The opinion
STATE OF MAINE SUPERIOR COURT
CIVIL ACTION
KENNEBEC, ss. DOCKET NO. AP-04-17
STEWART TITLE GUARANTY, CQy<#" ee
Petitioner
Vv. COR oz we DECISION ON APPEAL
STATE TAX ASSESSOR, nese
» Cat
Respondent
This matter comes before the court on cross-motions for summary judgment filed
by the parties on the petitioner’s petition pursuant to M.R. Civ. P. 80C for review of
governmental action. Since the court agrees with the petitioner that the State Tax
Assessor has improperly applied the statute in question, the present order by the
respondent will be vacated. However, since the court also agrees with the respondent
that an alternative tax may be applicable, the matter will be remanded for those
calculations.
Factual Background
The present dispute arises out of the assessment of taxes on fees charged to the
parties to real estate conveyances in which the petitioner, Stewart Title Guaranty Co.
(“STG”), was the underwriter of title insurance. STG is a national title insurance
- company headquartered in Texas and licensed to sell its insurance products in the State
of Maine. While most title insurance companies not only provide insurance
underwriting but also other title-related services, STG is unique within the industry in
that it only deals with insuring title risks. The other title services, such as title searches
and examinations, preparation of title reports and policy issuance, are performed by
independent and affiliated agents under contract to the petitioner. These agents also
engage in numerous other tasks beyond their duties to STG, including preparing
documents, securing mortgage payoffs, administering closings and acting as escrow
agents. These additional services are factored into the fees charged to customers at
closing.
None of petitioner’s agents are authorized to underwrite insurance risks. In
addition to acting as the petitioner’s agent, its affiliated agents have acted as agents for
other title insurance companies as well. When petitioner’s agents issue a title insurance
policy in its name, they collect fees from the buyers and lenders at a real estate closing.
By contract with STG, its agents are free to charge customers such fees as may be
permitted as long as they do not impose an obligation on the petitioner. A proportion
of the fees collected by the agents is defined by contract as the “gross risk rate
premium,” which typically amounts to between 10% and 40% of the total amount
collected from the customer. STG’s only affiliated agent in Maine is Stewart Title of
Northern New England, Inc. Under its contract, STG receives 25% of the total customer
charges as gross risk rate premiums. The other 75% -- the amount received over and
above the gross risk rate premium -- is retained by the agent for its own services. The
petitioner uses the gross risk rate premiums remitted to it to fund its insurance reserves
and cover its overhead costs.
Beginning in 1987, the National Association of Insurance Commissioners
(“NAIC”) promulgated instructions to guide title insurance carriers and provide
consistency in reporting financial data by using a standardized form known as the
“Schedule T.” The Schedule T was to include as “direct premiums written” the entire
amount charged to customers regardless of whether those amounts were ultimately
remitted to the insurer. However, the NAIC instructions make clear that these amounts
are “not intended to be used for the calculation of the amount premium tax due.”
Instead, NAIC directs insurers to submit a separate schedule to taxing authorities.
Between 1987 and 2002, the petitioner submitted both the Schedule T as well as
separate schedules to State taxing authorities to distinguish between amounts charged
to customers and amounts actually remitted to STG. Until 2002, the respondent State
Tax Assessor accepted this methodology by which the petitioner calculated its Maine
premium tax liability by reducing the amount reported on the Schedule T by the
amounts retained by its agents.
In September of 2002, Maine Revenue Services (“MRS”) issued STG a notice
informing it that it owed the State an additional amount for premium taxes. A similar
notice was issued in March of 2003. In February of 2004, MRS notified STG it owed
additional premium taxes for tax years 2000 and 2002, and later denied requests for
reconsideration of the 1999 and 2001 assessments.
The reason for the different calculations is the position of the respondent that
premium tax must be paid on the total amounts collected from the client real estate
consumers, while the petitioner argues that its historic method of calculation, based
only on that portion of the total charges which it ultimately receives for title insurance
coverage, is the proper method for calculation.
The respondent filed timely appeals from agency action pursuant to MLR. Civ. P.
80C (now consolidated).
Discussion
On a petition for review of a decision of the Assessor, the Superior Court
conducts a de novo hearing and makes a de novo determination of the merits of the
case. The key issue in the present case is the meaning of the term “gross direct
premium,” as used in the applicable statute which reads:
Every insurance company or association that does business or collects
premiums or assessments including annuity considerations in the State...
shall, for the privilege of doing business in this State, and in addition to
any other taxes imposed for such privilege pay a tax upon all gross direct
premiums including annuity considerations, whether in cash or otherwise,
on contracts written on risks located or resident in the State for insurance
of life, annuity, fire, casualty and other risks at the rate of 2% a year...
