Appendix — Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal.

Supreme Court brief1981

Ask Donna

What actually matters in this document.

Text

=) Tage

No. 79-1423

IN THE

SUPREME COURT OF THE UNITED STATES

THE WESTERN AND SOUTHERN LIFE

INSURANCE COMPANY,

APPELLANT,

STATE BOARD OF EQUALIZATION

OF THE STATE OF CALIFORNIA,

APPELLEE.

Appeal From The Court Of Appeal,

Second Appellate District,

State of California

ALAN R. VOGELER GEORGE DEUKMEJIAN

Frost & Jacobs Attorney General of the

2500 Central Trust State of California

Center 600 State Building

201 East Fifth Street San Francisco, CA 94102

Cincinnati, OH 45202 (415) 557-0792

(513) 651-6800 Counsel for Appellee

Counsel for Appellant

Appeal Docketed March 13, 1980

Probable Jurisdiction Noted October 6, 1980.

INDEX

Page

Chronological List of Relevant Docket Entries... ‘1

Meter shen. ccam spades dE cieccs , Ee ee ee 3

Certificate of Authority from State of California,

Department of Insurance to the Western and

Southern Life Insurance Company (Exhibit A to

tae Gtipmiation af Fart)... 2. eh ee 43

Amended Complaint for Recovery of Taxes Paid

FINNE IN i U e e . 44

Stipulation Re: Filing of Amended Complaint and

TF os OO St a a eee 46

Supplemental Stipulation ......................... 47

Minute Order of Intended Decision... ....... 55

Memorandum of Intended Decision ................ 57

Cometuaons of few 22.66. 0, i as ee 73

FOR | eo RRS 78

Opinion of the Court of Appeal, Second Appellate

Dastrict, Senate of Califowmla .... 2... cei. ak, 80

Order Modifying Opinion and Denying Rehearing,

Court of Appeal, Second Appellate District, State

OC CN SS a Se ees ee 88

CHRONOLOGICAL LIST OF

RELEVANT DOCKET ENTRIES

May 17, 1971 — Plaintiff's Complaint for Recovery of

Taxes Paid Under Protest filed in Superior Court of the

State of California for the County of Los Angeles.

June 4, 1971 — Defendant's Answer filed.

Dec. $1, 1976 — Stipulation of Facts filed.

Dec. 31, 1976 — Plaintiff's Amended Complaint for Re-

covery of Taxes Paid Under Protest filed.

Dec. 31, 1976 — Stipulation Re: Filing of Amended Com-

plaint and Answer Thereto filed.

Dec. 31, 1976 — Notice of Motion and Motion to Spe-

cially Set Case for Trial and for Assignment of Case to

Trial Judge for All Purposes; Declaration of Ronald M.

Oster and Memorandum of Points and Authorities in Sup-

port Thereof.

Jan. 13, 1977 — Order entered assigning action to Judge

Early.

Jan. 13, 1977 — Minute Order of Jan. 13, 1977, Setting

Briefing Schedule and Trial Date entered.

Feb. 28, 1977 — Plaintiff's Opening Brief filed.

May 4, 1977 — Defendant’s Trial Brief filed.

May 24, 1977 — Plaintiff's Reply Brief filed.

May 24, 1977 — Supplemental Stipulation filed.

June 10, 1977 — Defendant’s Supplemental Trial Memor-

andum filed.

June 10, 1977 — Trial and Oral Argument.

June 10, 1977 — Minute Order of June 10, 1977 entered.

July 6, 1977 — Plaintiff's Reply Brief to Defendant's

Supplemental Trial Memorandum filed.

August 4, 1977 — Minute Order of August 4, 1977 en-

tered.

August 4, 1977 — Memorandum of Intended Decision

filed.

Oct. 27, 1977 — Conclusions of Law filed.

Oct. 27, 1977 — Judgment entered in favor of Plaintiff.

Nov. 1, 1977 — Notice of Entry of Judgment.

Dec. 21, 1977 — Defendant's Notice of Appeal filed;

Notice to Clerk of Superior Court to Prepare Reporter's

Transcript on Appeal.

Nov. 2, 1979 — Opinion and Judgment of the Court of

Appeal, Second Appellate District, State of California, re-

versing the decision of the lower court, entered.

Nov. 19, 1979 — Petition for Rehearing filed.

Nov. 28, 1979 — Order of the Court of Appeal, Second

Appellate District, State of California, modifying its opinion

of Nov. 2, 1979 and Denying Rehearing entered.

Dec. 11, 1979 — vretition for Hearing by the Supreme

Court of California filed.

Dec. 27, 1979 — Order of the Supreme Court of Cali-

fornia Denying the Petition for Hearing entered.

SUPERIOR COURT OF THE

STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NO. C 3189

THE WESTERN AND SOUTHERN LIFE

INSURANCE COMPANY, a corporation,

Plaintiff,

Vv.

STATE BOARD OF EQUALIZATION

OF THE STATE OF CALIFORNIA,

Defendant.

STIPULATION OF FACTS

(Filed December 31, 1976)

IT IS HEREBY STIPULATED AND AGREED by

and between the parties hereto, through their respective

attorneys of record, for purposes of this case only, that the

following facts shall be taken as true and shall be adopted

as part of the Court’s findings of fact. This stipulation

shall not be construed as a concession by either party of

the relevancy or materiality of any of the facts stipulated

herein; and the parties hereto expressly reserve the right

to argue the relevancy or materiality of any of the facts

herein stipulated to be true.

Except as otherwise provided herein, all exhibits attached

hereto, or otherwise incorporated herein by reference, are

included for the limited purpose of showing the contents

thereof and not for the truth of the matters therein set

forth; provided, however, that either party may offer any

of such documents for additional purposes subject to ob-

jections as to competency, relevancy and materiality but

not subject to the best evidence objection or any objection

as to their genuineness or the due execution thereof.

Nothing herein contained shall be construed as a waiver

by any of the parties hereto of their rights to review

on appeal any question of law or of fact arising in this

action in the same manner and to the same extent as if

the facts herein set forth had been proven in open court.

Each party may introduce at the trial of this cause

any other or further evidence which is not inconsistent

with the facts stated herein. To the extent possible, notice

of such intended introduction shall be given to the other

party sufficiently in advance of trial to enable the other

party to meet such evidence.

This stipulation shall be valid only in the above-entitled

action.

1. Plaintiff is, and was continuously for more than

eighteen (18) years last past and at all times herein re-

ferred to, a mutual life and disability insurer incorporated

under the laws of, and having its principal place of busi-

ness in, the State of Ohio and admitted and authorized

to do and doing a life and disability insurance business

and no other business in the State of California. Plaintiff

did not at any time herein referred to, and does not now,

have any surplus divided into shares, or any shares what-

soever. Plaintiff, effective July 1, 1956 and at all times

thereafter, was, and now is, the holder of a Certificate of

Authority for an indefinite term issued pursuant to the

provisions of section 701 of the Insurance Code of the

State of California. A copy of said Certificate of Authority

is attached hereto as Exhibit A and by reference is made

a part hereof.

2. On December 4, 1962, in an action before the Su-

perior Court of the State of California for the County

of Los Angeles numbered 765737, in which action plain-

tiff herein was the plaintiff and the defendant herein and

F. Britton McConnell, as Insurance Commissioner of the

State of California, were the defendants, which action in-

volved taxes for business done only in the year 1959, a judg-

ment was duly entered against the defendants, and on said

date, in an action before the Superior Court of the State

of California for the County of Los Angeles numbered

785827, in which action plaintiff herein was the plaintiff

and defendant herein was the defendant, which action in-

volved taxes for business done only in the year 1960, a

judgment was duly entered against the defendant. Each

said judgment has become final. By each said judgment

it was adjudicated, that by the laws of the State of Ohio,

taxes, fines, penalties, licenses, fees, deposits of money or

securities or other obligations or prohibitions imposed

upon life insurers of California analogous to plaintiff do-

ing business in Ohio, or upon their agents therein, were

not in excess of those imposed by the State of Ohio upon

such insurers of Ohio or upon their agents therein. Re-

taliatory taxes against plaintiff were not authorized under

then existing California law and were not and could not

be validly or legally assessed or collected as against plain-

tiff under then existing California law. ©

3. In the year 1965 and continuously thereafter, plain-

tiff's Principal Office in the State of California was, and

now is, located at 2600 Wilshire Boulevard, Los Angeles,

California, in real property then and now owned by plain-

tiff on which plaintiff had specially constructed a building

for such purpose and on which it paid, before delinquency,

in the year 1965 and in all years thereafter, while its

Principal Office was so located, the real estate taxes there-

on duly assessed. Said real property at all times consisted

only of one building in which such office was located, the

land on which said building then stood and so much of

the adjacent land as was then required for the convenient

use and occupation thereof. Said real estate tax so paid

for the years 1965 through 1971 was equal to the following

sums:

1965 — $111,877.50

1966 — $115,644.37

1967 — $117,396.19

1968 — $124,069.03

1969 — $128,049.78

1970 — $121,173.59

1971 — $120,354.69

4. For each year, 1965, 1966, 1967, 1968, 1969, 1970

and 1971, and within the time provided by law, plaintiff

filed with the Insurance Commissioner of the State of

California, hereinafter referred to as ‘the Commissioner,”

in duplicate, its tax return (other than retaliatory) with

respect to the business done by the plaintiff in California

for the whole of each such calendar year, and as a part

thereof, on a form supplied by the Department of Insur-

ance, filed its Supplement to Annual Tax Return for each

such year setting forth all information requested by the

Department of Insurance relating to its Principal Office

Tax Deduction. A copy of each said tax return, including

the supplement, for each such year is attached hereto,

marked “Exhibits B, C, D, E, F, G and H” respectively,

and by reference said tax returns and supplements are

made a part hereof.

5. (a) The California premiums tax return of plain-

tiff, including said supplement, for the year 1965 set forth

that $133,595.10 was the gross premiums tax (exclusive

of any retaliatory tax) payable by plaintiff on its business

in California in the calendar year 1965; that the Principal

Office Deduction allowable to plaintiff as a credit against

the gross premiums tax for said year was $111,877.50,

leaving a net premiums tax of $21,717.60 attributable to

plaintiff's 1965 business in California, exclusive of any

retaliatory tax; that plaintiff had, in conformity with the

law, made prepayments on account of said tax in the ag-

gregate sum of $12,000.00, leaving a balance of $9,717.60,

which was duly and timely paid by plaintiff at the time

it filed its said return. In addition plaintiff paid the Com-

missioner $35.00 as the fees claimed by the Commissioner

for the filing of plaintiff's Annual Statement and on ac-

count of its Certificate of Authority.

(b) For purposes of this litigation the parties agree

that the factual allegations, figures, and computations shown

on plaintiff's 1965 premiums tax return and supplement

thereto are accurate except that $5,893.94 of the deduc-

tions which were claimed by plaintiff on the return were

later determined by defendant Board to be not properly

deductible (see paragraph 5(j) below).

from the Commissioner which threatened the imposition of

mandatory penalties for any late filing thereof, filed, un-

der protest, with the Commissioner, on or before Septem-

ber 1, 1966, a Retaliatory Tax Information Return with

respect to the business done by plaintiff in California dur-

ing the year 1965. A copy thereof is attached hereto as

“Exhibit I" and by reference is made a part hereof.

(d) Defendant Board, on or about September 14, 1966,

assessed and levied against plaintiff retaliatory tax in the

amount of $128,352.23, and on or about September 15,

1966, defendant gave written notice to plaintiff that, on

the recommendation of the Commissioner, such assess-

ment had been made as retaliatory tax pursuant to section

12284 of the Revenue and Taxation Code of California on

plaintiff's business done in California in 1965, and that

plaintiff would become subject to penalty m the event

such additional tax was not paid by December 1, 1966.

The Commissioner and the defendant Board computed

such assessment of retaliatory taxes by subtracting plain-

tiff's California premiums tax liability of $21,717.60 (as

computed by plaintiff on its return for the year 1965)

and the California fees of $35.00 set forth in paragraph

5 (a) above from $150,104.83, the sum of the Ohio premi-

ums taxes and fees which would have been imposed on

a similar California insurer transacting the same kind and

amount of insurance business in the State of Ohio that

plaintiff transacted in California. Such amount of Ohio

premiums taxes and fees was computed by the Commis-

sioner and defendant Board from the figures reported by

plaintiff on page 2 of plaintiff's 1965 Retaliatory Tax In-

formation Return (‘Exhibit I’, included herein by ref-

erence in paragraph 5(c) above) and it does not in-

clude any real estate taxes which would have been payable

to the State of Ohio or any subdivision of the State of

Ohio. The parties agree that the figures reported on

“Exhibit I” are factually accurate.

(e) On or about October 7, 1966, plaintiff duly filed

with defendant plaintiff's written petition for the cor-

rection of said retaliatory tax assessment on 1965 business,

seeking the correction thereof to zero and the cancella-

tion thereof. On October 13, 1966, an executed duplicate

copy of said petition was filed with the Commissioner.

(f) The defendant Board denied plaintiff's petition and

so notified plaintiff on November 23, 1966.

(g) On or about November 25, 1966, in response to the

demand of the defendant therefor and under the threat

of penalty for nonpayment thereof, plaintiff paid to the

State Controller the full amount of said additional assess-

ment with respect to 1965 business, $128,352.23, under

written protest set forth in plaintiff's letter of transmittal

of payment.

(h) On or about January 24, 1967, plaintiff duly filed

with the defendant a duly executed Claim for Credit and

Refund of Tax with respect to business done in 1965, de-

manding reimbursement of the amount of the additional

tax payment made pursuant to demand of the defendant,

$128,352.23, together with interest thereon. On or about

said date, an executed duplicate copy of said claim was

filed with the Commissioner. A copy of such claim is

attached hereto, marked “Exhibit J” and incorporated here-

in by this reference as if fully rewritten herein.

(i) On or about February 18, 1971, said Claim for

Credit and Refund was denied in its entirety by defendant

Board, and written notice of defendant’s denial of plain-

tiff’s claim was mailed to plaintiff on or about February

ony. 897 1.

(j) Based on figures reported by plaintiff in 1970 in an

amendment to its annual premiums tax return for year

1965, on or about June 12, 1970, defendant Board, acting

pursuant to section 12424 of the Revenue and Taxation

Code, assessed against plaintiff a premiums tax deficiency

assessment of $137.33 plus interest; this assessment arose

from the deduction on plaintiff's original return for 1965

of $5,893.94 later found to be not properly deductible.

As a result of this assessment, the total 1965 premiums tax

liability for plaintiff as computed by defendant Board

was increased to $21,854.93, and the total 1965 retaliatory

tax liability for plaintiff as computed by defendant Board

was reduced to $128,214.90. Plaintiff paid without pro-

test the applicable interest of $4.12 and did not contest

the addition of $137.33 to its 1965 premiums tax liability

and the subtraction of the same amount from its 1965 re-

taliatory tax liability. This premiums tax assessment of

$137.33 is not being challenged by plaintiff in this pro-

ceeding

(k) Of the $150,069.83 set forth above as taxes paid

by plaintiff for the year 1965, defendant Board presently

contends that $21,854.93 was due for 1965 premiums tax

liability and $128,214.90 was due for 1965 retaliatory tax

liability. Plaintiff agrees for purposes of this litigation that

$21,854.93 was due from it as 1965 premiums tax liability,

but contends that no retaliatory tax for 1965 was due.

