97-000323RP American Insurance Association vs. Department Of Revenue Status: Closed DOAH Final Order on Friday, August 29, 1997.

Summary: Proposed rules and forms said WC admin assmnt is special purpose obligation, excluded from retaliatory tax but deduct from premium tax. Valid.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AMERICAN INSURANCE ASSOCIATION , )

)

Petitioner, )

)

vs. ) Case No. 97-0323RP

)

DEPARTMENT OF REVENUE , )

)

Respondent. )

___________________________________)

FLORIDA INSURANCE COUNCIL , )

)

Petitioner, )

)

vs. ) Case No. 97-0588RP

)

DEPARTMENT OF REVENUE , )

)

Respondent. )

___________________________________)

ALLIANCE OF AMERICAN INSURERS , )

)

Petitioner, )

)

vs. ) Case No. 97-0632RP

)

DEPARTMENT OF REVENUE , )

)

Respondent. )

___________________________________)

LIBERTY MUTUAL INSURANCE COMPANY , )

)

Petitioner, )

)

vs. ) Case No. 97-0655RP

)

DEPARTMENT OF REVENUE , )

)

Respondent. )

___________________________________)

FINAL ORDER

On July 1, 1997, a formal administrative hearing was held in

this case in Tallahassee, Florida, before J. Lawrence Johnston,

Administrative Law Judge, Division of Administrative Hearings.

APPEARANCES

For Petitioner Douglas A. Mang, Esquire

Liberty Mutual Paul A. Shapiro, Esquire

Insurance Company : Mang Law Firm, P.A.

660 East Jefferson Street

Tallahassee, Florida 32301

For Petitioner Richard E. Coates, Esquire

American Insurance Paul Ezatoff, Esquire

Association: Katz, Kutter, Haigler, Alderman,

Marks, Bryant & Yon, P.A.

106 East College Avenue

Tallahassee, Florida 32301

For Petitioner James C. Massie, Esquire

Alliance of Massie & Scott, P.A.

American Insurers: Barnett Bank Building

315 South Calhoun Street

Tallahassee, Florida 32301

For Respondent James F. McAuley, Esquire

State of Florida Elizabeth Bradshaw, Esquire

Department of Assistant Attorneys General

Revenue: Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUES

The issues in these proposed rule challenge proceedings are

whether the Department of Revenue’s Proposed Rules 12B-8.003 and

12B-8.016 and Proposed Forms DR-907 and DR-908 constitute invalid

exercises of delegated legislative authority.

Essentially, the proposed rules and forms respond to the

decision in Department of Revenue vs. Zurich Insurance Company ,

667 So. 2d 365 (Fla. 1st DCA 1995)( Zurich ), and state: (1) that

workers’ compensation administrative assessments (WCAA) imposed

under Section 440.51(5), Florida Statutes (1995), are “special

purpose obligations or assessments imposed in connection with”

workers’ compensation insurance; (2) that the retaliatory tax

under Section 624.5091, Florida Statutes (1995), does not apply

as to WCAA; (3) that WCAA are treated as deductions from the

insurance premium tax imposed under Section 624.509, Florida

Statutes (1995), as provided in subsection (7) of that statute,

and are not added back in, for purposes of calculating

retaliatory taxes.

The positions taken in the various proposed rule challenges

include: (1) Zurich was wrongly decided or no longer

controlling, and WCAA are not “special purpose obligations or

assessments imposed in connection with” workers’ compensation

insurance; (2) as a matter of statutory interpretation, even if

WCAA are “special purpose obligations or assessments imposed in

connection with” workers’ compensation insurance, WCAA are not to

be deducted from insurance premium taxes, or are to be added

back, for purposes of calculating retaliatory taxes; (3) if not

so interpreted, the proposed rules and forms violate the equal

protection clause of the United States Constitution; (4) the

published notice of the proposed rules and forms was fatally

defective; and (5) the proposed rules and forms cannot be applied

retroactively.

PRELIMINARY STATEMENT

Between January 27 and February 11, 1997, the American

Insurance Association (AIA), the Alliance of American Insurers

(AAI), the Florida Insurance Council (FIC), and Liberty Mutual

Insurance Company (LMIC) each filed separate petitions

challenging the Department of Revenue’s Proposed Rule 12-

8.003(1), Florida Administrative Code, together with Proposed

Forms DR-907 and DR-908 and instructions, and Proposed Rule 12B-

8.016, Florida Administrative Code. The proposed rule-challenge

petitions were given the following Division of Administrative

Hearings (DOAH) Case Numbers : 97-0323RP; 97-0588RP; 97-0632RP;

and 97-633RP. The cases were consolidated for further

proceedings.

On March 19, 1997, leave was granted for AIA to file an

Amended Petition to Determine Invalidity of Proposed Rules.

On May 28, 1997, FIC filed a Notice of Voluntary Dismissal.

The parties filed a Prehearing Stipulation of Facts on

June 13, 1997, asserting that there were no disputed issues of

fact remaining to be determined in this proceeding. Nonetheless,

final hearing was convened as scheduled on July 1, 1997, to

permit legal argument and amplification of the parties’

positions.

Two requests for official recognition filed by AIA were

granted at final hearing. Neither AIA, AAI, nor LMIC called a

witness at final hearing; the Department of Revenue (DOR) called

one witness—its employee, Paul Munyon.

The DOR ordered the preparation of a transcript of the final

hearing, which was filed on July 14, 1997. The parties requested

and were given until August 8, 1997 , in which to file proposed

final orders.

