Metropolitan Life Ins Co. vs. Ward Comm of Ins of Alab 470 U.S. 869 105 S.ct. 1676

8/9/2019 Metropolitan Life Ins Co. vs. Ward Comm of Ins of Alab 470 U.S. 869 105 S.ct. 1676

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Citation Text: 105 S.Ct. 1676

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[3] Constitutional Law 92 3560

92 Constitutional Law

92XXVI Equal Protection

92XXVI(E) Particular Issues and Applica-

tions

92XXVI(E)6 Taxation

92k3560 k. In General. Most Cited

Cases

(Formerly 92k228.5)

State's goal of bringing in new business is legitim-

ate under equal protection clause. U.S.C.A.

Const.Amend. 14.




92XXVI(B) Particular Classes

92XXVI(B)10 Residency or Duration

Thereof

92k3369 Trade or Business

92k3371 k. Licenses and Regula-

tion in General. Most Cited Cases

(Formerly 92k230.3(4))

Insurance 217 1165

217 Insurance217IV Insurance Companies and Related Entit-

ies

217IV(B) Foreign Companies

217k1165 k. Authority to Do Business.

Most Cited Cases


Taxation 371 2137

371 Taxation

371III Property Taxes

371III(B) Laws and Regulation371III(B)4 Constitutional Regulation and

Restrictions Concerning Equality and Uniformity

371k2134 Classification of Subjects,

and Uniformity as to Subjects of Same Class

371k2137 k. Foreign Corporations.

Most Cited Cases

(Formerly 371k42(3))

Promotion of domestic business within state, by

discriminating against foreign corporations that

wished to compete by doing business there, was not

legitimate state purpose under equal protection

clause, supporting Alabama statute imposing sub-

stantially lower gross premiums tax rate on domest-

ic insurance companies than out-of-state insurance

companies. Ala.Code 1975, 27-4-4, 27-4-5;

U.S.C.A. Const.Amend. 14.





tions

92XXVI(E)12 Trade or Business

92k3681 Licenses and Regulation

92k3694 k. Insurance. Most Cited

Cases


Insurance 217 1100

217 Insurance

217III What Law Governs

217III(B) Preemption; Application of State

or Federal Law

217k1100 k. In General. Most Cited Cases


States 360 18.41

360 States

360I Political Status and Relations

360I(B) Federal Supremacy; Preemption

360k18.41 k. Insurance. Most Cited Cases


Although McCarran-Ferguson Act exempts insur-

ance industry from commerce clause restrictions, it

does not purport to limit in any way the applicabil-

ity of equal protection clause. U.S.C.A. Const. Art.

1, 8, cl. 3; McCarran-Ferguson Act, 1-5, 15

U.S.C.A. 1011-1015; U.S.C.A. Const.Amend.

14.

105 S.Ct. 1676 Page 2

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVIhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28E%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28E%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28E%296http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92k3560http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=92k3560http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=92k3560http://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=1000546&DocName=USCOAMENDXIV&FindType=Lhttp://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=1000546&DocName=USCOAMENDXIV&FindType=Lhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVIhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28B%2910http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92k3369http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92k3371http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=92k3371http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217IVhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217IV%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217IV%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217k1165http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=217k1165http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=371http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=371IIIhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=371III%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=371III%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=371III%28B%294http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=371k2134http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=371k2137http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=371k2137http://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=1000002&DocName=ALSTS27-4-4&FindType=Lhttp://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=1000002&DocName=ALSTS27-4-5&FindType=Lhttp://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=1000546&DocName=USCOAMENDXIV&FindType=Lhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVIhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28E%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28E%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92XXVI%28E%2912http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92k3681http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=92k3694http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=92k3694http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=92k3694http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217IIIhttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217III%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217III%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=217k1100http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=217k1100http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=360http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=360Ihttp://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=360I%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=360I%28B%29http://www.westlaw.com/KeyNumber/Default.wl?rs=dfa1.0&vr=2.0&CMD=KEY&DocName=360k18.41http://www.westlaw.com/Digest/Default.wl?rs=dfa1.0&vr=2.0&CMD=MCC&DocName=360k18.41http://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=1000546&DocName=USCOARTIS8CL3&FindType=Lhttp://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=1000546&DocName=USC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[6] Commerce 83 12

