Court Opinion

ID: 4138256
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:34:18.480809+00
Date Added: 2024-06-11T14:30:14.173283
License: Public Domain

THEA-~--~•                                        RNEYGENERAL
                             OF TEXAS
PRICE   DANIEL
**IORNEY GENERAL

                                  March    9, 1948

     Honorable    George B. Butler
     Chairman                                        Opinion     No   V-516
     Board of Insurance   Commissioners
     Austin,   Texas                                 Re:     The taxability    of reinsur-
                                                             ante premiums        of a for _
                                                             eign corporation      when the
                                                             gross premium       tax has
                                                             been paid by the initial
                                                             insurer,    a Texas corpo-
                                                             ration. in which the for-
                                                             eign corporation       in ques-
                                                             tion owns h majority        of
                                                             the capitll    stock.

     Dear    Sir:

                    You have requested    the opinion      of this Department     upon the
     following       factual situation:

                   “Lawyers    Title of Texas,     Inc., was chartered       by
            the State of Texas on the 28th day of September,              1937,
            under the provisions       of Section 49, Article       1302, of
            the Revised     Civil Statutes of the State of Texas.          The
            purpose clause is as follows:           ‘To accumulate      and
            lend money; purchase,         sell and deal in notes, bonds
            and securities,      but without banking and discounting
            privileges;    to act as Trustee      under any lawful ex-
            press trust committed         to them by contract       and as
            Agent for the performance          of any lawful act.’ Law-
            yers Title of Texas,       Inc., has been acting as General
            Agent in Texas for Lawyers           Title   Insurance    Corpora-
            tion, a Virginia     corporation,    having a certificate       of
            authority    to do a title insurance       business   in Texas.

                  “The stockholders      and directors   of Lawyers      Ti-
            tle of Texas,    Inc., contemplate    the organization     of a
            title insurance     company to be formed      under the pro-
            visions   of Article   1302(a) of Vernon’s    Annotated     Civil
            Statutes, with a capital stock of at least $100.000.00
            and in compliance      with all other provisions      of the law.

                   “The corporation    will be organized  with Texas
            citizens   as original  incorporators    and subscribers
Honorable   George     B. Butler,    Page    2 (v-516)

     to the capital stock; however,       it is contemplated    that
     ultimately   Lawyers    Title Insurance       Corporation   of
     Richmond,    Virginia,   will acquire     all of the common
     stock of the proposed      corporation,     with the exception
     of several   qualifying  shares.

           “It is further    contemplated     that at least for the
     first two or three years of operations           it will be net-
     essary for the proposed         corporation    to reinsure    a
     substantial    part of its business,      and it is proposed
     that all of such reinsurance        will be offered     to Law-
     yers Title Insurance       Corporation.      It is the present
     belief of the officers     and directors     of Lawyers     Title
     of Texas, Inc., that as much as g!3% of the business
     of the proposed      corporation    will be re-insured      for
     the first several     years of operations.

           “The Lawyer’s      Title Insurance    Corporation    of
     Virginia   first secured a certificate      of authority from
     the Board of Insurance        Commissioners      in 1937 under
     the provisions    of Article    1302a. Vernon’s    Annotated
     Civil Statutes, which has been renewed          annually there-
     after and will in due course file its application        for re-.
     newal for the year 1948.

           “The proposed       local corporation         will operate as
     a corporate     entity wholly separate          and apart from
     Lawyers    Title Insurance        Corporation.        It will hold
     its stockholders      and directors       meetings      in Texas,
     whereas   those of Lawyers           Title Insurance        Corpora-
     tion will be held in Richmond,            Virginia.      The records
     of the two corporations         will be kept separately.          The
     management       of the two corporations          will be entirely
     separate;   however,      it is contemplated         that there will
     be some interlocking         of officers     and directors.       There
     will be no agency relationship            between the two corpo-
     rations, and the proposed           local corporation        will not
     be represented       to the public or to its customers             as
     being the same corporation             as Lawyers       Title Insur-
     ance Corporation.

            “In the light of the facts presented above, I am
      requesting   your opinion and answer to the following
      questions.