36 M.R.S.A. § 2513 (2004). The key phrase “gross direct premiums,” is not defined
further in the Tax Code, though it is mentioned in the Insurance Code. According to
the respondent, without citation, the Maine Revenue Service has treated the term “gross
direct premiums” in 36 M.R.S.A. § 2513 as the equivalent of direct premiums reported
by title insurers on the Schedule T, which is then consistent with the definition of
“premium” set forth in 24-A M.R.S.A. § 2403. This argument is substantially eroded by
the fact that the Revenue Service has allowed the petitioner to report its “gross direct
premiums” in a schedule separate from the Schedule T for a period of 15 years.
After reviewing the various arguments on both sides, the court is more
persuaded by the arguments of the petitioner concerning the definition of the term
“gross direct premiums.” That definition, which limits the term to that portion of
property buyers payments specifically attributed to title insurance and specifically
received by the petitioner as payment for such insurance coverage. One of the
petitioner’s persuasive arguments is that the legislature would not have intended this
term to cover anything other than what the insurer actually received as premiums for
the insurance, as opposed to incidental charges for title searches, document preparation,
etc., as reflected in the provisions of 36 M.R.S.A. § 2515. While the Law Court has
provided little guidance as to the definition of the word “premium,” the petitioner also
points to decisions from other jurisdictions including Allstate Insurance Co. v. State Board
of Equalization, 336 P.2d 961, 964 (Cal. 1959). In addition, there is the rationale stated in
an Opinion of the Attorney General in 1966, specifically with regard to this section, in
which it was noted that the word “premium” in its “proper and accepted sense [] means
the amount paid to the company as consideration for insurance.” Op. Me. Att’y Gen. (Jan.
5, 1966).
The court has also considered the decision of the Supreme Court of Washington
in First American Title Insurance Co. v. State of Washington, Department of Revenue, 27 P.3d
604 (Wash. 2001) in which that court affirmed a decision invalidating the imposition of
the state’s business and operation tax on the entire premium paid by the consumers at
closing.
In contrast, the respondent’s arguments and citations are not persuasive. The
fact that other insurance companies reporting taxable premiums from the sale of title
insurance have reported the full amount of direct premiums reported on the Schedule T
does not mean that they were consistently right, since during the same period the
petitioner reported just the opposite without objection by the Maine Revenue Service.
The respondent provides virtually no analysis or authority, beyond its plain assertions,
to show that “gross direct premiums” taxable to STG include the full amount of “direct
premiums” reported on the Schedule T.
Finally, in the struggle between the arguments of each side, the position of the
petitioner benefits from the always welcomed comfort of fairness and common sense.
Taxing an insurance company on monies which it actually receives for the insurance
coverage it provides is fair. Taxing it for payrnents for other services such as title
searches, escrow fees and closing costs, for which it receives no benefits, or payment,
would be unfair.
Although the court agrees with the petitioner’s definition of “gross direct
premiums” and its position that it should not be required to pay premium tax on
charges to property buyers not directly attributable to title insurance, the court agrees
with the respondent's alternative argument that the tax actually to be paid to the
Revenue Service must consider the retaliatory tax provisions of 36 M.R.S.A. § 2519.
That section provides:
Any insurance company incorporated by a state of the United States...
whose laws impose upon insurance companies chartered by this State any
greater tax than is herein provided shall pay the same tax upon business
done by it in this State, in place of the tax provided in another section of
this Title.
In other words, the legislature is attempting to level the playing field for our insurance
companies by making certain that insurance companies from other states doing
business in Maine will pay the same tax as a comparable Maine insurance company
doing business in the other home state. This equalizing calculation was not a basis for
the respondent's decision. The respondent includes certain calculations in its brief with
regard to this alternative position. However, since this issue has never had the
advantage of full development at the agency level, including an opportunity for the
petitioner to present information concerning how the State of Texas would tax a similar
Maine company, the court will remand this matter for further proceedings as necessary
to develop application of section 2519.
For the reasons stated above, the entry will be:
(1} Petitioner’s motion for summary judgment GRANTED IN
PART and DENIED IN PART.
(2) Respondent’s motion for summary judgment DENIED IN
PART and GRANTED IN PART.
