By Mike Kerman and Andrew Appleby

The Tennessee Supreme Court held that the Tennessee Department of Commerce and Insurance (Department) improperly imposed retaliatory taxes on Pennsylvania-domiciled insurance companies doing business in Tennessee, because Pennsylvania workers’ compensation assessments were not imposed on Tennessee insurance companies, but rather on the insurance companies’ policyholders. Tennessee Code § 56-4-218 authorizes the state to impose a retaliatory tax when another state imposes taxes or obligations on Tennessee insurance companies doing business in that state that exceed the taxes or obligations Tennessee imposes on that state’s insurance companies doing business in Tennessee. Here, Pennsylvania imposed assessments to support three workers’ compensation funds. The statutes authorizing these assessments state that they are imposed on insurers. However, a more recent statute states that the assessments “shall no longer be imposed on insurers,” and instead requires insurers to merely collect the assessments from policyholders. The court determined that this later statute implicitly repealed the original statutes and that the assessments are therefore not imposed on insurance companies directly. Because the assessments are imposed on policyholders rather than insurance companies, Tennessee is not authorized to impose a retaliatory tax on Pennsylvania insurance companies. The court also rejected the Department’s argument that a related regulation, which provides that insurance companies remain responsible for collecting and remitting the total assessment amounts even if policyholders fail to pay, imposes a direct burden on insurance companies. The regulation imposes only a responsibility to “collect and timely remit” payments and does not impose any penalties or fines on insurance companies when policyholders fail to pay, the court concluded. Several New York-domiciled insurance companies filed similar tax refund claims, which the Tennessee Court of Appeals also denied. The Tennessee Supreme Court denied review of the New York cases, stating that the New York statutes differed significantly from the Pennsylvania statutes. Chartis Cas. Co. et al. v. State, No. M2013-00885-SC-R11-CV (Tenn. Oct. 2, 2015).