INSURANCE - TAXATION - CITIES AND TOWNS - PRE EMPTION - MUNICIPAL TAXATION OF INSURANCE BROKERS AND SOLICITORS

INSURANCE - TAXATION - CITIES AND TOWNS - PRE EMPTION - MUNICIPAL TAXATION OF INSURANCE BROKERS AND SOLICITORS.

Section 9 (4), chapter 241, Laws of 1969, Ex. Sess., by which the legislature extended the state's pre emption of excise taxation with respect to insurers to include "or their agents," does not prohibit the imposition of excise or privilege taxes by cities or towns on the gross income of insurance brokers as defined in RCW 48.17.020 and insurance solicitors as defined in RCW 48.17.030.

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                                                                February 10, 1970

Municipal Research Council
4719 Brooklyn Avenue N.E.
Seattle, Washington 98105

                                                                                                                   Cite as:  AGO 1970 No. 4

Attention:  Dr. Ernest H. Campbell

Gentlemen:

            By letter previously acknowledged, you requested an opinion of this office on a question pertaining to municipal taxation of the gross income of insurance brokers and solicitors.  We paraphrase your question as follows:

            Does § 9 (4), chapter 241, Laws of 1969, Ex. Sess., amending RCW 48.14.020 to extend the state's pre emption of excise taxation with respect to insurers to include "or their agents," prohibit the imposition of excise or privilege taxes by cities or towns on the gross income of insurance brokers as defined in RCW 48.17.020 and insurance solicitors as defined in RCW 48.17.030?

            We answer this question in the negative for the reasons set forth in our analysis.

                                                                     ANALYSIS

            In considering your question, we begin with the fundamental proposition that municipal corporations, including  [[Orig. Op. Page 2]] cities and towns, possess no inherent power of taxation; however, the legislature is authorized to vest them with this power.  Weyerhaeuser Timber Co. v. Roessler, 2 Wn.2d 304, 97 P.2d 1070 (1940).1/

             Since municipal corporations derive their taxing power by grant of the legislature, the legislature may attach such conditions and limitations to the grant as it sees fit.  Likewise, having granted to cities or towns the authority to levy a local tax, the legislature may withdraw or modify the grant at any time.  See,Great Northern Railway Co. v. Glover, 194 Wash. 146, 77 P.2d 598 (1938).  The legislature may even compel a municipal corporation to levy a tax for state purposes.  State ex rel. Board of Commr's v. Clausen, 95 Wash. 214, 163 Pac. 744 (1917).2/

             Among the taxing powers which the legislature has granted to the various classes of cities is the authority to impose a municipal business and occupation tax.3/   Accord,Pacific Tel. & Tel. Co. v. Seattle, 172 Wash. 649, 21 P.2d 721 (1933);  [[Orig. Op. Page 3]] State ex rel. Pac. T. & T. Co. v. D. P. S., 19 Wn.2d 200, 142 P.2d 498 (1943).  Likewise, this taxing power is also exercised by the state under the provisions of chapter 82.04 RCW.

            However, neither form of business and occupation tax (i.e., local or state) has, in the past, generally been applicable to insurance companies.  Under RCW 82.04.320, the state "B & O" tax is declared to be inapplicable to

            ". . . any person in respect to insurance business upon which a tax based on gross premiums is paid to the state: . . ."

            as provided for under RCW 48.14.020; and under subsection (4) of this latter statute the imposition of any municipal excise tax upon insurers has in the past been prohibited by virtue of state preemption, as follows:

            "(4) The state does hereby preempt the field of imposing excise or privilege taxes upon insurers, other than title insurers, and no county, city, town or other municipal subdivision shall have the right to impose any such taxes upon such insurers."

            Section 9 (4), chapter 241, Laws of 1969, Ex. Sess., to which your question refers, amended this pre emption statute through addition of the phrase "or their agents" after the word "insurers" so that now the pre emption applies to "insurersor their agents."  Your question is whether this amendment prohibits the imposition of privilege or excise taxes by cities or towns ". . . on the gross income of insurance brokers as defined in RCW 48.17.020 and insurance solicitors as defined in RCW 48.17.030."

            The extension of state pre emption to include the agents of insurers is not without a degree of ambiguity.  Under the insurance code, there are three general categories of licensees who represent insurance companies or sell insurance to the public namely, agents, brokers and solicitors.

            RCW 48.17.010 defines "agent" as meaning

            ". . . any person appointed by an insurer  [[Orig. Op. Page 4]] to solicit applications for insurance on its behalf, and if authorized so to do, to effectuate and countersign insurance contracts except as to life or disability insurances, and to collect premiums on insurances so applied for or effectuated."4/

             Insurance brokers are defined in RCW 48.17.020 as follows:

            "'Broker' means any person who, on behalf of the insured, for compensation as an independent contractor, for commission, or fee, and not being an agent of the insurer, solicits, negotiates, or procures insurance or reinsurance or the renewal or continuance thereof, or in any manner aids therein, for insureds or prospective insureds other than himself."

