Appeal by plaintiffs from order entered 17 April 1997 by Judge Narley L. Cashwell in Wake County Superior Court. Heard in the Court of Appeals 16 February 1998.
The opinion of the court was delivered by: Eagles, Judge.
This action was brought under G.S. 105-267 for refund of allegedly excessive retaliatory premium taxes paid by plaintiff State Farm Automobile Insurance Company ("State Farm") to the Commissioner of Insurance of the State of North Carolina for the years 1993 and 1994. State Farm is a foreign corporation chartered in Illinois but licensed to do business as an insurer in North Carolina.
The facts are not in dispute. G.S. 105-228.5 requires all insurers doing business in North Carolina to pay a premium tax of 1.9% on gross premiums received from business done in North Carolina in the preceding calendar year. North Carolina also imposes an insurance regulatory charge of 7.25% of the premium tax paid pursuant to G.S. 58-6-25. The regulatory charge is a percentage which the General Assembly may vary annually to make the amount collected cover the projected operating deficit of the Department of Insurance. The regulatory charge is paid into the Department of Insurance Fund, a discrete fund account within the State Treasury.
North Carolina also imposes a retaliatory premium tax upon certain foreign insurers pursuant to G.S. 105-228.8. G.S. 105-228.8(a) states:
When the laws of any other state impose, or would impose, any premium taxes, upon North Carolina insurers doing business in the other state that are, on an aggregate basis, in excess of the premium taxes directly imposed upon similar insurers by the statutes of this State, the Commissioner of Insurance shall impose the same premium taxes, on an aggregate basis, upon the insurers chartered in the other state doing business or seeking to do business in North Carolina.
In computing the retaliatory premium tax, G.S. 105-228.8(e) provides that the tax should be calculated without regard to the regulatory charge imposed by G.S. 58-6-25.
In 1993 and 1994, North Carolina imposed a premium tax of 1.9%. Illinois' premium tax was 2.0%. In accordance with G.S. 105-228.8, North Carolina imposed on plaintiffs a .1% retaliatory tax charge on insurance premiums.
On 22 September 1995, plaintiffs filed this action pursuant to G.S. 105-267 for refund of overpayment of the retaliatory taxes. Plaintiffs allege that the exclusion in G.S. 105-228.8(e) "has the effect of increasing the retaliatory premium tax by reducing the amount deemed paid in North Carolina premium taxes by the foreign insurer." Plaintiffs contend that if the regulatory charge was considered a premium tax, then no retaliatory tax would be due for 1993 and 1994. Plaintiffs allege that G.S. 105-228.8(e) "violates the equal protection clause of the United States Constitution by imposing a discriminatory tax upon foreign insurers . . . which bears no rational relationship to a legitimate state purpose." Plaintiffs also allege that the statute violates Article 5, Section 2 of the North Carolina Constitution "by levying taxes which are not uniform." Plaintiffs seek refund of $787,131.10 plus interest at the legal rate of 8% from dates of payment to the state.
On 30 August 1996, defendants moved for summary judgment. On 27 November 1996, plaintiffs filed a cross-motion for summary judgment. Following a hearing, on 16 April 1997 the trial court allowed defendants' motion for summary judgment and denied plaintiffs' motion for summary judgment. Plaintiffs appeal.
The only issue before us is whether the trial court erred in denying plaintiffs' motion for summary judgment and granting defendants' motion for summary judgment. Plaintiffs argue that the summary judgment order was in error because the insurance regulatory charge is a tax and its exclusion from the retaliatory tax computation violates the federal and state constitutions. After careful consideration of the record, briefs and contentions of the parties, we affirm.
Plaintiffs' first argument is that the regulatory charge is a tax. Plaintiffs make five contentions. First, plaintiffs contend that the statutes show that the regulatory charge is a tax. The plaintiffs claim that statutes denominate the charge as a tax, it is measured like a tax, it is levied during the "taxable year," and it appears in the General Statutes under "License Fees and Taxes" and is the only item in the Article that is not clearly a fee. Second, plaintiffs contend that case law requires the regulatory charge to be treated as a tax. Plaintiffs rely on American Equitable Assurance Co. of N.Y. v. Gold, 249 N.C. 461, 465, 106 S.E.2d 875, 878 (1959) to contend that a levy must be treated as a tax unless the legislature specifically makes its payment a condition of writing insurance. Plaintiffs argue that there is no statement in the statute making payment of the regulatory charge a condition of writing insurance. Third, plaintiffs urge that "the collection of a tax for a designated use does not make it less a tax," and conclude that "`taxes' are not limited to levies that fall on all taxpayers or that are available for all governmental uses." Fourth, plaintiffs argue that the regulatory charge was not a user fee, because it was not a quid pro quo for anything received by the plaintiff. Plaintiffs maintain that it was just a tax to raise revenue. Plaintiffs argue that North Carolina Ass'n of ABC Boards v. Hunt, 76 N.C. App. 290, 332 S.E.2d 693, disc. rev. denied, 314 N.C. 667, 336 S.E.2d 400 (1985), cited by defendants, should be limited to its facts. Finally, plaintiffs urge that this Court "should discourage legislative legerdemain." Plaintiffs argue that this Court need not determine the purpose of the charge and the Insurance Fund, but need only conclude that the charge was a tax because it was not a license fee or a user fee.
Once the insurance regulatory charge is determined to be a tax, plaintiffs next argue that the retaliatory tax violates the equal protection clause of the Constitution because it is a discriminatory tax with no legitimate purpose. See Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 84 L.Ed.2d 751, reh'g denied, 471 U.S. 1120, 86 L.Ed.2d 269 (1985). Plaintiffs argue that retaliatory taxes are allowed only if they reach parity of treatment. "[T]he imposition of retaliatory tax beyond the point of equalization solely to generate revenue at the expense of foreign insurers lacks legitimacy." United Services Auto. Ass'n v. Curiale, 88 N.Y.2d 306, 313, 668 N.E.2d 384, 388, 645 N.Y.S.2d 413, 417 (1996).
Defendants argue that the regulatory charge is not a tax. They contend that because the charge is neither levied nor collected as a contribution to the maintenance of the general government, the regulatory charge does not constitute a tax. Proceeds from the regulatory charge do not go to the "general fund of the state" for the general maintenance of the government, but to a special discrete fund maintained by the State Treasurer, the Department of Insurance Fund. Defendants rely on North Carolina Ass'n of ABC Boards v. Hunt, 76 N.C. App. 290, 332 S.E.2d 693, disc. rev. denied, 314 N.C. 667, 336 S.E.2d 400 (1985). Defendants contend that the holding of Hunt was that a surcharge on liquor was not a tax, because the statute imposed "only the cost of regulation," and the revenue from the surcharge did not go "to the general maintenance and expense of government." Id. at 293, 332 S.E.2d at 695. See also Memphis Natural Gas Co. v. McCanless, 183 Tenn. 635, 651, 194 S.W.2d 476, 483 (1946)("To be properly defined as 'taxes' the fees must be paid into the public treasury as a part of the general revenue and be subject to disbursement for the 'general public need.'"). Accordingly, defendants argue that the regulatory charge is not a tax and that the trial court's order should be affirmed.
The key issue here is whether the regulatory charge is a tax. In comparing taxes with regulatory fees, the court in San Juan Cellular Telephone Co. v. Public Service Com'n of ...