94-005075RX Zurich Insurance Company (Us Branch) vs. Department Of Revenue Status: Closed DOAH Final Order on Tuesday, December 13, 1994.

Summary: Retliatory tax may not include workers compensation assessment. Rule is inva lid excersise of delegated legislative authority.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ZURICH INSURANCE COMPANY, )

U. S. BRANCH, )

)

Petitioner, )

)

vs. ) CASE NO. 94-5075RX

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

_________________________________)

FINAL ORDER

Following notice to all parties, Hearing Officer Don W. Davis of the

Division of Administrative Hearings held a formal hearing in the above-styled

case on October 12, 1994, in Tallahassee, Florida.

APPEARANCES

For Petitioner: M. Stephen Turner

Michael R. Kercher

Attorneys at Law

Broad and Cassell

Post Office Drawer 11300

Tallahassee, Florida 32302

For Respondent: James McAuley

Lisa M. Raleigh

Assistant Attorneys General

Tax Section, Capitol Building

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue is whether Rule 12B-8.016(3)(a)4., Florida Administrate Code, is

a valid exercise of delegated legislative authority.

PRELIMINARY STATEMENT

Petitioner Zurich Insurance Company (Zurich) is domiciled in New York

State. By virtue of doing business in Florida, Zurich is subject to retaliatory

tax under Section 624.5091, Florida Statutes. Zurich challenges Rule 12B-

8.016(3)(a)4., Florida Administrate Code, as an invalid interpretation of

Section 624.5091, Florida Statutes.

At the final hearing, Zurich called one witness and submitted 11 exhibits.

Respondent Florida Department of Revenue presented testimony of two witnesses

and three exhibits.

A transcript of the final hearing was filed with the Division of

Administrative Hearings on October 27, 1994. Following various requests for

continuance of the deadline for filing of proposed final orders, the parties

were permitted to file those proposed orders no later than December 2, 1994.

Pursuant to provisions of Rule 60Q-2.031(2), Florida Administrative Code, the

parties waived provisions of Rule 28

requiring the issuance of a final order within 30 days of conclusion of the

final hearing.

FINDINGS OF FACT

The parties stipulated to findings of fact set forth in paragraphs 1-5,

below.

1. Zurich is an insurer domiciled in the State of New York. Zurich is

authorized to do insurance business in the State of Florida.

2. Zurich pays insurance premium taxes to the State of Florida.

3. As a foreign insurer doing business in Florida, Zurich is subject to

the provisions of Florida's retaliatory tax, Section 624.5091, Florida Statutes.

4. Respondent Department of Revenue (Revenue) is the state agency charged

with the duty to implement and enforce Section 624.5091, Florida Statutes.

5. Zurich's interests are substantially affected by Revenue's Rule 12B-

8.016(3)(a)(4), Florida Administrative Code, by virtue of the tax assessment

made against Zurich pursuant to the rule.

OTHER FACTS

6. Prior to 1989, the Department of Insurance administered insurance

taxation. Now, Revenue has that responsibility. Section 213.05, Florida

Statutes, directs Revenue to administer provisions of Sections 624.509 through

624.514, Florida Statutes. Section 213.06(1), Florida Statutes, authorizes

Revenue to promulgate rules to implement those responsibilities.

7. Rule 12B-8.016 was first promulgated by Revenue in December of 1989 to

implement statutory authority of Section 624.429 (currently renumbered as

624.5091). This statute authorized retaliatory taxation against non-domiciled

insurers in the amount by which their state of domicile would tax Florida

insurers in excess of Florida's comparable tax. The statute provides in

pertinent part:

(1) When by or pursuant to the laws of any

other state or foreign country any taxes,

licenses, and other fees, in the aggregate,

and any fines, penalties, deposit requirements,

or other material obligations, prohibitions, or

restrictions are or would be imposed upon Florida

insurers or upon the agents or representatives of

such insurers, which are in excess of such taxes,

licenses, and other fees, in the aggregate, or

other obligations, prohibitions, or restrictions

directly imposed upon similar insurers, or upon

the agents or representatives of such insurers,

of such other state or country under the statutes

of this state, so long as such laws of such other

state or country continue in force or are so

applied, the same taxes, licenses, and other fees,

in the aggregate, or fines, penalties, deposit

requirements, or other material obligations,

prohibitions, or restrictions of whatever kind

shall be imposed by the department upon the

insurers, or upon the agents or representatives

of such insurers, of such other state or country

doing business or seeking to do business in this state.

