The opinion of the court was delivered by: Judge Brobson
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE JAMES R. KELLEY, Senior Judge.
Petitioner Selective Way Insurance Company (Selective Way) petitions for review of an order of the Board of Finance and Revenue (Board), denying Selective Way's request for a refund of retaliatory taxes it paid for tax year 2006.*fn1
The Board rejected Selective Way's request for refund of retaliatory tax. In so doing, the Board held that in calculating the premium tax burden of a Pennsylvania insurance company like Selective Way doing business in New Jersey, the Department of Revenue (Department) appropriately applied New Jersey's stated gross premium tax rate of 2.1% to the gross premium amount Selective Way reported for its Pennsylvania business in tax year 2006. The Board rejected Selective Way's argument that the Department was required to apply a New Jersey law that caps the taxable premium at the lower of actual premium from business within the state or 12.5% of worldwide premium. We now reverse.
Simply stated, to determine whether a retaliatory tax is due, the Department must compare, inter alia, the premium tax a foreign insurance company owes in Pennsylvania to what a like Pennsylvania insurance company would pay in premium tax in the foreign state. If the like Pennsylvania insurance company's premium tax obligation in the foreign state would be higher than the foreign insurer's obligation in Pennsylvania, then the foreign insurer is subject to a retaliatory tax for the difference.
The stipulated facts in this matter are as follows:
1. [Selective Way] is a casualty and marine insurance company formed under the laws of the State of New Jersey.
2. Selective Way began doing business in Pennsylvania prior to June 30, 1984.
3. During the 2006 tax year, Selective Way had several offices in Pennsylvania and had over 100 employees in Pennsylvania.
4. For New Jersey premium tax purposes, if a foreign insurance company (such as an insurance company formed under the laws of the Commonwealth of Pennsylvania) has been doing business in New Jersey since June 30, 1984 or earlier, the company's premiums that are subject to New Jersey premiums tax are capped at 12.5% of the worldwide premiums (including policy fees, and net of any dividends to policyholders) of the company, regardless of the actual amount of premiums received from New Jersey sources. (For insurance companies that began doing business in New Jersey after June 30, 1984, the 12.5% cap is applied on a group-wide basis rather than a separate-company basis.)
5. For the 2006 tax year, Selective Way's total worldwide premiums (including policy fees, and net of any dividends to policyholders) were $475,674,712.
12.5% of that amount is $59,459,339. 6. For the 2006 tax year, Selective Way's total taxable premiums (net of any dividends to policyholders) from Pennsylvania sources were $91,711,048, and Selective Way's total policy fees from Pennsylvania sources were $239,391.
7. Aside from any retaliatory tax, the rate of Pennsylvania tax applicable to insurance company premiums in 2006 was 2.0%, so that Selective Way's Pennsylvania premiums tax on its $91,711,048 of Pennsylvania-source taxable premiums was $1,834,221.
8. In 2006, the New Jersey premiums tax rate, aside from the effect of any retaliatory tax, was 2.1%. Also, New Jersey, unlike Pennsylvania, included policy fees in the total amount of taxable premiums.
9. On October 19, 2006, the New Jersey Supreme Court issued a decision in American Fire & Casualty Company v. Director, Division of Taxation, 189 N.J. 65, 912 A.2d 126 (2006).
10. In Selective Way's Pennsylvania premiums tax return as originally filed on March 26, 2007, Selective Way computed its Pennsylvania retaliatory tax liability without taking into account the effect of the 12.5% cap. Selective Way's original retaliatory tax calculation for the 2006 tax year was as follows:
Fire, Casualty and Title Premiums Tax $1,834,221 $1,930,959*fn2
Worker's Compensation Tax $0 $6,930 NJ Special Purpose & M.V. Resp. $0 $72,444 Fraud Assessments $0 $0 PA Auto Theft Prevention Authority $11,270 $0 Annual Statement Fee $850 $0 Agent Licensing Fee $55,290 $0 Totals $1,901,631 $2,010,333 Retaliatory Tax Payable $108,702
11. In light of its interpretation of the American Fire decision, Selective Way filed an amended return with the Department on April 9, 2007, reporting the following calculation of retaliatory tax, in which the calculation of the ...