Opinion
Opinion filed March 5, 1938.
1. TAXATION.
Under act imposing privilege taxes upon corporations for doing business in the state, insurance corporation was subject to tax upon actual cash value of realty and tangible personalty owned by corporations within the state, since measure for privilege tax was fixed by provision referring to capital invested, and section prescribing other means through which equitable tax basis might be determined would apply only where capital was used under circumstances that hindered or prevented fair ascertainment by reference to capital invested in the state. Pub. Acts 1935, Ex. Sess., chapter 5, sections 3, 4.
2. TAXATION.
The capital investment of insurance corporation which was allegedly a reserve for policyholders, but which constituted an investment in the corporation's name and consisted principally of lands purchased upon foreclosure or by agreement with mortgagor and held by the corporation in its name without reference to any allocation of the total to any particular account, could not be subtracted from the capital invested in the state in determining corporate privilege tax under statute. Pub. Acts 1935, Ex. Sess., chapter 5, sections 3, 4.
FROM DAVIDSON.Appeal from Chancery Court of Davidson County. — HON. JAMES B. NEWMAN, Chancellor.
Suit by the National Life Accident Insurance Company against Dancey Fort, Commissioner, for amount of taxes paid under protest. From a decree sustaining a demurrer to the complaint, the complainant appeals. Affirmed.
TYNE, PEEBLES, HENRY TYNE, of Nashville, for appellant.
ROY H. BEELER, Attorney-General and EDWIN F. HUNT, Assistant Attorney-General, for appellee.
The question presented by this appeal is the same as in the case of Life Casualty Insurance Company v. Stokes, 172 Tenn. 639, 113 S.W.2d 1176. The cases were heard together on appeal. Both involve the construction of chapter 5, Acts Extra Session of 1935, held to be valid as applied to corporations in Corn v. Fort, 170 Tenn. 377, 95 S.W.2d 620, 106 A.L.R., 647. The pertinent provisions of the act are set forth in the opinion filed in the companion case and for that reason are omitted here.
The complainant filed its tax report required by the act on December 31, 1935. By the report it was shown that the company's total investments amounted to $38, 959,988, its Tennessee investments to $16,699,288, and its capital, surplus and undivided profits to $7,432,856. The Company's gross premium receipts for the preceding year amounted to $17,205,918.00, and its Tennessee premium receipts to $2,308,518.00. By comparison of premium receipts and total investments in Tennessee with gross premium receipts and total investments, the complainant found the ratio to be 28.14% and allocated that percentage of its total capital, surplus and undivided profits of $7,432,856, or $2,091,606 as its capital subject to taxation under the act. By that process the tax was found by the company to be $2,646.81.
The commissioner refused to accept the result of complainant's computation and measured the tax by the actual cash value of the company's real and tangible assets in the State, shown to be $3,355,920, and required payment of an additional tax of $1,896.45. The payment was made under protest and the bill filed to recover. The chancellor sustained defendant's demurrer and complainant appealed.
The questions presented by the assignments of error are: (1) Whether the commissioner observed the proper formula to determine the company's invested capital as the basis of taxation against insurance companies doing business both in Tennessee and other states; (2) whether the reserve for policy holders was improperly included in the tax base.
There is but one measure for the privilege tax against corporations. That is fixed by section 3 by reference to capital, which includes surplus and undivided profits invested in the State, coupled with a further provision that the capital invested, upon which the tax shall be paid, shall in no instance be less than the actual cash value of real and tangible assets owned and used in the State.
By section 4 the Legislature prescribed other means through which the commissioner could make a fair and equitable tax base when capital was used under circumstances that hindered or prevented a fair ascertainment by reference to capital invested in the State.
The Legislature considered that cases might arise where corporations located in the State and doing business here on a large capital base, but with nominal visible capital investments in the State, might carry on a very large State and interstate business; and to find their capital used in connection with their local business methods and formulas were indicated by section 4 as a means of allocating so much of the capital to Tennessee as was used here. But we find nothing in section 4 that indicates a purpose that the commissioner should adopt a tax base different from that prescribed by section 3.
While complainant alleges in the bill that $2,156, 891 of its $3,356,992 capital investment in the State includes reserves for policyholders, it is shown that the total investment is in the complainant's name. The greater part of it consists of lands purchased upon foreclosure or purchased by agreement with the mortgagor and the company holds title in its own name without reference to any allocation of the total to any particular account. There is no provision of the act to authorize subtraction of this unidentified item from the complainant's capital invested in the State.
Affirmed.