8. As it existed in 1989 and currently, the statute contains an

exclusionary provision expressly excluding from the retaliatory tax any special

purpose assessments in connection with insurance other than property insurance.

This exclusionary provision is part of Subsection 3 of the current statute,

624.5091, and reads as follows:

(3)This section does not apply as to personal

income taxes, nor as to sales or use taxes, nor

as to ad valorem taxes on real or personal

property, nor as to reimbursement premiums paid

to the Florida Hurricane Catastrophe Fund, nor

as to emergency assessments paid to the Florida

Hurricane Catastrophe Fund, nor as to special

purpose obligations or assessments imposed in

connection with particular kinds of insurance

other than property insurance, except that

deductions, from premium taxes or other taxes

otherwise payable, allowed on account of real

estate or personal property taxes paid shall be

taken into consideration by the department in

determining the propriety and extent of retaliatory

action under this section.

9. The parties concede that Revenue's Rule 12B-8.016 accurately tracts the

first part of the retaliatory taxation statute. But a subpart of the Rule, 12B-

8.016(3)(a)(4), is challenged by Zurich in this proceeding because that subpart

provides for inclusion of the assessment for administration of workers

compensation in Florida and comparable assessments in other states. The rule

subpart states:

(3)(a) Other items which shall be included in

the retaliatory calculations are:

* * *

4. The workers compensation administrative

assessment imposed by s. 440.51, F.S., as well

as comparable assessments in other states.

10. The State of Florida imposes assessment on workers compensation

carriers such as Zurich in accordance with authority contained in Section

440.51, Florida Statutes, which is entitled "Expenses of Administration."

Section 440.51 provides for the pro-rata assessment of all insurers and self-

insurers of workers compensation to cover expenses of administering the workers

compensation program. The assessment is a "special fund" that does not involve

appropriated funds or general state revenues. Zurich's home state of New York

imposes a comparable assessment.

11. In accordance with Rule 12B-8.016(3)(a)(4), Florida Administrative

Code, Revenue includes calculations for the Worker's Compensation Board

Administrative Fund in the state of New York in Zurich's retaliatory tax

calculation.

12. In drafting the rule in 1989, Revenue relied upon Attorney General

Opinion 057-173, which advised that Florida's Worker's Compensation

Administrative Assessment should be considered a "tax" for purposes of

retaliatory tax calculation. On this basis, Revenue's rule requires that such

assessments be considered as "taxes" and included in the retaliatory tax

calculation.

13. However, following the issuance of Attorney General Opinion 057-173,

the Florida legislature in 1959 enacted the present Subsection 624.5091(3),

Florida Statutes, specifically excluding the consideration of "special purpose

obligations or assessments imposed in connection with particular kinds of

insurance other than property insurance" in retaliatory tax calculations.

14. Following the 1959 enactment of the exclusionary language contained in

Subsection 624.5091(3), Florida Statutes, the Department of Insurance did not

include comparable worker compensation assessments of other states. The

Department of Insurance administered insurance taxation until 1989. Department

of Insurance forms introduced into evidence for 1986 showed that the Florida

assessment, pursuant to Section 440.51 Florida Statutes, was treated as a

deduction against Florida's premium tax and added back in on the Florida side of

the retaliatory tax calculation. But the assessment was not included in a

manner to inflate the calculation of the domiciliary state's comparative tax

base.

15. When Revenue assumed administration of insurance taxation in 1989, a

proposed rule and an emergency rule were promulgated. Neither provided for

inclusion of foreign states' special purpose administrative assessments in

retaliatory tax calculation. In the course of the promulgation process, the

determination to treat the worker compensation administrative assessment as a

tax became a part of the rule.

