve reference case: conceivable violation clause, letter spirit, presented. contravention limitation." 436, 1158. 411, 1145, nothing disposed plaintiff error's 183. 653-654. reflected understanding three-quarters Brandeis noted, "at first, sparingly; procure community specific unavailable." (dissenting opinion). W. Fletcher, Cyclopedia Private Corporations 5-6 (1974); Henderson, Position Foreign Constitutional 64-68 (1918) Henderson). 1869, year decided, Va.Code 1860, ch. 4. conception "grant corporators," accurate portrayal existed time. long. Mar. 30, 1871, 1870 Va.Acts, (general companies). concedes, espoused jurisdiction" discarded. Kentucky Paramount Exchange 262 544, 549-551, 636, 639, 1112 (1923) (holding "within" files lawsuit therein); Bethlehem Motors Flynt, 256 421, 424, 1029 (1921) "corporations State"). (1910); Ludwig Union Telegraph 146, 280, 423 Pullman Kansas, 56, 232, 378 190, 355 (1910) (Western relied earlier Term, wrote plurality opinion. authorized capital representing corporations' Kansas. strength cases, U.S, 33-38, 46-48, 200-202, 205-206; 62-63, 234-35. supra. operations 38-45, 202-205, distinguished involving 33-34, 200. modified detail, still governs (1977). Holmes, dissent "absolute arbitrary power" 54, 208. overrule acknowledging 416, 290, Association, unlike one-year renewable overruled portions Baltic Massachusetts, 68, 19, 127 (1913), grounds, Alpha Portland Cement 268 203, 218, 916 (1925), Cheny Bros. 246 147, 156-158, 295, 297, 632 (1918), appeared charged measure regard inhibition Amendment." makes clear, guise erroneously "unequivocal" rather annual license, satisfaction precedent 676, 1221. fact, license. "principle same," indefinite. offered Holmes his 14, argued enact inequality. concluded, hard offer reciprocity restores appellants alone, obviously denies." 573, 1297. HARLAN concurring, went further. Arguing instrument federalism," 532, 443, insufficiently protective interests. denies constitutionally favor members federation." 444. position subsequently context litigation. Baldwin Fish Game 436 371, 388-391, 1852, 1862-1864, 354 (1978); Hughes Alexandria Scrap 426 794, 810-814, 96 2488, 2498-2500, (1976). fostering uniform moderate levels nationwide. al. Amici ; supports conclusion well. qua expected noncitizens; rather, large decline accounted States' 1957 proportion revenues attributable fell 17.7%, 20.0%. 31-32 3-4 (1963) (showing 1950, decreased substantially relative bank taxes). 1972); 41-402 Rev.Code 5729.03 Mont.Code 33-2-705 W.Va.Code 33-3-14 33-3-14a (Supp.1980). indicates, ante, 651, small 12201, 12202 takes involved. resources, populations, social economic conditions, service, structures, methods sources revenue, burdens, gross per capita. where hostile involved, autonomous matters. contemplate warfare reprisal retaliation. A&P Tea Cottrell, 424 366, 923, (1976)." 10. purpose." Ante, 667-668. 1544: accorded treatment, "[I]t 669-670. objective confer laws. involves budgetary purposes. next involve trucking motorcoach high speed limits, loose safety inspection lax emission standards. lobbyists persuade powerful rules interests, today's seek neighboring rules. impediment. compares attempts enabling market. 174. designed direct surely original

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