All parties timely filed proposed final orders. LMIC also

filed an alternative proposed final order and a memorandum in

support. The DOR amended its proposed final order and also filed

a supporting memorandum of law and a Request for Judicial Notice

of a state circuit court final judgment, which was not opposed

and is granted.

The findings of fact in this Final Order included those

found in the Prehearing Stipulation of Facts, plus additional

findings regarding legislative history based on AIA’s subsequent

requests for official recognition.

STIPULATED FINDINGS OF FACT

1 . Section 624.5091, Florida Statutes 1 is Florida’s

retaliatory tax statute. Section 624.5091 states in part:

624.5091 Retaliatory provisions, insurers .--

(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 which are in excess of the fines,

penalties, deposit requirements, 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 of Revenue 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. In determining

the taxes to be imposed under this section, 80 percent

of the credit provided by s. 634.509(5), as limited by

s. 624.509(6) and further determined by s. 624.509(7),

shall not be taken into consideration.

* * *

(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 2

retaliatory action under this section (emphasis

added).

2 . Section 624.509, Florida Statutes, is Florida’s premium

tax statute. Section 624.509 states in part:

624.509 Premium tax; rate and computation .--

(1) In addition to the license taxes provided for in

this chapter, each insurer shall also annually, and on

or before March 1 in each year, except as to wet marine

and transportation insurance taxed under s. 624.510,

pay to the Department of Revenue a tax on insurance

premiums, risk premiums for title insurance, or

assessments, including membership fees and policy fees

and gross deposits received from subscribers to

reciprocal or interinsurance agreements, and on annuity

premiums or considerations, received during the

preceding calendar year, the amounts thereof to be

determined as set forth in this section . . .

* * *

(7) Credits and deductions against the tax imposed by

this section shall be taken in the following order:

deductions for assessments made pursuant to s. 440.51;

. . . .

3 . Respondent, Department of Revenue, is the agency

presently charged with the administration of the tax law in the

State of Florida, including those provisions set forth in Section

624.509 (Florida’s premium tax) and Section 624.5091 (Florida’s

retaliatory tax).

4 . Section 624.605(1)(c), Florida Statutes states:

(1) “Casualty Insurance” includes:

* * *

(c) Workers’ compensation and employer’s liability .

Insurance of the obligations accepted by, imposed upon,

or assumed by employers under law for death,

disablement, or injury of employees.

5 . Section 440.51 establishes Florida’s Workers’

Compensation Administrative Assessment. Section 440.51 states in

part:

440.51 Expenses of administration .--

(1) The division shall estimate annually in advance the

amounts necessary for the administration of this

chapter, in the following manner.

* * *

(b) The total expenses of administration shall be

prorated among the insurance companies writing

compensation insurance in the state and self-insurers.

The net premiums collected by the companies and the

amount of premiums a self-insurer would have to pay if

insured are the basis for computing the amount to be

assessed . . . .

* * *

(5) Any amount so assessed against and paid by an

insurance carrier, self-insurer authorized pursuant to

s. 440.57, or commercial self-insurance fund authorized

under ss . 624.460-624.488 shall be allowed as a

deduction against the amount of any other tax levied by

the state upon the premiums, assessments, or deposits

for workers’ compensation insurance on contracts or

policies of said insurance carrier, self-insurer, or

commercial self-insurance fund.

6 . The Department of Insurance administered Florida’s

retaliatory tax provision from 1959 to 1988. (The Department of

Insurance forms are attached to the Prehearing Stipulation of

Facts as Exhibit “A”.)

7 . The legislature transferred the administration of

Section 624.5091 to the Department of Revenue in 1989. 3

8 . The Department of Revenue subsequently drafted Rule

12B-8.016(3)(a )4., Florida Administrative Code, which was adopted

March 25, 1990.

9 . 12B-8.016(3)(a )4, Florida Administrative Code stated:

12B-8.016 Retaliatory Provisions.

* * *

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

retaliatory calculations are:

* * *

4 . The workers compensat ion administrative

assessment imposed by s. 440.51, Fla. Stat.,

as well as comparable assessments in other

states.

10 . Zurich Insurance Company (Zurich), a New York domiciled

company, filed a petition to challenge Rule 12B-8.016(3)(a )4. on

September 13, 1994. 4

11 . The DOAH Hearing Officer issued a Final Order on

December 13, 1994. (A copy of the Final Order is attached to the

Prehearing Stipulation of Facts as Exhibit “B”.)

12 . The Department of Revenue appealed the Hearing

Officer’s Final Order to the First District Court of Appeal

(First DCA).

13 . The First DCA affirmed the Hearing Officer’s ruling in

Department of Revenue vs. Zurich Insurance Company , 667 So. 2d

365 (Fla. 1st DCA 1995).

14 . After the First DCA decision in Department of Revenue

vs. Zurich Insurance Company , the Department of Revenue proposed

Rules 12B-8.003 and 12B-8.016, Florida Administrative Code.

15 . The Department began its internal rule making process

May 30, 1996.

16 . The Department held two rule development workshops

where language addressing the disputed rule was discussed. The

first was held July 16, 1996, with the language and notice of the

workshop published in Volume 22, Number 26, June 28, 1996,

Florida Administrative Weekly . The second was held November 15,

1996, with the language and notice of that workshop published in

Volume 22, Number 44, November 1, 1996, Florida Administrative

Weekly . Representatives of Petitioners attended these workshops.

(Drafts of the proposed rules as discussed during the workshops

are attached to the Prehearing Stipulation of Facts as

Exhibit “C”.)