83 Commerce

83I Power to Regulate in General

83k11 Powers Remaining in States, and Lim-

itations Thereon

83k12 k. In General. Most Cited Cases

Under commerce clause analysis, state's interest, if

legitimate, is weighed against burden state law

would impose on interstate commerce. U.S.C.A.

Const. Art. 1, 8, cl. 3.




92XXVI(A) In General

92XXVI(A)6 Levels of Scrutiny

92k3052 Rational Basis Standard;

Reasonableness

92k3053 k. In General. Most Cited

Cases


In equal protection context, if state's purpose is

found to be legitimate, state law stands as long as

burden it imposes is found to be rationally related

to that purpose, a relationship that is not difficult to

establish. U.S.C.A. Const.Amend. 14.




92XXVI(A) In General

92XXVI(A)3 Persons or Entities Protec-

ted

92k3012 k. Corporations and Other

Business Entities. Most Cited Cases


Constitutional Law 92 3927


92XXVII Due Process

92XXVII(C) Persons and Entities Protected

92k3927 k. Business Organizations; Cor-

porations. Most Cited Cases

(Formerly 92k252)

Corporation is a person within meaning of the

Fourteenth Amendment. U.S.C.A. Const.Amend.

14.





tions

92XXVI(E)12 Trade or Business

92k3681 Licenses and Regulation

92k3694 k. Insurance. Most Cited

Cases


Taxation 371 2137

371 Taxation

371III Property Taxes

371III(B) Laws and Regulation

371III(B)4 Constitutional Regulation and

Restrictions Concerning Equality and Uniformity

371k2134 Classification of Subjects,

and Uniformity as to Subjects of Same Class

371k2137 k. Foreign Corporations.

Most Cited Cases


Encouragement of investment in Alabama assets

and governmental securities, when furthered by dis-

crimination against out-of-state insurance compan-

ies, was not legitimate state purpose under equal

protection clause supporting Alabama statute im-

posing substantially lower gross premiums rate on

domestic insurance companies than out-of-state in-

surance companies. Ala.Code 1975, 27-4-4,

27-4-5; U.S.C.A. Const.Amend. 14.

**1677 *869 SyllabusFN*

FN* The syllabus constitutes no part of the

opinion of the Court but has been prepared

by the Reporter of Decisions for the con-

venience of the reader. See United States v.

Detroit Lumber Co., 200 U.S. 321, 337, 26

105 S.Ct. 1676 Page 3

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

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5/23

S.Ct. 282, 287, 50 L.Ed. 499.

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 in-

vesting in Alabama assets and securities. Appellant

foreign insurance companies filed claims for re-

funds 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 statutedid not violate the Equal Protection Clause because,

in addition to raising revenue, it served the legitim-

ate 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 distinc-

tion 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 evid-

entiary hearing on the issue of rational relationship.

On certiorari to the Alabama Supreme Court, appel-lants waived their rights to such an evidentiary

hearing, and the court entered judgment for the

State and the intervenors on appellants' equal pro-

tection challenge to the statute.

Held: The Alabama domestic preference tax statute

violates the Equal Protection Clause as applied to

appellants. Pp. 1679-1684.