6. (a) In its California premiums tax return and the

supplement thereto for the year 1966 (“Exhibit C” in-

cluded herein by reference in paragraph 4 above) plain-

tiff claimed that $146,765.33 was the gross premiums tax

(exclusive of any retaliatory tax) payable by plaintiff due

to its insurance business in California in the calendar

year 1966. The amount of such tax was computed by

plaintiff on the basis that the tax owed by plaintiff (an

Ohio corporation) was the same tax as would be payable

to California if plaintiff were an insurance company in-

corporated in California with otherwise identical attributes

(which method of computation is hereinafter called the

“California Company Basis”). The return and supple-

ment thereto claimed that the Principal Office Deduction

allowable to plaintiff for said year was $115,644.37, leav-

ing a net premiums tax of $31,120.96 claimed by plaintiff

on the return as attributable to plaintiff's 1966 business in

California, exclusive of any retaliatory tax. In addition

to the calculation of the Principal Office Deduction on the

“California Company Basis”, plaintiff's return supplement

also contained an alternative calculation of the Principal

Office Deduction in which plaintiff attempted to calculate

said deduction in the manner prescribed by Article XIII,

Section 14 4/5,’ subdivision (e) of the California Con-

stitution as amended in 1966 and as applied to an Ohio

corporation. By using such alternative calculation, the

amount of the Principal Office Deduction was determined

by plaintiff to be $37,538.56. Plaintiff, claiming that said

1966 amendment to the California Constitution was un-

constittuional as applied to plaintiff, did not use the al-

ternative calculation in arriving at the amount of premiums

taxes it claimed on its return to be due for the year 1966.

Plaintiff's return correctly recited that plaintiff had made

prepayments on account of said tax in the aggregate sum

of $21,000.00, leaving a balance due, as calculated by plain-

tiff, of $10,120.96, which amount was timely paid by plain-

tiff at the time it filed its said return. In addition plaintiff

paid the Commissioner $35.00 as the fees claimed by the

Commissioner for the year 1966 for the filing of plaintiff's

annual statement and on account of its certificate of au-

thority.

(b) For purposes of this litigation the parties agree that

the factual allegations, figures, and computations shown

on plaintiffs’ 1966 premiums tax return and supplement

thereto are true and accurate except for the following:

(i) $19,475.54 of the deductions which were

claimed by plaintiff on the return were later deter-

1In 1974 Section 14 4/5 was renumbered Section 28; the earlier

number is used in this stipulation,

mined by defendant Board to be not properly de-

ductible (see paragraph 6 (1) below) ;

(ii) Defendant Board contends that the plaintiff's

alternative figures for the Principal Office Deduction

should have been used to determine the proper amount

of the Principal Office Deduction after being adjusted

to reflect the allocation of the real estate taxes attribut-

able to the parking areas involved (see paragraphs 6

ing under sections 12412 and 12413 of the Revenue and

Taxation Code, notified plaintiff that the premiums tax

(exclusive of retaliatory tax) due from plaintiff for 1966

was $109,226.77, computed by subtracting from a gross

tax of $146,765.33 a Principal Office Deduction of $37,538.-

56, which last-mentioned amount is the amount of the

Principal Office Deduction resulting from the alternative

calculation shown on plaintiff's 1966 premiums tax re-

turn supplement as described in paragraph 6(a) above.

The defendant thereupon notified plaintiff further that

plaintiff was required to pay the additional amount of

$78,105.81 as premiums tax, with interest at the rate of

six percent (6%) per annum, to wit, $390.53, on or be-

fore July 15, 1967, or be subject to penalty thereon.

(d) On July 14, 1967, in response to defendant's de-

mand and to avoid the penalties which the Commissioner

threatened to impose against plaintiff for nonpayment of

said additional assessment for the year 1966, plaintiff paid

to the Commissioner, under written protest, said addi-

tional tax of $78,105.81 and $390.53 interest, a total of

$78,496.34.

(e) Plaintiff, after receiving written demand therefor

from the Commissioner which threatened the imposition of

mandatory penalties for any late filing thereof, filed, un-

der protest, with the Commissioner, on or before August

1, 1967, a Retaliatory Tax Information Return with re-

spect to the business done by plaintiff in California during

the year 1966. This return was reported on the basis of

a California Principal Office Deduction of $115,644.37. A

copy thereof is attached hereto as “Exhibit K” and by ref-

erence is made a part hereof.

(f) Defendant Board, on or about August 10, 1967, as-

sessed and levied against plaintiff retaliatory tax in the

amount of $52,971.68, and on or about August 11, 1967,

defendant gave written notice to plaintiff that, on the

recommendation of the Commissioner, such assessment had

been made as retaliatory tax pursuant to section 12284

of the Revenue and Taxation Code of California on plain-

tiff’s business done in California in 1966, and that plain-

tiff would become subject to penalty in the event such

additional tax was not paid by December 1, 1967. The

Commissioner and the defendant Board computed such

assessment of retaliatory taxes by subtracting plaintiff's Cali-

fornia premiums tax liability of $109,226.77 (as computed

by Commissioner and defendant in the assessment set

forth in paragraph 6(c) above) and the California fees

of $35.00 set forth in paragraph 6 (a) above from $162,-

233.45, the sum of the Ohio premiums taxes and fees which

would have been imposed on a similar California insurer

transacting the same kind and amount of insurance busi-

ness in the State of Ohio that plaintiff transacted in Cali-

fornia. Such amount of Ohio premiums taxes and fees

was computed by the Commissioner and defendant Board

from the figures reported by plaintiff on page 2 of plain-

tiff’s 1966 Retaliatory Tax Information Return (“Exhibit

K” included herein by reference in paragraph 6 (e) above)

and does not include any real estate taxes which would

have been payable to the State of Ohio or any subdivision

of the State of Ohio. The parties agree that the figures

reported on pages 2 and 3 of “Exhibit K” are factually

accurate.

(g) On or about September 21, 1967, plaintiff duly

filed with defendant plaintiff's written petition for the

correction of said retaliatory tax assessment on 1966 busi-

ness, seeking the correction thereof to zero and the can-

cellation thereof. On September 21, 1967, an executed

duplicate copy of said petition was filed with the Com-

missioner.

(h) The defendant Board denied plaintiff's petition on

November 8, 1967, and so notified plaintiff on November

10, 1967.

(i) On or about November 24, 1967, in response to

the demand of the defendant therefor and under the

threat of penalty for nonpayment thereof, plaintiff paid

to the State Controller the full amount of said additional

assessment with respect to 1966 business, $52,971.68, under

written protest set forth in plaintiff's letter of transmittal

of payment.

(j) On or about December 14, 1967, plaintiff duly filed

with the defendant two duly executed written Claims for

Credit and Refund of tax with respect to business done

in 1966. One of such claims was filed with respect to the

portion of the tax paid for the year 1966 which resulted

from the denial to plaintiff of part of the Principal Office

Deduction it had claimed in its return on the “California

Company Basis”; the other claim was filed with respect

to the portion of such tax designated as retaliatory tax.

Copies of said claims are attached hereto and marked “Ex-

hibits L and M” respectively, and the same are incorpo-

rated herein by this reference as if fully rewritten herein.

(k) On or about February 18, 1971, each of said claims

for Credit and Refund was denied in its entirety by de-

fendant Board, and written notice of said denials was

mailed to plaintiff on or about February 22, 1971.

(I) Based on figures reported by plaintiff in 1971 in an

amendment to its annual premiums tax return for year

1966 (see last page of “Exhibit G” included herein by

reference in paragraph 4 above) on or about June 8,

_ 1971, defendant Board, acting pursuant to section 12424

of the Revenue and Taxation Code, assessed against plain-

tiff a premiums tax deficiency assessment of $453.77 plus

interest; this assessment arose from the deduction on plain-

tiff’s original return for 1966 of $19,475.54 later found

to be not properly deductible. As a result of this assess-

ment, the total 1966 premiums tax liability for plaintiff

as computed by defendant Board was increased to $109,-

680.54, and the total 1966 retaliatory tax liability for plain-

tiff as computed by defendant Board was reduced to $52,-

517.91. Plaintiff paid without protest the applicable in-

terest of $13.61 and did not contest the addition of $453.77

to its 1966 premiums tax liability and the subtraction of

the same amount from its 1966 retaliatory tax liability.

This premiums tax assessment of $453.77 is not being chal-

lenged by plaintiff in this proceeding.

(m) On or about February 3, 1972, defendant Board,

acting pursuant to section 12424 of the Revenue and Tax-

ation Code, assessed against plaintiff a premiums tax de-

ficiency assessment for year 1966 of $2,792.05 plus in-

terest. Such assessment was made because, in making the

alternative calculation regarding the Principal Office De-

duction in its 1966 premiums tax return supplement as

described in paragraph 6 (a) above, plaintiff had not ap-

portioned the real estate taxes paid for parking areas per-

taining to its principal office building between the areas

used by plaintiff and the areas used by plaintiff’s tenants.

The amount of the additional assessment was determined

solely through the use of figures provided by plaintiff

in its 1966 premiums tax return and supplement. As

a result of this assessment, the total 1966 premiums tax li-

ability for plaintiff as computed by defendant Board was

increased to $112,472.59, and the total 1966 retaliatory

tax liability for plaintiff as computed by defendant Board

was reduced to $49,725.86. On March 6, 1972, the State

Controller received from plaintiff payment of the interest

charged by defendant; plaintiff denied and continues to

deny the validity of any allocation of real estate taxes

paid by plaintiff on the parking lots pertaining to its office

building housing its principal California office.

(n) Of the $162,198.45 set forth above as taxes paid

by plaintiff for the year 1966, defendant Board presently

contends that $112,472.59 was due for 1966 premiums

tax liability and $49,725.86 was due for 1966 retaliatory

tax liability. Plaintiff contends for purposes of this liti-

gation that $31,574.73 was due from it as 1966 premiums

tax liability, and that no retaliatory tax for 1966 was

due. The $80,897.86 difference between the 1966 premi-

ums tax liability as computed by the Board and as com-

puted by plaintiff is attributable solely to the questions of

whether the 1966 amendment to article XIII, section 14

4/5, subdivision (e) is constitutional and whether it can

be constitutionally applied to plaintiff.

7. (a) In its California premiums tax return and the

supplement thereto for the year 1967 (“Exhibit D” in-

cluded herein by reference in paragraph 4 above) plaintiff

claimed that $162,323.81 was the gross premiums tax (ex-

clusive of any retaliatory tax) payable by plaintiff due

to its insurance business in California in the calendar year

1967. The amount of such tax was computed by plain-

tiff on the “California Company Basis” (as if plaintiff were

a California corporation). The return and supplement

thereto claimed that the Principal Office Deduction al-

lowable to plaintiff for said year was $117,396.19, leaving

a net premiums tax of $44,927.62 claimed by plaintiff

on the return as attributable to plaintiff's 1967 business

in California, exclusive of any retaliatory tax. In ad-

dition to the calculation of the Principal Office Deduction

on the “California Company Basis”, plaintiff’s return sup-

plement also contained an alternative calculation of the

Principal Office Deduction in which plaintiff attempted to

calculate said deduction in the manner prescribed by

Article XIII, section 14 4/5, subdivision (e) of the Cali-

fornia Constitution as amended in 1966 and as applied

to an Ohio corporation. By using such alternative calcu-

lation, the amount of the Principal Office Deduction was

determined by plaintiff to be $41,423.43. Plaintiff claiming

that said 1966 amendment to the California Constitution

was unconstitutional as applied to plaintiff, did not use the

alternative calculation in arriving at the amount of premi-

ums taxes it claimed on its return to be due for the year

1967. Plaintiff's return correctly recited that plaintiff had

made prepayments on account of said tax in the aggregate

sum of $48,000.00. Thus, according to plaintiff’s calcu-

lation, the prepayments for the calendar year 1967 exceeded

the amount of the premiums tax due for said year by

$3,072.38. In addition plaintiff paid the Commissioner

$72.50 as the fees claimed by the Commissioner for the

year 1967 for the filing of plaintiff's annual statement,

for the filing of certain amendment forms, and on account

of its certificate of authority.

(b) For purposes of this litigation the parties agree

that the factual allegations, figures, and computations

shown on plaintiff's 1967 premiums tax return and sup-

plement thereto are true and accurate except that defendant

Board contends that plaintiff's alternative figures for the

Principal Office Deduction should have been used to de-

termine the proper amount of the Principal Office Deduc-

tion after being adjusted to reflect the allocation of the real

estate taxes attributable to the parking areas involved

(see paragraphs 7 (c) and 7 (i) below) .

under sections 12412 and 12413 of the Revenue and Tax-

ation Code, notified plaintiff that the premiums tax (ex-

clusive of retaliatory tax) due from plaintiff for 1967 was

$120,900.38, computed by subtracting from a gross tax of

$162,323.81 a Principal Office Deduction of $41,423.43,

which last-mentioned amount is the amount of the Prin-

cipal Office Deduction resulting from the alternative calcu-

lation shown on plaintiff's 1967 premiums tax return sup-

plement as described in paragraph 7 (a) above. The de-

fendant thereupon notified plaintiff further that plaintiff

was required to pay the additional amount of $72,900.38 as

premiums tax on or before June 15, 1968, or be subject

to penalty and interest thereon.

(d) On June 10, 1968, in response to defendant’s de-

mand and to avoid the penalties which the Commissioner

threatened to impose against plaintiff for non-payment of

said additional assessment for the year 1967, plaintiff paid

to the Commissioner, under written protest, said additional

tax of $72,900.38.

(e) Plaintiff, after receiving written demand therefor

from the Commissioner which threatened the imposition

of mandatory penalties for any late filing thereof, filed,

under protest, with the Commissioner, on or before August

15, 1968, a Retaliatory Tax Information Return with re-

spect to the business done by plaintiff in California dur-

ing the year 1967. This return was reported on the basis

of a California Principal Office Deduction of $117,396.19.

A copy thereof is attached hereto as “Exhibit N” and by

reference is made a part hereof.

(f) Defendant Board, on or about August 27, 1968,

assessed and levied against plaintiff retaliatory tax in the

amount of $60,270.01, and on or about August 28, 1968,

defendant gave written notice to plaintiff that, on the

recommendation of the Commissioner, such assessment had

been made a retaliatory tax pursuant to section 12284 of

the Revenue and Taxation Code of California on plain-

tiff’s business done in California in 1967, and that plaintiff

would become subject to penalty in the event such addi-

tional tax was not paid by December 1, 1968. The Com-

missioner and the defendant Board computed such assess-

ment of retaliatory taxes by subtracting plaintiff's Cali-

fornia premiums tax liability of $120,900.38 (as computed

by Commissioner and defendant in the assessment set forth

in paragraph 7 (c) above) and the California fees of $72.50

set forth in paragraph 7 (a) above from $181,242.89, the

sum of the Ohio premiums taxes and fees which would have

been imposed on a similar California insurer transacting

the same kind and amount of insurance business in the

State of Ohio that plaintiff transacted in California. Such

amount of Ohio premiums taxes and fees was computed by

the Commissioner and defendant Board from the figures

reported by plaintiff on page 2 of plaintiff's 1967 Retalia-

tory Tax Information Return (“Exhibit N” included

herein by reference in paragraph 7 (e) above) and does not

include any real estate taxes which would have been pay-

able to the State of Ohio or any subdivision of the State of

Ohio. The parties agree that the figures reported on pages

2 and 3 of "Exhibit N” to the Amended Complaint are

factually accurate.

(g) On or about September 20, 1968, plaintiff duly filed

with defendant plaintiff's written petition for the correc-

tion of said retaliatory tax assessment on 1967 business,

seeking the correction thereof to zero and the cancellation

thereof. On or about September 20, 1968, an executed

duplicate copy of said petition was filed with the Commis-

sioner.

(h) The defendant Board denied plaintiff's petition and

so notified plaintiff on November 20, 1968.

(i) On or about November 29, 1968, in response to the

demand of the defendant therefor and under the threat of

penalty for nonpayment thereof, plaintiff paid to the State

Controller the full amount of said additional assessment

with respect to 1967 business, $60,270.01, under written

protest set forth in plaintiff's letter of transmittal of pay-

ment.

(j) On or about December 2, 1968, plaintiff duly filed

with the defendant two duly executed written Claims for

Credit and Refund of tax with respect to business done in

1967. One of such claims was filed with respect to the

portion of the tax paid for the year 1967 which resulted

from the denial to plaintiff of part of the Principal Office

Deduction it had claimed in its return on the “California

Company Basis”; the other claim was filed with respect to

the portion of such tax designated as retaliatory tax. Copies

of said claims are attached hereto and marked ‘Exhibits

O and P” respectively, and the same are incorporated herein

by this reference as if fully written herein.

