Insurance Company Taxes

Insurance Company Taxes.—A privilege tax on the gross premiums received by a foreign life insurance company at its home office for business written in the State does not deprive the company of property without due process,479 but such a tax is invalid if the company has withdrawn all its agents from the State and has ceased to do business, merely continuing to receive the renewal premiums at its home office.480 Also violative of due process is a state insurance premium tax imposed on a nonresident firm doing business in the taxing jurisdiction, which obtained the coverage of property within the State from an unlicenced out-of-state insurer which consummated the contract, serviced the policy, and collected the premiums outside that taxing jurisdiction.481 However, tax may be imposed upon the privilege of entering and engaging in business in a State, even if the tax is a percentage of the "annual premiums to be paid throughout the life of the policies issued." Under this kind of tax, a State may continue to collect even after the company's withdrawal from the State.482

A State may lawfully extend a tax to a foreign insurance company that contracts with an automobile sales corporation in a third State to insure its customers against loss of cars purchased through it, so far as the cars go into possession of a purchaser within the taxing State.483 On the other hand, a foreign corporation admitted to do a local business, which insures its property with insurers in other States who are not authorized to do business in the taxing State, cannot constitutionally be subjected to a 5% tax on the amount of premiums paid for such coverage.484 Likewise a Connecticut life insurance corporation, licensed to do business in California, that negotiated reinsurance contracts in Connecticut, received payment of premiums thereon in Connecticut, and was there liable for payment of losses claimed thereunder, cannot be subjected by California to a privilege tax measured by gross premiums derived from such contracts, notwithstanding that the contracts reinsured other insurers authorized to do business in California and protected policies effected in California on the lives of residents therein. The tax cannot be sustained whether as laid on property, business done, or transactions carried on, within California, or as a tax on a privilege granted by that State.485

479 Equitable Life Soc'y v. Pennsylvania, 238 U.S. 143 (1915).

480 Provident Savings Ass'n v. Kentucky, 239 U.S. 103 (1915).

481 State Bd. of Ins. v. Todd Shipyards, 370 U.S. 451 (1962).

482 Continental Co. v. Tennessee, 311 U.S. 5, 6 (1940) (emphasis added).

483 Palmetto Ins. Co. v. Connecticut, 272 U.S. 295 (1926).

484 St. Louis Compress Co. v. Arkansas, 260 U.S. 346 (1922).

485 Connecticut General Co. v. Johnson, 303 U.S. 77 (1938). When policy loans to residents are made by a local agent of a foreign insurance company, in the servicing of which notes are signed, security taken, interest collected, and debts are paid within the State, such credits are taxable to the company, notwithstanding that the promissory notes evidencing such credits are kept at the home office of the insurer. Metropolitan Life Ins. Co. v. City of New Orleans, 205 U.S. 395 (1907). But when a resident policyholder's loan is merely charged against the reserve value of his policy, under an arrangement for extinguishing the debt and interest thereon by deduction from any claim under the policy, such credit is not taxable to the foreign insurance company. Orleans Parish v. New York Life Ins. Co., 216 U.S 517 (1910). Premiums due from residents on which an extension has been granted by foreign companies also are credits on which the latter may be taxed by the State of the debtor's domicile. Liverpool & L. & G. Ins. Co. v. Orleans Assessors, 221 U.S. 346 (1911). The mere fact that the insurers charge these premiums to local agents and give no credit directly to policyholders does not enable them to escape this tax.

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