17 . The proposed rules, as challenged, were published on

December 27, 1996, in Volume 22, Number 52, Florida

Administrative Weekly . Additionally, Proposed Rule 12B-8.003 was

also published with notice of change on February 21, 1997, in

Volume 23, Number 8, Florida Administrative Weekly .

18 . Section 120.54(3)(a )1., Florida Statutes, states:

(3) ADOPTION PROCEDURES .--

(a) Notices .--

1. Prior to the adoption, amendment, or repeal of any

rule other than an emergency rule, an agency, upon

approval of the agency head, shall give notice of its

intended action, setting forth a short, plain

explanation of the purpose and effect of the proposed

action ; the full text of the proposed rule or amendment

and a summary thereof; a reference to the specific

rulemaking authority pursuant to which the rule is

adopted; and a reference to the section or subsection

of the Florida Statutes or the Laws of Florida being

implemented, interpreted, or made specific. The notice

shall include a summary of the agency’s statement of

the estimated regulatory costs, if one has been

prepared, based on the factors set forth in

s. 120.541(2), and a statement that any person who

wishes to provide the agency with information regarding

the statement of estimated regulatory costs, or to

provide a proposal for a lower cost regulatory

alternative as provided by s. 120.541(1), must do so in

writing within 21 days after publication of the notice.

The notice must state the procedure for requesting a

public hearing on the proposed rule (emphasis added).

20 . The Department of Revenue published the following

statement of purpose and effect of proposed amendments to Rule

Chapter 12B-8, Florida Administrative Code , in Volume 22, Number

52, December 27, 1996, Florida Administrative Weekly:

PURPOSE AND EFFECT : The proposed amendments to Rule

Chapter 12B-8, F.A.C., are needed to implement various

recent court decisions, delete obsolete language ,

provide definitional language concerning “ multiperil

insurance,” and clarify which insurers are subject to

the tax imposed under s. 624.509, F.S., and how they

are to calculate taxable premiums and allowable credits

(emphasis added).

21 . The Departm ent of Revenue published the following

summary of the proposed changes to Rule Chapter 12B-8, Florida

Administrative Code, in Volume 22, Number 52, December 27, 1996,

Florida Administrative Weekly :

SUMMARY: Rule 12B-8.001, 8.002, and 8.016, F.A.C., are

amended in order to conform the rule to recent court

decisions. Additionally, Rules 12B-8.001, 8.006, 8.015

and 8.016, F.A.C., are revised to incorporate statutory

or procedural changes made since the last rule revision

and to delete obsolete language within these rules.

Also, references made to Department forms in Rule 12B-

8.003, F.A.C., are updated to reflect the current

version. Finally, Rule 12B-8.006, F.A.C., is amended

to incorporate a clarifying definition.

22 . The Notice of Change to Proposed Rule 12B-8.003, as

published in, Volume 23, Number 8, February 21, 1997 , Florida

Administrative Weekly states in pertinent part:

(1 ) Tax returns and reports shall be made by insurers

on forms prescribed by the Department. The Department

prescribes Form DR-907, Florida Department of Revenue

Insurance Premium Quarterly Tax Return, dated January

1997 --May 1993-- and Form DR-908, Florida Department

of Revenue Insurance Premium Quarterly Tax Return,

dated January 1997 --January 1993--, and accompanying

instructions as used for the purpose of this chapter

and hereby incorporates these forms by reference.

(Copies of Proposed Rule 12B-8.003 as originally proposed,

Department of Revenue 1995 insurance premium tax instructions and

forms, and Department of Revenue 1997 insurance premium tax

instructions and forms are attached to the Prehearing Stipulation

of Facts as composite Exhibit “D”.)

23 . Schedule I of proposed form DR 908 (revised 1/97) would

be used to calculate a foreign or domestic insurer’s total

premium tax due (before credits).

24 . Schedule VI of proposed form DR 908 (revised 1/97)

would be used by foreign and domestic workers’ compensation

insurers to calculate a credit that would be received against the

foreign or domestic insurer’s premium tax for having paid the

workers’ compensation administrative assessment.

25 . Schedule III of proposed form DR 908 (revised 1/97)

would be used to calculate all of the credits against a foreign

or domestic insurer’s premium tax liability. Line 1 of that

schedule is for the workers’ compensation administrative

assessment credit from Schedule VI. If a foreign or domestic

insurer has paid the workers’ compensation administrative

assessment, Schedule III provides for a credit against its

premium tax for that payment.

26 . All the information from the various schedules would be

brought forward to proposed form DR 908. Line 2 of proposed form

DR 908 would provide for the total credits from Schedule III

(including credit for the workers’ compensation administrative

assessment) to be subtracted from the foreign or domestic

insurer’s total premium tax due.

27 . Sc hedule XIV of proposed form DR 908 (revised 1/97)

would be entitled “Retaliatory Tax Computation.” This schedule

would be completed by foreign insurers to determine retaliatory

tax due under Section 624.5091.

28 . Schedule XIV of proposed form DR 908 (revised 1/97)

does not include a line for Florida’s workers’ compensation

assessment (or any other state’s workers’ compensation

assessment) nor any provision for an add back of the credit for

the workers’ compensation administrative assessment in the

calculation of an insurer’s retaliatory tax.

29 . Proposed forms DR 907 and DR 908 (revised 1/97) would

not be retroactive and would operate prospectively from

January 1, 1997.

30 . Proposed Rule 12B-8.016 states in pertinent part:

(3)(b) Special purpose obligations as used in this rule

means those obligations or assessments the funds from

which are for the benefit of certain parties, and not

for the benefit of all citizens generally. Generally,

such obligations will not materially involve general

tax revenues, appropriated funds or state monies.

