72 Op. Att'y Gen. 17, 22 (1983)
If the Legislature had intended all assessments to be offsets, the second "assessment" would be plural. To hold otherwise would be to allow the people of Wisconsin to subsidize expenses incurred outside of Wisconsin without furnishing any benefits for the citizens of Wisconsin.
72 Op. Att'y Gen. 17, 22-23 (1983)
Since the Legislature clearly intended that each class of business be subdivided in two subclasses according to the nature of the premiums, it follows that the assessment attributable to each assessed insurer in each state must be similarly subdivided. In fact, this subdivision occurs prior to the first step in the arithmetic involved under section 646.51(3). Since offsets exist only when the policy premiums cannot be raised to provide recoupment, it follows that the offsets under section 646.51(7) are based on fixed-rate policies. Therefore, the amount of assessment to be applied as an offset is attributable to fixed rate business only.
72 Op. Att'y Gen. 17, 23 (1983)
The fourth question asks:
72 Op. Att'y Gen. 17, 23 (1983)
[Whether the] provisions of s. 76.66 and 76.67, Wisconsin Statutes [the retaliatory/reciprocal taxation clauses are] applicable to the assessment offset provisions of other states?
72 Op. Att'y Gen. 17, 23 (1983)
Presently, all fifty states and the District of Columbia have guarantee funds for property and casualty companies. However, only fifteen allow assessments to be offset against premium taxes. Thirty states have guarantee funds for life and health companies. Twenty states and the District of Columbia do not. Of those thirty states, twenty-two allow an offset for assessments against taxes. No state other than Wisconsin requires that premiums must be fixed before an offset is allowed. The other states that allow offsets do so unconditionally.
72 Op. Att'y Gen. 17, 23 (1983)
The consequences of section 76.66 (the retaliatory taxing provision) were explained in Kansas City Life Ins. Co. v. State
, 265 Wis. 414, 415, 61 N.W.2d 816 (1953):
72 Op. Att'y Gen. 17, 23 (1983)
Sec. 76.35 [renumbered 76.66 by ch. 102, sec. 26, Laws of 1979] of the Wisconsin statutes is a retaliatory statute, providing that whenever the laws of any other state impose greater taxes, fines, penalties, license fees, or other payments upon life insurance companies organized in Wisconsin for a license to do business there than are imposed by the laws of Wisconsin upon foreign life insurance companies doing business in this state, then the same taxes, fines, penalties, license fees, and other payments imposed by the other state upon Wisconsin corporations shall be imposed by Wisconsin upon corporations of such other state doing business here.
72 Op. Att'y Gen. 17, 23 (1983)
Conversely, section 76.67, the reciprocal statute, allows lower taxes, fines, penalties, license fees or other payments if another state imposes lower payments than Wisconsin imposes on insurers from said state.
72 Op. Att'y Gen. 17, 23-24 (1983)
Both sections 76.66 and 76.67 specifically refer to taxes. Clearly, both sections would apply to taxes levied under section 71.02 (franchise tax on domestic insurers) and subchapter III of chapter 76 (premium taxes). Since section 646.51(7) impacts on tax liabilities, it therefore follows that the provisions of sections 76.66 and 76.67 must extend to section 646.51(7). Specifically, it is the action of the retaliatory statute, section 76.66, that compels this answer.
72 Op. Att'y Gen. 17, 24 (1983)
The retaliatory tax provision is not designed as a revenue measure; rather, it is founded on principles of comity, designed to create substantially equal burdens on domestic and nondomestic insurers. These clauses seem to be most frequently litigated in California. A typical holding contains the following statement of purpose quoted by the United States Supreme Court in Western & Southern L.I. Co. v. Bd. of Equalization
, 451 U.S. 648, 673 (1981):
72 Op. Att'y Gen. 17, 24 (1983)
"The common purpose of [retaliatory tax] legislation in the several states has been to discourage any state from imposing discriminatory taxes or other burdens upon out-of-state companies. The effort seems to have been very largely successful; in any event taxes on insurance premiums have stayed close to 2 percent in most states, for both domestic and out-of-state insurers." Atlantic Ins. Co. v. State Board of Equalization
, 225 Cal. App. 2d, at 4, 62 Cal.Rptr., 786.
72 Op. Att'y Gen. 17, 24 (1983)
Since section 646.51(7) directly affects "tax liabilities," it must be considered when applying section 76.66 to determine the taxes a nondomestic insurer will pay. Likewise, a similar provision in the law of another state must be considered in the application of sections 76.66 and 76.67.
72 Op. Att'y Gen. 17, 24 (1983)
The fifth question asks whether Wisconsin is required to:
72 Op. Att'y Gen. 17, 24 (1983)
[G]rant an offset of premium taxes and/or fire dues to companies domiciled in states which... grant an offset to Wisconsin domiciled companies...? If so, must the "terms and conditions" of that offset be the same as those of the "offset-granting" state?
72 Op. Att'y Gen. 17, 24 (1983)
My answer to both questions is yes, provided both states must have made an assessment or have the potential to make assessments.
