Alabama Department of Revenue and Julie P. Magee, as commissioner of the Alabama Department of Revenue
American Equity Investment Life Insurance Company
Released for Publication August 5, 2015.
Appeal from St. Clair Circuit Court. (CV-13-900069). Phil Seay, TRIAL JUDGE.
For Appellants: Mark Griffin, gen. counsel and asst. atty. gen., and David E. Avery III, asst. counsel and asst. atty. gen, Alabama Department of Revenue.
For Appellee: Philip J. Carroll III, Marc James Ayers, and Bruce P. Ely of Bradley Arant Boult Cummings LLP, Birmingham; and John W. Rea of Trussell, Funderburg, Rea & Bell, P.C., Pell City.
Thompson, P.J., and Pittman, Moore, and Donaldson, JJ., concur.
American Equity Investment Life Insurance Company (" the taxpayer" ) is an out-of-state insurance company that does business in Alabama. The taxpayer is subject to the Alabama Business Privilege Tax Act, which is codified at Ala. Code 1975, § 40-14A-21 et seq. The business-privilege tax (" the BPT" ) is levied " on every corporation, limited liability entity, and disregarded entity doing business in Alabama, or organized, incorporated, qualified, or registered under the laws of Alabama." Ala. Code 1975, § 40-14A-22(a). The BPT is based on a taxpayer's net worth in Alabama. Id. Section 40-14A-24(a), Ala. Code 1975, explains how a taxpayer's net worth in Alabama is computed, and it states, in pertinent part, that " the net worth of insurers subject to the insurance premium tax levied by Chapter 4A of Title 27 shall be apportioned on the basis of the ratio of the insurer's Alabama premium income to its nationwide total direct premiums as reflected on schedule T of the insurer's annual statement filed with the Commissioner of Insurance for the then immediately preceding calendar year."
The taxpayer computed and submitted its BPT returns for the 2008 and 2009 tax years. As instructed by § 40-14A-24(a), the taxpayer based its computations on the information contained in its Schedule T for the year immediately preceding each tax year. The taxpayer's Schedule T for 2007 indicated that it had collected $11,571,089 in life-insurance premiums and $2,132,083,339 in annuity considerations for a " direct business" total that year of $2,143,654,428. The 2007 Schedule T indicated that the taxpayer had collected a total of $16,195,527 of its receipts in Alabama; that total comprised $1,430,160 in life-insurance premiums and $14,765,367 in annuity considerations. Thus, the taxpayer divided its total Alabama receipts of $16,195,527 by its direct-business total of $2,143,654,428, resulting in an apportionment factor for the tax year 2008 of .76%.
The taxpayer's 2008 Schedule T indicated that its " direct business" total for that year was $2,297,516,404, which comprised $12,058,262 in life-insurance premiums and $2,285,458,142 in annuity considerations. The taxpayer's total Alabama receipts were $12,409,039, which comprised $1,515,701 in life-insurance premiums and
$10,893,338 in annuity considerations. Thus, the taxpayer computed its 2009 apportionment factor as .54%.
In 2010, the Alabama Department of Revenue (" the department" ) performed a desk audit of the taxpayer's 2008 and 2009 BPT returns, and it concluded that the taxpayer had incorrectly determined its apportionment factor for each tax year. The department recalculated the taxpayer's apportionment factor by dividing only the life-insurance premiums collected by the taxpayer in Alabama by only the life-insurance premiums the taxpayer had collected nationwide; that is, the department excluded from the calculation all annuity considerations that the taxpayer had collected. The department based its decision to exclude annuity considerations from the calculation on the text of Ala. Code 1975, § 27-4A-2, the definition section contained in the Insurance Premium Tax Reform Act of 1993, codified at Ala. Code 1975, § 27-4A-1 et seq., which defines " premiums" to exclude " annuity considerations." § 27-4A-2(8). The department issued final assessments determining that the taxpayer's apportionment factor for the 2008 tax year should have been 12.36% and that the apportionment factor for the 2009 tax year should have been 12.57% and assessed additional taxes and penalties due for the 2008 and 2009 tax years.
The taxpayer appealed the final assessments to the St. Clair Circuit Court, naming as appellees the department and Julie P. Magee, as commissioner of the department (Magee and the department are hereinafter referred to collectively as " ADOR" ). The taxpayer filed a motion for a summary judgment, and ADOR responded. After a hearing, the trial court entered a summary judgment in favor of the taxpayer. In its summary-judgment order, the trial court determined that the department had improperly excluded the annuity considerations in calculating the apportionment factor under § 40-14A-24(a). The trial court further concluded that, if the department had not incorrectly concluded that the annuity considerations should be excluded from the computation of the apportionment factor, " it would present serious issues under the United ...