(k) On or about February 18, 1971, each of said Claims

for Credit and Refund was denied in its entirety by de-

fendant Board, and written notice of said denials was

mailed to plaintiff on or about February 22, 1971.

(1) On or about February 3, 1972, defendant Board,

acting pursuant to section 12424 of the Revenue and Tax-

ation Code, assessed against plaintiff a premiums tax de-

ficiency assessment for year 1967 of $2,180.21 plus interest.

Such assessment was made because in making the alterna-

tive calculation regarding the Principal Office Deduction

in its 1967 premiums tax return supplement as described in

paragraph 7 (a) above, plaintiff had not apportioned the

real estate taxes paid for parking areas pertaining to its

principal office building between the areas used by plain-

tiff and the areas used by plaintiff’s tenants. The amount of

the additional assessment was determined solely through

the use of figures provided by plaintiff in its 1967 premiums

tax return and supplement. As a result of this assessment,

the total 1967 premiums tax liability for plaintiff as com-

puted by defendant Board was increased to $123,080.59,

and the total 1967 retaliatory tax liability for plaintiff as

computed by defendant Board was reduced to $58,089.80.

On March 6, 1972, the State Controller received from

plaintiff payment of applicable interest charged by defen-

dant; plaintiff denied and continues to deny the validity

of any allocation of real estate taxes paid by plaintiff on

the parking lots pertaining to its office building housing its

principal California office.

(m) Of the $181,170.39 set forth above as taxes paid

by plaintiff for the year 1967, defendant Board presently

contends that $123,080.59 was due for 1967 premiums tax

liability and $58,089.80 was due for 1967 retaliatory tax

liability. Plaintiff contends for purposes of this litigation

that $44,927.62 was due from it as 1967 premiums tax

liability, and that no retaliatory tax for 1967 was due. The

$78,152.97 difference between the 1967 premiums tax lia-

bility as computed by the Board and as computed by plain-

tiff is attributable solely to the questions of whether the

1966 amendment to article XIII, section 14 4/5, subdivi-

sion (e) is constitutional and whether it can be constitu-

tionally applied to plaintiff.

8. (a) In its California premiums tax return and the

supplement thereto for the year 1968 (“Exhibit E” in-

cluded herein by reference in paragraph 4 above) plaintiff

claimed that $179,568.24 was the gross premiums tax (ex-

clusive of any retaliatory tax) payable by plaintiff due to

its insurance business in California in the calendar year

1968. ‘The amount of such tax was computed by plaintiff

on the “California Company Basis’ (as if plaintiff were a

California corporation). The return and supplement

thereto claimed that the Principal Office Deduction allow-

able to plaintiff for said year was $124,069.03, leaving a

net premiums tax of $55,499.21 claimed by plaintiff on

the return as attributable to plaintiff’s 1968 business in

California, exclusive of any retaliatory tax. In addition to

calculation of the Principal Office Deduction on the “Cali-

fornia Company Basis”, plaintiff's return supplement also

contained an alternative calculation of the Principal Office

Deduction in which plaintiff attempted to calculate said

deduction in the manner prescribed by article XIII, section

14 4/5, subdivision (e) of the California Constitution as

amended in 1966 and as applied to an Ohio corporation.

By using such alternative calculation, the amout of the

Principal Office Deduction was determined by plaintiff

to be $43,757.46. Plaintiff, claiming that said 1966 amend-

ment to the California Constitution was unconstitutional,

as applied to plaintiff, did not use the alternative calcula-

tion in arriving at the amount of premiums taxes it claimed

on its return to be due for the year 1968. Plaintiff’s return

correctly recited that plaintiff had made prepayments on

account of said tax in the aggregate sum of $52,000.00,

leaving a balance due, as calculated by plaintiff, of $3,-

499.21, which amount was timely paid by plaintiff at the

time it filed its said return. In addition plaintiff paid the

Commissioner $322.50 as the fees claimed by the Commis-

sioner for the year 1968 for the filing of plaintiff's annual

statement, for approval and policy filing, and on account of

its certificate of authority.

(b) For purposes of this litigation the parties agree that

the factual allegations, figures, and computations shown

on plaintiffs 1968 premiums tax return and supplement

thereto are true and accurate except that defendant Board

contends that the plaintiff's alternative figures for the Prin-

cipal Office Deduction should have been used to determine

the proper amount of the Principal Office Deduction after

being adjusted to reflect the allocation of the real estate

taxes attributable to the parking areas involved (see para-

graph 8(c) and 8(1) below).

acting under sections 12412 and 12413 of the Revenue

and ‘Taxation Code, notified plaintiff that the premiums tax

(exclusive of retaliatory tax) due from plaintiff for 1968

was $135,810.78, computed by subtracting from a gross

tax of $179,568.24 a Principal Office Deduction of $43,-

757.46, which last-mentioned amount is the amount of the

Principal Office Deduction resulting from the alternative

calculation shown on plaintiff's 1968 premiums tax return

supplement as described in paragraph 8(a) above. The

defendant thereupon notified plaintiff further that plain-

tiff was required to pay the additional amount of $80,-

311.57 as premiums tax, with interest at the rate of six

per cent (6%) pcr anum, to wit, $1,606.23, on or before

November 1, 1969, or be subject to penalty thereon.

(d) On October 13, 1969, in response to defendant's

demand and to avoid the penalties which the Commissioner

threatened to impose against plaintiff for nonpayment of

said additional assessment for the year 1968, plaintiff paid

to the Commissioner, under written protest, said addi-

tional tax of $80,311.57 and $1,606.23 interest, a total of

$31,917.80.

(e) Plaintiff, after receiving written demand therefor

from the Commissioner which threatened the imposition

of mandatory penalties for any late filing thereof, filed,

under protest, with the Commissioner, on or before August

20, 1969, a Retaliatory Tax Information Return with re-

spect to the business done by plaintiff in California during

the year 1968. This return was reported on the basis of a

California Principal Office Deduction of $124,069.03. A

copy thereof is attached hereto as “Exhibit Q” and by refer-

ence is made a part hereof.

(f) Defendant Board, on or about September 2, 1969,

assessed and levied against plaintiff retaliatory tax in the

amount of $65,390.47, and on or about September 3, 1969,

defendant gave written notice to plaintiff that, on the rec-

ommendation of the Commissioner, such assessment had

been made as retaliatory tax pursuant to section 12284 of

the Revenue and Taxation Code of California on plaintiff's

business done in California in 1968, and that plaintiff

would become subject to penalty in the event such addi-

tional tax was not paid by December 1, 1969. The Com-

missioner and the defendant Board computed such assess-

ment of retaliatory taxes by subtracting plaintiff’s Cali-

fornia premiums tax liability of $135,810.78 (as computed

by Commissioner and defendant in the assessment set forth

in paragraph 8 (c) above) and the California fees of $322.50

set forth in paragraph 8 (a) above from $201,523.75, the

sum of the Ohio premiums taxes and fees which would

have been imposed on a similar California insurer trans-

acting the same kind and amount of insurance business in

the State of Ohio that plaintiff transacted in California.

Such amount of Ohio premiums taxes and fees was com-

puted by the Commissioner and defendant Board from the

figures reported by plaintiff on page 2 of plaintiff's 1968

Retaliatory Tax Information Return (“Exhibit Q” in-

cluded herein by reference in paragraph 8 (e) above) and

does not include any real estate taxes which would have

been payable to the State of Ohio or any subdivision of

the State of Ohio. Defendant Board and the Commis-

sioner did not include in the Ohio burden of $1,065.00 in

agents’ license fees shown on said page 2 of “Exhibit Q”.

The parties agree that the figures reported on page 2 and

3 of “Exhibit Q” are factually accurate.

(g) On or about October 9, 1969, plaintiff duly filed

with defendant plaintiff's written petition for the correction

of said retaliatory tax assessment on 1968 business, seeking

the correction thereof to zero and the cancellation thereof.

On or about the same date an executed duplicate copy of

said petition was filed with the Commissioner.

(h) The defendant Board denied plaintiff's petition and

so notified plaintiff on November 6, 1969.

(i) On or about November 21, 1969, in response to the

demand of the defendant therefor and under the threat of

penalty for nonpayment thereof, plaintiff paid to the State

Controller the full amount of said additional assessment

with respect to 1968 business, $65,390.47, under written

protest set forth in plaintiff's letter of transmittal of pay-

ment.

(j) On or about November 21, 1969, plaintiff duly filed

with the defendant two duly executed written Claims for

Credit and Refund of tax with respect to business done in

1968. One of such claims was filed with respect to the

portion of the tax paid for thie year 1968 which resulted

from the denial to plaintiff of part of the Principal Office

Deduction it had claimed in its return on the “California

Company Basis”; the other claim was filed with respect

to the portion of such tax designated as retaliatory tax.

Copies of said claims are attached hereto and marked “Ex-

hibits R and S” respectively, and the same are incorporated

herein by this reference as if fully rewritten herein.

(k) On or about February 18, 1971, each of said Claims

for Crecit and Refund was denied in its entirety by de-

fendant Board, and written notice of said denials was

mailed to plaintiff.

(1) On or about February 3, 1972, defendant Board,

acting pursuant to section 12424 of the Revenue and Taxa-

tion Code, assessed against plaintiff a premiums tax de-

ficiency assessment for year 1968 of $2,304.72 plus interest.

Such assessment was made because in making the alter-

native calculation regarding the Principal Office Deduction

in its 1968 premium tax return supplement as described in

paragraph 8(a) above, plaintiff had not apportioned the real

estate taxes paid for parking areas pertaining to its principal

office building between the areas used by plaintiff and the

areas used by plaintiff’s tenants. The amount of the addi-

tional assessment was determined solely through the use of

figures provided by plaintiff in its 1968 premiums tax re-

turn and supplement. As a result of this assessment, the

total 1968 premiums tax liability for plaintiff as computed

by defendant Board was increased to $138,115.50, and the

total 1968 retaliatory tax liability for plaintiff as computed

by defendant Board was reduced to $63,085.75. On March

6, 1972, defendant received from plaintiff payment of ap-

plicable interest charged by defendant; plaintiff denied and

continues to deny the validity of any allocation of real

estate taxes paid by plaintiff on the parking lots pertaining

to its office building housing its principal California office.

(m) Of the $201,201.25 set forth above as taxes paid

by plaintiff for the year 1968, defendant Board presently

contends that $138,115.50 was due for 1968 premiums tax

liability and $63,085.75 was due for 1968 retaliatory tax

liability. Plaintiff contends for purposes of this litigation

that $55,499.21 was due from it as 1968 premiums tax lia-

bility, and that no retaliatory tax for 1968 was due. The

$82,616.29 difference between the 1968 premiums tax lia-

bility as computed by the Board and as computed by plain-

tiff is attributable solely to the questions of whether the

1966 amendment to article XIII, section 14 4/5, subdivi-

sion (e) is constitutional and whether it can be con-

stitutionally applied to plaintiff.

9. (a) In its California premiums tax return and the

supplement thereto for the year 1969 (“Exhibit F” in-

cluded herein by refererice in paragraph 4 above) plaintiff

claimed that $188,241.91 was the gross premiums tax (ex-

clusive of any retaliatory tax) payable by plaintiff due to

its insurance business in California in the calendar year

1969. The amount of such tax was computed by plaintiff

on the “California Company Basis” (as if plaintiff were a

California corporation). The return and supplement

thereto claimed that the Principal Office Deduction allow-

able to plaintiff for said year was $128,049.78, leaving a

net premiums tax of $60,192.13 claimed by plaintiff on the

return as attributable to plaintiff's 1969 business in Cali-

fornia, exclusive of any retaliatory tax. In addition to

calculation of the Principal Office Deduction on the “Cali-

fornia Company Basis’, plaintiffs return supplement also

contained an alternative calculation of the Principal Office

Deduction in which plaintiff attempted to calculate said

deduction in the manner prescribed by Article XIII, section

14 4/5, subdivision (e) of the California Constitution as

amended in 1966 and as applied to an Ohio corporation.

By using such alternative calculation, the amount of the

Principal Office Deduction was determined by plaintiff

to be $46,473.23. Plaintiff, claiming that said 1966 amend-

ment to the California Constitution was unconstitutional

as applied to plaintiff, did not use the alternative calcu-

lation in arriving at the amount of premiums taxes it

claimed on its return to be due for the year 1969. Plain-

tiff’s return correctly recited that plaintiff had made pre-

payments on account of said tax in the aggregate sum of

$45,000.00, leaving a balance due, as calculated by plain-

tiff, of $15,192.13, which amount was timely paid by plain-

tiff at the time it filed its said return. In addition plaintiff

paid the Commissioner $175.00 as the fees claimed by the

Commissioner for the year 1969 for the filing of plaintiff's

annual statement, for approval and policy filing, and on

account of its certificate of authority.

(b) For purposes of this litigation the parties agree that

the factual allegations, figures, and computations shown on

plaintiff's 1969 premiums tax return and supplement

thereto are true and accurate except that defendant Board

contends that the plaintiff's alternative figures for the

Principal Office Deduction should have been used after

being adjusted to reflect the allocation of the real estate

taxes attributable to the parking areas involved (see para-

graphs 9 (c) and 9(k) below).

year 1969, in addition to prepayments of $45,000.00 and

the balance of $15,192.13 set forth by plaintiff as then due,

plaintiff paid under protest $81,576.55 representing the

additional amount of tax which would have been due if

the Principal Office Deduction were computed as shown in

the alternative calculation on plaintiff's return supplement.

Plaintiff thus paid total premiums tax for 1969 (other than

retaliatory tax) of $141,768.68, of which $81,576.55 was

paid under written protest and asserted to be illegally

claimed and collected. Said amount of $81,576.55 was paid

without awaiting an assessment by the defendant for said

amount, in order to simplify the handling of plaintiff's

claim for refund of said amount, for the defendant’s con-

venience, and in accordance with plaintiff's letters of trans-

mittal accompanying its tax payments.

(d) Plaintiff, after receiving written demand therefor

from the Commissioner which threatened the imposition of

mandatory penalties for any late filing thereof, filed, under

protest, with the Commissioner, on or before August 7,

1970, a Retaliatory Tax Information Return with respect

to the business done by plaintiff in California during the

year 1969. ‘This return was reported on the basis of a

California Principal Office Deduction of $128,049.78. A

copy thereof is attached hereto as “Exhibit T” and by refer-

ence is made a part hereof.

(e) Defendant Board, on or about August 18, 1970,

assessed and levied against plaintiff retaliatory tay. in the

amount of $66,265.56, and on or about August 19, 1970,

defendani gave written notice to plaintiff that, on the

recommendation of the Commissioner, such assessment

had been made as retaliatory tax pursuant to section 12284

of the Revenue and Taxation Code of California on plain-

tiff’s business done in California in 1969, and that plaintiff

would become subject to penalty in the event such addi-

tional tax was not paid by December 1, 1970. The Com-

missioner and the defendant Board computed such assess-

ment of retaliatory taxes by subtracting plaintiff's Cali-

fornia premiums tax liability of $141,768.68 (as computed

by Commissioner and defendant using the alternative

computation on plaintiff's premiums tax return supplement

for 1970) and the California fees of $175.00 set forth in

paragraph 9(a) above from $208,209.24, the sum of the

Ohio premiums taxes and fees which would have been im-

posed on a similar California insurer transacting the same

kind and amount of insurance business in the State of Ohio

that plaintiff transacted in California. Such amount of

Ohio premiums taxes and fees was computed by the Com-

missioner and defendant Board from the figures reported

by plaintiff on page 2 of plaintiff's 1969 Retaliatery Tax

Information Return (‘Exhibit T” included herein by ref-

erence in paragraph 9 (d) above) and does not include any

real estate taxes which would have been payable to the

State of Ohio or any subdivision of the State of Ohio. The

parties agree that the figures reported on pages 2 and 3

of “Exhibit T” are factually accurate.

