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decided: October 17, 1972.


Appeal from the Order of the Board of Finance and Revenue in case of Petition of Occidental Life Insurance Company of California. Appeal transferred from the Court of Common Pleas of Dauphin County to the Commonwealth Court of Pennsylvania, September 1, 1970.


Lewis S. Kunkel, Jr., with him John B. Huffaker and Pepper, Hamilton & Scheetz, for appellant.

Eugene J. Anastasio, Deputy Attorney General, for appellee.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Blatt.

Author: Blatt

[ 6 Pa. Commw. Page 533]

Occidental Life Insurance Company of California (Occidental) is a California insurance company authorized to do business in Pennsylvania. Because California's gross premium tax rate was higher than the rate in Pennsylvania,*fn1 Occidental was required to pay to Pennsylvania an additional charge, or "retaliatory tax," pursuant to the provisions of the Act of May 17, 1921, P.L. 789, Art. II, § 212, as amended, 40 P.S. § 50. That Section provides, in part, that: "If any other state imposes any burdens or prohibitions on insurance companies, or agents of this state doing business in

[ 6 Pa. Commw. Page 534]

    such other state, which are in addition to, or in excess of, the burdens or prohibitions imposed by this Commonwealth on insurance companies and agents, like burdens and prohibitions shall be imposed on all insurance companies and agents of such other state doing business in this Commonwealth, so long as the burdens and prohibitions of such other state remain in force. In applying this section to an insurance company of another state, such company shall not be required to pay any taxes and fees which are greater in aggregate amount than those which would be imposed by the laws of such other state and any political subdivision thereof upon a like company of this Commonwealth transacting the same volume and kind of business in such other state."

The gross premiums tax owed by a foreign company is determined by first ascertaining the rate that company's home state imposes on insurance companies. If that rate is the same or less than Pennsylvania's, the company's tax is ascertained by applying the Pennsylvania tax rate. If the rate of tax in the home state exceeds that in Pennsylvania, the foreign company is taxed at the Pennsylvania rate, but, in addition, another tax is imposed using as a rate the difference between the home state rate and Pennsylvania's rate. This latter is the "retaliatory tax."

At issue in this case is the right of Occidental to deduct from its total gross premiums tax and retaliatory tax the use taxes which it paid to Pennsylvania during the year ending December 31, 1968. California exempts insurance companies from the payment of its sales and use tax,*fn2 therefore Occidental claimed the amount it had paid in use taxes as a credit on its gross premiums tax return. Occidental argued that refusing

[ 6 Pa. Commw. Page 535]

    to allow the credit would result in its paying an aggregate amount of taxes which would exceed the aggregate amount a Pennsylvania company, transacting the same volume and kind of business, would pay in California. The credit was disallowed when the taxes were settled by the Department of Revenue and approved by the Department of Auditor General. A petition for resettlement was timely filed with, and thereafter refused by, the Board of Finance and Revenue, and an appeal was then taken to the Court of Common Pleas of Dauphin County, whence it was transferred to this Court. The parties have filed a stipulation of facts which we adopt as our findings of fact and incorporate herein by reference. A trial by jury has been waived as provided by the Act of April 22, 1874, P.L. 109, § 1, 12 P.S. § 688.

The purpose of a retaliatory charge is to bring about equality of treatment. Foreign insurance companies are to be treated by Pennsylvania in precisely the same manner as Pennsylvania companies are treated by their home state. Since Massachusetts first passed a Retaliatory Insurance Tax Act in 1856, they have been enacted in virtually every state. Their constitutionality has been almost uniformly upheld,*fn3 including Pennsylvania's in Commonwealth v. Fireman's Fund Insurance Co., 369 Pa. 560, 87 A.2d 255 (1952). The Supreme Court stated therein that the retaliatory tax "is certainly not a revenue raising measure. In fact, its success might be said to depend on how little is collected under its terms rather ...

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