1. Using this definition, the following Florida

assessments, as they are currently described in

the Florida Statutes, would be considered special

purpose obligations:

a. Workers’ compensation administrative

assessment.

b. Workers’ compensation special assessment.

c. Florida Life and Health Guarantee Association

assessment.

d. Florida Insurance Guarantee Association

assessment.

e. Florida Comprehensive Health Association

assessment.

f. State Fire Marshal regulatory assessment.

g. State Fire Marshal college surcharge.

2. Since s. 624.5091(3), F.S., provides that

special purpose obligations or assessments imposed

in connection with particular kinds of insurance

other than property insurance are to be excluded

from the retaliatory tax calculation, only State

Fire marshal regulatory assessment, the State Fire

Marshal college surcharge, and the portion of the

Florida Insurance Guaranteed Association

assessment that was imposed upon the insurer’s

property insurance policies, can be included in

the retaliatory tax calculation. The workers’

compensation fund’s administrative and special

purpose assessments, and the Florida Life and

Health Guarantee Association Special assessment

cannot be included in the retaliatory tax

calculation since the assessments are imposed on 5

insurance other than property insurance. . . .

31 . American Insurance Association (AIA), Florid a Insurance

Council (FIC), Liberty Mutual Insurance Company (LMIC), and

Alliance of American Insurers (AAI) filed petitions to challenge

the validity of certain provisions of the above proposed rules.

32 . The rule challenges of each of the Petitioners were

consolidated for final hearing in a February 26, 1997 Order by

Administrative Law Judge, J. Lawrence Johnston.

33 . FIC voluntarily dismissed its petition challenging the

above proposed rules on May 27, 1997.

34 . AIA and AAI are national trade organizations. Some of

the members of each of AIA and AAI are foreign and domestic

insurers licensed and authorized to transact property and

casualty insurance in the State of Florida pursuant to the

Florida Insurance Code. Some of their members transact, among

other insurance coverages, workers’ compensation insurance in the

State of Florida.

35 . LMIC is an insurance company domiciled in the state of

Massachusetts that writes workers’ compensation insurance in the

State of Florida.

36 . LMIC, AIA and AAI, or some of their members, as foreign

insurers doing business in the State of Florida, are subject to

the provisions of Florida’s retaliatory tax, Section 624.5091 and

Florida’s workers’ compensation laws.

37 . LMIC, AIA and AAI, or some of their members, pay

workers’ compensation administrative assessments.

38 . LMIC’s, AIA’s, and AAI’s interests, or the interests of

some of their members, are substantially affected by the

Department of Revenue’s proposed rules 12B-8.003 and 12B-8.016.

ADDITIONAL FINDINGS OF FACT

39. House of Representatives Insurance Committee Final

Staff Analysis of CS/CS/CS/HB 336 (1989) contains the following

example in Section II.D:

D. FISCAL COMMENTS:

The following is an example of an out-of-state Property &

Casualty Company’s tax calculations under the provisions

of this bill (assuming the company’s state of domicile

imposes a 2.0% rate).

Total Premiums Written in Florida $1,000,000

Premium Tax Rate x 1.75%

Gross Premium Tax $17,500

Credit for Municipal Taxes ($5,000)

Credit for Workers’ Comp. Assessments ($5,000)

Net Premium Tax $7,500

Payroll Paid to Eligible Florida Employees $30,000

Factor for calculating Maximum Salary Credit x 15%

Maximum Salary Credit $4,500

Net Premium Tax $7,500

Factor for Calculating Maximum

Combined Credit 65%

for Salaries and Corporate Income

Taxes Paid _______

Maximum Combined (Salary plus CIT) Credit $4,875

Corporate Income Taxes Paid in

Previous Year ($2,200)

Usable Salary Credit (Cannot Exceed Maximum $2,675

Salary Credit)

----------------------------------------------------------

Net Premium Tax $7,500

Corporate Income Tax Credit ($2,200)

Usable Salary Credit ($2,675)

Total Premium Taxes (Paid to GR) $2,625

Probable Tax from Retaliation against $535

Salary Credit ($2,675 x 20%)

Retaliatory Taxes from the Rate $2,500

Differential ($1,000,000 x .25%) $3,035

Total Premium and Retaliatory Taxes $5,660

Paid to General Revenue

40. House of Representatives Committee on Finance &

Taxation Bill Analysis and Economic Impact Statement of PCB FT

94-12 (1994), stated that the 1994 amendments to Section

624.5091, Florida Statutes (1993), had no fiscal impact.

41. The amount of wor kers’ compensation administrative

assessments may vary. Currently, the amount of workers’

compensation administrative assessments exceeds premium taxes,

which limit the amount allowed as a deduction against premium

taxes under section 440.51(5), Florida Statutes.

CONCLUSIONS OF LAW

42. Under Section 120.56(2), Florida Statutes ( Supp.

1996):

The [proposed rule challenge] petition shall state with

particularity the objections to the proposed rule and

the reasons that the proposed rule is an invalid

exercise of delegated legislative authority. The

agency then has the burden to prove that the proposed

rule is not an invalid exercise of delegated

legislative authority as to the objections raised.