(f) On or about September 18, 1970, plaintiff duly

filed with defendant plaintiff's written petition for the cor-

rection of said retaliatory tax assessment on 1969 business,

seeking the correction thereof to zero and the cancellation

thereof. On the same date an executed duplicate copy of

said petition was filed with the Commissioner.

(g) The defendant Board denied plaintiffs petition and

so notified plaintiff on November 6, 1970.

(h) On or about November 30, 1970, in response to the

demand of the defendant therefor and under the threat of

penalty for nonpayment thereof, plaintiff paid to the State

Controller the full amount of said additional assessment

with respect to 1969 business, $66,265.56, under written

protest set forth in plaintiff's letter of transmittal of pay-

ment.

(i) On or about February 22, 1971, plaintiff duly filed

with the defendant two duly executed written Claims for

Credit and Refund of tax with respect to business done in

1969. One of such claims was filed with respect to the

portion of the tax paid for the year 1969 which resulted

from the denial to plaintiff of part of the Principal Office

Deduction it had claimed in its return on the “California

Company Basis”; the other claim was filed with respect to

the portion of such tax designated as retaliatory tax. Copies

of said claims are attacheg,hereto and marked “Exhibits U

and V” respectively, and the same are incorporated herein

by this reference as if fully rewritten herein.

(j) On or about March 24, 1971, each of said Claims

for Credit and Refund was denied in its entirety by de-

fendant Board, and written notice of said denials was

mailed to plaintiff on or about March 25, 1971.

(k) On or about February 3, 1972, defendant Board,

acting pursuant to section 12424 of the Revenue and Tax-

ation Code, assessed against plaintiff a premiums tax de-

ficiency assessment for year 1969 of $2,477.91 plus interest.

Such assessment was made because in making the alterna-

tive calculation regarding the Principal Office Deduction

in its 1969 premiums tax return supplement as described

in paragraph 9 (a) above, plaintiff had not apportioned the

real estate taxes paid for parking areas pertaining to its

principal office building between the areas used by plain-

tiff and the areas used by plaintiff's tenants. The amout of

the additional assessment was determined solely through

the use of figures provided by plaintiff in its 1969 prem-

iums tax return and supplement. As a result of this assess-

ment, the total 1969 premiums tax liability for plaintiff as

computed by defendant Board was increased to $144,-

246.59, and the total 1969 retaliatory tax liability for plain-

tiff as computed by defendant Board was reduced to $63,-

787.65. On March 6, 1972, the State Controller received

from plaintiff payment of applicable interest charged by

defendant; plaintiff denied and continues to deny the

validity of any allocation of real estate taxes paid by plain-

tiff on the parking lots pertaining to its office building

housing its principal California office.

(1) Of the $208,034.24 set forth above as taxes paid by

plaintiff for the year 1969, defendant Board presently con-

tends that $144,246.59 was due for 1969 premiums tax

liability and $63,787.65 was due for 1969 retaliatory tax

liability. Plaintiff contends for purposes of this litigation

that $60,192.13 was due from it as 1969 premiums tax lia-

bility, and that no retaliatory tax for 1969 was due. The

$84,054.46 difference between the 1969 premiums tax lia-

bility as computed by the Board and as computed by plain-

tiff is attributable solely to the questions of whether the

1966 amendment to article XIII, section 14 4/5, subdivision

(e) is constitutional and whether it can be constitutionally

applied to plaintiff.

10. (a) In its California premiums tax return and the

supplement thereto for the year 1970 (“Exhibit G” in-

cluded herein by reference in paragraph 4 above) plaintiff

claimed that $201,533.20 was the gross premiums tax (ex-

clusive of any retaliatory tax) payable by plaintiff due to

its insurance business in California in the calendar year

1970. The amount of such tax was computed by plaintiff

on the “California Company Basis”. The return and sup-

plement thereto claimed that the Principal Office Deduc-

tion allowable to plaintiff for said year was $121,173.59,

leaving a net premiums tax of $80,359.61 claimed by plain-

tiff on the return as attributable to plaintiff's 1970 business

in California, exclusive of any retaliatory tax In addition

to the calculation of the Principal Office Deduction on the:

“California Company Basis”, plaintiff's return supplement

also contained an alternative calculation of the Principal

Office Deduction in which plaintiff attempted to calculate

said deduction in the manner prescribed by Article XIII,

section 14 4/5, subdivision (e) of the California Constitu-

. 38

tion as amended in 1966 and as applied to an Ohio corpora-

tion. By using such alternative calculation, the amount of

the Principal Office Deduction was determined by plain-

tiff to be $44,727.04. Plaintiff, claiming that said 1966

amendment to the California Constitution was unconstitu-

tional as applied to plaintiff, did not use the alternative

calculation in arriving at the amount of premiums taxes

claimed on its return to be due for the year 1970. Plain-

tiffs return correctly recited that plaintiff had made pre-

payments on account of said tax in the aggregate sum of

$112,706.10. Thus, according to plaintiff's calculation the

prepayments for the calendar year 1970 exceeded the

amount of the premiums tax due for said year by $32,-

346.49. In addition plaintiff paid the Commissioner

$125.00 as the fees claimed by the Commissioner for the

year 1970 for the filing of plaintiff's annual statement, and

on account of its certificate of authority.

(b) For purposes of this litigation the parties agree that

the factual allegations, figures, and computations shown

on plaintiffs 1970 premiums tax return and supplement

thereto are true and accurate except that defendant Board

contends that the plaintiff's alternative figures for the

Principal Office Deduction should have been used to de-

termine the proper amount of the Principal Office Deduc-

tion after being adjusted to reflect the allocation of real

estate taxes attributable to the parking areas involved (see

paragraphs 10 (c) and 10 (k) below).

year 1970, in addition to prepayments of $112,706.10,

plaintiff paid under protest $44,100.06 representing the

additional amount of tax which would have been due if

the Principal Office Deduction were computed as shown

in the alternative calculation on plaintiff's return supple-

ment. Plaintiff thus paid total gross premiums tax for

1970 (other than retaliatory tax) of $156,806.16, of which

$76,446.55 was paid under written protest and asserted to

be illegally claimed and collected. Said amount of $76,-

446.55 was paid without awaiting an assessment by the

defendant for said amount, in order to simplify the

handling of plaintiff's claim for refund of said amount, for

the defendant’s convenience, and in accordance with plain-

tiff’s letters of transmittal accompanying its tax payments.

(d) Plaintiff, after receiving written demand therefor

from the Commissioner which threatened the imposition

of mandatory penalties for any late filing thereof, filed,

under protest, with the Commissioner, within the time

fixed by law, a Retaliatory Tax Information Return with

respect to the business done by plaintiff in California dur-

ing the year 1970. This return was reported on the basis

of a California Principal Office Deduction of $121,173.59.

A copy thereof is attached hereto as “Exhibit W” and by

reference is made a part hereof.

(e) Defendant Board, on or about August 18, 1971,

assessed and levied against plaintiff retaliatory tax in the

amount of $67,539.12, and on or about August 18, 1971,

defendant gave written notice to plaintiff that, on the

recommendation of the Commissioner, such assessment had

been made as retaliatory tax pursuant to section 12284 of

the Revenue and Taxation Code of California on plaintiff's

business done in California in 1970, and that plaintiff

would become subject to penalty in the event such addi-

tional tax was not paid by December 1, 1971. The Com-

missioner and the defendant Board computed such assess-

ment of retaliatory taxes by subtracting plaintiff's Cali-

fornia premiums tax liability of $156,806.16 (as computed

by Commissioner and defendant using the alternative

computation on plaintiff's premiums tax return supplement

for 1970) and the California fees of $125.00 set forth in

paragraph 10(a) above from $224,570.28, the sum of the

Ohio premiums taxes and fees which would have been

imposed on a similar California insurer transacting the

same kind and amount of insurance business in the State

of Ohio that plaintiff transacted in California. Such

amount of Ohio premiums taxes and fees was computed

by the Commissioner and defendant Board from the figures

reported by plaintiff on page 2 of plaintiff's 1970 Retalia-

tory Tax Information Return (“Exhibit W” included

herein by reference in paragraph 10(d) above) and does

not include any real estate taxes which would have been

payable to the State of Ohio or any subdivision of the

State of Ohio. Tne parties agree that the figures reported

on pages 2 and 3 of “Exhibit W” are factually accurate.

(f) On or about August 25, 1971, plaintiff duly filed with

defendant plaintiff's written petition for the correction

of said retaliatory tax assessment on 1970 business, seeking

the correction thereof to zero and the cancellation thereof.

On the same-date, an executed duplicate copy of said peti-

tion was filed with the Commissioner.

(g) The defendant Board denied plaintiff's petition on

October 29, 1971 and so notified plaintiff on November 1,

1971.

(h) On or about November 23, 1971, in response to

the demand of the defendant therefor and under the

threat of penalty for nonpayment thereof, plaintiff paid

to the State Controller the full amount of said additional

assessment with respect to 1970 business, $67,639.12, under

written protest set forth in plaintiff's letter of transmittal

of payment.

(i) On or about March 8, 1972, plaintiff duly filed with

the defendant two duly executed written Claims for Credit

and Refund of tax with respect to business done in 1970.

One of such claims was filed with respect to the portion

of the tax paid for the year 1970 which resulted from the

denial to plaintiff of part of the Principal Office Deduction

it had claimed in its return on the “California Company

Basis”; the other claim was filed with respect to the por-

tion of such tax designated as retaliatory tax. Copies of

said claims are attached hereto and marked “Exhibits X

and Y”’ respectively, and the same are incorporated herein

by this reference as if fully rewritten herein.

(j) Neither of said Claims for Credit and Refund was

acted upon by defendant Board before the filing of the

Amended Complaint by plaintiff pursuant to section 13104

of the Revenue and Taxation Code.

(k) On or about February 3, 1972, defendant Board,

acting pursuant to section 12424 of the Revenue and Taxa-

tion Code, assessed against plaintiff a premiums tax de-

ficiency assessment for year 1970 of $2,711.30 plus in-

terest. Such assessment was made because in making the

alternative calculation regarding the Principal Office De-

duction in its 1970 premiums tax return supplement as

described in paragraph 10 (a) above, plaintiff had not ap-

portioned the real estate taxes paid for parking areas per-

taining to its principal office building between the areas

used by plaintiff and the areas used by plaintiff's tenants.

The amount of the additional assessment was determined

solely through the use of figures provided by plaintiff in

its 1970 premiums tax return and supplement. As a re-

sult of this assessment, the total 1970 premiums tax liabili-

ty for plaintiff as computed by defendant Board was in-

creased to $159,517.46, and the total 1970 retaliatory tax

liability for plaintiff as computed by defendant Board was

reduced to $64,927.82. On March 6, 1972, the State Con-

troller received from plaintiff payment of applicable in-

terest charged by defendant; plaintiff denied and continues

to deny the validity of any allocation of real estate taxes

paid by plaintiff on the parking lots pertaining to its of-

fice building housing its principal California office.

(1) Of the $224,445.28 set forth above as taxes paid

by plaintiff for the year 1970, defendant Board presently

contends that $159,517.46 was due for 1970 premiums

tax liability and $64,927.82 was due for 1970 retaliatory

tax liability. Plaintiff contends for purposes of this litiga-

tion that $80,359.61 was due from it as 1970 premiums tax

liability, and that no retaliatory tax for 1970 was due. The

$79,157.85 difference between the 1970 premiums tax

liability as computed by the Board and as computed by

plaintiff is attributable solely to the questions of whether

the terms of the 1966 amendment to article XIII, section

14 4/5, subdivision (e) is constitutional and whether it can

be constitutionally applied to plaintiff.

1]. (a) In its California premiums tax return and the

supplement thereto for the year 1971 (“Exhibit H” in-

cluded herein by reference in paragraph 4 above) plaintiff

claimed that $219,187.37 was the gross premiums tax (ex-

clusive of any retaliatory tax) payable by plaintiff due to its

insurance business in California in the calendar year 1971.

The amount of such tax was computed by plaintiff on the

“California Company Basis”. The return and supplement

thereto claimed that the Principal Office Deduction allow-

able to plaintiff for said year was $120,354.69, leaving a net

premiums tax of $98,832.68 claimed by plaintiff on the

return as attributable to plaintiff's 1971 business in Cali-

fornia, exclusive of any retaliatory tax. In addition to the

calculation of the Principal Office Deduction on the “Cali-

fornia Company Basis”, plaintiffs return supplement also

contained an alternative calculation of the Principal Office

Deduction in which plaintiff attempted to calculate said

deduction in the manner prescribed by article XIII, section

14 4/5, subdivision (e) of the California Constitution as

amended in 1966 and as applied to an Ohio corporation.

By using such alternative calculation, the amount of the

Principal Office Deduction was determined by plaintiff to

be $42,190.28. Plaintiff, claiming that said 1966 amend-

ment to the California Constitution was unconstitutional

as applied to plaintiff, did not use the alternative calcula-

tion in arriving at the amount of premiums taxes it claimed

to be due for the year 1971. Plaintiff's return correctly

recited that plaintiff had made prepayments on account of

said tax in the aggregate sum of $124,662.00. Thus, accord-

ing to plaintiff's calculation the prepayments for the cal-

endar year 1971 exceeded the amount of the premiums tax

due for said year by $25,829.32. In addition plaintiff paid

the Commissioner $125.00 as the fees claimed by the Com-

missioner for the year 1971 for the filing of plaintiff's

annual statement and on account of its certificate of au-

thority.

(b) For purposes of this litigation the parties agree that

the factual allegations, figures, and computations shown

on plaintiff's 1971 premiums tax return and supplement

thereto are accurate except that defendant Board contends

that the plaintiff's alternative figures for the Principal Of-

fice Deduction should have been used to determine the

proper amount of the Principal Office Deduction (see

paragraph 11 (c) below).

year 1971, in addition to prepayments of $124,662.00,

plaintiff paid under protest $52,335.09 representing the

additional amount of tax which would have been due if

the Principal Office Deduction were computed as shown

in the alternative calculation on plaintiff's return supple-

ment. Plaintiff thus paid total gross premiums tax for

1971 (other than retaliatory tax) of $176,997.09, of which

$78,164.41 was paid under written protest and asserted to

be illegally claimed and collected. Said amount of $78,-

164.41 was paid without awaiting an assessment by the de-

fendant for said amount, in order to simplify the handling

of plaintiff's claim for refund of said amount, for the

defendant's convenience, and in accordance with plaintiff's

letters of transmittal accompanying its tax payments.

(d) Plaintiff, after receiving written demand therefor

from the Commissioner which threatened the imposition

of mandatory penalties for any late filing thereof, filed,

under protest, with the Commissioner, within the time

provided by law, a Retaliatory Tax Information Return

with respect to the business done by plaintiff in California

during the year 1971. This return was reported on the

basis of a California Principal Office Deduction of $120,-

354.69. A full, true and correct copy thereof is attached

hereto as “Exhibit Z” and by reference is made a part

hereof.

(e) Defendant Board, on or about August 18, 1972,

assessed and levied against plaintiff retaliatory tax in the

amount of $65,434.96, and on or about August 18, 1972,

defendant gave written notice to plaintiff that, on the

recommendation of the Commissioner, such assessment

had been made as retaliatory tax pursuant to section 12284

of the Revenue and Taxation Code of California on plain.

tiff's business done in California in 1971, and that plaintiff

would become subject to penalty in the event such addi-

tional tax was not paid by December 1, 1972. The Com-

missioner and defendant Board computed such assessment

of retaliatory taxes by subtracting plaintiff's California

premiums tax liability of $176,997.09 (as computed by

Commissioner and defendant Board using the alternative

computation on plaintiff's premiums tax return supple-

ment for 1971) and the California fees of $125.00 set forth

in paragraph 11 (a) above from $242,557.05, the sum of

the Ohio premiums taxes and fees which would have been

imposed on a similar California insurer transacting the

same kind and amount of insurance business in the State

of Ohio that plaintiff transacted in California. Such amount

of Ohio premiums taxes and fees was computed by the

Commissioner and defendant Board from the figures re-

ported by plaintiff on page 2 of plaintiff's 1971 Retaliatory

Tax Information Return (“Exhibit Z” to the Amended

Complaint, included herein by reference in paragraph

11(d) above) and does not include any real estate taxes

which would have been payable to the State of Ohio or any

subdivision of the State of Ohio. The parties agree that

the figures reported on pages 2 and 3 of “Exhibit Z” are

factually accurate.