            Solicitors are defined in RCW 48.17.030 as meaning:

            ". . . an individual authorized by an agent or broker to solicit applications for insurance as a representative of such agent or broker and to collect premiums in connection therewith.  An individual employed by, and devoting full time to clerical work with incidental taking of insurance applications and receiving premiums in the office of the agent or broker is not deemed to be a solicitor if his compensation is not related to the volume of such applications, insurances, or premiums."

             [[Orig. Op. Page 5]]

            The ambiguity in the 1969 amendment to RCW 48.14.020 (4), supra, pertains to whether the added phrase "or their agents" refers to all persons having an agency relationship with an insurance company under general principles of agency law in which case it would encompass all three categories of licensees set forth above or whether it only refers to persons who are serving as insurance "agents" within the meaning of RCW 48.17.010, supra.  In resolving this ambiguity, we are guided by the rules of statutory construction which have been laid down by the courts for the purpose of determining legislative intent.

            Our first resort is to the court's statement in State v. Herr, 151 Wash. 623, 627, 276 Pac. 870 (1929), as follows: "It has been well settled in this jurisdiction that,

            "'All laws upon a given subject should be construed together so as to produce a harmonious system if possible; the presumption being that a new law relating to such subject was enacted with reference to the former laws.'  White v. North Yakima, 87 Wash. 191, 151 Pac. 645.

            ". . .

            "Laws that are inpari materia will be read together for the purpose of ascertaining the legislative intent.  State ex rel. Washington Water Power Co. v. Savidge 75 Wash. 116, 134 Pac. 680;White v. North Yakima, supra.

            "'The right of the legislature to prescribe the legal definitions of its own language must be conceded. . . . when the legislature puts a construction on an act, a subsequent cognate enactment in the same terms would, prima facie, be understood in the same sense.' . . ."

            Our state insurance code was adopted as chapter 79, Laws of 1947; i.e., as a single act of the legislature.  The code governs "All insurance transactions in this state, . . . and all persons having to do therewith . . ."  See, RCW  [[Orig. Op. Page 6]] 48.01.020.

            All of the pertinent definitions set forth above "agent," "broker" and "solicitor" were a part of the original enactment as was the insurance premium tax section which was the subject of this 1969 amendment which we are to construe.  Presumably, the legislature was aware of these definitions when it enacted the amendment.  Hatzenbuhler v. Harrison, 49 Wn.2d 691, 306 P.2d 745 (1957).  Therefore, consistent with the rule of the Herr case,supra, the word "agent" as used in the insurance code should be regarded as having the same meaning throughout the entire code; namely, the meaning set forth in RCW 48.17.010, supra.  From this it follows that the 1969 legislature's extension of the state's pre emption of the field of excise taxation with respect to insurers "or their agents" extends the pre emption only to those persons serving as insurance "agents" within the terms of this definition to the exclusion of persons serving as "brokers" or "solicitors."

            Further support for this conclusion may be found in the rule, as set forth in 51 Am.Jur., Taxation, § 524 (pp. 526-528), that

            ". . . When the statute purports to grant an exemption from taxation, the universal rule of construction is that the tax exemption provision is to be construed strictly against the one who asserts the claim of exemption, . . .  An exemption from taxation must be clearly defined and founded upon plain language, without doubt or ambiguity.  Whenever doubt arises it is to be resolved against the exemption. . . ."

            Our court stated this rule much more succinctly in Fibreboard Paper Prods. Corp. v. State, 66 Wn.2d 87, 91, 401 P.2d 623 (1965), when it said:  ". . . taxation is the rule and exemption is the exception. . . ."

            While the amendment here in question is not, strictly speaking, an exemption from taxation, it does have the effect of exempting certain persons from locally-imposed excise taxes, including the business and occupation tax, and is to this extent a form of tax exemption.  A strict construction of the amendment in order to give it its narrowest application  [[Orig. Op. Page 7]] requires, again, that the word "agent" be construed only in its narrowest sense so as to include only those licensees defined in RCW 48.17.010 while acting as such.

            This definition states that a person licensed as an agent must be appointed by an insurer to solicit applications for insurance on its behalf.  Among the qualifications for licensing as an agent is that an applicant must be appointed as its agent by one or more insurers.  See, RCW 48.17.150,supra.  In addition, RCW 48.17.160,supra, contains procedures for appointment of agents and for the revocation of such appointments by insurers.  These provisions are entirely consistent with a conclusion that the legislature, in its amendment of RCW 48.14.040 (4), intended to extend its excise tax pre emption only with regard to licensed agents, who are required to be appointed by the insurer and who are, in fact, "their agents" by appointment.