Equitable Life Assurance Soc. of United States v. Pennsylvania

Background

The case involves a life insurance company that does business in Pennsylvania and a Pennsylvania law, enacted June 28, 1895, that levies a two percent annual tax on gross premiums from business done in the State. The company paid large taxes but disputed charges for premiums from 1906–1910 that were paid to the company outside Pennsylvania by people who lived in Pennsylvania. The Pennsylvania Supreme Court sustained the tax assessment against the company, and the issue reached the United States Supreme Court on a claim that the tax, as the state court construed it, took the company’s property without due process of law under the Fourteenth Amendment.

Reasoning

The Supreme Court limited the question to whether the statute, as interpreted by the Pennsylvania court, violated the company’s constitutional rights. The Court accepted the state court’s characterization of the levy as a tax for the privilege of doing business in Pennsylvania. The Court noted the company had subjected itself to the State’s jurisdiction and that Pennsylvania protects the lives insured there whether premiums are paid in Pennsylvania or elsewhere. The Court reasoned the State may properly measure the tax by the benefit it extends into the State and that counting policies kept alive for Pennsylvania residents is a practical and constitutional way to measure the privilege taxed.

Real world impact

The ruling means Pennsylvania may include premiums tied to its resident policyholders when computing a foreign insurer’s tax, even if payments occur outside the State. The decision is narrowly focused on how the tax is measured for a company doing business in the State, not on whether such contracts can exist.