(f) On or about August 23, 1972, plaintiff duly filed with

defendant plaintiff’s written petition for the correction of

said retaliatory tax assessment on 1971 business, seeking the

correction thereof to zero and the cancellation thereof. On

the same date an executed duplicate copy of said petition

was filed with the Commissioner.

(g) The defendant Board denied plaintiff's petition and

so notified plaintiff on October 26, 1972.

(h) On or about November 27, 1972, in response to

the demand of the defendant therefor and under the threat

of penalty for nonpayment thereof, plaintiff paid to the

State Controller the full amount of said additional assess-

ment with respect to 1971 business, $65,434.96, under

written protest set forth in plaintiff’s letter of transmittal

of payment.

(i) On or about April 30, 1973, plaintiff duly filed

with the defendant two duly executed written Claims for

Credit and Refund of tax with respect to business done in

1971. One of such claims was filed with respect to the

portion of the tax paid for the year 1971 which resulted

from the denial to plaintiff of part of the Principal Office

Deduction it had claimed in its return on the “California

Company Basis”; the other claim was filed with respect to

the portion of such tax designated as retaliatory tax. Copies

of said claims are attached hereto and marked “Exhibits

AA and BB” respectively, and the same are incorporated

herein by this reference as if fully rewritten herein.

(j) Neither of said Claims for Credit and Refund was

acted upon by defendant Board before the filing of the

Amended Complaint by plaintiff pursuant to section 13104

of the Revenue and Taxation Code.

(k) Of the $242,432.05 set forth above as taxes paid by

plaintiff for the year 1971, defendant Board presently con-

tends that $176,997.09 was due for 1971 premiums tax

liability and $65,434.96 was due for 1971 retaliatory tax

liability. Plaintiff contends for purposes of this litigation

that $98,832.68 was due from it as 1971 premiums tax

liability, and that no retaliatory tax for 1971 was due. The

$78,164.41 difference between the 1971 premiums tax lia-

bility as computed by the Board and as computed by plain-

tiff is attributable solely to the questions of whether the

1966 amendment to article XIII, section 14 4/5, subdivi-

sion (e) is constitutional and whether it can be constitu-

tionally applied to plaintiff.

12. No part of the amounts paid under protest has been

repaid to plaintiff, and no part thereof has been credited

to plaintiff in respect to any other tax due the State of

California from plaintiff.

13. There is no dispute between the parties as to the

accuracy of the figures which entered into the computation

of the tax amounts at issue in this case as set forth in

paragraphs 5(k), 6(n), 7(m), 8(m), 9(1), 10 (l) and

1] (k).

14. The parties will make any computations necessary

for inclusion in appropriate findings after the court’s de-

cision in this matter. In the eveat the parties are unable

to agree on the computation, the case may be reopened by

either party to submit any additional evidence which may

be required in making such computation.

DATED: December 31, 1976.

PAUL, HASTINGS & JANOFSKY

/s/ By RONALD M. OSTER

Attorneys for Plaintiff

EVELLE J. YOUNGER

Attorney General of California

ERNEST P. GOODMAN

Assistant Attorney General

/s/ TIMOTHY G. LADDISH

Deputy Attorney General

Attorneys for Defendant

EXHIBIT A TO THE STIPULATION OF FACTS

STATE OF CALIFORNIA

DEPARTMENT OF INSURANCE

SAN FRANCISCO

Certificate of Authority

Tuis Is To Certiry, That, pursuant to the Insurance

Code of the State of California, THE WESTERN AND

SOUTHERN LIFE INSURANCE COMPANY of CIN-

CINNATI, OHIO, organized under the laws of OHIO,

subject to its Articles of Incorporation or other fundamen-

tal organizational documents, is hereby authorized to trans-

act within this State, subject to all provisions of this Cer-

tificate, the following classes of insurance: LIFE AND DIS-

ABILITY as such classes are now or may hereafter be de-

fined in the Insurance Laws of the State of California.

Tuis CERTIFICATE is expressly conditioned upon the

holder hereof now and hereafter being in full compliance

with all, and not in violation of any, of the applicable laws

and lawful requirements made under authority of the laws

of the State of California as long as such laws or require-

ments are in effect and applicable, and as such laws and

requirements now are, or may hereafter be changed or

amended.

In WitNEss WHEREOF, effective as of the |st day

of JULY, 1956, I have hereunto set my hand and

caused my official seal to be affixed this day of

AUG 27, 1956.

/s/ F. BURTON McCONNELL

(SEAL)

AMENDED COMPLAINT FOR RECOVERY OF

TAXES PAID UNDER PROTEST

(Filed December 31, 1976)

(CAPTION OMITTED IN PRINTING)

Plaintiff complains of defendant and alleges as follows:

1. Plaintiff incorporates herein all of the facts contained

and alleged in the Stipulation of Facts entered into by

plaintiff and defendant and filed with the Court on ...__.

1976.

2. By reason of the facts contained and alleged in said

Stipulation, there is now due, owing and unpaid from de-

fendant to plaintiff the sum of $977,853.57, together with

interest as provided by Revenue and Taxation Code Sec-

tions 12983 and 13107 at the rate of six percent (6%)

per annum as follows: on $128,214.90 from December 1,

1966, to date; on $78,042.57 from July 15, 1967, to date;

on $52,517.91 from December 1, 1967 to date; on $3,072.38

from March 15, 1967, to date; on $72,900.38 from June

10, 1968, to date; on $60,270.01 from December 1, 1968,

to date; on $81,917.80 from November 1, 1969, to date;

on $65,390.47 from December 1, 1969, to date; on $81,-

576.55 from April 1, 1970, to date; on $66,265.56 from

December 1, 1970, to date; on $76,446.55 from March 14,

1971, to date; on $67,639.12 from December 1, 1971 to

date; on $78,164.41 from March 15, 1972, to date; and on

$65,434.96 from December 1, 1972, to date.

WHEREFORE, plaintiff prays for judgment against de-

fendant as follows:

1. For the sum of $977,853.57 together with interest

thereon as alleged hereinabove;

2. For its costs of suit insurred herein; and

3. For such other and further relief as the court deems

just and proper.

DATED: December 20, 1976.

PAUL, HASTINGS & JANOFSKY

RONALD M. OSTER

By /s/ RONALD M. OSTER

Ronald M. Oster

Attorneys for Plaintiff

Of Counsel:

Alan R. Vogeler

Lawrence H. Kyte

Gerald L. Baldwin

Kyte, Conlan, Wulsin & Vogeler

1300 Provident Tower

Cincinnati, Ohio 45202

(513) 421-5828

STIPULATION RE FILING OF AMENDED

COMPLAINT AND ANSWER THERETO

(Filed December 31, 1976)

(CAPTION OMITTED IN PRINTING)

IT IS HEREBY STIPULATED by and between the

parties hereto, through their undersigned counsel of rec-

ord, that plaintiff The Western and Southern Life Insur-

ance Company may file herein an Amended Complaint in

the form attached hereto as Exhibit “A”.

If IS FURTHER STIPULATED that upon the filing

of said Amended Complaint, defendant State Board of

Equalization of the State of California shall be deemed to

have filed an answer thereto admitting the allegations con-

tained in paragraph 1 of said Amended Complaint and

denying each and every allegation contained in paragraph

2 of said Amended Complaint.

DATED: December 31, 1976

PAUL, HASTINGS & JANOFSKY

. RONALD M. OSTER

By /s/ RONALD M. OSTER

Ronald M. Oster, Attorneys

for Plaintiff The Western

and Southern Life Insurance

Company

DATED: December 28, 1976

EVELLE J. YOUNGER

Attorney General of California

ERNEST P. GOODMAN

Assistant Attorney General

TIMOTHY G. LADDISH

Deputy Attorney General

By /s/ TIMOTHY G. LADDISH

Timothy G. Laddish, Depu-

ty Attorney General, Attor-

neys for Defendant State

Board of Equalization of the

State of California

SUPPLEMENTAL STIPULATION

(Filed May 24, 1977)

(CAPTION OMITTED IN PRINTING)

I'T IS HEREBY STIPULATED AND AGREED by and

between the parties hereto, through their respective attor-

neys of record, that Exhibit A attached hereto consists of

a true copy of the analyses and the arguments to the voters

concerning the 1966 amendment to article XIII, section

14-4/5, and that said Exhibit A is taken from pages 13

and 14 of the election brochure which was sent to each

registered California voter prior to the general election of

Tuesday, November 8, 1966.

Exhibit A is attached to this stipulation for the limited

purpose of showing the contents of said analyses and argu-

ments and not for the truth of the matters therein set forth;

provided, however, that either party may offer said Exhibit

A for additional purposes subject to objections as to com-

petency, relevancy and materiality but not subject to the

best evidence objection or any objection as to its genuine-

ness or the due execution threof.

DATED: May 24, 1977

KYTE, CONLAN, WULSIN &

VOGELER

ALAN R. VOGELER

PAUL, HASTINGS, JANOFSKY

& WALKER

RONALD M. OSTER

By /s/ RONALD M. OSTER

Attorneys for Plaintiff

DATED: May 17, 1977

EVELLE J. YOUNGER, Attorney

General of the State of California

ERNEST P. GOODMAN

Assistant Attorney General

/s/ TIMOTHY G. LADDISH

Deputy Attorney General

Attorneys for Defendant

EXHIBIT A

[COPIED FROM ORIGINAL]

TAXATION: INSURANCE COMPANIES;

HCME OR PRINCIPAL OFFICE DE-

DUCTION. Legislative Constitutional .

Amendment. Establishes formula and

limits amount of real property taxes on

home or principal office buildings de- | Y©S

8 ductible from gross premiums tax by

foreign insurers immediately, and by do-

mestic insurers on home or principal of- NO

fice buildings commenced after January

1, 1970. Redefines term “insurer” so that

reciprocal or interinsurance exchanges to-

gether with their attorneys in fact be con-

sidered as single unit.

(For Full Text of Measure, See Page 32, Part II)

General Analysis by the Legislative Counsel

A “Yes” vote on this measure is a vote to limit the

amount of the real property taxes on the home or principal

office of certain insurance companies which may be de-

ducted from the insurance tax, and to include corporate

or other attorneys in fact of reciprocal or interinsurance

exchanges within the constitutional definition of insurers

which are subject to the insurance tax.

A “No” vote is a vote to retain this deduction in its

present form and to retain the existing definition of “in-

surer’’ in the Constitution.

For further details see below.

Detailed Analysis by the Legislative Counsel

Section 14 4/5 of Article XIII of the State Constitution

now provides, among other things, that each insurer shall

pay an annual insurance tax, which is in lieu of all other

state, county, and municipal taxes with specified exceptions,

among which is the requirement that insurance companies

pay property taxes on their real estate. However, an in-

surance company, other than an ocean marine insurer, is

allowed to deduct from the insurance tax, the amount of

property taxes paid on the real property which it owns

and occupies as its home or principal office in this state.

The property tax on the entire property is deductible,

whether or not the insurer actually occupies the entire

premises in which its home or principal office is located.

This measure, if adopted by the voters, would amend

Section 14 4/5 to limit the amount of the home or principal

office deduction by making it subject to a formula under

which the deduction would be based on the percentage

of the insurer’s home or principal office building which

the insurer is deemed to occupy, plus one-half of such

percentage or 25 percent, whichever is less.

The limitation on the home or principal office deduc-

tion would not apply to real property owned by a do-

mestic insurer organized under the laws of this state and

licensed to transact insurance business in this state on or

before December 31, 1966, when such real property is oc-

cupied by the insurer as its home or principal office on

January 1, 1970, nor would it apply to such an insurer if

construction of its home or principal office commenced

prior to January 1, 1970.

In addition, the measure would amend Section 14 4/5 to

expand the definition of “insurer” to include the corporate

or other attorneys in fact of reciprocal or interinsurance

exchanges and require them to be considered as a single

unit.

The measure would further provide that, even though

a corporate or other attorney in fact would be treated as

a unit with its reciprocal or interinsurance exchange and

the unit would pay the insurance tax, each such attorney

would be subject to all other taxes imposed upon businesses

generally, except for income derived from its principal

business as attorney in fact.

Argument in Favor of Proposition No. 8

This tax reform measure will increase state revenues

by an estimated million dollars annually without imposing

new taxes or increasing existing tax rates.

Insurance companies pay California an annual tax of

2.35%, of the total amount of premiums received. This is

called the gross premiums tax. The Constitution authorizes

companies to deduct from their premium tax bill the

amount of real property taxes paid by them on a single

office building, which they designate as their “principal of-

fice’. Over the years, this has offered an effective induce-

ment for companies to build offices in California thereby

stimulating the economy in return for some relief from

California’s exceptionally high gross premiums tax rate.

This has worked out to the State’s advantage.

A few companies, however, mostly from out-of-state, built

large office buildings and used only a small portion of the

space for their insurance business, leasing the balance to

tenants in competition with commercial building owners

and operators. This caused understandable complaint from

the owners of office buildings.

Proposition 8 solves this problem in a workable manner

without unduly increasing the tax burden of the already

heavily taxed insurance industry. This is done in the fol-

lowing manner:

New limitations are put on the use of the deduction

for out-of-state companies and California companies li-

censed to transact insurance after 1966. For these com-

panies, the new ground rules base the deduction on an oc-

cupancy formula. Under these rules a company’s deduction

of its real property taxes depends on the percentage of

the building occupied by it and its insurance affiliates. The

deduction /3 limited to the percentage of such occupancy

plus an expansion or growth allowance. Thus, a company

can claim the full deduction only if it occupies 75% or

more of its building. As occupancy decreases, the deduction

decreases.

This formula continues the spirit of the original de-

duction which has been beneficial to California’s economy

but modifies it to meet changing conditions and prevent

serious abuse.

California’s own companies with home offices are per-

mitted to keep the full deduction until they move into a

new building, at which time they become subject to the

same formula. Therefore, long range, all companies will

be on the formula.

This slight advantage given to California’s home indus-

try will bring California into line with the 26 other states

which give their home companies some form of tax ad-

vantage over out-of-state companies. Some states completely

exempt their own companies from premium tax.

A purely technical change made by the measure brings

the Constitution into conformity with a 1963 act of the

Legislature designed to treat reciprocal insurers and their

attorneys-in-fact as a single unit, rather than as separate

entities. This unitary approach follows the Federal law

and puts all domestic insurers in the same tax position.

This amendment received a unanimous vote in the Sen-

ate at the 1966 Session of the Legislature and only two

negative votes in the eighty member Assembly. VOTE YES.

CHARLES EDWARD CHAPEL

Assemblyman, 46th District

STEPHEN P. TEALE

Senator, 26th District

Argument Against Proposition No. 8

This proposed constitutional amendment has two major

defects and should be soundly rejected by the voters.

The first defect is that it gives a tax break to a small

group of insurance companies by extending the provisions

of the principal office deduction to attorneys-in-fact. In the

next session, the Legislature will be faced with the necessity

of making substantial changes in the state tax structure.

If we are to siart giving tax reductions, we should start

by reducing taxes of the property owners of this state,

rather than a small group of insurance companies.

The second defect of this measure is that it sets up a

grossly discriminatory system of taxation in our state con-

stitution. Out-of-state companies are to have, in effect, a

higher net insurance tax rate than in-state companies with

the same type of principal office in California.

We should not use the power of government to give

one firm a competitive advantage over any other. The end

result of this will be a lessening of competition which will

ultimately work to the disadvantage of the consumer. It is

also setting a very bad precedent which could lead into

a system of favoritism for certain firms through the use of

the power of government.

