U.S. Supreme Court
Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869 (1985)
Metropolitan Life Ins. Co. v. Ward
Argued October 31, 1984
Decided March 26, 1985
470 U.S. 869
An Alabama statute imposes a substantially lower gross premiums tax rate on domestic insurance companies than on out-of-state (foreign) insurance companies. The statute permits foreign companies to reduce but not to eliminate the differential by investing in Alabama assets and securities. Appellant foreign insurance companies filed claims for refunds of taxes paid, contending that the statute, as applied to them, violated the Equal Protection Clause. The State Commissioner of Insurance denied the claims. On consolidated appeals to a county Circuit Court, in which several domestic companies intervened, the statute was upheld on summary judgment. The court ruled that the statute did not violate the Equal Protection Clause because, in addition to raising revenue, it served the legitimate state purposes of encouraging the formation of new insurance companies in Alabama and capital investment by foreign insurance companies in Alabama assets and securities, and that the distinction between foreign and domestic companies was rationally related to those purposes. The Alabama Court of Civil Appeals affirmed the finding as to legitimate state purposes, but remanded for an evidentiary hearing on the issue of rational relationship. On certiorari to the Alabama Supreme Court, appellants waived their rights to such an evidentiary hearing, and the court entered judgment for the State and the intervenors on appellants' equal protection challenge to the statute.
Held: The Alabama domestic preference tax statute violates the Equal Protection Clause as applied to appellants. Pp. 470 U. S. 874-883.
(a) Under the circumstances of this case, promotion of domestic business by discriminating against nonresidents is not a legitimate state purpose. Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U. S. 648, distinguished. Alabama's aim to promote domestic industry is purely and completely discriminatory, designed only to favor domestic industry within the State, no matter what the cost to foreign corporations also seeking to do business there. Alabama's purpose constitutes the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent. A State may not constitutionally favor its own residents by taxing foreign corporations at a higher rate solely because of their residence. Although the McCarran-Ferguson Act exempts the insurance industry from Commerce Clause chanroblesvirtualawlibrary
restrictions, it does not purport to limit the applicability of the Equal Protection Clause. Equal protection restraints are applicable even though the effect of the discrimination is similar to the type of burden with which the Commerce Clause also would be concerned. Pp. 470 U. S. 876-882.
(b) Nor is the encouragement of the investment in Alabama assets and securities a legitimate state purpose. Domestic insurers remain entitled to the more favorable tax rate regardless of whether they invest in Alabama assets. Moreover, since the investment incentive provision does not enable foreign insurers to eliminate the statute's discriminatory effect, it does not cure, but reaffirms, the impermissible classification based solely on residence. Pp. 470 U. S. 882-883.
447 So.2d 142, reversed and remanded.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J.,and WHITE, BLACKMUN, and STEVENS, JJ., joined. O'CONNOR, J., filed a dissenting opinion, in which BRENNAN, MARSHALL, and REHNQUIST, JJ., joined, post p. 470 U. S. 883. chanroblesvirtualawlibrary