UNITED STATES LIABILITY INSURANCE COMPANY; NATIONAL INDEMNITY COMPANY; NATIONAL LIABILITY & FIRE INSURANCE COMPANY; CENTRAL STATES INDEMNITY COMPANY OF OMAHA; KANSAS BANKERS SURETY COMPANY; GOVERNMENT EMPLOYEES INSURANCE COMPANY; GEICO GENERAL INSURANCE COMPANY; GEICO INDEMNITY COMPANY; GEICO CASUALTY COMPANY; GENERAL REINSURANCE CORPORATION; GENERAL STAR NATIONAL INSURANCE COMPANY; GENESIS INSURANCE COMPANY; FAIRFIELD INSURANCE COMPANY; NATIONAL REINSURANCE CORPORATION; and NORTH STAR REINSURANCE CORPORATION, Plaintiffs-Appellees,
THE DEPARTMENT OF INSURANCE; and MICHAEL T. McRAITH, as Director of the Department of Insurance, Defendants-Appellants
Appeal from Circuit Court of Sangamon County. No. 11MR228. Honorable John Schmidt, Judge Presiding.
In an action arising from a dispute over how insurance companies domiciled outside Illinois but conducting business in Illinois should treat overpayments they made on their Illinois income taxes for purposes of the Illinois retaliatory tax, the appellate court found that the retaliatory tax statute unambiguously provides that the income-tax component of the retaliatory tax is the income tax that accrued pursuant to sections 201(a) through (d) of the Income Tax Act, not the income taxes paid, and since Title 50, section 2515.50(b), of the Illinois Administrative Code, which provides that the Illinois basis includes the income tax paid, conflicts with the statute's mandate that the retaliatory tax includes the corporate income tax imposed in a particular year, Title 50, section 2515.50(b), of the Illinois Administrative Code is invalid on the ground that it was inconsistent with the retaliatory tax statute; therefore, the trial court's reversal of the Department of Insurance's decision that the refund at issue had to be accounted on a cash basis for the year in which the refund was received was affirmed and plaintiffs were entitled to apply the refund to the years in which plaintiffs overpaid their taxes.
Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro, Solicitor General, and Richard S. Huszagh, Assistant Attorney General, of counsel), for appellants.
James S. Dunn, of Springfield, and Tracy D. Williams, William M. Sneed (argued), and Julie M. Weber, all of Sidley Austin LLP, of Chicago, for appellees.
JUSTICE HOLDER WHITE delivered the judgment of the court, with opinion. Presiding Justice Appleton and Justice Steigmann concurred in the judgment and opinion.
HOLDER WHITE, JUSTICE
[¶1] Defendants in this case are the Department of Insurance (Department) and Michael T. McRaith, as the Department's Director. Plaintiffs, United States Liability Insurance Company (USLIC), National Indemnity Company, National Liability & Fire Insurance Company, Central States Indemnity Company of Omaha, Kansas Bankers Surety Company, Government Employees Insurance Company, GEICO General Insurance Company, GEICO Indemnity Company, GEICO Casualty Company, General Reinsurance Corporation, General Star National Insurance Company, Genesis Insurance Company, Fairfield Insurance Company, National Reinsurance Corporation, and North Star Reinsurance
Corporation, are a group of insurance companies owned by National Indemnity Company that do business in Illinois.
[¶2] The Illinois Insurance Code (Insurance Code) requires insurance companies domiciled outside Illinois that conduct business in Illinois to pay a retaliatory tax. 215 ILCS 5/444(1) (West 2010). The dispute in this case centers on how, for retaliatory tax purposes, plaintiffs should have treated an approximately $8.6 million refund that they received in 2004 for overpayments they made on their income taxes in 1999, 2000, and 2001. In reporting their 2004 retaliatory tax, plaintiffs counted and applied the $8.6 million refund for the tax years in which they had overpaid their taxes--1999, 2000, and 2001--thus calculating that they owed $1.9 million in retaliatory taxes. The Department, however, contends the $8.6 million refund should have been counted against plaintiffs' 2004 income, resulting in the payment of a higher retaliatory tax. The Department's contention stems from the language in one of the Department's regulations, which states, " [t]he amount of Illinois Corporate and Replacement income tax paid, decreased by the amount, if any, of any corporate and/or income replacement tax cash refund received in the same calendar year if that cash refund had been considered part of the amount of Illinois Corporate and Replacement income tax paid in the calculation of the annual retaliatory tax in a preceding year." 50 Ill. Adm. Code 2515.50(b)(5) (2000).
[¶3] In May 2011, the Department Director upheld the Department's interpretation of its regulations as requiring the income tax refunds to be accounted on a cash basis. That month, plaintiffs filed a complaint for administrative review. Following a September 2012 hearing, the circuit court reversed the Department Director's decision and entered judgment for plaintiffs, finding the Department's regulation was invalid because it was " wholly and completely inconsistent" with the retaliatory tax statute.
[¶4] Defendants appeal, arguing the circuit court erred by reversing the Department Director's decision because section 2515.50(b) of Title 50 of the Illinois Administrative Code does not conflict with section 444(3) of the Insurance Code, as section 444(3) merely identifies the types of taxes, charges, and fees included in the scope of the retaliatory tax.
[¶5] We disagree and affirm.
[¶6] I. BACKGROUND
[¶7] A. Statutory Provisions at Issue
[¶8] Section 444(1) of the Insurance Code, known as the retaliatory tax statute, requires insurance companies domiciled outside of Illinois to " pay penalties, fees, charges, and taxes, in amounts equal to" the aggregate amount of penalties, fees, charges, and taxes Illinois companies must pay when doing business in the foreign company's state. 215 ILCS 5/444(1) (West 2010). The purpose of the retaliatory tax is to discourage other states from enacting discriminatory or excessive taxes on Illinois companies doing business there. Mutual Life Insurance Co. of New York v. Washburn, 137 Ill.2d 312, 330, 561 N.E.2d 29, 37-38, 148 Ill.Dec. 723 (1990). The statute specifies that the terms " penalties," " fees," " charges," and " taxes" shall include, among other things, the " taxes collected under State law" and " the Illinois corporate income taxes imposed under subsections (a) through (d) of Section ...