Perhaps the most objectionable aspect to this whole pro-

cedure is that it is being sold to the people as a tightening

up of an existing loophole. It is granted that this does

reduce the principal office deduction for out-of-state insur-

ance firms — but not California firms. This is what causes

the objectionable discrimination. However, while closing

this loophole it opens another by including the attorneys-in-

fact in the definition of insurer. It is very questionable

whether there will be any revenue advantage to the state

by passage of this measure. At any rate, two defects which

are cited above should be compelling reasons to defeat this

measure. I am confident that the Legislature can work out

a better solution to this problem than the one proposed.

FE. RICHARD BARNES, Member

Assembly Committee on Revenue

and Taxation

SUPERIOR COURT OF CALIFORNIA,

COUNTY OF LOS ANGELES

Honorable A. R. Early, Judge

Thomas Pulce, Deputy Sheriff

M. E. Stipe, Deputy Clerk

Reporter, (None)

C-3189

THE WESTERN AND SOUTHERN LIFE

INSURANCE COMPANY, a corporation

Vs.

STATE BOARD OF EQUALIZATION OF

THE STATE OF CALIFORNIA

Counsel for Plaintiff:

Paul, Hastings & Janofsky

Ronald M. Oster

Of Counsel:

Kyte, Conlan, Wulsin & Vogeler

Alan R. Vogeler

Counsel for Defendant:

Evelle J. Younger, Attorney Gen’! of California

by T. Laddish

Nature of Proceedings: Court’s Intended Decision

In the above-entitled matter now submitted, judgment is

for plaintiff for the full amount of tax refunds sought in

accordance with the enclosed Memorandum Decision plus

interest.

To dispose of all issues and avoid a possible retrial follow-

ing appeal the court further finds as follows;

A. Plaintiff is barred from claiming that it should be

treated herein as a California insurer because it failed to

so claim in its claim for refund. R. & T. Code Section

13103. Cf. American Chemical Corp. vs. County of Los

Angeles (1974) 42 C.A.3d 45 at 55-56, hearing denied,

cert. den. 422 U.S. 1007.

B. To the extent that plaintiff's principal office de-

duction is allowed to plaintiff, its retaliatory tax will be

correspondingly increased. The premium tax and the re-

taliatory tax are mutually interdependent.

C. The 1966 Amendment to California Constitution,

Article XIII, Section 14-4/5 (e) and R. & T. Code Sec.

12441 were not intended by the law-makers to be retroac-

tive and can not be applied to 1966 taxes. Cf. Western &

Sguthern Life Ins. Co. vs. State Board of Equalization

(1970) 4 C.A.3d 21, hearing denied, at 34-35.

The stipulation of facts on file herein is adopted as the

court’s findings of fact. Plaintiff is ordered to prepare ap-

propriate conclusions of law and judgment, submit them

to defendant for approval as to form and accuracy and

then to the court for signature.

A copy of this minute order and a copy of the Memoran-

dum Decision are mailed to all parties. A Certificate of

Mailing is filed. _ MINUTES ENTERED Aug. 4, 1977

]

SUPERIOR COURT OF THE STATE OF

CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

Original Filed

August 4, 1977

County Clerk

NO. C 3189

THE WESTERN AND SOUTHERN LIFE

INSURANCE COMPANY, a corporation,

Plainuff,

VS.

STATE BOARD OF EQUALIZATION OF

THE STATE OF CALIFORNIA,

Defendant.

MEMORANDUM OF INTENDED DECISION

This case involves the constitutionality of taxes paid

under written protest by plaintiff for the years 1965-71 in-

clusive pursuant to Insurance Code Section 685 and Article

XIII, Section 14-4/5 (f) (3) of the California Constitu-

tion as that section was amended November 3, 1964, effec-

tive 1965 (now renumbered as Article XIII, Section 28).

It also involves the constitutionality of a portion of the

premiums taxes paid under written protest by plaintiff

for the years 1966 through 1971 inclusive pursuant to

Article XIII, Section 14-4/5(e), as amended in 1966 so

as to discriminate in favor of a “domestic insurer” as de-

fined therein and against insurers incorporated outside of

California in the credit allowed against the premiums tax

known as the home office deduction.

The facts herein are stipulated. They are accurately

condensed at pages | to 5 of plaintiff's opening brief (see

defendants trial brief at page 6, lines 5-7).

The tax imposed by Insurance Code Section 685 is re-

ferred to herein by both sides and in the Code as a “re-

taliatory tax,” a confusing term because there are two

different types of retaliatory tax. One type has been uni-

formly upheld by the appellate courts. This is a case of

first impression dealing with the second type.

The plaintiff is an insurance carrier incorporated and

having its principal office in Ohio. It has a Certificate of

Authority for an indefinite term to do business in Cali-

fornia issued pursuant to Insurance Code Section 701 which

was effective July 1, 1956. Since that date, it has contin-

ually done business in this state. Prior to 1965, it con-

structed an office building on land it owns in this county,

established its principal California office therein, and has

so occupied it during all years pertinent herein.

RETALIATORY TAX

Let us first examine the issue of the so-called “retaliatory

tax.” Following the Civil War, the insurance business ex-

panded greatly and there were tremendous abuses. Regu-

lation was needed, but there was no federal legislation to

restrain the business. When state regulation was attempted,

it was attacked as a violation of the Commerce Clause of

the U. S. Constitution. In Paul v. Virginia, 8 Wall. 168

(U.S. 1868), the United States Supreme Court permitted

such state regulation to continue by holding that the in-

surance business was not commerce at all. Accord: Hooper

v. California (1895) 155 U.S. 648, 655, and New York Life

Insurance Co. v. Deer Lodge County (1913) 231 USS.

495. A great number and variety of state taxes and regu-

lations then developed, some of which strongly discrimi-

nated taxwise in favor of locally incorporated insurers as

against those incorporated in other states but also doing

business locally. As an antidote to such tax discrimination

by other states against local insurers when doing business in

those other states, local legislatures often adopted a “‘re-

taliatory tax” against out-of-state insurers when doing busi-

ness locally. Writing under the direction of Prof. Robert

E. Keeton in 39 Notre Dame Lawyer 243 (1964), George

Pelletier, Jr., states that such statutes had then been adopt-

ed in 45 states, noting that they vary considerably in

detail.

The purpose of such a retaliatory tax, according to de-

fendant, “is to secure for the insurance companies of the

enacting state even-handed treatment by the other states”

(DTB 11, lines 11-14). This is a quotation from Western

& Southern Life Insurance Co. v. State Board of Equaliza-

tion (1970) 4 Cal. App. 3d 21, at 34. In Atlantic Insurance

Co. v. State Board of Equalization (1967) 255 Cal. App. 2d

1 (hear. den.) cert. den. 390 U.S. 529, at page 4, the

opinion states that ‘““The common purpose of such | gisla-

tion in the several states has been to discourage any state

from imposing discriminatory taxes or other burdens upon

out-of-state companies.” And at page 15, the opinion says

that “here the purpose of the retaliatory law is to secure

reciprocity (citations omitted) .... It is designed to

achieve uniformity and not to discriminate.”

The opinion in In re Insurance Tax Cases (1945) 160

Kan. 300, 161 Pac. 2d 726, affirmed (per curiam) in Pru-

dential Insurance Co. of America v. Hobbs (1946) 328

U.S. 822, expressed the object of a retaliatory tax in similar

terms: “It seems to us more justly to be deemed a provi-

sion for reciprocity. It says, in effect, that while we recom-

mend all insurance corporations of other states to the trans-

action of business within our limits, we insist upon a like

recommendation elsewhere, and that if other states shall

attempt, directly or indirectly, to debar our corporations

from the transaction of insurance business within their

borders we shall meet their corporations with the same

restrictions and disability. It is, in brief, an appeal for

comity; a demand for equality” (161 Pac. 2d 730). Are

these objectives served by the type of retaliatory tax be-

fore the court herein? We think not. Let us examine that

tax. eA

That there are two different types of retaliatory tax was

expressly recognized by the opinion in the Atlantic Insur-

ance Company case, supra, at page 5. That opinion con-

trasted the retaliatory tax authorized by Article XIII Sec-

tion 14-4/5 (f) (3) of the California Constitution as it read

before it was amended November 3, 1964 with the dif-

ferent type of retaliatory tax authorized by Insurance Code

Section 685. The Constitutional provision (now changed)

then authorized tax retaliation against insurers from an-

other state only when the tax laws of that state discrimi-

nated against California insurers in favor of its domestic

insurers, thus giving its domestic insurers a competitive

advantage over California insurers within its borders. Un-

less the context indicates otherwise, as used hereinafter

the word “taxes” includes taxes, licenses, fees, and other

financial exactions in the aggregate. Section 685 on the

other hand imposed a “retaliatory tax upon foreign in-

surance companies whose home states levied higher taxes

upon California companies than California imposed upon

companies from those foreign states” (irrespective of

whether the foreign state discriminated against California

companies or taxed them exactly the same as it did its

domestic companies). The first type of tax is identified in

the opinion as a “discriminatory tax,”” whereas the second

is described as a “comparative retaliatory tax” (255 Cal.

App. 2d 5). A term more descriptive of the first type,

which I will hereinafter use, would be an “anti-discrimina-

tion retaliatory tax.” It is obvious that the objective de-

scribed above of discouraging other states from imposing

discriminatory taxes on California insurers is effectively

served by the anti-discrimination retaliatory tax and is not

served at all by the “comparative retaliatory tax.” The

tax involved herein is of the latter type. A “comparative

retaliatory tax’’ is not really retaliatory at all. It does

nothing to prevent discriminatory by other states. It does

not insure even-handed treatment by those states of Cali-

fornia insurers. If anything, it would seem to stimulate

counter discrimination against California carriers.

In 1944 the U. S. Supreme Court overturned its 1868

decision in Paul v. Virginia, supra, and in United States v.

South-Eastern Underwriters Association (1944) 322 USS.

533 it was held that insurance was commerce after all, and

could be interstate commerce. Congress, however, did not

then undertake to exercise its power under the Commerce

Clause to regulate the interstate insurance business. In-

stead, it enacted the McCarran-Ferguson Act (59 Stat. 33;

15 U.S.C. Sections 1011-1015) which returned authority to

regulate and tax the insurance industry to the states. As

the Act did not purport to repeal any part of the United

States Constitution, the authority of the states is, of course,

limited by that Constitution’s constraints. Just what limits

does the federal Constitution place upon the power of the

States to tax interstate commerce? One percipient scholar

and legal satirist, the late Professor T. Reed Powell, once

said that if the American Law Institute were to restate the

law of state taxation of interstate commerce, it would read

as follows:

State Power to Tax Interstate Commerce

The states may tax interstate commerce.

Comment: The states may not tax interstate com-

merce too much.

Caveat: How much is too much is beyond the scope

of this restatement.

Professor Powell was echoing the laments of members

of the Court itself epitomized in the opinion in Portland

Cement Co. v. Minnesota (1959) 358 U.S. 450, at 457-458:

“Commerce between the States having grown up like

Topsey, the Congress meanwhile not having under-

taken to regulate taxation of it, and the States having

understandably persisted in their efforts to get some

return for the substantial benefits they have afforded

it, there is little wonder that there has been no end

of cases testing out state tax levies. The resulting

judicial application of constitutional principles to spe-

cific state statutes leaves much room for controversy

and confusion and little in the way of precise guides

to the States in the exercise of their indispensable

2 power of taxation. This Court alone has handed down

some three hundred full-dress opinions spread through

slightly more than that number of our reports. As was

said in Miller Bros. Co. v. Maryland, 347 US 340, 344,

98 L ed 744, 748, 74 S Ct 535 (1954), the decisions

have been ‘not always clear . . . consistent or recon-

cilable. A few have been specifically overruled, while

others no longer fully represent the present state of

the law.’ From the quagmire there emerge, however,

some firm peaks of decision which remain unques-

tioned.”

In Prudential Ins. Co. v. Benjamin (1946) 328 USS.

408, 420, the opinion summarizes the situation as “one

of very considerable judicial oscillation.” However, even

in that era of uncertainty, as stated in Portland Cement,

supra, there were “some firm peaks of decision which re-

main unquestioned.” Significant herein among those land-

marks is the principle that “no State may impose a tax

which discriminates against interstate commerce . . . . by

providing a direct commercial advantage to local business”

(citing cases) (358 U.S. at 458). Accord: Richfield Oil

Corp. v. State Board of Equalization (1946) 329 U.S. 69,

at 76, and Hanover Fire Insurance Co. v. Harding (1926)

272 U.S. 494. This language was quoted approvingly by

a unanimous court in Boston Stock Exchange v. State Tax

Commission (1977) 50 L.ed. 2d 514 at 524. The reason

behind the rule was simply stated:

. the very purpose of the Commerce Clause was

to create an area of free trade among the several states.

. . . The prohibition against discriminatory treatment

of interstate commerce follows inexorably from the

basic purpose of the Clause. Permitting the indi-

vidual States to enact laws that favor local enterprises

at the expense of out-of-state businesses would invite

a multiplication of preferential trade areas destructive

of the free trade which the Clause protects.”

Cases to this effect are legion. Even Alexander Hamilton

wrote, “An unrestrained intercourse between the States

themselves will advance the trade of each, by an inter-

change of their respective productions, not only for the

supply of reciprocal wants at home, but their exportation

to foreign markets.” THE FEDERALIST No. 11, at 52 (Cooke

ed. 1961).

Another recognized landmark is the principle that a

State may tax interstate commerce so that it will carry ‘“‘its

fair share of the costs of state government in return for

the benefits” and services it derives from the state. Rich-

field Oil Corporation v. State Board of Equalization, supra,

329 U.S. at 75. Portland Cement Co. v. Minnesota, supra,

358 U.S. at 462. Complete Auto Transit, Inc. v. Brady

(1977) 51 L.ed. 2d 326 at 336.

In other words, “Interstate commerce may be made to

pay its way.”

The retaliatory taxes herein were levied pursuant to In-

surance Code Section 685 and California Constitution

Art. XIII, Section 14-4/5 (f) (3) as amended November

3, 1964, upon plaintiff, an insurance carrier incorporated

in Ohio. During none of the years pertinent herein did

Ohio discriminate against California carriers doing busi-

ness in Ohio; Ohio imposed the same burdens and taxes on

its domestic insurers that it did on California carriers do-

ing business in Ohio. Ohio apparently had a retaliatory

tax similar to California’s which never became applicable

herein because the taxes and burdens Ohio imposed on

companies doing business in Ohio were greater than those

imposed by California on its domestic insurers.

During this period, the California retaliatory tax was

of the type described in the Atlantic Ins. Co. case, supra, at

page 5 as a “comparative retaliatory tax.” California im-

posed its premiums tax upon plaintiff each year and in

addition thereto imposed a “retaliatory tax” which rep-

resented the difference between the California premiums

tax paid by plaintiff and the aggregate taxes that a Cali-

fornia company would have had to pay in Ohio upon the

same volume of business done therein. The California

premiums tax is an “in lieu” tax and, except for real

property taxes (which are also paid by foreign carriers) , no

other taxes were imposed by California on its own domestic

carriers. Recognition of this fact is essential to the finding

that the California retaliatory tax discriminates against the

plaintiff herein. As amended on November 3, 1964, the

California Constitution no longer requires that Ohio dis-

criminate against California’s insurers doing business in

Ohio before California’s “retaliatory tax” becomes ap-

plicable. This California tax is plainly discriminatory

against interstate commerce. No reasonable ground for this

discriminatory classification has ever been suggested. The

tax has no relationship whatsoever to the benefits or ser-

vices that the state furnishes a foreign carrier. It is a

burden on interstate commerce which directly affects it by

making it more costly relative to similar intrastate com-

merce which does not bear this burden. Tax discrimination

is equally onerous whether cast in the form of a license

tax, a property tax, a premium tax, an income tax, or a

franchise tax. It provides a direct commercial advantage

to domestic businesses at the expense of out-of-state busi-

nesses.

No California court has every squarely upheld such a

discriminatory tax. No federal court has ever upheld a

“comparative retaliatory tax” where it was proved that

the effect of that tax was discriminatory.

