Opinion
March 27, 1929.
1. TAXATION: Non-Taxable Bonds: Method of Deductions: Apportionment. To determine the net value of the assets of a domestic life insurance company for purposes of taxation under Section 6386, Revised Statutes 1919, the proper method is not to deduct from its gross personal assets the aggregate of all liabilities and from that net value deduct the value of the non-taxable assets. The proper method is not to first take out of its gross assets all non-taxable assets, and then from the remaining taxable assets deduct the whole of the liabilities. The liabilities must be apportioned to all the assets, taxable and non-taxable.
2. ____: Domestic Insurance Company: Assessment: Statute. Section 6386, Revised Statutes 1919, relates to the taxation of domestic insurance companies, and deals with property which is subject to taxation, and as to every such company provides that the net value of all its personal assets, or values in excess of the legally required reserve necessary to reinsure its outstanding risks and unpaid policy claims, shall be assessed and taxed as the property of individuals.
3. ____: ____: Surplus: Legal Reserve: Deductions. The fact that the domestic insurance company has invested its surplus in non-taxable bonds and its legal reserve and working capital in taxable securities, does not authorize the deduction of the reserve and all other liabilities from the taxable assets alone.
4. ____: ____: ____: Legal Reserve: Indebtedness: Chargeable against Non-Taxable Assets. The legal reserve of a life insurance company is not a segregated fund, but a measure of liability, a test of solvency: the amount that would be required to make a present settlement with all of the company's policyholders, or to reinsure its risks, and is an indebtedness; and the company's indebtedness — its legal reserve and unpaid policy claims — is a charge against all its assets, taxable and non-taxable.
5. ____: Taxable and Non-Taxable Assets: Value of Taxable Assets: Method of Ascertainment: Apportionment. The proper method of ascertaining the value of the taxable assets of a life insurance company which possesses both taxable and non-taxable assets, is to apportion the total liabilities between the two classes of assets (taxable and non-taxable), and then deduct from the taxable assets the liabilities apportioned to that class
6. ____: Assessment: Under Apportionment. Where the amount of taxes apportionable to the insurance company's taxable assets is $74,136.52 — their net value after deducting the proper apportionment of the liabilities from the taxable personal assets — it cannot complain that an arbitrary assessment of $50,000 is excessive.
Corpus Juris-Cyc. References: Taxation, 37 Cyc., p. 1034, n. 94; p. 1123, n. 38.
WRIT QUASHED.
Jones, Hocker, Sullivan Angert for relator.
(1) Taxing statutes should be strictly construed in favor of the taxpayer, and there can be no lawful tax without a lawful assessment, and there can be no lawful assessment except in the manner and upon the property designated by law for that purpose. State ex rel. Nat. Life Ins. Co. v. Hyde, 292 Mo. 352; State ex rel. Koeln v. Lesser, 237 Mo. 318. (2) Under the provisions of Sec. 6386, R.S. 1919, the relator is entitled to deduct from its assessable personal property its legal reserve and unpaid policy claims, and such a deduction does not amount to an exemption from taxation. State ex rel. Mo. Ins. Co. v. Gehner (Mo.), 8 S.W.2d 1072. (3) Section 6386 is constitutional, and respondents erred in refusing to deduct the relator's reserve and unpaid policy claims on the ground that said section is unconstitutional and void. State ex rel. Mo. Ins. Co. v. Gehner (Mo.), 8 S.W.2d 1068; State ex rel. Central St. Ins. Co. v. Gehner (Mo.), 8 S.W.2d 1073. (4) There is no showing in the record that the relator had any assessable personal assets in addition to those reported and found by the board. The record of the assessment should therefore be quashed. State ex rel. Ind. Co. v. Gehner (Mo.), 8 S.W.2d 1067.
Julius T. Muench and Oliver Senti for respondents.