(a) Under the circumstances of this case, promotion

of domestic business by discriminating against non-

residents is not a legitimate state purpose. Western& Southern Life Ins. Co. v. State Board of Equaliz -

ation of California, 451 U.S. 648, 101 S.Ct. 2070,

68 L.Ed.2d 514 distinguished. Alabama's aim to

promote domestic industry is purely and completely

discriminatory, designed only to favor domestic in-

dustry 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 Protec-

tion Clause was intended to prevent. A State may

not constitutionally favor its own residents by tax-

ing foreign corporations at a higher rate solely be-

cause of their residence. Although the McCarran-

Ferguson Act exempts the insurance industry from

Commerce Clause *870 restrictions, it does not

purport to limit the applicability of the Equal Pro-

tection Clause. Equal protection restraints are ap-

plicable even though the effectof the discrimination

is similar to the type of burden with which the

Commerce Clause also would be concerned. Pp.

1680-1684.

**1678 (b) Nor is the encouragement of the invest-

ment 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 for-

eign insurers to eliminate the statute's discriminat-

ory effect, it does not cure but reaffirms the imper-

missible classification based solely on residence. P.

1684.

447 So.2d 142 (Ala.), reversed and remanded. Matthew J. Zinn argued the cause for appellants.

With him on the briefs was Steven Reed.

Warren B. Lightfoot argued the cause for appellees.

With him on the brief for appellee Ward were E.

Mabry Rogers and Phillip E. Stano. Robert W.

Bradford, Jr., and Harry Cole filed a brief for ap-

pellees American Educators Life Insurance Co. et

al.*

* Briefs of amici curiae urging reversal were filed

for the State of Connecticut et al. by Dennis J. Roberts II, Attorney General of Rhode Island,

Frances X. Bellotti, Attorney General of Massachu-

setts, Gregory H. Smith, Attorney General of New

Hampshire, Joseph I. Lieberman, Attorney General

of Connecticut, Elliot F. Gerson, Deputy Attorney

General, and John G. Haines, Assistant Attorney

105 S.Ct. 1676 Page 4

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

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6/23

General; and for the Life Insurance Council of New

York by Peter J. Flanagan.

Briefs of amici curiae urging affirmance were filed

for the State of Alaska et al. by Anthony

Celebrezze, Jr., Attorney General of Ohio, and

Connie J. Harris, Assistant Attorney General, Dave

Frohnmayer, Attorney General of Oregon, William

F. Gary, Deputy Attorney General, and James E.

Mountain, Jr., Solicitor General, Jim Mattox, Attor-

ney General of Texas, and Henry H. Robinson, As-

sistant Attorney General; for the State of Illinois by

Neil F. Hartigan, Attorney General, and Patricia

Rosen and Kathryn A. Spalding, Assistant Attor-

neys General; for Allstate Insurance Co. et al. by

Duane C. Quaini; for the Florida Association ofDomestic Insurance Companies, Inc., et al. by

Robert W. Perkins and Samuel R. Neel III.

*871 Justice POWELL delivered the opinion of the

Court.

This case presents the question whether Alabama's

domestic preference tax statute, Ala.Code

27-4-4 and 27-4-5 (1975), that taxes out-of-state in-

surance companies at a higher rate than domestic

insurance companies, violates the Equal Protection

Clause.

I

Since 1955,FN1

the State of Alabama has granted a

preference to its domestic insurance companies by

imposing a substantially lower gross premiums tax

rate on them than on out-of-state (foreign) compan-

ies.FN2

Under the current statutory provisions, for-

eign life insurance companies pay a tax on their

gross premiums received from business conducted

in Alabama at a rate of three percent, and foreigncompanies selling other types of insurance pay at a

rate of four percent. Ala.Code 27-4-4(a) (1975).

All domestic insurance companies, in contrast, pay

at a rate of only one percent on all types of insur-

ance premiums. 27-4-5(a).FN3

As a result, a for-

eign *872 insurance company doing the same type

and volume of business in Alabama as a domestic

company generally will pay three to four times as

much in gross premiums taxes as its domestic com-

petitor.

