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Keywords

contractjurisdictioncorporationrespondent
contractjurisdictionlitigationliabilitycorporationsustained

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Todd Corp.; U.S. v.

Facts

Respondent, a New York corporation, purchased insurance for property located in Texas from insurers not licensed to operate in Texas. The insurers had no presence in Texas and the insurance transactions occurred entirely outside the state. Texas imposed a tax on the premiums paid by the respondent, which led to the legal challenge regarding the constitutionality of the tax under state law.

The insurance transactions involved in the present litigation take place entirely outside Texas. The insurance, which is principally insurance against loss or liability arising from damage to property, is negotiated and paid for outside Texas. The policies are issued outside Texas. All losses arising under the policies are adjusted and paid outside Texas. The insurers are not licensed to do business in Texas, have no office or place of business in Texas, do not solicit business in Texas, have no agents in Texas, and do not investigate risks or claims in Texas.

Issue

Did the state of Texas have the authority to impose a tax on insurance contracts made outside its jurisdiction by a corporation doing business within the state?

Did the state of Texas have the authority to impose a tax on insurance contracts made outside its jurisdiction by a corporation doing business within the state?

Rule

States do not have the power to tax contracts of insurance or reinsurance entered into outside their jurisdiction by individuals or corporations that are resident or domiciled therein, covering risks within the state.

A state does not have power to tax contracts of insurance or reinsurance that were entered into outside of its jurisdiction by individuals or corporations that were resident or domiciled therein, covering risks within the state or to regulate such transactions in any way.

Analysis

The court applied the principles established in prior cases, particularly the Allgeyer and St. Louis Cotton Compress decisions, which held that states cannot impose taxes on insurance contracts made outside their borders. The court emphasized that the insurance transactions in question had no substantial connection to Texas, as all activities related to the insurance were conducted outside the state.

Here, unlike the Osborn and Hoopeston cases, the insurance companies carry on no activities within the State of Texas. Of course, the insured does business in Texas and the property insured is located there. It is earnestly argued that, unless the philosophy of the Osborn and Hoopeston decisions is to be restricted, the present Texas tax on premiums paid out-of-state on out-of-state contracts should be sustained.

Conclusion

The Supreme Court affirmed the decision of the lower court, holding that the Texas tax on premiums paid for out-of-state insurance contracts was unconstitutional.

Affirmed.

Who won?

Todd Shipyards Corporation prevailed in the case because the court found that Texas lacked the authority to tax the insurance contracts made outside its jurisdiction.

Todd Shipyards Corporation prevailed in the case because the court found that Texas lacked the authority to tax the insurance contracts made outside its jurisdiction.

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