(1) The relator's return shows that it had taxable property in excess of the valuation placed thereon by the Board of Equalization, and the assessment should not be quashed, even though the board incorporated in its order an erroneous conclusion of law. State ex rel. Am. Auto. Ins. Co. v. Gehner, 8 S.W.2d 1059. (2) Sec. 6386, R.S. 1919, does not authorize an insurance company, in returning its property for taxation, to deduct from its taxable assets that part of its legal reserve which is invested in securities that are exempt from taxation. State ex rel. Am. Auto. Ins. Co. v. Gehner, 8 S.W.2d 1059. (3) Section 6386, exempts property from taxation in violation of the Constitution of the State, if so construed as to permit an insurance company, in making its return, to deduct from its taxable assets that part of its legal reserve which is invested in tax-exempt securities. Mo. Constitution, art. 10, sec. 7.
Relator is a life insurance company organized under the laws of this State. By this proceeding it seeks to have quashed the record of the Board of Equalization of the City of St. Louis, raising the value of its taxable assets, other than real estate, from $20,778.64 to $50,000. Relator's return of its property for taxation disclosed that its gross personal assets amounted to $448,265.33, consisting of taxable assets in the sum of $354,265.33 and non-taxable assets (United States bonds) in the sum of $94,000; and that its total liabilities, the legal reserve and unpaid policy claims, aggregated the sum of $333,486.69. Its method of determining the net value of its assets for taxation under Section 6386, Revised Statutes 1919, as appears from its return, was to deduct from the gross personal assets the aggregate of all liabilities and from that net value deduct the value of its non-taxable assets; in other words, it first took out of its gross assets all non-taxable assets and then from the remaining taxable assets it deducted the whole of its liabilities. The Board of Equalization, being of the opinion that said Section 6386 was unconstitutional, somewhat arbitrarily assessed relator's personal property at $50,000.
Section 6386 relates to the taxation of domestic insurance companies. With reference to every such company it provides that the net value of all its personal assets, or assets, or values, in excess of the legally required reserve necessary to reinsure its outstanding risks and unpaid policy claims, shall be assessed and taxed as the property of individuals. The section of course deals only with property which is subject to taxation. The question in this case is: How shall the net value of the taxable assets be determined? Relator claims, inferentially, that it has invested its surplus in United States bonds, non-taxable assets, and that it has put its legal reserve and working capital into other securities, which are subject to taxation; and that therefore the reserve and all other liabilities should be deducted from the taxable assets alone. But surplus, earnings, undivided profits, etc., are mere bookkeeping terms. The legal reserve is not a segregated fund; it is a measure of liability, a test of solvency; the amount that would be required to make a present settlement with all of relator's policyholders, or to reinsure its risks; it is an indebtedness. [State ex rel. Missouri State Life Insurance Co. v. Gehner, 320 Mo. 691, 8 S.W.2d 1068, 1072.] And relator's indebtedness, legal reserve and unpaid policy claims, is a charge against all of its assets, both taxable and non-taxable.
To put the question concretely: relator's non-taxable assets amount to $94,000, its taxable assets to $590,265.33 (real, $142,000; personal, $354,265.33), both are subject to liabilities aggregating $333,486.69 — what is the net value of the taxable personal assets under Section 6386? We know of no more equitable way to determine such value upon that of apportioning the total liability between the two classes of assets (the taxable and the non-taxable) according to their respective amounts and then deducting from the taxable assets the liability so apportioned to that class. The taxable assets are approximately 84 per cent of the gross assets; 84 per cent of the aggregate liability is in dollars and cents $280,128.81; that sum deducted from the gross value in money of the taxable personal assets ($354,265.33) leaves $74,136.52, their net value. As this sum is greater than that at which relator's personal property was assessed by the Board of Equalization, its record should not be quashed. [State ex rel. American Automobile Insurance Company v. Gehner, 320 Mo. 702, 8 S.W.2d 1057.]
Our writ is accordingly quashed and the proceeding dismissed. All concur.