(3) | Respondent’s assessment of taxes for the years at issue is
VACATED.
(4) REMANDED to the respondent for further proceedings
consistent with this Opinion and development of the appropriate tax
pursuant to 36 M.R.S.A. § 2519,
a
Dated: May__® 2005
S. Kirk Studstrup
Justice, Superior Court
Date Filed ___ 7/12/04 Kennebec Docket No. APO4=-43
County
consolidated w/AP04-17
Action __ Petition for Review
80C
Stewart Title Guaranty Company Ss. State Tax Assessor
Plaintiff's Attorney Defendant's Attorney
Thimi R. Mina, Esq. EXUMRLEXEAKKERKXAAG
12 City Center State House Sta 6
Portland, Maine 04101 Augusta Maine 04333
Michael Miller, AAG
Date of
Entry
7/12/04 Petition for Review of Final Agency Action, filed. s/Mina, Esq.
Petitioners'Motion for Consolidation, filed. s/Mina, Esq.
Proposed Order, filed.
7/20/04 ORDER ON MOTION FOR CONSOLIDATION, Studstrup, J. (dated 7/16/04)
Copies mailed to attys of record.
8/13/04 Notification of Discovery Service, filed. s/Garrett, AAG
Notice of Deposition of Stewart Title Company of Northern New England
Pursuant to M.R.Civ. P. 39(b)(6) served on Thimi R. Mina, Esq. on 8/11/04
9/15/04 Notification of Discovery Service, filed. s/Mina, Esq. (filed 9/13/04)
Petitioner's Responses to Respondent's First Set of Interrogatories served
Crombie J. D. Garrett, AAG
Notification of Discovery Service, filed. s/Garrett, AAG (9/14/04)
Respondent's Response to Petitioner's First Request for Production of
Documents served on Garrett, AAG on 9/10/04
12/29/04 Notice of Withdrawal and Appearance of Counsel, filed. s/Garrett, AAG
s/Miller, AAG
Petitioner's Preliminary Witness and Exhibit Lists, filed. s/Mina, Esq.
12/30/04 Assessor's Motion for Extension of Time to File Trial Lists, filed.
s/Miller, AAG
Proposed Order, filed.
1/7/05 ORDER ON ASSESSOR'S MOTION FOR EXTENSION OF TIME TO FILE TRIAL LISTS, filed
s/Studstrup, J. (dated 1/3/05) Motion Granted. Copies issued to counsel.
fae
Notice of sotiing for a / 13 [ ©
sent ic etormneys of record.
2/15/05 Hearing held, Hon. Kirk Studstrup. (no courtroom clerk)
Arguments made to the court. Case taken under advisement.
FAGEL 3
Date of
t No. APO4-17 C {/APO4—-43
Entry Stewart Title Guaranty {o. vs tae i seeeeaar ons Wy
5/5/05 DECISION OF APPEAL, Studstrup, J.
For the reasons stated above, the entry will be:
(1) Petitioner’s motion for summary judgment GRANTED IN PART and
DENIED IN PART.
(2) Respondent's motion for summary judgment DENIED IN PART and
GRANTED IN PART.
(3) Respondent's assessment of taxes for the years at issue is
VACATED.
(4)°) REMANDED to the respondent for further proceedings consistent wit
this Opinion and development of the appropriate tax pursuant to 36
M.R.S.A §2519
Copies mailed to attys. of record
Copies mailed to Donald Goss, Deborah Firestone and Garbrecht Law Library
Date Filed
3/17/04 Kennehec Docket No. APO4-17
Count
my CONSOLIDATED W/ AP04—43
12 City Center
Portland, Maine 04101
Action Petition for Review
80C
Le Stewart Title Cusranty Company VS. State Tax Assessor
Plaintiff's Attorney Defendant’s Attorney
Thimi R. Mina, Esq. KYSHEAEX MX EX EMEP RELY KEK
6 State House Station
Augusta, Maine 04333-0006
Michael Miller, AAG
Date of
Entry
3/17/04 Petition for Review of Final Agency Action, filed. s/Mina, Esq.
3/22/04 Return receipts with return service made upon Maine Revenue Services and
Maine Attorney General, filed. s/Mina, Esq.
4/5/04 Letter entering appearance, filed. s/Garrett, AAG
5/17/04 Joint Motion for Entry of Procedural Order, filed. s/Mina, Esq.
Proposed Procedural Order, filed.
5/19/04 PROCEDURAL ORDER, Studstrup, J.
