Court Opinion

ID: 9429974
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:28:28.501373+00
Date Added: 2024-06-11T17:20:08.579515
License: Public Domain

*871Justice Powell
delivered the opinion of the Court.
This case presents the question whether Alabama’s domestic preference tax statute, Ala. Code §§27-4-4 and 27-4-5 (1975), that taxes out-of-state insurance companies at a higher rate than domestic insurance companies, violates the Equal Protection Clause.
I
Since 1955,1 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.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).3 As a result, a foreign *872insurance company doing the same type and volume of business in Alabama as a domestic company generally will pay three to four times as much in gross premiums taxes as its domestic competitor.
Alabama’s domestic preference tax statute does provide that foreign companies may reduce the differential in gross premiums taxes by investing prescribed percentages of their worldwide assets in specified Alabama assets and securities. §27-4-4(b). By investing 10 percent or more of its total assets in Alabama investments, for example, a foreign life insurer may reduce its gross premiums tax rate from 3 to 2 percent. Similarly, a foreign property and casualty insurer may reduce its tax rate from four to three percent. Smaller tax reductions are available based on investment of smaller percentages of a company’s assets. Ibid. Regardless of how much of its total assets a foreign company places in Alabama investments, it can never reduce its gross premiums tax rate to the same level paid by comparable domestic companies. These are entitled to the one-percent tax rate even if they have no investments in the State. Thus, the investment provision permits foreign insurance companies to reduce, but never to eliminate, the discrimination inherent in the domestic preference tax statute.
Appellants, a group of insurance companies incorporated outside of the State of Alabama, filed claims with the Alabama Department of Insurance in 1981, contending that the domestic preference tax statute, as applied to them, violated the Equal Protection Clause. They sought refunds of taxes paid for the tax years 1977 through 1980. The Commissioner of Insurance denied all of their claims on July 8, 1981.
*873Appellants 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 cases4 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 “at least two purposes, in addition to raising revenue: (1) encouraging the formation of new insurance companies in Alabama, and (2) encouraging capital investment by foreign insurance companies in the Alabama assets and governmental securities set forth in the statute.” App. to Juris. Statement 20a-21a. ‘The court also found that the distinction the statute created between foreign and domestic companies was rationally related to those two purposes and that the Alabama Legislature reasonably could have believed that the classification would have promoted those purposes. Id., at 21a.
After their motion for a new trial was denied, appellants appealed to the Court of Civil Appeals. It affirmed the Circuit Court’s rulings as to the existence of the two legitimate state purposes, but remanded for an evidentiary hearing on the issue of rational relationship, concluding that summary judgment was inappropriate on that question because the evidence was in conflict. 437 So. 2d 535 (1983). Appellants petitioned the Supreme Court of Alabama for certiorari on the affirmance of the legitimate state purpose issue, and the State and the intervenors petitioned for review of *874the remand order. Appellants then waived their right to an evidentiary hearing on the issue whether the statute’s classification bore a rational relationship to the two purposes found by the Circuit Court to be legitimate, and they requested a final determination of the legal issues with respect to their equal protection challenge to the statute. The Supreme Court denied certiorari on all claims. Appellants again waived their rights to an evidentiary hearing on the rational relationship issue and filed a joint motion with the other parties seeking rehearing and entry of a final judgment. The motion was granted, and judgment was entered for the State and the intervenors. 447 So. 2d 142 (1983). This appeal followed, and we noted probable jurisdiction. 466 U. S. 935 (1984). We now reverse.
h-H h-H h-H
Prior to our decision in Western & Southern Life Ins. Co. v. State Board of Equalization of California, supra, the jurisprudence of the applicability of the Equal Protection Clause to discriminatory tax statutes had a somewhat checkered history. Lincoln National Life Ins. Co. v. Read, 325 U. S. 673 (1945), held that so-called “privilege” taxes, required to be paid by a foreign corporation before it would be permitted to do business within a State, were immune from equal protection challenge. That case stood in stark contrast, however, to the Court’s prior decisions in Southern R. Co. v. Greene, 216 U. S. 400 (1910), and Hanover Fire Ins. Co. v. Harding, 272 U. S. 494 (1926), as well as to later decisions, in which the Court had recognized that the Equal Protection Clause placed limits on other forms of discriminatory taxation imposed on out-of-state corporations solely because of their residence. See, e. g., WHYY, Inc. v. Glassboro, 393 U. S. 117 (1968); Allied Stores of Ohio, Inc. v. Bowers, 358 U. S. 522 (1959); Wheeling Steel Corp. v. Glander, 337 U. S. 562 (1949).
In Western & Southern, supra, we reviewed all of these cases for the purpose of deciding whether to permit an equal *875protection 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 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 667. We held that “[w]e consider it now established that, whatever the extent of a State’s authority to exclude foreign corporations from doing business within its boundaries, that authority does not justify imposition of 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.” Id., at 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.5
*876A
(1)
The first of the purposes found by the trial court to be a legitimate reason for the statute’s classification between foreign and domestic corporations is that it encourages the formation of new domestic insurance companies in Alabama. The State, agreeing with the Court of Civil Appeals, contends that this Court has long held that the promotion of domestic industry, in and of itself, is a legitimate state purpose that will survive equal protection scrutiny. In so contending, it relies on a series of cases, including 'Western & Southern, that are said to have upheld discriminatory taxes. See Bacchus Imports, Ltd. v. Dias, 468 U. S. 263 (1984); Pike v. Bruce Church, Inc., 397 U. S. 137 (1970); Allied Stores of Ohio, Inc. v. Bowers, supra; Parker v. Brown, 317 U. S. 341 (1943); Carmichael v. Southern Coal & Coke Co., 301 U. S. 495 (1937); Board of Education v. Illinois, 203 U. S. 553 (1906).
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.6 Rather, we held that California’s pur*877pose 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 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 *878other States in order to enhance its domestic companies’ ability to operate interstate; rather, it has erected barriers to foreign companies who wish to do interstate business in order to improve its domestic insurers’ ability to compete at home.
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 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 119-120; Wheeling Steel Corp. v. Glander, 337 U. S., at 571; Hanover Fire Ins. Co. v. Harding, 272 U. S., at 511; Southern R. Co. v. Greene, 216 U. S., at 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.” *879272 U. S., at 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.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.
The State contends that Allied Stores of Ohio, Inc. v. Bowers, supra, shows that this principle has not always held true. In that case, a domestic merchandiser challenged on equal protection grounds an Ohio statute that exempted foreign corporations from a tax on the value of merchandise held for storage within the State. The Court upheld the tax, finding that the purpose of encouraging foreign companies to build warehouses within Ohio was a legitimate state purpose. The State contends that this case shows that promotion of domestic business is a legitimate state purpose under equal protection analysis.
We disagree with the State’s interpretation of Allied Stores and find that the case is not inconsistent with the other cases on which we rely. We agree with the holding of Allied Stores that a State’s goal of bringing in new business is legitimate and often admirable. Allied Stores does not, however, hold that promotion of domestic business by discriminating against foreign corporations is legitimate. The case involves instead a statute that encourages nonresidents— who are not competitors of residents — to build warehouses within the State. The discriminatory tax involved did not favor residents by burdening outsiders; rather, it granted the *880nonresident 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 532-533 (Brennan, J., concurring).
(2)
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.8
*881Moreover, 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 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. Carotene Products Co., 304 U. S. 144, 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 persons9 from unconstitutional discrimination by the States. See Bethlehem Motors Corp. v. Flynt, 256 U. S. 421, 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.
*882In 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.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 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.
B
The second purpose found by the courts below to be legitimate was the encouragement of capital investment in the Alabama assets and governmental securities specified in the statute. We do not agree that this is a legitimate state purpose when furthered by discrimination. Domestic insurers remain entitled to the more favorable rate of tax regardless of whether they invest in Alabama assets. Moreover, the investment incentive provision of the Alabama statute does not enable foreign insurance companies to eliminate the discriminatory effect of the statute. No matter how much of *883their assets they invest in Alabama, foreign insurance companies are still required to pay a higher gross premiums tax than domestic companies. The State’s investment incentive provision therefore does not cure, but reaffirms, the statute’s impermissible classification based solely on residence. We hold that encouraging investment in Alabama assets and securities in this plainly discriminatory manner serves no legitimate state purpose.
IV
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 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.

