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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



Opinion No. 5697

April 29, 1980


Retaliatory tax


Retaliatory tax on insurance premiums

The Commissioner of Insurance may levy a retaliatory tax upon an Ohio domiciled insurance company writing workers compensation insurance in Michigan equivalent to the premium tax levied upon Michigan domiciled insurance companies on all workers compensation premiums collected in the State of Ohio.

William F. McLaughlin


Department of Commerce

4th Floor

Law Building

Lansing, Michigan

You have requested my opinion as to whether the Insurance Commissioner is empowered to impose retaliatory taxes upon Ohio domiciled insurance companies doing workers compensation insurance business in Michigan. The question arises because the State of Ohio imposes upon Michigan domiciled insurance companies a premium tax of 2 1/2% on the workers compensation premiums collected by Michigan domiciled insurance companies from Ohio insureds. Under Ohio law, ORCA Sec. 4123.82, all workers compensation insurance written in Ohio must be placed with the industrial commission, a state agency. The law provides that all workers compensation contracts written in Ohio by private insurers are void except for excess coverage provided for losses in excess of $50,000, arising from any one event. By contrast, all workers compensation contracts written in Michigan provide the employer with unlimited coverage with the insurer liable for workers compensation losses in their entirety.

In summary, the Michigan domiciled insurance company doing business in Ohio must pay 2 1/2% premium tax upon business written, but such companies may not cover losses unless they exceed $50,000, on a retaliatory basis of 2 1/2% on the entire premium written in Michigan, despite the fact that the premium includes coverage for losses under $50,000. If no retaliatory tax was paid by the Ohio domiciled insurer, then the rate of premium tax would be 2%. You therefore ask the following questions:

1. May the Commissioner require an Ohio domiciled insurer writing workers' compensation insurance in Michigan to pay a retaliatory premium tax under Section 476 of the Insurance Code of 1956, MCLA 500.476, MSA 24.1476.

2. If in the above instance a determination is made that the Commissioner may not require a payment of retaliatory premium taxes, then;

(a) May the Commissioner permit such insurer to file for a refund of retaliatory premium taxes previously paid, and;

(b) If the insurer is eligible for a refund, is there a statute of limitations which would limit such refunds?

The Insurance Code of 1956, 1956 PA 218, Sec. 476, MCLA 500.476; MSA 24.1476, provides as follows:

'Whenever, by any law in force without this state, an insurance corporation, or reciprocal exchange of this state or agent thereof is required to make any deposit of securities thereunder for the protection of policyholders or otherwise, or to make payment for taxes, fines, penalties, certificates of authority, valuation of policies, license fees, or otherwise, or any special burden or other burden is imposed, greater in the aggregate than is required by the laws of this state for similar foreign corporations or their agents, the insurance companies, and reciprocal exchanges of such states or governments shall be and they are hereby required as a condition precedent to their transacting business in this state, to make a like deposit for like purposes with the state treasurer of this state, and to pay to the commissioner for taxes, fines, penalties, certificates of authority, valuation of policies, license fees and otherwise an amount equal in the aggregate to such charges and payments imposed by the laws of such other state upon similar corporations of this state and the agents thereof. In the case of fire department or salvage corps taxes or other local taxes the amount shall be computed by the commissioner by dividing the total of such payments made by insurance corporations of this state in such state by the gross premium received by such corporations in such state less return premiums. Any corporation refusing for 30 days to make payment of such fees or taxes as above required shall have its certificate of authority revoked by the commissioner: Provided, That corporations organized under the laws of any state or country, other than these United States, shall, as to the provisions of this section, be considered corporations of that state wherein their general deposit for the benefit of their policyholders is made.'

The question you ask could be simply answered if Michigan companies were permitted to write policies in Ohio for the entire coverage, rather than being limited to writing only excess coverage policies. The retaliatory tax is intended to achieve parity in the taxation of insurance companies doing interstate business. In OAG, 1975-1976, No 4874, p 85, (May 22, 1975), it is stated:

'The statute cited, often referred to as a 'retaliatory' or 'reciprocal' tax law has been adopted in substance by nearly every state. To properly interpret the section, it must be recognized that the purpose of retaliatory tax laws is to protect domestic insurance companies doing business in other states. The statutes are not designed to generate revenue or to inflict a burden on foreign competitors, but are enacted with the desire of promoting parity in the taxing of insurance companies transacting business across state lines.'