           “1. Under the provisions    of Article 7064, Revis-
      ed Civil Statutes, as amended,    which provides  that
      where the gross premium      tax has been paid by the in-
      suring, no taxes are payable by the reinsuring     company
         -c      -

Honorable      George     B. Butler,     Edge    3 (V-516)

       upon contracts     of reinsurance,      would there be
       any tax due by the Lawyers         Title   Insurance  Cor-
       poration   of Richmond,     Virginia,    incident to its
       reinsurance     of policies  originally     issued by the
       proposed    corporation7

             “2. Would the premiums        collected   by the
       proposed    local corporation    upon its policies   be
       treated  as received    by Lawyers     Title Insurance
       Corporation     for purposes   of computing    the gross
       premiums      tax of the latter corporation7     n

            Article     7064, R. C. S. Texas,         1925, as amended,        is in
part   as follows:

              “Every     insurance      corporation       . . . and any
       other organization          or concern transacting           the
       business     of .     . title . . . or any other kind or
       character      of insurance business            . . , at the time
       of filing its annual statement,             shall report to the
       Board of Insurance           Commissioners          the gross a-
       mount of premiums            received      upon property       locat-
       ed in this State or on risks located in this State
       during the preceding           year, and each of such in-
       surance     carriers       shall pay an annual tax upon
       such gross premium             receipts     of three and five-
       tenths per cent (3.5%) . . . and the gross premi-
       um receipts        where referred         to in this law shall
       be the total gross amount of premiums                    received
       on each and every kind of insurance                  or risk writ-
       ten, except premiums             received     from other licensed
       companies       for remsurance,          less return premiums
       and dividends        paid policyholders,          but there shall
                                                                                     ”
       be no deduction for premiums                 paid f or remsurance..     . .
          mphasrs added)

              Section   5, Article     1302a. V. A. C. S., is as follows:

             “Any foreign    or domestic       corporation      issuing
       any form of policy or underwriting             contracts    or
       charging   any premium       rates to the public on either
       owners’ or mortgagees’         certificates      or underwriting
       contracts   on Texas properties         other than forms and
       rates prescribed     by the Board of Insurance             Commis-
       sioners,  hereunder,      shall forfeit     its right to do busi-
       ness in Texas; but this shall not be construed               as in-
       tended to require     the charge made by one title inaur-
       ante company,      qualified   to do business       under this
       Act and doing a general title insurance             business for
Honorable     George      B. Butler,    Page   4 (v-516)

      the public in this State for reinsuring  or under-
      writing  all or any part of the business of another
      such company, to be the same as the charge to the
      public. *’

            Section     11, Article    1302a, V. A. C. S., is as follows:

             “>:o company operating        under the provisions      of
      this Act shall issue any policy of title insurance           in-
      volving    a contingent   liability   on said koiicy of more
      than fifty per cent of the capital stock and surplus
      of the company, unless the excess            shall be simulta-
      neousiy reinsured       in some other responsible         company
      qualified    to do business     in Texas.    Such company may
      reinsure     any or all of its business      provided   the rein-
      suring company shall be qualified           to do business    in
      Texas and the reinsuring          contract   shall be first ap-
      proved by the said Board.”

            Section     22, Article     1302a. V. A. C. S., is as follows:

            “Any corporation   organized    and incorporated
      under the laws of any other state, territory        or coun-
      try for the purpose of transacting      a title insurance    or
      title guaranty business    shall be required     to pay the
      same filing fees and occupation      tax as any foreign
      casualty  company is required      to pay in order to pro-
      cure a permit to do business      in Texas.     Such foreign
      title companies   will not be required     to pay a franchise
      tax. ”