FN1. The origins of Alabama's domestic

preference tax statute date back to 1849,

when the first tax on premiums earned by

insurance companies doing business in the

State was l imited to companies not

chartered by the State. Act No. 1, 1849

Ala.Acts 5. A domestic preference tax was

imposed on and off throughout the years

until 1945, when the State restored equal-

ity in taxation of insurance companies in

response to this Court's decision in UnitedStates v. South-Eastern Underwriters

Assn., 322 U.S. 533, 64 S.Ct. 1162, 88

L.Ed. 1440 (1944). Act No. 156, 1945

Ala.Acts 196-197. In 1955, the tax was re-

instated, Act No. 77, 1955 Ala.Acts 193

(2d Spec.Sess.), and with minor amend-

ments, has remained in effect until the

present.

FN2. For domestic preference tax pur-

poses, Alabama defines a domestic insurer

as a company that both is incorporated inAlabama and has its principal office and

chief place of business within the State.

Ala.Code 27-4-1(3) (1975). A corpora-

tion that does not meet both of these criter-

ia is characterized as a foreign insurer.

27-4-1(2).

FN3. There are two exceptions to these

general rules concerning the rates of taxa-

tion of insurance companies. For annuities,

the tax rate is one percent for both foreign

and domestic insurers, Ala.Code 27-4-4(a) (1975), and for wet marine and trans-

portation insurance, the rate is three-

quarters of one percent for both foreign

and domestic insurance companies,

27-4-6(a).

105 S.Ct. 1676 Page 5

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

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Alabama's domestic preference tax statute does

provide that foreign companies may reduce the dif-

ferential in gross premiums taxes by investing pre-

scribed percentages of their worldwide assets in

specified Alabama assets and securities. 27-4-4

(b). By investing 10 percent or more of its total as-

sets in Alabama investments, for example, a foreign

life insurer may reduce its gross premiums tax rate

from 3 to 2 percent. Similarly, a foreign property

and casualty insurer may reduce its tax rate from

four to three percent. Smaller tax reductions are

available based on investment of smaller percent-

ages of a company's assets. Ibid. Regardless of how

much of its total assets a foreign company places in

Alabama investments, it can never reduce its gross

premiums tax rate to the same level paid by com-parable domestic companies. These are entitled to

the one-**1679 percent tax rate even if they have

no investments in the State. Thus, the investment

provision permits foreign insurance companies to

reduce, but never to eliminate, the discrimination

inherent in the domestic preference tax statute.

II

Appellants, a group of insurance companies incor-

porated outside of the State of Alabama, filedclaims with the Alabama Department of Insurance

in 1981, contending that the domestic preference

tax statute, as applied to them, violated the Equal

Protection Clause. They sought refunds of taxes

paid for the tax years 1977 through 1980. The Com-

missioner of Insurance denied all of their claims on

July 8, 1981.

*873 Appellants appealed to the Circuit Court for

Montgomery County, seeking a judgment declaring

the statute to be unconstitutional and requiring the

Commissioner to make the appropriate refunds.Several domestic companies intervened, and the

court consolidated all of the appeals, selecting two

claims as lead casesFN4

to be tried and binding on

all claimants. On cross-motions for summary judg-

ment, the court ruled on May 17, 1982, that the

statute was constitutional. Relying on this Court's

opinion in Western & Southern Life Ins. Co. v.

State Board of Equalization of California, 451 U.S.

648, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981), the

court ruled that the Alabama statute did not violate

the Equal Protection Clause because it served at

least two purposes, in addition to raising revenue:

(1) encouraging the formation of new insurance

companies in Alabama, and (2) encouraging capital

investment by foreign insurance companies in the

Alabama assets and governmental securities set

forth in the statute. App. to Juris. Statement

20a-21a. The court also found that the distinction

the statute created between foreign and domestic

companies was rationally related to those two pur-

poses and that the Alabama Legislature reasonably

could have believed that the classification wouldhave promoted those purposes. Id., at 21a.