43. The Petitioners in these proceedings contend variously

that the DOR’s proposed rules and forms at issue are invalid

under Section 120.52(8)(a)-(c) and (e)-(f), Florida Statutes

( Supp. 1996), which provides:

Invalid exercise of delegated legislative authority"

means action which goes beyond the powers, functions,

and duties delegated by the Legislature. A proposed or

existing rule is an invalid exercise of delegated

legislative authority if any one of the following

applies:

(a ) The agency has materially failed to follow the

applicable rulemaking procedures or requirements set

forth in this chapter;

(b ) The agency has exceeded its grant of rulemaking

authority, citation to which is required by

s. 120.54(3)(a )1.;

(c ) The rule enlarges, modifies, or contravenes the

specific provisions of law implemented, citation to

which is required by s. 120.54(3)(a)1.;

* * *

(e ) The rule is arbitrary or capricious;

(f ) The rule is not supported by competent

substantial evidence . . ..

44. Sections 120.52(8) and 120.536(1), Florida Statutes

( Supp. 1996 ), both also provide:

A grant of rulemaking authority is necessary but not

sufficient to allow an agency to adopt a rule; a

specific law to be implemented is also required. An

agency may adopt only rules that implement, interpret,

or make specific the particular powers and duties

granted by the enabling statute. No agency shall have

authority to adopt a rule only because it is reasonably

related to the purpose of the enabling legislation and

is not arbitrary and capricious, nor shall an agency

have the authority to implement statutory provisions

setting forth general legislative intent or policy.

Statutory language granting rulemaking authority or

generally describing the powers and functions of an

agency shall be construed to extend no further than the

particular powers and duties conferred by the same

statute.

45. Before the 1994 amendments to Section 624.5091(3),

Florida Statutes (1993), the retaliatory tax imposed by (1) of

the statute did “not apply as to . . . special purpose

obligations or assessments imposed by another state in connection

with” workers’ compensation insurance.

46. Before the decision in Department of Revenue vs. Zurich

Insurance Company , 667 So. 2d 365 (Fla. 1st DCA 1995), the DOR’s

Florida Administrative Code Rule 12B-8.016(3)(a)(4) provided that

assessments imposed by other states which were comparable to the

Workers’ Compensation Administrative Assessment (WCAA) 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).

47. In Zurich , a DOAH Hearing Officer invalidated the DOR’s

Florida Administrative Code Rule 12B-8.016(3)(a)(4) as an

unlawful exercise of delegated legislative authority because the

WCAA was a special purpose obligation or assessment and, under

Section 624.5091(3), Florida Statutes (1993), the retaliatory tax

did not apply as to assessments imposed other states which were

comparable to the WCAA. The DOR appealed, and the Zurich court

agreed with the Administrative Law Judge and affirmed the final

order.

Zurich Controls ;

WCAA are Special Purpose Obligations or Assessments

48. FMIC and AAI argue primarily that the Zurich decision

was wrong, or that it does not control Section 624.5091(3),

Florida Statutes (1995). But Zurich ’s efficacy does not depend

on its correctness; regardless whether it is wrong, it is

controlling precedent in this proceeding. See Stanfill vs.

State , 384 So. 2d 141, 143 (Fla. 1980). And the deletion of the

words “by another state” from the statute in 1994 is not a valid

reason to conclude that WCAA are not “special purpose obligations

or assessments imposed in connection with” workers’ compensation

insurance under Section 624.5091(3), Florida Statutes (1995). It

must be concluded that they are.

49. Even if Zurich did not control, Section 440.51(5),

Florida Statutes (1995), would not require the conclusion that

WCAA are not “special purpose obligations or assessments imposed

in connection with” workers’ compensation insurance under Section

624.5091(3), Florida Statutes (1995). Section 440.51(5) provides

only that they “shall be allowed as a deduction against the

amount of any other tax levied by the state upon the premiums,

assessments, or deposits for workers’ compensation insurance on

contracts or policies of said insurance carrier, self-insurer, or

commercial self-insurance fund.” The retaliatory tax imposed

under Section 624.5091(3), Florida Statutes (1995), is not a tax

“upon the premiums, assessments, or deposits for workers’

compensation insurance on contracts or policies of said insurance

carrier, self-insurer, or commercial self-insurance fund.” It is

a tax to counterbalance another state’s imposition of an

aggregate burden of taxes, licenses and other fees on Florida

insurers which is greater than the aggregate burden of Florida’s

taxes, licenses and other fees on similar insurers of the other

state. See Gallagher vs. Motors Ins. Corp. , 605 So. 2d 62 (Fla.

1992). See also Western and Southern Life Ins. Co. vs. State Bd.

of Equalization of Calif. , 451 U.S. 648. 101 S.Ct. 2070, 68 L.Ed.

2d 514(1981).

Authority for Rulemaking Independent of Zurich

50. AAI contends that the Zurich decision is inadequate

authority for promulgation of the proposed rules and proposed

forms. But, clearly, the DOR’s rulemaking authority does not

derive from Zurich ; it remains statutory. Rather, Zurich just

told the DOR that its existing rules were invalid to the extent

that they did not treat WCAA as “special purpose obligations or

assessments imposed in connection with” workers’ compensation

insurance.

Proposed Application of Retaliatory Tax is Correct

51. Since WCAA are “special purpose obligations or

assessments imposed in connection with” workers’ compensation

insurance, the next question becomes whether the retaliatory tax

is being applied as to WCAA under the proposed rules and forms.

It is concluded that the retaliatory tax is not being applied as

to WCAA under the proposed rules and forms. Rather, as

authorized under Section 624.5091(1), Florida Statutes (1995), it

is being applied as to the premium tax. The premium tax is the

tax after applicable deductions and credits. As provided in

Section 624.509(7), Florida Statutes (1995), the WCAA are

deductions against the premium tax. The proposed rules and forms

are consistent with these statutes.