Before applying a retaliatory tax, it is necessary to first ascertain that Michigan companies are making payment for taxes greater in the aggregate than is required by the laws of this state for similar foreign corporations. The Ohio statutes are ORCA 5729.02-5729.03, which provide in pertinent part as follows:

'Every foreign insurance company shall set forth in its annual statement to the superintendent of insurance the gross amount of premiums received by it from policies covering risks within this state during the preceding calendar year, less return premiums paid for cancellations and considerations received for reinsurance of risks within this state, provided that dividends paid or otherwise allowed to policy holders shall not be deducted except as provided in section 5729.04 of the Revised Code. . . .'

ORCA 5729.02

'If the superintendent of insurance finds the annual statement required by section 5729.02 of the Revised Code to be correct, he shall compute an amount of two and one-half per cent of the balance of such gross amount, after deducting such return premiums and considerations received for reinsurance, and charge such amount to such company as a tax upon the business done by it in this state for the period covered by such annual statement; . . .' (Emphasis added.)

ORCA 5729.03

The effect of the Ohio statutes is that Michigan companies pay a premium tax of 2 1/2% on all premiums collected in the State of Ohio for workers compensation insurance. The fact that they cannot collect a premium on insurance that they are prohibited by law from selling has no effect upon Michigan's right to collect premiums from Ohio companies for business which they are permitted to do under Michigan law. The test to be applied is what would a Michigan domiciled insurance company be required to pay to the State of Ohio if it operated in Ohio under the same conditions that an Ohio domiciled insurance company operated in the State of Michigan.

The controlling legal principle is well expressed by the Kansas Supreme Court in Employers Casualty Co v Hobbs, 152 Kan 815; 107 P2d 715 (1940), where the State of Kansas sought to impose a retaliatory tax against the plaintiff, a Texas domiciled insurer. Under the laws of the State of Texas, an insurer was required to pay a tax on gross premiums collected in Texas of 3.25% unless the insurer had at least 50% of its assets in certain Texas tax securities, in which case the gross premium was was then .625% or 5/8 of 1%. The Texas insurer had invested none of its assets in Kansas securities and therefore the Kansas Insurance Commissioner concluded that, on the basis of Texas law, the plaintiff, Texas insurer, was liable to the State of Kansas for gross premiums received at the rate of 3.25%. If the retaliatory tax had not been imposed against the Texas company, the Texas company would have paid just under 2% tax on its gross premiums. The Court pointed out that retaliatory statutes were intended to bring about substantial equality and comity between states and countries. '. . . By these statutes states or countries intend to say to each other, we will treat you as you treat us.' 152 Kan 815, 817; 107 P2d 715, 716. The test applied by the Court was:

'. . . Now what amount in taxes, fees, charges, etc., would a Kansas company, similar to the Texas company, be required to pay to the state of Texas, if it operated in that state under the same conditions that the Texas company operated in Kansas, that is, without the Kansas company having invested any of its assets in Texas securities? The answer must be found in the Texas law. It is agreed, under those circumstances--which are the exact circumstances which plaintiff was operating in Kansas--the annual tax would have been 3.25 percent. . . .'

152 Kan 815, 817-818; 107 P2d 715, 717

The Kansas Court concluded that it would apply the Texas law as if it were its own law and thereby require the Texas company to have at least 50% of its assets in Kansas securities in order for the Texas company not to be subject to a retaliatory tax. Applying this test, the tax imposed by the Ohio statute upon a Michigan domiciled insurance company doing business in Ohio may be imposed by the State of Michigan upon an Ohio domiciled insurance company doing business in Michigan.

The Ohio statutes clearly require a tax of 2 1/2% upon premiums collected by a Michigan domiciled insurance company doing business in Ohio in the same manner as Ohio companies are permitted to do business in Michigan, as there is no other rate of taxation provided by the State of Ohio. Therefore, the retaliatory tax provisions of 1956 PA 218, Sec. 476, supra, clearly apply to the entire premiums collected by Ohio companies in the State of Michigan.

It is my opinion, therefore, that the Insurance Commissioner may require an Ohio domiciled insurance company writing workers compensation insurance in Michigan to pay an equivalent premium tax of 1 1/2% on all premiums collected in this state. This answer makes it unnecessary to respond to your second question.

Frank J. Kelley

Attorney General

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