16. The purpose of Florida's retaliatory statute is to influence other

states' legislative discretion to lower the tax burden on Florida insurers doing

business in those other states. The items to be compared for retaliatory

purposes are determined by the legislature and not by Revenue, Revenue auditors,

or other states.

CONCLUSIONS OF LAW

17. The Division of Administrative Hearings has jurisdiction over this

matter. Section 120.56, Florida Statutes.

18. Zurich has standing to challenge the rule at issue. Zurich also has

the burden of proof with respect to issues raised in this proceeding.

19. To determine if Rule 12B-8.016(3)(a)(4), Florida Administrative Code,

is a valid exercise of legislative authority, the prohibition of Subsection 3 of

the current statute, 624.5091, against "special purpose obligations or

assessments imposed in connection with particular kinds of insurance other than

property insurance" must be considered.

20. When an amendment occurs indicating legislative intent to restrict

application of a taxing statute, the change must be given effect over a contrary

preexisting interpretation. Mikos v. Ringling Bros., 497 So. 2d 630, at 633

(Fla. 1986). As noted, such an amendment occurred in 1959 when the present

Section 624.5091, Florida Statutes, was expanded to include the prohibition in

Subsection (3) against "assessments imposed in connection with particular kinds

of insurance". The amendment had the desired effect of excluding worker

compensation assessments from retaliatory tax calculation until shortly after

Revenue assumed administrative responsibility for taxation of insurers in 1989.

21. Notably, the purpose of the 1959 statutory amendment to counteract the

1957 Attorney-General Opinion is discernible not only from the sequence of

events, but also from the blanket exclusion of all special purpose assessments

and obligations with regard to insurance other than property insurance--

regardless of whether previously considered part of the retaliatory tax base.

22. That such assessments might also be considered a tax misses the point.

Certainly the Florida assessment, and that of comparable states, may be

considered a special form of taxation. But, these assessments are state-imposed

financial obligations for a special purpose, workers compensation

administration, rather than a general tax levy for the general purposes of the

state. They do not involve general tax revenues, appropriated funds or state

monies. See, Florida Improvement Commission, 30 So.2d 97 (Fla. 1947).

23. By the plain wording of the retaliatory tax statute, following the

1959 amendment, special purpose assessments imposed by another state with

respect to particular kinds of insurance other than property insurance, is

excluded.

24. The challenged rule enlarges and modifies the retaliatory tax statute

and contravenes the statutory exclusion by including in the retaliatory

comparison the special purpose assessments of other states comparable to the

assessment under Section 440.51, Florida Statutes.

CONCLUSION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

ordered that Rule 12B-8.016(3)(a)(4), Florida Administrative Code, is an invalid

exercise of delegated legislative authority and may no longer be given force and

effect.

DONE and ORDERED in Tallahassee, Florida, this 13th day of December, 1994.

___________________________________

DON W. DAVIS

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 13thday of December, 1994.

APPENDIX

In accordance with provisions of Section 120.59, Florida Statutes, the

following rulings are made on the proposed findings of fact submitted on behalf

of the parties.

Petitioner's Proposed Findings

1.-15. Adopted, but not verbatim.

16.-17. Rejected, relevance.

18.-22. Adopted, not verbatim.

Respondent's Proposed Findings

1.-7. Adopted, not verbatim.

8. Rejected, relevance.

9.-11. Adopted, not verbatim.

12.-13. Rejected, relevance.

14.-17 Adopted, not verbatim.

18. Rejected, subordinate to Hearing Officer findings.

19. Adopted, not verbatim.

20. Rejected, legal conclusion.

21.-22. Rejected, subordinate to Hearing Officer findings.

COPIES FURNISHED:

M. Stephen Turner

Michael R. Kercher

Attorneys at Law

Broad and Cassell

P. O. Drawer 11300

Tallahassee, FL 32302

James McAuley

Lisa M. Raleign

Assistant Attorneys General

Tax Section, Capitol Bldg.

