Metropolitan Life Ins. Company v. Ward

PETITIONER: Metropolitan Life Ins. Company
RESPONDENT: Ward
LOCATION: United States Courthouse

DOCKET NO.: 83-1274
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: State appellate court

CITATION: 470 US 869 (1985)
ARGUED: Oct 31, 1984
DECIDED: Mar 26, 1985

ADVOCATES:
Matthew J. Zinn - on behalf of Appellants
Warren B. Lightfoot - on behalf of Appellees

Facts of the case

The law in force in the state of Alabama presupposed an increased tax rate for insurance companies that were registered in the territory of another state. Metropolitan Life Insurance Company filed a statement of claim in which asked to recognize this provision as unconstitutional and contrary to the ethics of doing business in the territory of the country. The court of the first instance did not satisfy the claim and justified its decision by the fact that this provision does not contradict the constitution, but rather promotes the creation of new enterprises on the territory of the state, and also provides conditions that are more favorable for foreign companies to invest in local ones. At this stage, the court relied on the authority of the state to have its own legal norms, and proceeded from the fact that higher tax rates are financially beneficial for the local budget.

The Supreme Court justified a different opinion. He ruled that this law gives advantages to one company while creating conditions that are more disadvantageous for others, and this contradicts the principle of equal conditions for doing business in the country regardless of the state and place of registration. The court also pointed out that there is a need to develop foreign companies on its territory since it is profitable from the perspective of filling the federal budget and recognized the law of the State of Alabama as unconstitutional. Thus, this decision formed a precedent and gave equal rights and opportunities for realization for companies operating on the territory of the whole country.

Question

Media for Metropolitan Life Ins. Company v. Ward

Audio Transcription for Oral Argument - October 31, 1984 in Metropolitan Life Ins. Company v. Ward

Warren E. Burger:

We'll hear arguments next in Metropolitan Life Insurance Company against Ward.

Mr. Zinn, you may proceed whenever you're ready.

Matthew J. Zinn:

Mr. Chief Justice, and may it please the Court:

This case is here on appeal from the Supreme Court of Alabama.

At issue is the validity of Alabama's domestic preference tax statute under the equal protection clause of the Fourteenth Amendment.

Alabama grants a tax preference to domestic life insurance companies by imposing a tax of one percent on their gross premiums, while imposing a tax of three percent or three times that amount on the gross premiums of out-of-state life insurance companies.

Alabama grants a tax preference to domestic property casualty insurance companies by imposing a tax on their gross premiums of one percent and imposing a tax on the gross premiums of out-of-state property casualty companies of four times that amount or four percent.

So in its basic structure the Alabama domestic preference tax statute provides for taxing out-of-state life companies at triple the rate of domestic life companies and providing for taxing out-of-state property casualty companies at quadruple the rate of domestic companies.

The Alabama domestic preference tax statute also contains a so-called investment incentive provision.

Under this provision, an out-of-state company can reduce its tax by one-tenth of one percent for each one percent of its total assets that it invests in Alabama.

However, there's a limitation on the amount of the reduction.

The maximum reduction cannot exceed one percentage point, and this occurs if an out-of-state company invests ten percent or more of its total assets in Alabama.

What this means is that if an out-of-state company takes maximum advantage of the investment incentive, if it's a life insurance company it can then reduce its tax rate four four percent... from three percent to two percent, or double the rate of a domestic company; and if it's a property casualty insurance company, it can then reduce its tax rate from three percent to two percent... four percent to three percent, or triple the rate of a domestic company.

Now, these suits for refund were brought in the Circuit Court of Montgomery County for refund of the discriminatory taxes.

The Appellants here are a number of out-of-state insurance companies that do a nationwide business, including business in Alabama.

The Appellees are the insurance commissioner of Alabama, who denied Appellants' claims for refund, and several Alabama insurance companies which intervened in these proceedings below.

The ultimate issue is whether Alabama's domestic preference tax statue satisfies the rational basis test of equal protection review.

In holding that it did, the courts below found that at least two of the 17 purposes advanced by the Appellees were legitimate state purposes that justified the discrimination inherent in the statute.

These were: first, encouraging the formation of new insurance companies in Alabama; and second, encouraging capital investment in Alabama by out-of-state companies.

Our position is that in the context of this case involving domestic preference taxation neither these two purposes nor any of the other purposes advanced by Alabama are legitimate state purposes as that term has been interpreted by this Court.

William H. Rehnquist:

In its equal protection cases?

Matthew J. Zinn:

Pardon me?

William H. Rehnquist:

In its Equal protection cases?

Matthew J. Zinn:

Yes, Justice Rehnquist.

We believe that three major considerations should guide decision in this case.

The first of these is that this precise issue has been considered by this Court on seven occasions and on each of those seven occasions domestic preference taxation has been held to violate equal protection.

Now, the Appellees contend that these cases were really commerce clause cases and that the purposes that they are putting forward were not put before the Court in these seven cases.

So there is a difference of opinion as to whether these cases are on point.

A great deal of discussion of the cases in the briefs of the parties--

William H. Rehnquist:

Well, Mr. Zinn, I take it you have to concede that in this case protectionist purposes in light of the commerce clause, the fact you can't rely on the commerce clause, are permissible for the state?