FN4. Metropolitan Life Insurance Co., a

New York corporation, was chosen to rep-

resent the life insurance claimants, and

Prudential Property and Casualty Co., a

New Jersey corporation, was chosen as

representative of the nonlife claimants. See

App. 314-315.

After their motion for a new trial was denied, ap-

pellants appealed to the Court of Civil Appeals. Itaffirmed the Circuit Court's rulings as to the exist-

ence of the two legitimate state purposes, but re-

manded for an evidentiary hearing on the issue of

rational relationship, concluding that summary

judgment was inappropriate on that question be-

cause the evidence was in conflict. 437 So.2d 535

(1983). Appellants petitioned the Supreme Court of

Alabama for certiorari on the affirmance of the le-

gitimate state purpose issue, and the State and the

intervenors petitioned for review of *874 the re-

mand order. Appellants then waived their right to

an evidentiary hearing on the issue whether the stat-

ute's classification bore a rational relationship to

the two purposes found by the Circuit Court to be

legitimate, and they requested a final determination

of the legal issues with respect to their equal pro-

tection challenge to the statute. The Supreme Court

105 S.Ct. 1676 Page 6

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

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denied certiorari on all claims. Appellants again

waived their rights to an evidentiary hearing on the

rational relationship issue and filed a joint motion

with the other parties seeking rehearing and entry

of a final judgment. The motion was granted, and

judgment was entered for the State and the inter-

venors. 447 So.2d 142 (1983). This appeal fol-

lowed, and we noted probable jurisdiction. 466 U.S.

935, 104 S.Ct. 1905, 80 L.Ed.2d 455 (1984). We

now reverse.

III

Prior to our decision in Western & Southern Life

Ins. Co. v. State Board of Equalization of Califor-

nia, supra, the jurisprudence of the applicability of

the Equal Protection Clause to discriminatory tax

statutes had a somewhat checkered history. Lincoln

National Life Ins. Co. v. Read, 325 U.S. 673, 65

S.Ct. 1220, 89 L.Ed. 1861 (1945), held that so-

called privilege **1680 taxes, required to be paid

by a foreign corporation before it would be permit-

ted to do business within a State, were immune

from equal protection challenge. That case stood in

stark contrast, however, to the Court's prior de-

cisions in Southern R. Co. v. Greene, 216 U.S. 400,

30 S.Ct. 287, 54 L.Ed. 536 (1910), and HanoverFire Ins. Co. v. Harding, 272 U.S. 494, 47 S.Ct.

179, 71 L.Ed. 372 (1926), as well as to later de-

cisions, in which the Court had recognized that the

Equal Protection Clause placed limits on other

forms of discriminatory taxation imposed on out-

of-state corporations solely because of their resid-

ence. See, e.g., WHYY, Inc. v. Glassboro, 393 U.S.

117, 89 S.Ct. 286, 21 L.Ed.2d 242 (19 68); Allied

Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 79

S.Ct. 437, 3 L.Ed.2d 480 (1959); Wheeling Steel

Corp. v. Glander, 337 U.S. 562, 69 S.Ct. 1291, 93

L.Ed. 1544 (1949).

In Western & Southern, supra, we reviewed all of

these cases for the purpose of deciding whether to

permit an equal *875 protection challenge to a Cali-

fornia statute imposing a retaliatory tax on foreign

insurance companies doing business within the

State, when the home States of those companies im-

posed a similar tax on California insurers entering

their borders. We concluded that Lincoln was no

more than a surprising throwback to the days be-

fore enactment of the Fourteenth Amendment and

in which incorporation of a domestic corporation or

entry of a foreign one had been granted only as a

matter of privilege by the State in its unfettered dis-

cretion. 451 U.S., at 665, 101 S.Ct., at 2081. We

therefore rejected the longstanding but

anachronis[tic] rule of Lincoln and explicitly held

that the Equal Protection Clause imposes limits

upon a State's power to condition the right of a for-

eign corporation to do business within its borders.