Tallahassee, FL 32399-1050

Linda Lettera

General Counsel

Department of Revenue

P. O. Box 6668

Tallahassee, FL 32314-6668

Carroll Webb, Executive Director

Administrative Procedures Committee

Holland Building, Room 120

Tallahassee, FL 32399-1300

NOTICE OF RIGHT TO JUDICIAL REVIEW

PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL

REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE

GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE

COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE

DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING

FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR

WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY

RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE

ORDER TO BE REVIEWED.

=================================================================

DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL

FIRST DISTRICT, STATE OF FLORIDA

DEPARTMENT OF REVENUE, NOT FINAL UNTIL TIME EXPIRES TO

FILE MOTION FOR REHEARING AND

Appellant, DISPOSITION THEREOF IF FILED

CASE NO. 95-294

v. DOAH CASE NO 94-5075RX

ZURICH INSURANCE COMPANY,

U.S. BRANCH,

Appellee.

___________________________/

Opinion filed November 17, 1995.

An appeal from an Order of the Division of Administrative Hearings. Don W.

Davis, Hearing Officer.

Robert A. Butterworth, Attorney General; and Joseph C. Mellichamp, III, Senior

Assistant Attorney General, Tallahassee, for Appellant.

M. Stephen Turner and David K. Miller of Broad and Cassel, Tallahassee, for

Appellee.

DAVIS, J.

The Florida Department of Revenue appeals a final order in which a Hearing

Officer of the Department of Administrative Hearings invalidated Rule 12B-

8.016(3)(a)(4), Florida Administrative Code, as an unlawful exercise of

delegated legislative authority. The challenged rule provides, in pertinent

part, that assessments imposed by other states which are comparable to the

worker's compensation administrative assessment imposed by section 440.51,

Florida Statutes, shall be included in the calculation of the retaliatory tax

provided in section 624.5091, Florida Statutes (1993). Because we agree with

the Hearing Officer that this rule constitutes an unlawful exercise of delegated

legislative authority, we affirm.

This rule challenge was instituted by Zurich Insurance Company ("Zurich").

Zurich is an insurer domiciled in the State of New York and authorized to do

business in Florida. As a foreign insurer doing business in Florida, Zurich is

subject to the provisions of Florida's retaliatory tax, section 624.5091,

Florida Statutes. In Gallagher v. Motors Ins. Co., 605 So.2d 62, 71 (Fla.

1992), cert. dismissed, __ U.S. __, 113 S.Ct. 1036 (1993), the Florida Supreme

Court recently explained the purpose of the retaliatory tax: to promote the

interstate business of domestic insurers by deterring other states from enacting

discriminatory or excessive taxes. The retaliatory tax statute authorizes

retaliatory taxation against foreign-domiciled insurers in the amount by which

their state of domicile would tax Florida insurers in excess of Florida's

comparable tax. Thus, if the New York retaliatory tax base would exceed the

Florida tax burden, Florida imposes a retaliatory tax on New York insurers such

as Zurich.

This present case turns on the interpretation of the provision in the

retaliatory tax statute which states that "special purpose obligations or

assessments imposed by another state in connection with particular kinds of

insurance other than property insurance" shall be excluded from the retaliatory

tax calculation. The challenged rule requires the inclusion of "[t]he workers

compensation administrative assessment imposed by s. 440.51, F.S., as well as

comparable assessments in other states" in the retaliatory tax calculation. The

Hearing Officer concluded that "[t]he challenged rule enlarges and modifies the

retaliatory tax statute and contravenes the statutory exclusion by including in

the retaliatory comparison the special purpose assessments of other states

comparable to the assessment under Section 440.51, Florida Statutes."

First, the Department of Revenue asserts that the Hearing Officer applied

an incorrect standard of review, by failing to give appropriate deference to the

agency's interpretation of the statute. The Hearing Officer applied the correct

standard of review in invalidating Rule 12B-8.016(3)(a)(4) as an invalid

exercise of legislative authority. This case began as a rule challenge pursuant

to section 120.56, Florida Statutes, and as such was a quasi-judicial

proceeding. In Adam Smith Enterprises, Inc. v. Department of Environmental

Regulation, 553 So.2d 1260 (Fla. 1st DCA 1989), this court explained that the

Hearing Officer's standard of review of an agency rule in a section 120.56 rule

challenge "is whether the rule constitutes an invalid exercise of legislative

authority, as that phrase is defined in Section 120.52(8)..." Id. at 1274 n. 23.