52. As the DOR points out in its arguments, the proposed

rules and forms do not change the way in which the retaliatory

tax is applied to “special purpose obligations or assessments

imposed in connection with particular kinds of insurance other

than property insurance . . . .” Existing Florida Administrative

Code Rules 12B-8.016(2) and (3) make it clear both that the DOR

always has used the net premium tax as the starting point in

determining retaliatory taxes and that “special purpose

obligations or assessments imposed in connection with particular

kinds of insurance other than property insurance” are not

included in retaliatory tax calculations. The proposed rules and

forms merely follow Zurich by identifying WCAA as being such

“special purpose obligations or assessments imposed in connection

with particular kinds of insurance other than property

insurance.”

53. As the DOR further points out in its arguments, none of

the Petitioners have directly challenged the validity of existing

Florida Administrative Code Rules 12B-8.016(2) and (3). Any

direct challenge to those rules has been waived. See Cole Vision

Corp. vs. Dept. of Bus. and Prof. Reg., Bd. of Optometry , 688

So. 2d 404 (Fla. 1 st DCA 1997). Those rules are presumed to be

valid. See City of Palm Bay vs. Dept. of Transp. , 588 So. 2d 624

(Fla. 1 st DCA 1991); State Bd. of Optometry vs. Fla. Soc. Of

Ophthalmology , 538 So. 878 (Fla. 1 st DCA 1988). In addition, the

Legislature has adopted the existing Florida Administrative Code

Rules 12B-8.016(2) and (3) application of the retaliatory tax to

“special purpose obligations or assessments imposed in connection

with particular kinds of insurance other than property insurance”

by reenacting the retaliatory tax statute several times since

1990 without modifying or rejecting the DOR’s rules. See Szabo

Food Services, Inc., vs. Dickinson , 286 So. 2d 529, 531 (Fla.

1973); Cole Vision Corp. vs. Dept. of Bus. and Prof. Reg., Bd. of

Optometry , supra , at 408.

54. Existing Florida Administrative Code Rules 12B-8.016(2)

and (3) control the application of the retaliatory tax as to

WCAA, and the proposed rules and forms are consistent with those

rules.

Comportment with American Southern

55. AIA argues that the decision in American Southern Ins.

Co. vs. Dept of Revenue , 674 So. 2d 810 (Fla. 1 st DCA 1996),

compels the conclusion that gross premium taxes must be used as

the starting point in determining retaliatory taxes (or,

alternatively, the WCAA deduction from gross premium taxes must

be added back to net premium taxes.) But American Southern does

not compel this conclusion. The American Southern decision

turned upon a construction of the term “similar insurer” in

Section 624.5091(1), Florida Statutes (1991). In that case, the

a Georgia insurer filed suit to reduce the retaliatory tax sought

to be imposed. The Georgia insurer contended that, in

calculating Florida’s retaliatory tax, the DOR should have used

the net premium taxes it paid in Georgia, after taking advantage

of a premium tax rate abatement provision under Georgia law for

insurers investing at least 75% of its nonfederal assets in

Georgia property—which reduced its Georgia premium tax rate from

4.75% to 3%. The American Southern court held that, compared to

the Georgia insurer, a Florida “similar insurer” would be a

Florida insurer that would not be able to take advantage of

Georgia’s rate abatement under Georgia law, so that the DOR

properly used the higher 4.75% Georgia premium tax rate in

calculating the Florida retaliatory tax due. The American

Southern court did not hold that net premium taxes should not be

used as the starting point in determining Florida’s retaliatory

tax, or that the WCAA imposed under Section 440.51(1) should not

be allowed as a deduction under Section 440.51(5) for purposes of

calculating those net premium taxes. Arguably contrary dicta in

American Southern is not controlling.

Support from Pacific Mutual

56. Strong support for the DOR’s position is found in the

decision in Pacific Mutual Life Ins. Co. vs. G. A. Bushnell , 396

So. 2d 253 (Ariz. 1964). In that case, Arizona’s retaliatory tax

statute had an exclusion for ad valorem taxes (as does

Florida’s), but its insurance premium tax statute provided no

deduction or credit for ad valorem taxes against insurance

premium tax payable in Arizona. Arizona tried to assess

retaliatory taxes against a California insurer. Although

California gave insurers such a credit for California’s ad

valorem taxes in computing insurance premium tax payable in

California, Arizona contended that the credit should be added

back in to the computation of California’s insurance premium

taxes for purposes of Arizona’s retaliatory tax. The Arizona

Supreme Court rejected the “add back” and held that the

comparison should be on the basis of the “net” premium tax

actually paid under California law.

LMIC and AAI Expressio Unius Argument

57. Instead of adopting AIA’s American Southern argument,

LMIC and AAI attempt to advance the following intricate statutory

construction argument. Section 624.5091(1), Florida Statutes

(1995), provides that, in determining retaliatory taxes, 80% of

the premium tax salary credit is not “taken into consideration.”

