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A Better Partnership
June 07, 2013

COA holds assessments upon Michigan insurance companies are a 'burden' under Michigan's retaliatory tax, even where passed on to the policyholder

In Commerce & Industry Insurance Co. v. Department of Treasury, the Michigan Court of Appeals held that three assessments levied against Michigan-based insurers by New York law constituted 'burdens' under the retaliatory tax, even though the insurers passed them onto the policyholders. This was because the assessments were charged to Michigan-based insurers doing business in New York irrespective of surcharges collected from insurance policyholders. Thus, such assessments can be included in the retaliatory-tax calculation.

Under Michigan's retaliatory tax, the amount by which burdens charged against Michigan-based insurers exceed the amount charged by Michigan against foreign insurers is collected from foreign insurers. Plaintiffs Commerce & Industry Insurance Co. ('C&I') sought a partial tax refund, making three arguments against the inclusion of New York's insurance assessments within the definition of 'burdens' in MCL 500.746a. First, C&I argued that the three New York assessments'the Worker's Compensation Board charge, the Special Disability Fund charge, and the Reopened Case Fund charge'were not burdens on Michigan-based insurers, but were actually burdens on the policyholders. C&I argued that insurers merely passed on the charges to policyholders, and so they were not a burden on the insurance companies under MCL 500.746a. The Court of Appeals rejected this argument and found that under the New York statute and relevant case law, the assessments charged to the insurance companies and the surcharges to policyholders were independently calculated. Thus, the assessments were not mere pass-through charges, and were a burden to Michigan-based insurers.

Next, the court rejected C&I's argument that even if the New York assessments are burdens under Michigan law, they are 'similar' to the burdens that Michigan charges against foreign insurers. The court of appeals found that, whereas the Michigan assessments are charged by a statutory group composed of insurers, the New York board is composed of individuals appointed by the Governor. So the two groups were not similar under the statute. The court also found that the purpose of the charges in Michigan and New York were not similar. In Michigan, the purpose of the assessments was to provide insurance to otherwise uninsurable industries. In New York, the assessments were meant to shift liability and costs away from current employers.

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