Defendant argues that California has the power to im-

pose a discriminatory tax upon foreign corporations as a

condition of their right to continue to do business in Cali-

fornia. Let us examine some of these cases upon which

defendant relies.

Prudential Ins. Co. v. Benjamin (1946) 328 U.S. 408

upheld a premiums tax imposed by South Carolina on out-

of-state insurers but not imposed on domestic insurers.

Viewed in isolation, this appears to be discriminatory.

However, South Carolina denied discrimination (at 411,

412) and the opinion recites that the record did not estab-

lish that the tax was discriminatory in effect when the

other taxes paid by domestic carriers but not paid by out-

of-state carriers were considered (fn. 36, 3rd paragraph) .

The Court, however, “assumed” that the tax would be dis-

criminatory in certain other senses (at 428, fn 36 and fn

4). It nevertheless upheld the tax on the ground the

Congress had consented thereto in the McCarran-F erguson

Act, simultaneously acknowledging that Congress had no

power “to subvert constitutional limitations” (at 430).

The tax upheld was not a so-called “retaliatory tax”’ of

either type. The opinion expressly disclaimed approval

of such a tax. In fn 40, it referred to allegedly similar

tax statutes of sixteen other states and said that “We ex-

press no opinion concerning the validity of any feature

of these statutes not substantially identical with those of

the South Carolina tax dealt with herein.” A retaliatory

tax hardly qualifies as “substantially identical.”

Shorn of its dicta, the Benjamin case upheld a tax which

the record therein failed to establish was discriminatory

(328 U.S. at 428, fn. 36). It was not even a retaliatory tax.

This undermines the conclusion (perhaps an inadvertence)

expressed in the opinion in Franklin Life Ins. Co. vy.

State Board of Equalization (1965) 63 Cal. 2d 222 in fn.

2. It is also self evident that by the McCarran-Ferguson

Act, Congress could not effectively consent to state taxation

which violates the due process clause of the United States

Constitution. Even the Franklin Life opinion acknowl-

edges (63 Cal. 2d at 226) that “Of course, any attempt

to assess a retaliatory tax against an insurer‘from a state

which does not discriminate against California insurers,

would constitutionally fail.” Amen! This statement is

echoed at page 5 of the opinion in Atlantic Ins. Co. v.

State Board of Equalization (1967) 255 Cal. App. 2d 1

(hear. den.) , cert. den. 390 U.S. 529.

Defendant relies on In Re Insurance Tax Cases (1945)

160 Kan. 300, 161 Pac. 2d 726 which was affirmed (per

curiam) hortly after the Benjamin decision sub. nom.

Prudential Ins. Co. v. Hobbs (1946) 328 U.S. 822. This

involved several Kansas taxes including a so-called “retali-

atory tax” on out-of-state insurers similar in form, but not

in effect, to that herein. The Kansas court rejected the

contention that the tax discriminated against out-of-state

insurers. To quote it:

“Plaintiffs contend the tax in question is void because

of discrimination between foreign and domestic in-

surance companies. It is true that demostic insurance

companies are taxed on a different basis. They are not

required to pay a tax measured by their premiums,

but they are required to pay a capital stock tax... .

and a tax upon the net value of their assets . . . The

fact that the tax on domestic companies is upon a dif-

ferent basis than that upon foreign companies does not

of itself render the tax invalid . . . . We are unable

to find in the record evidence to support the view that

the tax in question upon foreign insurance companies

is greater than that levied on the home insurance

companies.” (166 Pac. 2d at 734).

The approach taken by the Kansas court has recently

been approved. Referring with approval to earlier opin-

ions cited in fn. 8, in Complete Auto Transit, Inc. v. Brady

(1977) 51 L.ed. 2d 326, the unanimous opinion notes that

“these decisions have considered not the formal language

of the tax statute, but rather its practical effect. . . .” (at

331). At the same page, the opinion notes that he per-

missibility of state taxation is “based on the actual effect

rather than its legal terminology.” Even the Benjamin

opinion at page 420 states that in resolving these problems

there should be “emphasis on facts rather than dogmatic

logistic.” Or, as Chief Justice Taft put it at page 510 of

Uke opinion in Hanover Fire Ins. Co. v. Harding (1926)

272 U.S. 494, “. . . the decision is not dependent upon the

form in which the taxing scheme is cast .. . . We must

regard the circumstances rather than the form.”

Approval by the United States Supreme Court of non-

discriminatory taxes in the Benjamin and Hobbs cases gives

little support to defendant’s contentions.

We have already mentioned the Franklin Life Ins. Co.

case, supra. That opinion dealt with 1960 retaliatory taxes.

At that time, the California Constitution, Art. XIII, Sec-

tion 14-4/5 (f) permitted such taxes only against ‘foreign

insurers of states discriminating against California insurers”

(63 Cal. 2d 222 at 226; also see 233). It does not support

such a tax against insurers from states like Ohio which do

not discriminate against California insurers. To the con-

trary, at page 226 the opinion states that “. . . any at-

tempt to assess a retaliatory tax against an insurer from a

state which did not discriminate against California insurers

would constitutionally fail.”

Atlantic Insurance Co. v. State Board of Equalization

(1967) 255 Cal. App. 2d 1 (hear. den.) cert. den., is also

relied upon by defendant. It involved 1959 and 1960 taxes

when the law was the same as that governing the Franklin

Life case and the same result was reached. At page 5 the

opinion acknowledges that “the new statute would be un-

constitutional if applied to a case where the discrimination

. . Is not present.” See also page 15.

When the express reason for sustaining the constitution-

ality of California’s retaliatory tax has been repealed and

its effect is discriminatory, the resulting law is so different

that these opinions do not support it. Western & Southern

Life Insurance Co. v. State Board of Equalization (1970)

4 Cal. App. 3d 21 (hear. den.) involved 1964 retaliatory

taxes. Before 1964, the California Constitution had im-

posed a premiums tax on foreign and domestic insurers

alike. When the tax laws of another state discriminated

against California insurers in favor of its domestic insurers,

California also imposed retaliatory taxes on insurers from

that state doing business in California. Effective Novem-

ber 4, 1964, the California Constitution was amended to

eliminate the discrimination requirement and thereafter

imposed the tax on a foreign insurer when its state of in-

corporation taxed California insurers more than California

would have done — even in the absence of any discrimina-

tion by that state. The opinion held that the amendment

could not be applied retrospectively and therefore could

not be considered in determining 1964 taxes. Dicta in the

opinion (at page 30) states that “The California retalia-

tory tax law does not violate . . . the United States Con-

stitution.” The opinion fails to distinguish between the

pre-1964 anti-discrimination retaliatory tax and the post-

1964 comparative retaliatory tax. It fails to note that the

cases cited have upheld taxes only when no discriminatory

effect was proved. It also cites the Atlantic Insurance Co.

case, altogether ignoring the statement therein that “the

new statute would be unconstitutional if applied to a case

where the discrimination . . . is not present” (255 Cal.

App. 2d 1 at 5).

We are persuaded that the more authoriative and con-

vincing dicta is that noted above from Franklin Life In-

surance Co. v. State Board of Equalization (1965) 63 Cal.

2d 222 at 226. We find that the retaliatory tax herein is

discriminatory in fact and violates both the due process

and commerce clauses of the United States Constitution.

Principal Office Deduction from the Gross Premiums Tax

The second tax involved herein is the gross premiums tax

levied pursuant to former California Constitution, Art.

XIII Section 14-4/5 (f) (3) which was imposed upon all

insurers, out-of-state and domestic, in lieu of all other taxes

and licenses except real estate taxes. Plaintiff does not

chalienge the basic tax. It challenges the denial (pursuant

to the 1966 amendment) to it as an out-of-state insurer of

the credit against that tax for the payment of local real

property taxes, which credit is granted to domestic insurers.

That this principal office deduction was altogether re-

pealed in 1976 is irrelevant herein.

Denial of this credit to plaintiff solely because it is an

out-of-state insurer obviously creates a “direct commercial

advantage to local business.” It is a backhanded way of

granting a property tax exemption to domestic insurers

while denying it to out-of-state insurers. It invokes the

rule that where a taxpayer's federal constitutional rights

are concerned, the courts will not be governed by the label

that a state attaches to a taxing device (here a privilege

tax) but by the practical consequences of the tax measured

against constitutional standards.

Obviously such a discriminatory credit for other taxes

paid could not stand constitutional testing if applied to an

income tax, or to a gross receipts tax. Nor is discriminatory

property taxation permitted.

Defendant seeks to sustain this tax credit because the

tax upon which it is applied analytically is a franchise tax

or a privilege tax. It remains a tax in lieu of income taxes;

why should it have different legal consequences?

Defendant argues that this tax credit is valid, that Cali-

fornia may discriminatorily tax an out-of-state corporation

as a condition for the privilege of doing business in Cali-

fornia. The more recent decisions of the United States

Supreme Court do not support this contention. For back-

ground material see the illuminating discussion of Uncon-

stitutional Conditions in 73 Harvard L.R. 1595 (1960) at

1605-1609.

Quite recently the unanimous opinion of the United

States Supreme Court in Complete Auto Transit, Inc. v.

Brady (1977) 51 L.ed. 2d 326 at 337 held that “There is

no economic consequence that follows necessarily from the

use of the particular words, ‘privilege of doing business,’

and a focus on that formalism merely obscrues the ques-

tion whether the tax produces a forbidden effect.” Ignor-

ing the form in which the principal office deduction is cast

and focusing attention on whether it produces a “forbidden

effect,” we find such an effect — discrimination against in-

terstate commerce because it is interstate commerce.

Thirty years ago in Freeman v.'Hewit (1946) 329 U'S.

249 at 252 the United States Supreme Court said, with

reference to the many opinions that are pertinent to this

subject, ‘““Io attempt to harmonize all that has been said

in the past would neither clarify what has gone before nor

guide the future.” This court is encouraged by the readi-

ness with which the United States Supreme Court has re-

cently overturned some of the historically unsound and

illogical precedents in the field of state taxation. Just this

year Spector Motor Service v. O’Connor (1951) 340 US.

602 was specifically and unanimously overruled by Com-

plete Auto Transit, Inc. v. Brady, supra. Just last year, in

Michelin v. Wages (1976) 423 U.S. 276 the court unan-

imously overruled Low v. Austin (1872) 80 U.S. (13

Wall.) 29. Thus encouraged, and with the original pur-

poses of the due process, equal protection and commerce

clauses in mind, and following the more recent reasoning

and analysis of these matters by our highest court, this

court concludes that the denial by defendant to plaintiff of

hit,

the principal office deduction is an unconstitutional dis-

crimination, that the California constitutional provision

and statute mandating such denial violates the United

States Constitution and that, therefore, plaintiff is entitled

to that credit for all tax years pertinent herein.

DATED: August 4, 1977.

/s/ A. R. EARLY

JUDGE OF THE

SUPERIOR COURT

KYTE, CONLAN, WULSIN & VOGELER

ALAN R. VOGELER

1300 Provident Tower

Cincinnati, Ohio 45202

Telephone: (513) 421-5828

PAUL, HASTINGS, JANOFSKY & WALKER

RONALD M. OSTER

555 South Flower Street, 22nd FI.

Los Angeles, California 90071

Telephone: (213) 489-4000

Attorneys for plaintiff THE WESTERN

AND SOUTHERN LIFE INSURANCE COMPANY

SUPERIOR COURT OF THE STATE OF

CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

THE WESTERN AND SOUTHERN LIFE

INSURANCE COMPANY, a corporation,

Plaintiff,

STATE BOARD OF EQUALIZATION OF

THE STATE OF CALIFORNIA,

Defendant.

No. C 3189

CONCLUSIONS OF LAW

The above entitled cause came on regularly for trial

on June 10, 1977, in Department 15 of the above entitled

court, the Honorable Alexander R. Early, Judge presiding,

plaintiff The Western and Southern Life Insurance Com-

pany appearing by Messrs. Kyte, Conlan, Wulsin & Vogeler

by Alan R. Vogeler, Esq. and by Messrs. Paul, Hastings,

Janofsky & Walker by Ronald M. Oster, Esq., and defen-

dant State Board of Equalization of, the State of California

appearing by Evelle J. Younger, Attorney General of Cal-

ifornia, by Timothy G. Laddish, Esq., and the parties

having agreed to a Stipulation of Facts, and trial briefs

having been filed by the parties’ respective counsel, and

the cause having been argued and submitted for decision,

the court, having adopted the parties Stipulation of Facts

as its written Findings of Fact, does hereby make in writing

its Conclusions of Law, as follows:

1. The carrying on within a state of an insurance

business by a corporation incorporated in another state

constitutes interstate commerce.

2. The authority to regulate and tax the insurance

industry given to the states by the McCarran-Ferguson

Insurance Regulation Act, 59 Stat. 33, 15 U.S.C. §§ 1011-

15, could not and did not eliminate the restraints on state

action in the Constitution of the United States.

3. While a state may tax interstate commerce so that

it carries its fair share of the costs of state government in

return for the benefits and services it derives from the

State, no state may impose a tax which discriminates against

interstate commerce by providing a direct commercial ad-

vantage to local business.

4. Prior to November 3, 1964 California authorized

tax retaliation against insurers from another state only

when the tax laws of that state discriminated against

California insurers in favor of its domestic insurers, thus

giving the latter a competitive advantage over California

insurers within its borders. This type of law can ap-

propriately be called an “anti-discrimination retaliatory

tax.”

5. The amendment of Article XIII, Section 14-4 /5 (6)

(3) of the California Constitution on November 3, 1964

purported to authorize and Insurance Code Section 685

imposed tax retaliation against insurers from another state

in the years here involved when the laws of that state

levied higher taxes upon California insurers doing business

in that state than California imposed upon insurance com-

panies from that state doing business in California, irre-

spective of whether the other state discriminated against

California companies or taxed them exactly the same as it

did its domestic companies. This type of law appropri-

ately has been called a “comparative retaliatory tax”.

6. The objective of California retaliatory taxes is to

discourage other states from imposing discriminatory taxes

on California insurers. ‘That objective is effectively served

by an “‘antidiscrimination retaliatory tax” and is not served

at all by the “comparative retaliatory tax”.

7. In none of the years here pertinent did the State

of Ohio discriminate against California insurance com-

panies doing business in Ohio, imposing the same burdens

and taxes on its domestic insurers that it imposed on

California insurance companies doing business in Ohio.

8. Section 685 of the California Insurance Code and

Article XIII Section 14-4/5 (f) (3) of the California Con-

stitution impose a comparative retaliatory tax which neither

prevents discrimination by other states nor insures even-

handed treatment by those states of California insurers.

9. The California retaliatory tax as effective for the

years 1965 and following discriminates against insurers

from other states, including Ohio, thereby providing a

direct commercial advantage to local business and discrim-

inated against interstate commerce, and, therefore, violates

both the due process and commerce clauses of the United

States Constitution.

10. The denial to a foreign insurer of a credit against

the California premiums tax for real property taxes paid

in California on the principal office in California of such

foreign insurer under the 1966 amendment to Article

XIII Section 14-4/5 (e) of the California Constitution and

the 1967 amendment to Revenue and Taxation Code Sec-

tion 12241 grants a property tax exemption to domestic

insurers while denying it to an out-of-state insurer. This

change in the law was not intended to be retro-active and

is inapplicable to 1966 taxes.

11. The gross premiums tax imposed by Article XIII,

Section 14-4/5 of the California Constitution on insurers

doing business in the State of California is in lieu of all

other taxes except real estate taxes.

12. Article XIII, Section 14-4/5(e) of the California

Constitution, together with Section 12241 of the California

Revenue and Taxation Code purported to grant a credit

against the gross premiums tax to local insurers for real

estate taxes paid to the State of California while denying

such a credit to out-of-state insurers.

13. Granting such a credit to local insurers while

denying such a credit to out-of-state insurers discriminates

against interstate commerce by creating a direct commercial

advantage to local business.

14. Just as a discriminatory credit for taxes paid con-

stitutionally would fail as applied to an income tax or a

gross receipts tax, so also it is unconstitutional as applied

to property taxation.

