Supreme Court Grants Tax Refunds to Insurance Companies

October 2, 2015

In a unanimous opinion, the Tennessee Supreme Court ruled today that the Tennessee Department of Commerce and Insurance must refund more than $16 million in taxes paid by five groups of out-of-state insurance companies.

Tennessee, like every other state except Hawaii, has adopted a retaliatory tax statute unique to the insurance industry. The statute, which is designed to equalize tax burdens across state lines, protects each state’s domestic insurance companies against discriminatory or excessive taxes that may be imposed when doing business in other states. The way the statute works is that if “State A” charges higher fees, taxes, or fines against “State B’s” insurance companies when they do business in “State A,” then “State B” can impose a retaliatory tax on “State A’s” insurance companies when they do business in “State B.”

In 2012, five groups of Pennsylvania insurance companies requested refunds from the Tennessee Department of Commerce and Insurance for taxes they were required to pay under the retaliatory tax statute after the state of Tennessee conducted an audit. The Pennsylvania companies argued that they should not have to calculate certain Pennsylvania workers’ compensation assessments as part of their retaliatory tax in Tennessee because the assessments were paid by policyholders, not the insurance companies themselves.

The Supreme Court agreed, concluding that the Tennessee Department of Commerce and Insurance could not impose a retaliatory tax because the assessments do not impose a direct financial burden on Tennessee insurance companies doing business in Pennsylvania.

Read the unanimous opinion in Chartis Casualty Company et al. v. State of Tennessee, authored by Justice Gary R. Wade.