This is accomplished by adding 80% of that deduction back into

the net premium tax. Under Section 624.5091(3), Florida Statutes

(1995), the retaliatory tax is “not applied as to” personal

income taxes, sales or use taxes, ad valorem taxes on real or

personal property, reimbursement of premiums paid to the Florida

Hurricane Catastrophe Fund, emergency assessments to the Florida

Hurricane Catastrophe Fund, or “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.” It is argued that, under the rule of statutory

interpretation that “ expressio unius est exclusio alterius ,”

express mention of deductions for real estate or personal

property taxes excludes deductions for any of the others listed

under Section 624.5091(3), Florida Statutes (1995), as to which

the the retaliatory tax is “not applied.” See Thayer vs. State ,

335 So. 2d 815, 817 (Fla. 1976).

58. Admittedly, it is not obvious why the concluding clause

of Section 624.5091(3), Florida Statutes (1995), only mentions

real estate or personal property taxes. But it is concluded

that, in the case of this statute, blithe resort to the

“ expressio unius ” doctrine exclusively is not the appropriate way

to ascertain the legislative intent. Other guides to the

legislative intent--such as the doctrine of deference to

interpretations given by the agency authorized by statute to

administer the statute and the doctrine of legislative

reenactment--also must be taken into account. See Szabo Food

Services, Inc., vs. Dickinson , supra ; Cole Vision Corp. vs. Dept.

of Bus. and Prof. Reg., Bd. of Optometry , supra . Even without

legislative reenactment, there is the rule of statutory

interpretation that deference is to be given to reasonable and

not clearly erroneous agency interpretations of ambiguous

statutes administered and enforced by the agency, as well as the

agency’s own rules promulgated under those statutes. See PW

Ventures, Inc. vs. Nichols , 533 So. 2d 281 (Fla. 1988) ; Fla.

Institutional Legal Services, Inc., v. Fla. Dept. of Corrections ,

579 So. 2d 267 (Fla. 1 st DCA 1991) ; Skiff’s Workingman’s Nursery

vs. Dept. of Transp. , 557 So. 2d 233, 234 (Fla. 4 th DCA 1990) ;

Sunshine Jr. Stores, Inc., vs. Dept. of Environmental Reg. , 556

So. 2d 1177 (Fla. 1 st DCA 1990); Tri-State Sys ., Inc. vs.

Department of Transp. , 491 So. 2d 1192 (Fla. 1st DCA 1986) ; Shell

Harbor Group vs. Dept. of Business Reg. , 487 So. 2d 1141 (Fla.

1st DCA 1986) ; Dept. of Professional Reg., Bd. of Medical

Examiners vs. Durrani , 455 So. 2d 515, 517 (Fla. 1st DCA 1984);

Dept. of Admin. vs. Nelson , 424 So. 2d 852, 858 (Fla. 1st DCA

1982) ; Dept. of Health, etc., vs. Framat Realty, Inc. , 407 So. 2d

238, 241 (Fla. 1st DCA 1981).

AIA’s Legislative History Argument

59. AIA also argues that the Fiscal Comments to the House

of Representatives Insurance Committee Final Staff Analysis and

Economic Impact Statement for CS/CS/CS/HB 336 in 1989 indicate

legislative intent that gross premium taxes be used as the

starting point in determining retaliatory taxes (or,

alternatively, the WCAA deduction from gross premium taxes be

added back to net premium taxes.) To the contrary, the analysis

makes it clear that WCAA are properly deductions from insurance

premium taxes. The analysis starts out by stating that

CS/CS/CS/HB 336 reduces the insurance premium tax rate and alters

certain credits against the tax . It repeatedly shows how the

premium tax is reduced by various credits, including the WCAA.

60. On first blush, it might appear that the hypothetica l

example in the fiscal comments assumes the calculation of

retaliatory taxes based on the difference between gross premium

tax percentages in Florida and in a hypothetical foreign state.

But it is more likely that, unlike for its demonstration of the

effect of the salary credit on the insurance premium tax and the

retaliatory tax, the fiscal comments assume an identical WCAA

deduction in the hypothetical foreign state and compare gross

premium tax percentages in Florida and in the hypothetical

foreign state as a simplified way of generally showing the fiscal

impact on Florida insurers from the amendments to the premium tax

statutes proposed in the legislation. As with the expressio

unius doctrine, it is concluded that the fiscal comments are not

a clear enough expression of legislative intent to override all

the other indications that “special purpose obligations or

assessments imposed in connection with particular kinds of

insurance other than property insurance” are intended to be

deductions from the insurance premium tax, that net premium tax

is the proper starting point for calculating the retaliatory tax,

and that “special purpose obligations or assessments imposed in

connection with particular kinds of insurance other than property

insurance” should not be added back to the premium tax for

purposes of calculating the retaliatory tax.

Reconciling Facially Conflicting Legislative Goals

61. The final statutory argument advanced by AIA, LMIC, and

AAI is essentially that implementation of Florida’s retaliatory

tax using the proposed rules and forms would undo the Florida

Legislature’s intent to ease the insurance premium tax burden on

foreign insurers offering workers’ compensation insurance in

Florida. It suffices to say that the Florida Legislature also

clearly intends to impose a retaliatory tax where a foreign

insurer’s domicile state imposes on Florida insurers doing

business in the foreign state a greater aggregate tax burden than

Florida would otherwise impose on the foreign insurer doing

business in Florida.

No Constitutional Impediment

62. AIA also contends that the implementation of Florida’s

retaliatory tax using the proposed rules and forms would be

unconstitutional because it would deny foreign insurers equal

protection. But the argument is based on an erroneous premise.

As implemented by the proposed rules and forms, Florida’s

retaliatory tax would not treat Florida and foreign insurers

differently. Both would get the advantage of a deduction for

WCAA and other “special purpose obligations or assessments

imposed in connection with particular kinds of insurance other

than property insurance” from Florida’s insurance premium taxes,

and such deductions allowed in a foreign state against its

insurance premium taxes would be treated the same way for

purposes of calculating Florida’s retaliatory tax. See Western

and Southern Life Ins. Co. vs. State Bd. of Equalization of

Calif. , supra ; American Southern Ins. Co. vs. Dept of Revenue ,

supra ; Gallagher vs. Motors Ins. Corp. , supra . This is not a

case where Florida’s retaliatory tax is being imposed “beyond the

point of equalization solely to generate revenue at the expense

of foreign insurers . . ..” Contrast United States Automobile

Ass’n vs. Curiale , 668 N.E.2d 384, 388 (N.Y. 1996).

