APPEAL from the Circuit Court of Sangamon County; the Hon.
SIMON L. FRIEDMAN, Judge, presiding.
MR. JUSTICE MILLS DELIVERED THE OPINION OF THE COURT:
Retaliatory tax imposed in Illinois.
Foreign insurance company obtained summary judgment below for a refund.
The Minnesota Mutual Life Insurance Company — a Minnesota corporation licensed to sell various types of insurance in Illinois — sued to recover the retaliatory tax assessed against it by the Illinois Director of Insurance. This State's Department of Insurance notified the plaintiff of deficient and delinquent tax payments for the years 1976 and 1977 and in the amounts of $6,933.48 and $40,202.28, respectively, based on the retaliatory tax provision for insurance companies, which is section 444 of the Illinois Insurance Code (Ill. Rev. Stat. 1979, ch. 73, par. 1056). The amounts include 1% interest, apparently through April 28, 1978. After paying the tax and interest under protest, Minnesota Mutual sued to recover the total amount of its payments, $47,135.76. The trial court granted the plaintiff's motion for summary judgment and ordered the defendants to refund the money. We affirm.
The parties agree that the origin of this dispute lies in the different methods used by Illinois and Minnesota for computing foreign insurance companies' privilege taxes: although both States tax foreign insurance companies at a rate of 2%, they differ in their definitions of taxable income. Illinois counts premiums from annuities as "gross taxable premium income" and permits a corresponding deduction for returned annuity premiums (Ill. Rev. Stat. 1979, 1980 Supp., ch. 73, par. 1021; the most recent amendment does not pertain to the computations at issue here). Minnesota does not include annuity premiums in a company's "net taxable business" and thus does not permit a company to deduct them when returned. Minn. Stat. Ann. § 60A.15 (West).
During 1976, Minnesota Mutual returned a large amount of annuity premiums — over $2,000,000 — and deducted this sum from its taxable income; according to the plaintiff, the tax payment schedule causes its taxes for both 1976 and 1977 to be involved. Because Minnesota would not have allowed an Illinois company to deduct the returned annuity premiums, the defendants applied the retaliatory provision to recover the difference.
The retaliatory tax is triggered when the laws of another State impose on insurance companies incorporated in Illinois greater burdens than Illinois imposes on foreign insurance companies. In that event the provision comes into play and applies the foreign State's laws to insurers from that State:
"Whenever the existing or future laws of any other state or country shall require of companies incorporated or organized under the laws of this State as a condition precedent to their doing business in such other state or country, compliance with laws, rules, regulations and prohibitions more onerous or burdensome than the rules and regulations imposed by this State on foreign or alien companies, or shall require any deposit of securities or other obligations in such state or country, for the protection of policyholders or otherwise or require of such companies or agents thereof or brokers the payment of penalties, fees, charges or taxes greater than the penalties, fees, charges or taxes required in the aggregate for like purposes by this Code or any other law of this State, of foreign or alien companies, agents thereof or brokers, then such laws, rules, regulations and prohibitions of said other state or country shall apply to companies incorporated or organized under the laws of such state or country doing business in this State, and all such companies, agents thereof, or brokers doing business in this State, shall be required to make deposits, pay penalties, fees, charges and taxes, in amounts equal to those required in the aggregate for like purposes of Illinois companies doing business in such state or country, agents thereof or brokers. * * *" (Ill. Rev. Stat. 1979, ch. 73, par. 1056.)
The statute may also be invoked when another State limits the sorts of risks that an Illinois company may insure against; if the Director of Insurance finds the Illinois company, inter alia, fiscally sound, he may restrict in a similar fashion the operations of all companies from that State. The legislature added this last part to the statute in 1941. See Ill. Ann. Stat., ch. 73, par. 1056, Historical Note, at 311 (Smith-Hurd 1965).
• 1 The retaliatory statute is penal and therefore must be construed narrowly. (Metropolitan Life Insurance Co. v. Boys (1920), 296 Ill. 166, 129 N.E. 724.) It is a lex talionis and is not designed to raise revenue; rather,
"* * * the principal purpose of retaliatory tax laws is to promote the interstate business of domestic insurers by deterring other States from enacting discriminatory or excessive taxes." (Western & Southern Life Insurance Co. v. State Board of Equalization of California (1981), ___ U.S. ___, ___, 68 L.Ed.2d 514, 531, 101 S.Ct. 2070, 2083.)
If the privilege taxes of another State evince an inhospitable climate for Illinois insurers, then Illinois will respond in kind and impose similar burdens on insurance companies from the other State. Analysis of whether the retaliatory tax should be applied proceeds on a State-by-State basis; the retaliatory tax thus maintains equality of treatment between Illinois and each of the other States. In discussing its own State's retaliatory tax, one court observed:
"The retaliatory statute plainly demands `an eye for an eye, and a tooth for a tooth.' * * * The taking of an eye for a tooth, or a tooth for an eye, cannot be permitted. The statute demands like for like." State ex rel. O'Brien v. Continental ...