             According     to the facts above stated, the proposed            Texas
 title insurance     company which will be organized              as a Texas corpo-
 ration under the provisions           of Art. 1302:~. V. A. C. S. may in the
 future reinsure       part of its anticipated      business    with Lawyers      Ti-
 tle Insurance     Corporation,       a Virginia    corporation     holding a cer-
 tificate   of authority    to engage in the title insurance         business    in
 Texas    under the provisions         of Art. 1302a. which certificate        of au-
 thority   was first granted by the Board of Insurance                Commissioners
.in 1937 and has since. been annually renewed.                The proposed      Texas
  title insurance     company will, of course,         be subject to and liable for
  the payment of the gross premium              tax under the provisions        of Art.
‘7064, supra.       Hence, as to such title insurance           business it may re-
  insure with Lawyers         Title Insurance      Corporation,     a Virginia    cor-
 poration,    in accordance       with the above Sections        of Art. 1302a. the
  domestic     corporation     will be allowed     no deduction for the premiums
  paid the Virginia      corporation     for reinsurance.

            Also      under   the provisions    of Art.    7064 the Lawyers     Title
.   ,.   _

             Honorable    George     B. Butler,    Page 5 (V-516)
                                                      ,., (

             Insurance    Corporation,   a Virginia   corporation,    will be subject to
             and liable for the gross premium       tax on all insurance       or risks
             written   in Texas under its certificate     of authority    *except premi-
             ums received     from other licensed     companies    for reinsurance.”
             which, of course,     would be applicable    to all premiums      for rein-
             surance received      from the proposed     Texas corporation.

                       In answer to your first question there would not be any
             tax due the State of Texas by the Lawyers       Title Insurance      Corpo-
             ration, a Virginia    corporation,   upon premiums    received    for refn-
             surance   of policies   originally issued by the proposed      Texas cor-
             poration.

                        Since the provisions      of Art. 7064, supra, which provide
             for the report     to the Board of Insurance       Commissioners,      in con-
             nection with filing its annual statement,         of the gross amount of
             premiums      received    upon property    or risks located in this State,
             as the term gross premium          is defined in the article,     the premi-
             ums received      for reinsurance     by the Virginia    corporation    from
             the Texas     corporation    would not be reported      upon the Virginia
             corporation’s      annual statement;    and hence the answer to your
             second question      is “no.”

                         Your request      states that the Texas        corporation      will be
             organized     with Texas     citizens    as original   incorporators        and sub-
             scribers    to the capital     stock, but that ultimately        all of the common
             stock of the proposed        corporation,      with the exception        of several
             qualifying    shares,   may be acquired         by the Lawyers        Title Insurance
             Corporation,      a Virginia     corpor,ation.     Under the rule of law an-
             nounced in the case of State Y. Swift & Company, 187 S.W. (2) 127.
             132-133 (err. ref.),      such ultimate stock ownership             in the Texas
             corporation     by the Virginia       corporation    is not forbidden       by either
             the laws or the public policy of the State of Texas and is not per se
             unlawful,    unless the result of such ownership             is to create a trust
             or restraint     of trade or would be in furtherance            of an attempt to
             evade the laws of the State of Texas,              No such intention being ap-
             parent from your request,           it is presumed      that the ultimate       acqui-
             sition of the stock in the Texas corporation              by the Virginia        corpo-’
             ration is for a lawful purpose,           and therefore     further     discussion     is
             here pretermitted.

                                                   SUMh4AR Y

                         Under the provisions     of Art. 7064. R.C.S., as
                   amended,     where the gross premium      tax due for in-
                   surance written    on property    or risks located in the
                   State of Texas is payable by a domestic       title insur-
                   ance corporation     and such risks are reinsured      by a
                   foreign  title insurance   company authorized      to do
                                                                  .     e-

Honorable   George     B. Butler,   Page   6 (v-516)

     business    in Texas, no tax is due thereon by the re-
     insuring   foreign   title insurance    company.      The pre-
     miums for reinsurance         received    by the foreign     ti-
     tle insurance     company from the domestic         title in-
     surance company for reinsuring           the original    risk
     do not constitute     a part of the taxable gross premi-
     ums to be reported        by the foreign title insurance
     company.

                                              Yours    very   truly

                                     ATTORNEYGENERALOF                       TEXAS

                                     BY
                                               C. K Richards
                                                  Assistant
CKR/JCP

                                     APPROVED

                                              ASSLS TANT