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

(904) 488-9675

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.

1. Rejected, subordinate to Hearing Officer findings.

2. Adopted, not verbatim.

3. 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.

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DISTRICT COURT OPINION

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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.

Docket for Case No: 94-005075RX

Orders for Case No: 94-005075RX