Provident Savings Life Assurance Society v. Kentucky

delivered the opinion of the court.

The Provident Savings Life Assurance Society, a New York corporation, transacted business in Kentucky prior

Prior to the amendments made in the year 1906, § 4226 of the Kentucky Statutes provided as follows:

“Sec. 4226. Every life insurance company, other than fraternal assessment life insurance companies, not organized under the laws of this State, but doing business therein, shall on the first day of July in each year, or thirty days thereafter, return to the Auditor of Public Accounts for deposit in the Insurance Department, a statement under oath of all premiums receipted for on the face of the policy for original insurance and all renewal premiums received in cash or otherwise in this State, or out of this State, on business done in this State during the year ending the 30th of June last preceding, or since the last returns were made and shall at the same time pay into the State Treasury a tax of two dollars upon each one hundred dollars of said premiums as ascertained.” Kentucky Statutes, ed. 1903.

This section was amended in 1906 by making the fiscal year to end on December thirty-first instead of June thirtieth, by prohibiting deductions for dividends, and by amplifying the description of premium receipts. (See Mutual Benefit Life Insurance Co. v. Commonwealth, 128 Kentucky, 174; Northwestern Mutual Life Insurance Co. v. James, 138 Kentucky, 48.) The amended section was as follows:

“Sec. 4226. Every life insurance company, other than fraternal assessment life insurance companies, not or

ganized under the laws of this State, but doing business therein, shall, on the first day of January in each year, or within thirty days thereafter, return to the Auditor of Public Accounts for deposit in the insurance department a statement under oath of all premiums receipted for on the face of the policy for original insurance and all renewal premiums received in cash or otherwise in this State, or out of this State, on business done in this State during the year ending the 31st day of December, and no deduction shall be made for dividends, or since the last returns were made, on all premium receipts, which shall include single premiums, annuity premiums, and premiums received for renewal, revival or reinstatement of policies, annual and periodical premiums, dividends applied for premiums and additions, and all other premium payments received during the preceding year on all policies which have been written in, or on, the lives of residents of this State, or out of this State on business done in this Staté, and shall at the same time pay into the State Treasury a tax of two dollars upon each one hundred dollars of said premiums as ascertained.”

In 1906, the legislature added the following provision, which is found in § 4230a of the Kentucky Statutes:

“Sec. 4230a. (2.) Any insurance company that has been authorized to transact business in this State shall continue to make the reports required hei’ein as long as it collects any premiums as provided for herein, and shall pay taxes thereon, even after it has voluntarily ceased to write insurance in the State or has withdrawn therefrom, or its license is suspended or revoked by the Insurance Commissioner, and for failure to make report of the premiums collected and pay the taxes due thereon, shall be fined five hundred dollars for such offense.”

It does not appear that the changes in § 4226 were involved in the present controversy as there was no dispute as to the amount of the premiums received in the years

The Company then amended its answer, renewing its constitutional objections. Enlarging the statement of facts, it averred that on January 1, 1907, it had withdrawn all its agents from Kentucky, had closed all its offices and had ceased to solicit or write insurance, or maintain any agent, or collect any premiums, within that jurisdiction. On January 1, 1911, the Postal Life Insurance Company, a New York corporation, had reinsured all the business of the defendant. Between January 1, 1907, and January 1, 1911, all premiums paid to the defendant upon policies theretofore issued in Kentucky were paid to it at its home office in New York City through the mail. The Postal Life Insurance Company did not have at any time an office or agents in Kentucky or transact any business in that State, and all premiums that it received were paid to it in New York through the mail.

Demurrer to the amended answer was sustained and judgment was entered in favor of the Commonwealth. The Court of Appeals affirmed the judgment (Provident Savings v. Commonwealth, 160 Kentucky, 16) and this writ of error has been sued out.

“Counsel for appellee mainly rests its case upon the definition of ‘what is doing business?’ Is a life insurance company doing business in a State only so long as it is writing new business? If this is true, then the appellant has no case. However, counsel for appellant insists that an insurance company is doing business in this State in the meaning of the statute so long as it is insuring the lives of residents of this State and furnishing protection to the beneficiaries named in the policies against loss from death of the insured, this being the chief business for which insurance companies are organized, and we are unable to see how the court” (referring to the court of first instance) “held, that a company collecting premiums on policies issued in this State, when it was authorized to do business in this State, can.be said ‘not to be doing business,’ when it was still insuring those same lives and collecting the premiums upon the policies.” 155 Kentucky, 197, 201.

