W. & S. Life Ins. Co. v. Board of Equalization, 451 U.S. 648 (1981)

Western & Southern Life Ins. Co. v. Board of Equalization

No. 79-1423

Argued January 12, 1981
Decided May 26, 1981
451 U.S. 648

APPEAL FROM THE COURT OF APPEAL OF CALIFORNIA,

SECOND APPELLATE DISTRICT

Syllabus

California, in addition to imposing a premiums tax on both foreign and domestic insurance companies doing business in the State, imposes a "retaliatory" tax on such a foreign insurer when the insurer’s State of incorporation imposes higher taxes on California insurers doing business in that State than California would otherwise impose on that State’s insurers doing business in California. Appellant, an Ohio insurer doing business in California, after unsuccessfully filing administrative refund claims for California retaliatory taxes paid, brought a refund suit in California Superior Court, alleging that the retaliatory tax violates the Commerce Clause and the Equal Protection Clause of the Fourteenth Amendment. The Superior Court ruled the tax unconstitutional, but the California Court of Appeal reversed.

Held:

1. The retaliatory tax does not violate the Commerce Clause. The McCarran-Ferguson Act, which leaves the regulation and taxation of insurance companies to the States, removes entirely any Commerce Clause restriction upon California’s power to tax the insurance business. Neither the language nor the history of that Act suggests that it does not permit, as appellant argues, "anticompetitive state taxation that discriminates against out-of-state insurers." Pp. 652-655.

2. Nor does the retaliatory tax violate the Equal Protection Clause. Pp. 655-674.

(a) Whatever the extent of a State’s authority to exclude foreign corporations from doing business within the State, 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. Pp. 655-668.

(b) The purpose of the retaliatory tax, to promote the interstate business of California insurers by deterring other States from imposing discriminatory or excessive taxes on California insurers, is a legitimate state purpose. And the California Legislature rationally could have believed that the retaliatory tax would promote that purpose, it being immaterial whether, in fact, the tax will accomplish its objectives. Assuming that the lawmakers of each State are motivated in part by a desire to promote the interests of their domestic insurance industry, it is reasonable to suppose that California’s retaliatory tax will induce other States to lower the burdens on California insurers in order to spare their domestic insurers the cost of the retaliatory tax in California. Pp. 668-674.

99 Cal.App.3d 410, 159 Cal.Rptr. 539, affirmed.

BRENNAN, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, WHITE, MARSHALL, POWELL, and REHNQUIST, JJ., joined. STEVENS, J., filed a dissenting opinion, in which BLACKMUN, J., joined, post, p. 674.