Tax News

CCH (cch.taxgroup.com) reports:

The Illinois Supreme Court affirmed an Illinois Court of Appeals decision holding that retaliatory tax on a Canadian insurance company was not unconstitutional under either a state or federal theory.
Under the provisions of the tax, if a foreign or alien insurance company would pay less for the privilege of doing business in the foreign or alien company's home state or country, Illinois will retaliate by requiring the foreign or alien company to make up the difference. Although Canada does not impose a premium tax on life insurance companies, the Illinois law permits the state to apply the law as if the alien corporation had a similar insurance operation in its state of domicile, which could mean the alien company's port or state of entry. In this case, the alien company's state of entry was Michigan, which imposes higher taxes and fees on Illinois companies doing business in Michigan than Illinois charges on Michigan companies doing the same insurance business in Illinois.
The alien company questioned whether the tax violates the Illinois Uniformity Clause, whether the federal McCarran-Ferguson Act authorizes Illinois to impose the retaliatory tax on an alien corporation, and if not, whether the tax violates the so-called Dormant Commerce Clause of the U.S. Constitution.
The tax did not violate the Illinois uniformity clause. Instead, the tax constituted a permissible incidental intrusion on foreign affairs. Imposition of the tax necessarily involved a monetary impact on the alien insurer and a resultant monetary impact on the insurer's funds in Canada. However, the impact applied to all alien insurers equally; the tax did not constitute a boycott of alien insurers; and it was not intended to keep them from doing business in Illinois because of Canada's political or social policies. The retaliatory tax's legitimate purpose of equalizing tax burdens between states barred the alien company's challenge.
The federal Foreign Commerce Clause claim also failed because the plain language of the federal McCarran-Ferguson Act, as interpreted by the U.S. Supreme Court, demonstrates that Congress did not provide any limit to the states ability to impose retaliatory taxes, including those on alien corporations. Additionally, the plain language of the Act does not impose any limitations on the imposition of a retaliatory tax on an alien insurer.
Because the McCarran-Ferguson Act allows states to regulate alien insurers, the court did not consider the issue of whether the tax violates the Dormant Commerce Clause.
Subscribers to CCH Tax Research NetWork can view the decision.
Sun Life Assurance Co. of Canada v. Manna , Illinois Supreme Court, No. 103849, November 29, 2007.