451 U.S., at 667, 101 S.Ct., at 2082. We held that

[w]e consider it now established that, whatever theextent of a State's authority to exclude foreign cor-

porations from doing business within its boundar-

ies, that authority does not justify imposition of

more onerous taxes or other burdens on foreign cor-

porations than those imposed on domestic corpora-

tions, unless the discrimination between foreign and

domestic corporations bears a rational relation to a

legitimate state purpose. Id., at 667-668, 101 S.Ct.,

at 2082-2083.

Because appellants waived their right to an eviden-

tiary hearing on the issue whether the classificationin the Alabama domestic preference tax statute

bears a rational relation to the two purposes upheld

by the Circuit Court, the only question before us is

whether those purposes are legitimate.FN5

FN5. The State and the intervenors ad-

vanced some 15 additional purposes in

support of the Alabama statute. As neither

the Circuit Court nor the Court of Civil

Appeals ruled on the legitimacy of those

purposes, that question is not before us,

and we express no view as to it. On re-

mand, the State will be free to advance

again its arguments relating to the legitim-

acy of those purposes.

As the dissent finds our failure to resolve

whether Alabama may continue to col-

105 S.Ct. 1676 Page 7

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

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lect its tax baffling, post, at 1686, we

reemphasize the procedural posture of

the case: it arose on a motion for sum-

mary judgment. The Court of Civil Ap-

peals upheld the Circuit Court's ruling

that the two purposes identified by it

were legitimate, but the appellate court

remanded on the issue of rational rela-

tionship as to those purposes because it

found the evidence in conflict. In order

to obtain an expedited ruling, appellants

waived their right to an evidentiary hear-

ing only as to the purposes which the

lower courts have determined to be legit-

imate. 447 So.2d 142, 143 (Ala.1983).

Thus, for this Court to resolve whetherAlabama may continue to collect the tax,

it would have to decide de novo whether

any of the other purposes was legitimate,

and also whether the statute's classifica-

tion bore a rational relationship to any of

these purposes-all this, on a record that

the Court of Civil Appeals deemed inad-

equate.

*876 A

(1)

The first of the purposes found by the trial court to

be a legitimate reason for the statute's classification

between foreign and domestic corporations is that it

encourages the formation of new domestic insur-

ance companies in Alabama. The State, agreeing

**1681 with the Court of Civil Appeals, contends

that this Court has long held that the promotion of

domestic industry, in and of itself, is a legitimate

state purpose that will survive equal protection

scrutiny. In so contending, it relies on a series of

cases, including Western & Southern, that are said

to have upheld discriminatory taxes. See Bacchus

Imports, Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049,

82 L.Ed.2d 200 (1984); Pike v. Bruce Church, Inc.,

397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970);

Allied Stores of Ohio, Inc. v. Bowers, supra; Parker

v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315

(1943); Carmichael v. Southern Coal & Coke Co.,

301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245 (1937);

Board of Education v. Illinois, 203 U.S. 553, 27

S.Ct. 171, 51 L.Ed. 314 (1906).

[1] The cases cited lend little or no support to the

State's contention. In Western & Southern, the case

principally relied upon, we did not hold as a general

rule that promotion of domestic industry is a legit-

imate state purpose under equal protection analysis.FN6

Rather, we held that California's purpose*877

in enacting the retaliatory tax-to promote the inter-

state business of domestic insurers by deterring

other States from enacting discriminatory or ex-cessive taxes-was a legitimate one. 451 U.S., at

668, 101 S.Ct., at 2083. In contrast, Alabama asks

us to approve its purpose of promoting the business

of its domestic insurers in Alabama by penalizing

foreign insurers who also want to do business in the

State. Alabama has made no attempt, as California

did, to influence the policies of *878 other States in

order to enhance its domestic companies' ability to

operate interstate; rather, it has erected barriers to

foreign companies who wish to do interstate busi-

ness in order to improve its domestic insurers' abil-

ity to compete at home.