Upon the second appeal the court merely referred to its ruling on the first appeal and to other cases (Commonwealth v. Illinois Life Insurance Co., 159 Kentucky, 589; Commonwealth v. Washington Life Insurance Co., 159 Kentucky, 581) in which that decision had been followed without further discussion of grounds. We do not, therefore, find it necessary to consider the applicability of the contract clause of the Federal Constitution, inasmuch as it

The present case thus differs from that of Equitable Life Assurance Society v. Pennsylvania, 238 U. S. 143 . It was not disputed that the Equitable Company was actually doing business in Pennsylvania. See Commonwealth v. Equitable Life Assurance Society, 239 Pa. St. 288 , 293. The question was as to the permissible, measure of a tax exacted for a privilege admittedly exercised. As this court said: “The tax is a tax upon a privilege actually used. The only question concerns the mode of measuring the tax.” 238 U. S. 147 . In the present case it is not the measure of the tax for doing business, but the very basis of the tax — that is, whether the Company was doing business within the State — that is in controversy.

Assuming this to be the point in dispute, the question at once arises whether the matter is reviewable in this court. And we cannot doubt that the question whether the State is taxing a foreign corporation for' a privilege not granted, that is, whether the acts done by the corporation at the time to which the tax relates are of such a nature as to subject it to the local authority upon the ground that it is doing acts which can only be done with the permission of that authority, must be regarded as a Federal question. Taxation without jurisdiction has been held to be a violation of the Fourteenth Amendment (Louisville & Jefferson Ferry Co. v. Kentucky, 188 U. S. 385 , 398; Del., Lack. & West. R. R. v. Pennsylvania, 198 U. S. 341 , 358; Union Transit Co. v. Kentucky, 199 U. S. 194 , 209); and the principle involved applies, to the assertion of authority on the part of the State to exact a license tax for the privilege of doing acts which lie beyond the sphere of local control. It follows that the quality of the acts with respect to which the State exercises the taxing

It is not controverted that the Company, at the time in question, was not soliciting insurance or collecting moneys in that State. Further, it had no offices or agents in Kentucky. Upon the averments which stand admitted in the record it must be assumed that it was not performing any acts within the jurisdiction of Kentucky. It had sought to withdraw itself completely from the State. The conclusion that it continued to do business -within the State, notwithstanding this withdrawal, appears to be based solely upon the fact that it continued to be bound to policy holders resident in Kentucky under policies previously issued in that State and that it received the renewal premiums upon these policies. As the policies remained in force, it is said that the Company continued to furnish protection to citizens of Kentucky. The renewal premiums, as already stated, were paid in New York. There is, however, a manifest difficulty in holding that the mere continuance of the obligation of the policies constituted the transaction of a local business for which a privilege tax could be exacted. As a privilege tax, the tax rests upon the assumption that what is done depends upon the State’s consent. But the continuance of the contracts of insurance, already written by the Company was not dependent on the consent of the State. It is true that acts might be done within the State in connection with such policies, as for example in maintaining an office or agents although new insurance was not written or solicited, which could be considered to amount to the continuance of a local business. In such case it would be the actual transaction of business that would furnish the ground of the license exaction, and not the mere existence of the obligation under policies previously written. These policies are contracts already made; the State cannot de

The defendant in error relies upon expressions contained in the opinions in Connecticut Mutual Life Insurance Company v. Spratley, 172 U. S. 602 , 610, and Mutual Reserve Fund Life Association v. Phelps, 190 U. S. 147 , 157, — expressions which (in a full review of these cases and others) were explained and limited in Hunter v. Mutual Reserve Life Insurance Company, 218 U. S. 573 . The cases cited related to the validity of the service of process upon foreign corporations. And it was held that a foreign insurance corporation which had transacted business within the jurisdiction of a State continued, notwithstanding its withdrawal from the State, to be subject to service, of process within the State, in actions arising out of the business so transacted, where the service was made in accordance with the conditions upon which the business was permitted to be done. Thus, in the Phelps Case, service was made in Kentucky under § 631 of the Kentucky Statutes providing for service of process upon the commissioner of insurance. The Court of Appeals of Kentucky had decided that the withdrawal of the Company from the State did not terminate the statutory agency for the acceptance of service which had been created as a condition of the Company’s admission; the granted authority continued with respect to the business transacted. Home Benefit Society v. Muehl, 109 Kentucky, 479, 484; Germania Insurance Co. v. Ashby, 112 Kentucky, 303, 307, 308. But a distinction obtains when the question is whether the mere continuance of the obligation to resident

In the present case, the question is not, as in the Phelps Case, one as to the right to revoke the agency created under § 631 of the Kentucky Statutes with respect to the service of process in actions arising out of transactions which had taken place within the State. It is as to the power of the State to treat the mere continuance of the obligation of the existing policies held by resident policy holders as the transaction of a local business justifying the imposition of an annual privilege tax in the absence of the actual conduct of business within the limits of the State.

We cannot'conclude that the State has this power, and in this view the judgment must be reversed and the cause remanded for further proceedings not inconsistent with this opinion.

It is so ordered.