"Invalid exercise of legislative authority" is defined to encompass a rule which

is "arbitrary and capricious" or a rule which is "vague, [which] fails to

establish adequate standards for agency decisions" or a rule which enlarges,

modifies or contravenes the specific provisions of law implemented. Id. at

1267. In an appeal from a section 120.56 quasi-judicial proceeding, it is the

Hearing Officer's decision which this court must review under a competent

substantial evidence standard, not the rule making decision of the agency. Id.

at 1274.

The parties agree that the New York Worker's Compensation Administration

Board Fund assessment is comparable to the workers' compensation administrative

assessment contained in section 440.51, Florida Statutes. Thus the parties and

the hearing officer addressed their reasoning to whether section 440.51 is a

"special purpose obligation or assessment imposed in connection with particular

kinds of insurance other than property insurance" rather than the relevant New

York statute. We accept this reasoning based upon the fact that there is no

dispute over the similarity between the New York assessment at issue and the

comparable Florida law. We conclude that if section 440.51 is a "special

purpose obligation or assessment," Zurich may not be required by rule to include

the New York Workers' Compensation Administration Board Fund assessment in its

retaliatory tax calculations, because section 624.5091(3), Florida Statutes

(1993) expressly excluded from the retaliatory tax computation "special purpose

obligations or assessments imposed by another state in connection with

particular kinds of insurance other than property insurance..." 1/

The Department admits that the workers' compensation administrative

assessment consists of funds dedicated as trust funds to be used only for a

special purpose, specifically limited to workers' compensation, and that the

funds are not general taxes paid into the general revenue fund. Nonetheless,

the Department takes the position that the workers' compensation administrative

assessment is not a special purpose obligation or assessment because it funds an

operation of government. That interpretation is unreasonable. Section 440.51

clearly provides that these monies are to be deposited into a "special fund" to

be used for specified purposes and that the money is "not to be the money or

property of the state." The Legislature clearly indicated its intent that the

program funded with this money was for the benefit of certain parties, and not

all citizens generally. Under the plain language of the statute, this is a

special purpose obligation or assessment. That conclusion is in conformity with

the decision in State v. Florida State Improvement Commission, 30 So.2d 97, 99

(Fla. 1947), in which the court explained that:

Here we have a clear declaration that these

funds are not the property of the state but

that they shall be administered by the

Commission, the State Treasurer being the mere

custodian of them for that purpose. They are

trust funds held in like category as funds

held and administered by the Board of

Commissioners of Everglades Drainage District

in the drainage of the Everglades. Lianhard v.

Catts, 73 Fla. 735, 75 So. 47. These funds

never reach the state treasury as state funds;

are never available for the general purposes

of the state, but are solely for the use of

the Florida Industrial Commission.

We agree with the Hearing Officer that the challenged rule enlarges or

modifies the retaliatory tax statute by requiring Zurich to include the workers'

compensation administrative assessment payable in New York, in contravention of

the statutory exclusion of "special purpose obligations or assessments imposed

by another state in connection with particular kinds of insurance other than

property insurance . . ."

Accordingly, we AFFIRM.

KAHN, J., and SMITH, SENIOR JUDGE, CONCUR.

ENDNOTE

1/ We note that the 1993 statute quoted in Zurich's rule challenge petition

expressly excluded "special purpose obligations or assessments imposed by

another state . . ." whereas the 1994 law was amended to provide an exclusion

for "special purpose obligations or assessments" without the limiting language

"imposed by another state." Since the Petitioner challenged the inclusion of

the assessment which would be imposed by another state, specifically New York,

on a Florida insurer comparable to Zurich doing business in New York, the

amendment is irrelevant to the resolution of this case.