FN6. We find the other cases on which the

State relies also to be inapposite to this in-

quiry. Bacchus Imports, Pike, and Parker

discussed whether promotion of local in-

dustry is a valid state purpose under the

Commerce Clause. The Commerce Clause,

unlike the Equal Protection Clause, is in-

tegrally concerned with whether a state

purpose implicates local or national in-

terests. The Equal Protection Clause, in

contrast, is concerned with whether a state

purpose is impermissibly discriminatory;

whether the discrimination involves local

or other interests is not central to the in-

quiry to be made. Thus, the fact that pro-

motion of local industry is a legitimate

105 S.Ct. 1676 Page 8

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

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state interest in the Commerce Clause con-

text says nothing about its validity under

equal protection analysis. See infra, at

1683.

Moreover, neither Bacchus nor Pike

ruled that a State's ability to promote do-

mestic industry was unlimited, even un-

der the Commerce Clause. Thus, in Bac-

chus, although we observed as a general

matter that a State may enact laws pur-

suant to its police powers that have the

purpose and effect of encouraging do-

mestic industry, 468 U.S., at 271, 104

S.Ct., at 3055, we held that in so doing,

a State may not constitutionally impose adiscriminatory burden upon the business

of other States, merely to protect and

promote local business, id., at 272-273,

104 S.Ct., at 3055-3056. Accord, Armco

Inc. v. Hardesty, 467 U.S. 638, 642, 104

S.Ct. 2620, 2622, 81 L.Ed.2d 540 (1984)

. Likewise, in Pike, the Court held that

the state statute promoting a legitimate

local interest must regulat [e] evenhan-

dedly. 397 U.S., at 142, 90 S.Ct., at 847

.

Other cases cited by the State are simply

irrelevant to the legitimacy of promoting

local business at all. Carmichael relates

primarily to the validity of a state unem-

ployment compensation scheme, and

Board of Education deals with the State's

ability to regulate matters relating to

probate. Bowers is the only one of the

State's cases that involves the validity

under the Equal Protection Clause of a

tax that discriminates on the basis of res-

idence of domestic versus foreign cor-

porations. That case does little, however,

to support the State's contention that pro-

motion of domestic business is a legitim-

ate state purpose. It was concerned with

encouraging nonresidents-who are not

competitors of residents-to build ware-

houses within the State. See infra, at

1682 - 1683.

The crucial distinction between the two cases lies in

the fact that Alabama's aim to promote domestic in-

dustry is purely and completely discriminatory, de-

signed only to favor domestic industry within the

State, no matter what the cost to foreign corpora-

tions also seeking to do business there. Alabama's

purpose, contrary to California's, constitutes the

very sort of parochial discrimination that the Equal

Protection Clause was intended to prevent. As

Justice BRENNAN, joined by Justice Harlan,

**1682 observed in his concurrence in Allied Stores

of Ohio, Inc. v. Bowers, 358 U.S. 522, 79 S.Ct. 437,3 L.Ed.2d 480 (1959), this Court always has held

that the Equal Protection Clause forbids a State to

discriminate in favor of its own residents solely by

burdening the residents of other state members of

our federation. Id., at 533, 79 S.Ct., at 444. Unlike

the retaliatory tax involved in Western & Southern,

which only burdens residents of a State that im-

poses its own discriminatory tax on outsiders, the

domestic preference tax gives the home team an

advantage by burdening all foreign corporations

seeking to do business within the State, no matter

what they or their States do.

[2] The validity of the view that a State may not

constitutionally favor its own residents by taxing

foreign corporations at a higher rate solely because

of their residence is confirmed by a long line of this

Court's cases so holding. WHYY, Inc. v. Glassboro,

393 U.S., at 119-120, 89 S.Ct., at 2 87; Wheeling

Steel Corp. v. Glander, 337 U.S., at 571, 69 S.Ct.,

at 1296; Hanover Fire Ins. Co. v. Harding, 272

U.S., at 511, 47 S.Ct., at 183; Southern R. Co. v.