15. Irrespective of whether the gross premiums tax

may be characterized as a franchise or privilege tax, it

remains a tax in lieu of income taxes and discrimination

in such a tax has the same legal consequences as discrim-

ination in an income tax.

16. Discrimination in granting a credit for real estate

taxes against the gross premiums tax is prohibited by the

due process and equal protection clauses of the Fourteenth

Amendment to, and by the commerce clause of Article I,

Section 8, Clause 3, of the United States Constitution.

17. The gross premiums tax imposed by Article XIII,

Section 14-4/5 of the California Constitution and the

retaliatory tax imposed by Article XIII, Section 14-4/5 (f)

(3) and Section 685 of the California Insurance Code are

mutually interdependent, and to the extent that a credit

against the gross premiums tax is allowed, the retaliatory

tax is correspondingly increased.

18. Sections 12432 and 12290 of the California Reve-

nue and Taxation Code do not bar the collection of addi-

tional retaliatory taxes not asscessed by the state within the

period set forth therein when an out-of-state insurer suc-

cessfully contests the assessment of a portion of the gross

premiums tax and secures a reduction in such assessment.

19. Plaintiff is barred from claiming that it should

be treated as a California insurer because it failed to raise

this issue in its claim for refund.

20. Plaintiff is entitled to judgment for the full amount

of tax refunds sought, plus interest as provided by statute.

MORNE 6 giv s oes 1 eee

Judge of the Superior Court

Approved as to form and conformity

with Memorandum of Intended Decision

and Minute Order, filed August 4, 1977.

PAUL, HASTING, JANOFSKY & WALKER

By: /s/ RONALD M. OSTER

Attorneys for Plaintiff

EVELLE J. YOUNGER

By: /s/ TIMOTHY G. LADDISH

Attorneys for Defendant

KYTE, CONLAN, WULSIN & VOGELER

ALAN R. VOGELER

1300 Provident Tower

Cincinnati, Ohio 45202

Telephone: (513) 421-5828

PAUL, HASTINGS, JANOFSKY & WALKER

RONALD M. OSTER

555 South Flower Street, 22nd FI.

Los Angeles, California 90071

Telephone: (213) 489-4000

Attorneys for plaintiff THE WESTERN

AND SOUTHERN LIFE INSURANCE COMPANY

SUPERIOR COURT OF THE STATE OF

CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

Filed October 27, 1977

THE WESTERN AND SOUTHERN LIFE

INSURANCE COMPANY, a corporation,

Plaintiff,

Vv.

STATE BOARD OF EQUALIZATION OF

THE STATE OF CALIFORNIA,

Defendant.

No. C 3189

JUDGMENT

IT IS ORDERED, ADJUDGED AND DECREED that

plaintiff The Western and Southern Life Insurance Com-

pany have judgment against defendant State Board of

Equalization of the State of California in the sum of

$977,853.57, together with costs, and interest (at the rate

of 6 percent per annum through December 31, 1975, and

at the rate of 12 percent per annum thereafter) computed

pursuant to section 13107 of the Revenue and Taxation

Code on the following amounts from the following dates:

on $128,214.90 from November 25, 1966; on $78,042.57

from July 14, 1967; on $52,517.91 from November 24,

1967; on $3,072.38 from March 15, 1968; on $72,900.38

from June 10, 1968; on $60,270.01 from November 29,

1968; on $81,917.80 from October 13, 1969; on $65,390.47

from November 21, 1969; on $81,576.55 from March 26,

1970; on $66,265.56 from November 30, 1970; on $76,-

446.55 from March 29, 1971; on $67,639.12 from Novem-

ber 23, 1971; on $78,164.41 from March 27, 1972: and on

$65,434.96 from November 27, 1972.

DATED: 27 October 1977

/s/ A. R. EARLY

Judge of the Superior Court

Approved as to form and conformity

with Memorandum of Intended Decision

and Minute Order, filed August 4, 1977.

PAUL, HASTINGS, JANOFSKY & WALKER

By: /s/ RONALD M. OSTER

Attorneys for Plaintiff

EVELLE J. YOUNGER

By: /s/ TIMOTHY G. LADDISH

Attorneys for Defendant

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE

STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

2 Civ. No. 55251

(Super Ct. No. C-3189)

THE WESTERN AND SOUTHERN

LIFE INSURANCE COMPANY,

Plaintiff and Respondent,

STATE BOARD OF EQUALIZATION

OF THE STATE OF CALIFORNIA,

Defendant and Appellant.

(Filed November 2, 1979)

APPEAL from a judgment of the Superior Court, Los

Angeles County. Alexander R. Early III, Judge. Reversed.

George Deukmejian, Attorney General, Ernest P. Good-

man, Assistant Attorney General, and Timothy G. Laddish,

Deputy Attorney General, for Defendant and Appellant.

Frost & Jacobs, Alan R. Vogeler, Gerald L. Baldwin,

Paul, Hastings, Janofsky & Walker, and Ronald M. Oster

for Plaintiff and Respondent.

This case involves the constitutionality of two provisions

of California law imposing taxes on foreign insurance com-

panies. The trial court found in favor of the plaintiff

insurance company, holding that one of those provisions

(the so-called retaliatory tax) was unconstitutional. It also

made findings on other issues as set forth in its memoran-

dum of intended decision as follows:

“In the above-entitled matter now submitted, judgment

is for plaintiff for the full amount of tax refunds sought

in accordance with the enclosed Memorandum Decision

plus interest.

“To dispose of all issues and avoid a possible retrial

following appeal the court further finds as follows:

“A. Plaintiff is burred from claiming that it should

be treated herein as a California insurer because it failed

to so claim in its claim for refund. R. & T. Code Section

13103. Cf. American Chemical Corp. v. County of Los

Angeles (1974) 42 C.A.3d 45 at 55-56, hearing denied,

cert. den. 422 U.S. 1007.

“B. To the extent that plaintiff's principal office de-

duction is allowed to plaintiff, its retaliatory tax will be

correspondingly increased. The premium tax and the

retailatory [sic] tax are mutually interdependent.

“C. The 1966 Amendment to California Constitution,

Article XIII, Section 14-4/5(e) and R. & T. Code Sec.

12441 were not intended by the law-makers to be retro-

active and can not be applied to 1966 taxes. Cf Western

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

(1970) 4 C.A.3d 21, hearing denied, at 34-35.

“The stipulation of facts on file herein is adopted as

the court’s findings of fact. Plaintiff is ordered to pre-

pare appropriate conclusions of law and judgment, sub-

mit them to defendant for approval as to form and accuracy

and then to the court for signature.”

The case was submitted on a stipulation of facts. They

may be summarized as follows:

Plaintiff is an Ohio corporation, licensed in 1956 to do

business in California. While its principal office is in

Ohio it owns a building in Los Angeles which it utilizes

as its principal office for California. Approximately 76%

of that building is leased by it to tenants not connected

with the operations of plaintiff. The taxes imposed by

Ohio, on a California corporation doing business in Ohio,

exceed the taxes imposed on foreign corporations doing

business in California, under the basic premium tax im-

posed by California. The “retaliatory tax” herein involved

imposes on plaintiff (and similar insurers) an additional

tax equal to that difference. It is the validity of that ad-

ditional tax that is the principal issue in this case.

Prior to 1966, California allowed an insurance company

to deduct from its premium tax, the amount of local prop-

erty tax imposed on its principal office in this state: by

an amendment in that year, the real property tax deduc-

tion was amended so that foreign insurers,’ but not do-

mestic insurers, were limited to a deduction equal only to

the proportion of such taxes attributable to the portion

of the home office building used by insurer. The effect,

therefore, was to impose on a foreign insurer a larger

premium tax than that imposed on domestic insurers.

Retaliatory taxes, in some form, exist in at least 49

states. ‘I'he purpose, as set forth in many cases and in the

'As used herein, and in the literature on the subject, a “foreign”

insurance company is one incorporated and having its principal office

in a state othe~ than the state imposing the taxes; a “domestic” insurance

company is one incorporated in, and having its principal office, in the

state imposing the taxes.

literature discussing them, is to put pressure on the several

States to impose the same tax burden on all insurance

companies, foreign or domestic, and thereby encourage

the doing of interstate business.

Prior to 1964, the California Constitution provided for

a retailatory [sic] tax involving two elements: a tax on

discriminatory taxes, i.e., taxation of a California insurer

doing business in the home state of a foreign insurer, at a

higher rate than that state imposed on its own insurers;

and (2) a tax on comparative taxes such as the one herein

involved. At that time, the statutory law imposed a re-

tailatory [sic] tax only on the comparative theory. In 1964,

the California Constitution was amended to delete the pro-

vision relating to discriminatory taxes and thereafter both

the California Constitution and the statute used parallel

language imposing only the comparative tax.

In cases involving the applicability of the pre-1964 tax

scheme, the courts held that, because the California Con-

stitution required that a tax imposed by the home state

of a foreign insurer involve both the discriminatory and

the comparative feature, the statutory attempt to impose

a retaliatory tax in situations involving only the compara-

tive tax was invalid as being beyond the California consti-

tutionally granted power of taxation.2 We agree with

plaintiff that the holding of those cases was limited to that

issue, although there is language, relied on here by de-

fendant, that can be read as sustaining the constitutionality

of the present comparative provisions. We turn then, to

consider the issue herein involved with no binding Cali-

fornia precedent, although the language relied on by de-

fendant is, of course, entitled to our respect.

2 Franklin Life Ins. Co. v. State Bd. of Equalization (1965) 63 Cal.

2d 222; Atlantic Ins. Co. v. State Bd. of Equalization (1967) 255 Cal.

App.2d 1.

For many years, under the compulsion of Paul v. V irginia

(1868) 75 U.S. (8 Wall.) 168, which had held that the

business of insurance was not “commerce” within the mean-

ing of the Commerce Clause of the federal Constitution,

the states had imposed a variety of retaliatory taxes. In

1944, in United States v. South-Eastern Underwriters Assn.

(1944) 322 U.S. 533, the Supreme Court overruled Paul

v. Virginia and held that the business of insurance was

within the commerce clause. Shortly thereafter, Congress

enacted the so-called McCarran Act (59 Stats. 33, 15 U.S.C.

$§ 1011-1015). That statute provided that “the business

of insurance . . . shall be subject to the law of the several

States which relate to the regulation or taxation of such

business.” In Prudential Ins. Co. v. Benjamin (1946) 328

U.S. 408, the Supreme Court construed that statute and

concluded that Congress had ‘“‘clearly put the full weight

of its power behind existing and future state legislation

to sustain it from any attack under the commerce clause

to whatever extent this may be done with the force of

that power behind it... .” (328 U'S. at 431). We con-

clude that that decision, and other cases following it,®

compel us to reject plaintiff's contention that the statutes

herein involved are unconstitutional as affecting interstate

commerce.

However, Benjamin also made it clear that the McCarran

Act did not insulate state legislation from attack on grounds

other than the commerce clause. In that connection, the

Supreme Court said (at p. 430) :

“Nor is it necessary to conclude that Congress, by en-

3 See, for example: Prudential Ins. Co. v. Hobbs (1946) 328 U.S.

822.

acting the McCarran Act, sought to validate every existing

state regulation or tax. For in all that mass of [state]

legislation must have lain some provisions which may have

been subject to serious question on the score of other con-

stitutional limitations in addition to commerce clause ob-

jections arising in the dormancy of Congress’ power. And

we agree .. . that there can be no inference that Congress

intended to circumvent constitutional limitations on its

own power.”

Thus we turn to plaintiff's alternative contention, i.e.,

that the retaliatory taxes violate the due process and equal

protection clauses of the Fourteenth Amendment.*

We note first that, after the cautionary statement above

quoted, the Supreme Court turned to consideration of the

contentions that the retaliatory tax there before it did vio-

late some other constitutional restriction. It said (at pp.

437-438) :

“These arguments may be summarily disposed of. As

for the due process contention, it was settled by a long

line of authorities prior to the South-Eastern decision, that

the . . . provision of the Fourteenth Amendment, as well

as that requiring equal protection of the laws, does not

forbid the states to lay and collect such a [retaliatory]

The equal protection contention has been fully consid-

ered and rejected by a previous decision in this state in

Atlantic Ins. Co. v. State Bd. of Equalization (1967) 255

Cal.App.2d 1. Although that case involved the pre-1964

changes in the California Constitution, the decision dealt

with both of the requirements of the provision as it then

stood. After deciding that the Texas laws therein involved

4 Although the contention is stated as involving both provisions, the

discussions in the briefs are limited to the equal protection contention.

We discuss the problem in that light.

did discriminate against California insurers, the court dis-

cussed the issue of equal protection as related to the (sec-

ond) comparative requirement. Relying in part on Frank-

lin Life Ins. Co. v. State Bd. of Equalization (1965) 63

Cal.2d 222, it was held that the comparative retaliatory

tax did not violate the equal protection clause. Whether

or not the court in Atlantic properly relied on Franklin,

the decision was a square holding as to the equal protec-

tion issue, and not dictum, as we have said above, the

pre-1964 California law required that both elements of

the then constitutional provision be met before a re-

taliatory tax could be assessed. The Supreme Court denied

hearing in Atlantic. Right or wrong, we feel impelled to

follow it in the case before us. It follows that, like the

commerce clause contention, the equal protection conten-

tion must also fail.

III

The second major issue raised by this appeal relates to

the calculation of the head office tax deduction.5 That

issue has, so far as we can discover, never been litigated in

any earlier California case.

The Board argues that the effect of increasing the home

office exemption to plaintiff would merely increase, pro

tanto, the retaliatory tax payable for that year. Since the

amount of the retaliatory tax is the difference between the

premium tax paid to California and the comparable tax

payable in plaintiff's home state, that contention is cor-

rect. It follows that, even if plaintiff is correct in its attack

on the constitutionality of the home office exemption,

the amount that it paid was correct. Plaintiff’s argument

here seeks to avoid that result by treating the gross pre-

5 The entire home office deduction was repealed in 1976.

mium tax and the retaliatory tax as separate and arguing

that, if it has’ overpaid the former and underpaid the

latter, it is entitled to a refund on its timely claim for over-

paid premium tax and the state is barred by section 12342

of the Revenue and Taxation Code from making a late

assessment for underpaid retaliatory tax. This theory

misses the reality of the California tax on insurers. The

two provisions are but parts of a single taxation scheme.

Unless plaintiff has, in the end, paid no more than the

scheme required, it is not entitled to any refund.

The judgment is reversed.

CERTIFIED FOR PUBLICATION.

KINGSLEY, J.

We concur:

FILES, P.]J.

ALARCON, J.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE

STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

2 Civ. No. 55251

(Super Ct. No. C-3189)

THE WESTERN AND SOUTHERN

LIFE INSURANCE COMPANY,

Plaintiff and Respondent,

STATE BOARD OF EQUALIZATION

OF THE STATE OF CALIFORNIA,

Defendant and Appellant.

ORDER MODIFYING OPINION AND

DENYING REHEARING

(Filed November 28, 1979)

THE COURT:*

(1) The opinion heretofore filed in the above entitled

case on November 3, 1979, is hereby modified as follows:

(a) In line 10 on page 10 of the Xerox opinion, [line

20, page 32a, herein] delete the word “retaliatory.”

* Fits, P. J.; KINGSLEY, I.

(b) In footnote 3 on page 9 of the Xerox opinion [page

3la, herein] add the following: The tax involved in

Hobbs has been held to be “substantially identical to In-

surance Code section 685.” (Atlantic Ins. Co. v. State

Board of Equalization (1967) 255 Cal.App.2d 1, 10.)

21, page 34a herein] delete the word ‘“‘no.”

(2) The petition for rehearing is denied.

CLERK’S OFFICE, SUPREME COURT

4250 STATE BUILDING

San Francisco, California 94102

Dec. 27, 1979

I have this day filed Order

HEARING DENIED

In re: 2 Civ. No. 55251

Western and Southern Life Ins. Co.

VS.

State Board of Equalization

Respectfully,

G. E. BISHEL

Clerk

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.