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W. & S. Life Ins. Co. v. State Bd. of Equalization - 451 U.S. 648, 101 S. Ct. 2070 (1981)


The purpose of the retaliatory tax is to put pressure on the several states to impose the same tax burden on all insurance companies, foreign or domestic, and thereby encourage the doing of interstate business.


California, in addition to imposing a premiums tax on both foreign and domestic insurance companies doing business in the State, imposes a "retaliatory" tax on such a foreign insurer when the insurer's State of incorporation imposes higher taxes on California insurers doing business in that State than California would otherwise impose on that State's insurers doing business in California. Western & Southern Life Insurance Co. (W&S), an Ohio insurer doing business in California, after unsuccessfully filing administrative refund claims for California retaliatory taxes paid, brought a refund suit in California Superior Court, alleging that the retaliatory tax violates the Commerce Clause and the Equal Protection Clause of the Fourteenth Amendment. The Superior Court ruled the tax unconstitutional, but the California Court of Appeal reversed.


Does the retaliatory tax violate the Commerce Clause and the Equal Protection Clause of the Fourteenth Amendment?




The Court held that the McCarran-Ferguson Act, 15 U.S.C.S. § 1011 et seq., removed entirely any Commerce Clause restriction upon California's power to tax the insurance business. The Court reaffirmed that the Privileges and Immunities Clause was inapplicable to corporations. The Court rejected W&S’ argument under the Equal Protection clause of the Fourteenth Amendment because the legislation had the legitimate purpose of influencing other states to drop their retaliatory taxes, and it was reasonable that the classification would promote that purpose.

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