STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5758

August 22, 1980

INSURANCE:

Organization of domestic insurance company to avoid payment of premium tax imposed upon foreign insurers

CORPORATIONS:

Organization of domestic insurance company to avoid payment of premium tax imposed upon foreign insurers

TAXATION:

Organization of domestic insurance company to avoid payment of premium tax imposed upon foreign insurers

The Insurance Commissioner may refuse to approve the articles of incorporation of a proposed domestic insurance company and issue a certificate of authority to do business as an authorized insurer where the purpose for incorporation in Michigan is to avoid the premium tax imposed upon foreign insurers.

William F. McLaughlin

Director

Department of Commerce

Law Building

Lansing, Michigan 48909

You have requested an opinion as to whether the Insurance Commissioner may refuse to approve the articles of incorporation of a proposed domestic insurance company and issue a certificate of authority to do business as an authorized insurer under either of the following two circumstances:

Your questions are based upon the following typical factual situations. A foreign insurer, called 'XYZ Insurance Company', doing business in the State of Michigan and paying premium taxes in Michigan, seeks to incorporate a subsidiary domestic insurer in Michigan called the 'XYZ Insurance Company of Michigan'. A second example is a holding company which owns a foreign insurance company, 'ABC Insurance Company', doing business in Michigan and paying premium taxes in Michigan, and seeks to incorporate in Michigan a domestic insurer called the 'ABC Insurance Company of Michigan'. In each case, the insurance business that was previously done in Michigan by the foreign insurance company will cease and the insurance policies will instead be issued by the domestic insurance company which will not be subject to the Michigan premium tax levied upon foreign insurance companies doing business in Michigan pursuant to 1956 PA 218, Secs. 440-443, supra.

The Insurance Code of 1956, 1956 PA 218, MCLA 500.100 et seq; MSA 24.1100 et seq, ch 50, Sec. 500, et seq; governs the incorporation of and procedures for organizing domestic stock, mutual and cooperative plan insurers. 1956 PA 218, supra, Sec. 5001, states:

1956 PA 218, supra, Sec. 200, states, in part, as follows:

Thus, the Insurance Commissioner is specifically charged with the duty of examining and approving articles of incorporation of proposed domestic insurance companies and issuing a certificate of authority to do business as an authorized insurer. 1956 PA 218, supra, Secs. 402 and 5024.

The Insurance Code of 1956, 1956 PA 218, Secs. 440-443, supra, require payment of a premium tax by foreign insurance companies. 1956 PA 218, Sec. 440(1), supra, provides:

The statutory sections referred to above require payment of the tax by foreign insurers for the privilege of doing business in the State of Michigan.

Therefore, if the Insurance Commissioner determines that the purpose of incorporation of the prospective insurer is to avoid payment of the statutorily required premium tax, it is my opinion that the Insurance Commissioner may refuse incorporation of said prospective companies.

An existing corporate entity may be disregarded when it is the implement for avoiding a clear legislative purpose. Schenley Distillers Corp v United States, 326 US 432; 66 S Ct 247; 90 L Ed 181 (1946). A corporate entity may be disregarded when its recognition as a corporate entity would enable the corporate device to be used to circumvent a statute. Alabama Power Co v McNunch, 68 App DC 132; 94 F2d 601 (Ca-DC-1937) The Insurance Commissioner is charged with the execution of the laws in relation to insurance which would include the above sections.

The Insurance Commissioner is mandated by 1956 PA 218, Sec. 440, supra, to collect premium taxes from all foreign insurance companies liable for payment. It would be contrary to public policy for the Insurance Commissioner to assist companies to avoid their liability for premium taxes by approving the establishment of a domiciliary company for tax avoidance purposes.

In determining whether incorporation is sought in order to avoid the Michigan premium tax, the Insurance Commissioner must examine the objective evidence to determine whether tax evasion is the purpose of the incorporation. For instance, if the proposed company is intended only to do business in the State of Michigan, the conclusion may be drawn that tax evasion was the goal. If the foreign insurance company or the holding company of insurance companies has a record of creating subsidiary insurance companies in states other than the domiciliary state of the primary insurance company or the holding company, then it is possible for the Insurance Commissioner to draw the conclusion from the past practice of the company that the creation of subsidiary domiciliary companies is intended to avoid premium taxes levied on foreign insurance.

It is my opinion, therefore, that the Insurance Commissioner may refuse to approve the articles of incorporation of a proposed domestic insurance company and issue a certificate of authority to do business as an authorized insurer where the purpose for incorporation in Michigan is to avoid the premium tax imposed upon foreign insurers.

Frank J. Kelley