Public Notice was Adequate

63. AAI argues that the DOR’s notice of its intent to adopt

the proposed rules and forms was inadequate under Section

120.54(3)(a )1., Florida Statutes ( Supp. 1996). That statute

requires notice to set forth “a short, plain explanation of the

purpose and effect of” the proposed rules and forms. AAI

concedes the adequacy of the notice of the purpose of the

proposed rules and forms but contends that notice of their effect

was inadequate.

64. The “Purpose and Effect” section of the DOR’s

publication in the Florida Administrative Weekly stated:

The proposed amendments to Rule Chapter 12B-8, F.A.C.,

are needed to implement various recent court decisions,

delete obsolete language, provide definitional language

concerning “ multiperil insurance,” and clarify which

insurers are subject to the tax imposed under s.

624.509, F.S., and how they are to calculate taxable

premiums and allowable credits.

The “Summary” section of the publication also stated that Florida

Administrative Code Rule 12B-8.016 was being revised “to

incorporate statutory or procedural changes made since the last

rule revision and to delete obsolete language within these

rules.” Elsewhere in the notice, the law implemented was cited,

including Sections 624.509 and 624.5091, Florida Statutes (1995).

Finally, the notice specified the rule amendments, striking

through the deleted language and underlining added language.

65. It is concluded that this notice was adequate. It was

not a defect for the same information in the “Purpose and Effect”

section of the publication to give notice of both the purpose and

effect of the proposed rules and forms. In any event, the

citation to Sections 624.509 and 624.5091, Florida Statutes

(1995), as the law implemented would cure any defect in the

“Purpose and Effect” section of the notice. See Agency for

Health Care Admin. vs. University Hosp., Ltd. , 670 So. 2d 1037

(Fla. 1 st DCA 1996). So would the specification of the proposed

changes to the language of the rule. See Final Order, Fla.

Society of Ophthalmology vs. Dept. of Prof. Reg. , DOAH Case No.

87-1743RX, 10 F.A.L.R. 438, entered December 2, 1987.

No Issue as to Effective Date

66. The Petitioners contended in these proceedings that the

proposed rules and forms could not be applied prior to being

noticed. Without conceding the legal point, the DOR stipulated

in the Prehearing Stipulation, at final hearing, and in its post-

hearing submissions that they would apply effective January 1,

1997, making the retroactive application arguments moot. (The

DOR continues to maintain that the legal consequence flowing from

the decisions in Zurich and American Southern are effective on

the dates of those decisions.)

DISPOSITION

Based on the foregoing Findings of Fact and Conclusions of

Law, the proposed rule challenge petitions filed in these

proceedings are denied, and the DOR’s proposed Florida

Administrative Code Rules 12B-8.003 and 12B-8.016 and proposed

Forms DR-907 and DR-908 are declared valid.

DONE AND ORDERED this 29th day of August, 1997, in

Tallahassee, Leon County, Florida.

___________________________________

J. LAWRENCE JOHNSTON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488- 9675 SUNCOM 278-9675

Fax FILING [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 29th day of August, 1997.

ENDNOTES

1 Florida’s retaliatory tax statute was renumbered in 1959,

1989 and 1990 as follows: §626.061, Florida Statutes (1959),

renumbered §624.429, Florida Statutes (1989), renumbered

§624.5091, Florida Statutes (1990).

2 Prior to 1994, Section 624.5091(3) read:

This section does not apply as to personal

income taxes, nor as to ad valorem taxes on

real or personal property, nor as to special

purpose obligations or asessments imposed by

another state 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 or

retaliatory action under this section

( emphasis supplied).

3 Section 213.05 directs the Department of Revenue to

administer provisions of §§624.509 through 624.514. Section

213.06(1) authorizes the Department of Revenue to promulgate

rules to implement those responsibilities.

4 Zurich Insurance Company vs. Department of Revenue , DOAH

Case Number 94-5075RX.

5 Florida Administrative Weekly, Volume 22, Number 52,

December 27, 1996.

COPIES FURNISHED:

Richard E. Coates, Esquire

Paul R. Ezatoff, Esquire

Katz, Kutter, Haigler, Alderman,

Marks, Bryant & Yon, P.A.

Post Office Box 1877

Tallahassee, Florida 32302

Paul R. Sanford

Rogers, Towers, Bailey, Jones & Gay

1301 Riverplace Boulevard, Suite 1500

Jacksonville, Florida 32207

James C. Massie, Esquire

Janice G. Scott, Esquire

Massie & Scott

Post Office Box 10371

Tallahassee, Florida 32302

Douglas A. Mang, Esquire

Wendy Russell Wiener, Esquire

Mang Law Firm, P.A.

Post Office Box 11127

Tallahassee, Florida 32302-3127

James F. McAuley

Assistant Attorney General

Department of Legal Affairs

The Capitol Tax Section

Tallahassee, Florida 32399-1050

Carroll Webb, Executive Director

Administrative Procedures Committee

120 Holland Building

Tallahassee, Florida 32399-1300

Liz Cloud, Chief

Bureau of Administrative Code

Department of State

The Elliot Building

Talllahassee, Florida 32399-0250

NOTICE OF RIGHT TO JUDICIAL REVIEW

A 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.