Greene, 216 U.S., at 417, 30 S.Ct., at 291. See Re-

serve Life Ins. Co. v. Bowers, 380 U.S. 258, 85

S.Ct. 951 (1965) ( per curiam ). As the Court stated

in Hanover Fire Ins. Co., with respect to general

tax burdens on business, the foreign corporation

stands equal, and is to be classified with domestic

corporations of the same kind. *879 272 U.S., at

105 S.Ct. 1676 Page 9

470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751, 53 USLW 4399

(Cite as: 470 U.S. 869, 105 S.Ct. 1676)

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511, 47 S.Ct., at 183. In all of these cases, the dis-

criminatory tax was imposed by the State on for-

eign corporations doing business within the State

solely because of their residence, presumably to

promote domestic industry within the State.FN7 In

relying on these cases and rejecting Lincoln in

Western & Southern, we reaffirmed the continuing

viability of the Equal Protection Clause as a means

of challenging a statute that seeks to benefit do-

mestic industry within the State only by grossly dis-

criminating against foreign competitors.

FN7. Although the promotion of domestic

business was not a purpose advanced by

the States in support of their taxes in these

cases, such promotion is logically theprimary reason for enacting discriminatory

taxes such as those at issue here.

The State contends that Allied Stores of Ohio, Inc.

v. Bowers, supra, shows that this principle has not

always held true. In that case, a domestic mer-

chandiser challenged on equal protection grounds

an Ohio statute that exempted foreign corporations

from a tax on the value of merchandise held for

storage within the State. The Court upheld the tax,

finding that the purpose of encouraging foreign

companies to build warehouses within Ohio was alegitimate state purpose. The State contends that

this case shows that promotion of domestic busi-

ness is a legitimate state purpose under equal pro-

tection analysis.

[3][4] We disagree with the State's interpretation of

Allied Stores and find that the case is not inconsist-

ent with the other cases on which we rely. We agree

with the holding of Allied Stores that a State's goal

of bringing in new business is legitimate and often

admirable. Allied Stores does not, however, hold

that promotion of domestic business by discrimin-ating against foreign corporations is legitimate. The

case involves instead a statute that encourages non-

residents-who are not competitors of residents-to

build warehouses within the State. The discriminat-

ory tax involved did not favor residents by burden-

ing outsiders; rather, it granted the *880 nonresid-

ent business an exemption that residents did not

share. Since the foreign and domestic companies

involved were not competing to provide warehous-

ing services, granting the former an exemption did

not even directly affect adversely the domestic

companies subject to the tax. On its facts, then, Al-

lied Stores is not inconsistent with our holding here

that promotion of domestic business within a State,

by discriminating against foreign corporations that

wish to compete by doing business there, is not a

legitimate state purpose. See **1683358 U.S., at

532-533, 79 S.Ct., at 443-444 (BRENNAN, J., con-

curring).

(2)

[5] The State argues nonetheless that it is imper-

missible to view a discriminatory tax such as the

one at issue here as violative of the Equal Protec-

tion Clause. This approach, it contends, amounts to

no more than Commerce Clause rhetoric in equal

protection clothing. Brief for Appellee Ward 22.

The State maintains that because Congress, in en-

acting the McCarran-Ferguson Act, 15 U.S.C.

1011-1015, intended to authorize States to impose

taxes that burden interstate commerce in the insur-

ance field, the tax at issue here must stand. Ourconcerns are much more fundamental than as char-

acterized by the State. Although the McCarran-Fer-

guson Act exempts the insurance industry from

Commerce Clause restrictions, it does not purport

to limit in any way the applicability of the Equal

Protection Clause. As noted above, our opinion in

Western & Southern expressly reaffirmed the viab-

ility of equal protection restra