72 Op. Att'y Gen. 17, 24 (1983)
Presently, twenty states and the District of Columbia do not have guarantee fund provisions. In those states, an insurer in liquidation would not trigger assessments or tax offsets.
72 Op. Att'y Gen. 17, 25 (1983)
Thirty states now have guarantee funds for life and health insurance companies. Of those thirty states, twenty-two have tax-offset provisions. Therefore, a straightforward application of section 76.66 would provide the answer for comparisons between any two of the twenty-two states allowing offsets. The remaining situation would involve one of the twenty-two states having tax offset provisions and one of the eight states without such provisions.
72 Op. Att'y Gen. 17, 25 (1983)
A case substantially similiar to this last situation is Franklin Life Ins. Co. v. State Board of Equalization
, 45 Cal. Rptr. 869, 404 P.2d 477 (1965).
72 Op. Att'y Gen. 17, 25 (1983)
Franklin was an Illinois corporation doing business in California. California law required a tax of 2.35% of gross premiums less return premiums received in such year by an insurer upon business done in California. California allowed a deduction for property taxes from the premium tax. Illinois did not. As a result, the Illinois tax on a California insurer was higher than California's tax on equivalent business done by the Illinois insurer in California. As a result, Franklin paid the higher tax to California.
72 Op. Att'y Gen. 17, 25 (1983)
Applying the Franklin
holding to the last situation, we find that Wisconsin would not allow a tax offset to a company domiciled in one of the eight states not allowing offsets but having a guarantee fund and assessments.
72 Op. Att'y Gen. 17, 25 (1983)
Must the "terms and conditions" of the offset granted by Wisconsin be the same as those offered by the other state? "Terms and conditions" are immaterial; the amount of the offset is material. Again, this answer presumes we are comparing two of the twenty-two states allowing both assessments and offsets. The tax is computed twice, once in the actual tax assessing state, and again hypothetically, assuming a reversal of position. Then, either section 76.66 or 76.67 controls, depending on which calculation produced the higher tax.
72 Op. Att'y Gen. 17, 25 (1983)
The sixth question assumes the application of section 76.66 and another state which does not grant offsets for assessments:
72 Op. Att'y Gen. 17, 25 (1983)
[I]s Wisconsin [then] prohibited from granting an offset to insurers domiciled in that 'non-offset-granting' state?
72 Op. Att'y Gen. 17, 25 (1983)
The answer is yes. This results from the application of the retaliatory provision, section 76.66. It also results from the holding in Franklin
. However, please note that I assume both states can assess.
72 Op. Att'y Gen. 17, 26 (1983)
The seventh question asks:
72 Op. Att'y Gen. 17, 26 (1983)
Is the legal amount that an insurer, domestic and/or non-domestic, may offset in Wisconsin limited by any factors other than the 20% per year for five years limitation? For example, tax liability offset provisions of other states may result in a situation where an insurer has recouped some or all of its assessment in a year. In such a case, in the insurer's offset of tax liability in Wisconsin limited in any way by the amount of the assessment offset in other states?
72 Op. Att'y Gen. 17, 26 (1983)
One limitation imposed by chapter 646 is the twenty percent/five year limitation in section 646.51(7). Since the assessment is imposed on a state-by-state basis and since the offset is based only on the state assessment, in Wisconsin's case a company could not get an excess offset.¯2
However, if other states allow offsets on assessments based on more than one state's assessment, it is possible that a Wisconsin domiciled insurer could recoup more than 100% of its assessment. There is no prohibition against this. If a limitation is desired or becomes necessary, then the matter is one properly before the Legislature. A second limitation limits the offset to actual tax liability by disallowing any carry-forward or refunds. Sec. 646.51(7), Stats.
72 Op. Att'y Gen. 17, 26 (1983)
The last question asks:
72 Op. Att'y Gen. 17, 26 (1983)
If legal action by the liquidator results in collection of damages in amounts sufficient to reimburse assessed insurers for some or all of the assessments paid, how will such reimbursements be treated for tax purposes if tax liability offsets have been claimed and granted?
72 Op. Att'y Gen. 17, 26 (1983)
Assessments are offset dollar for dollar against taxes, and therefore constitute a credit.
72 Op. Att'y Gen. 17, 26 (1983)
"Credit" is defined in Blacks Law Dictionary 331 (5th ed. 1979): "In taxation, an amount which may be subtracted from the computed tax itself in contrast to a deduction which is generally subtracted from gross income to arrive at adjusted gross income or taxable income."
72 Op. Att'y Gen. 17, 27 (1983)
Therefore, reimbursement of an assessment used as an offset calls for an addition to the computed tax, i.e.
, recapture of the credit.
72 Op. Att'y Gen. 17, 27 (1983)
BCL:DJS
72 Op. Att'y Gen. 17, 17 (1983) - Footnote
Destination-40 Or a domestic life insurance company under section 76.65(1).
72 Op. Att'y Gen. 17, 17 (1983) - Footnote
Destination-41 However, the effects of sections 76.66 and 76.67 should not be overlooked.
___________________________
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