(Discovery shall close on September 30, 2004. All dispositive motions sha
be filed by November 30, 2004.)
Copies mailed to attys of record.
6/1/04 Notification of Discovery Service, filed. s/Garrett, AAG
Respondent's First Request for Production of Documents served on Thimi R.
Mina, Esq. on 5/28/04.
6/24/04 Notification of Discovery Service, filed. s/Mina, Esq.
Petitioner's Response to Respondent's First Request for Production of
Documents served on Crombie J.D. Garrett, AAG on 6/22/04
7/20/04 ORDER ON MOTION FOR CONSOLIDATION, Studstrup, J. (dated 7/16/04)
Copies mailed to attys of record.
8/9/04 Notification of Discovery Service, filed. s/Mina, Esq.
Petitioner's First Request for Production of Documents served on Crombie
J.D. Garrett, AAG on 8/5/04
Notification of Discovery Service, filed, s/Garrett, AAG
Respondent's First Set of Interrogatories Propounded to Petitioner served
on Thimi R. Mina, Esq. on 8/6/04
8/13/04 Notification of Discovery Service, filed. s/Garrett, AAG
Notice of Deposition of Stewart Title Company of Northern New England
Pursuant to M.R.Civ. P. 30(b)(6) served on thimi R. Mina, Esq. on 8/11/04
9/13/04
Notification of Discovery Service, filed. s/Mina, Esq,
Petitioner's Responses to Respondent's First Set «
° ft Interrogatories served
on Crombie J.D. Garrett, AAG on 9/10/04
Date of
Entry Docket No.
9/15/04 Notification of Discovery Service, filed. s/Garrett, AAG
Respondent's Response to Petitioner's First Request for Production of
Documents served on Thimi R.Mina, Esq. on 9/10/04
11/29/04 Petitioner's Motion for Leave to File Motion for Summary Judgment and
Incorporated Memorandum of Law in Excess of Twenty Pages, filed.
Proposed Order, filed.
Petitioner's Motion for Summary Judgment and Incorporated Memorandum
of Law, filed. s/Mina, Esq.
Statement of Material Facts as to Which There Exist No Genuine Issues
To Be Tried, filed. s/Mina, Esq.
Request for Hearing, filed.
Proposed Order, filed.
12/01/04 Respondent's Motion for Summary Judgment; Respondent's Statement of
Undisputed Material Facts; Affidavits of Richard E. Truman with attached
Exhibits 1 & 2 and Crombie Garrett with attached Exhibit 1, filed.
s/C. Garrett, AAG
12/7/04 ORDER, Studstrup, J. (dated 12/3/04)
Petitioner's Motion to file in Excess of 20 pages granted.
Copies mailed to attys of record.
12/17/04 Respondent's Response to Petititioner's Motion for Summary Judgment,
filed. s/Garrett, AAG.
Respondent's Response to Petitioner's Statement of Material Facts as to
Which There Exist no Genuine Issues to be Tried, filed. s/Garrett, AAG
Proposed Order, filed.
12/20/04 Petitioner's Memorandum of Law in Oppositin to Respondnet's Motion for
Summary Judgment, fliled. s/Mina, Esq.
Petitioner's Opposition to Respondent's Statement of Material Facts,
s/Mina, Esq. (attached exhibits 1,2,3)
Proposed Order, filed.
Request for Hearing, filed.
12/22/04 Respondent's Reply to Petitioner's Opposition to Respondent's Motion
for Summary Judgment, filed. s/Garrett, AAG.
Petitioner's Reply to Respondent's Response to Petitioner's Motion
for Summary Judgment, filed. s/Mina, Esq.
12/29/04 Notice of Withdrawal and Appearance of Counsel, filed. s/Garrett, AAG
s/Miller, AAG
Petitioner's Preliminary Witness and Exhibit List, filed. s/Mina, Esq.
12/30/04 Assessor's Motion for Extension of Time to File Trial Lists, filed.
s/Miller, AAG
Proposed Order, filed.
1/7/05 ORDER ON ASSESSOR'S MOTION FOR EXTENSION OF TIME TO FILE TRIAL LISTS,
filed. s/Studstrup, J. (dated 1/3/05) Motion Granted. Copies issued
to counsel of record.
2/5 [65
Notice of setting 101
seni to atiomeys of record.
2/15/05 Hearing had, Hon. Kirk Studstrup. (no courtroom clerk)
Arguments mnoide to the court. Case taken under advisement.