Fidelity & Deposit Co. of Md. v. Pennsylvania

Background

A Maryland insurance company that acted as a surety, the Fidelity & Deposit Company, was licensed to do business in Pennsylvania and obtained written authority from the U.S. Attorney General under an 1894 federal law to act as surety on bonds required by the United States. In 1909 the company guaranteed bonds for internal revenue, customs, government officials, government contracts, banks holding United States deposits, and bonds in federal court. It collected gross premiums for those federally authorized bonds and for other bonds. Under Pennsylvania law the State demanded a two percent tax on gross premiums received from business done in the Commonwealth. The company paid the tax on nonfederal bonds but refused to pay $352.92 assessed on premiums for the federally authorized bonds. The State sued to collect the disputed amount.

Reasoning

The Court examined the federal statute and lower-court findings. It explained that the 1894 Act allowed certain corporations to be accepted as surety but did not create federal corporate power to displace state rules. The Act required companies to meet conditions, but it did not strip States of their ordinary licensing and taxing authority. The Court concluded that contracting with the United States under the Act did not automatically make the company a federal instrumentality immune from state taxation. Because the company’s right to carry on business in Pennsylvania depended on compliance with state law, the State could impose the privilege tax.

Real world impact

The decision affirms that companies guaranteeing federal bonds must still obey state licensing and tax rules unless Congress clearly says otherwise. Bonding and insurance firms doing business across state lines should expect state privilege taxes on premiums when state law applies. The ruling was an affirmation of the lower court judgment.