It is so ordered.

 The origins of Alabama’s domestic preference tax statute date back to 1849, when the first tax on premiums earned by insurance companies doing business in the State was limited to companies not chartered by the State. Act No. 1, 1849 Ala. Acts 5. A domestic preference tax was imposed on and off throughout the years until 1945, when the State restored equality •in taxation of insurance companies in response to this Court’s decision in United States v. South-Eastern Underwriters Assn., 322 U. S. 533 (1944). Act No. 156, 1945 Ala. Acts 196-197. In 1955, the tax was reinstated, Act No. 77, 1955 Ala. Acts 193 (2d Spec. Sess.), and with minor amendments, has remained in effect until the present.

 For domestic preference tax purposes, Alabama defines a domestic insurer as a company that both is incorporated in Alabama and has its principal office and chief place of business within the State. Ala. Code § 27-4-1(3) (1975). A corporation that does not meet both of these criteria is characterized as a foreign insurer. § 27-4-1(2).

 There are two exceptions to these general rules concerning the rates of taxation of insurance companies. For annuities, the tax rate is one percent for both foreign and domestic insurers, Ala. Code §27-4-4(a) *872(1975), and for wet marine and transportation insurance, the rate is three-quarters of one percent for both foreign and domestic insurance companies, § 27-4-6(a).

 Metropolitan Life Insurance Co., a New York corporation, was chosen to represent the life insurance claimants, and Prudential Property and Casualty Co., a New Jersey corporation, was chosen as representative of the nonlife claimants. See App. 314-315.

 The State and the intervenors advanced some 15 additional purposes in support of the Alabama statute. As neither the Circuit Court nor the Court of Civil Appeals ruled on the legitimacy of those purposes, that question is not before us, and we express no view as to it. On remand, the State will be free to advance again its arguments relating to the legitimacy of those purposes.
As the dissent finds our failure to resolve whether Alabama may continue to collect its tax “baffling,” post, at 887, we reemphasize the procedural posture of the case: it arose on a motion for summary judgment. The *876Court 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 *877promotion 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 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 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 272-273. Accord, Armco Inc. v. Hardesty, 467 U. S. 638, 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 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 879-880.

 Although the promotion of domestic business was not a purpose advanced by the States in support of their taxes in these cases, such promotion is logically the primary reason for enacting discriminatory taxes such as those at issue there.

 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 *881limits on a State’s ability to tax out-of-state corporations. See 451 U. S., at 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 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 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 dis-criminatorily higher taxes on nonresident corporations solely because they are nonresidents.