W. & S. Life Ins. Co. v. Board of Equalization
451 U.S. 648 (1981)

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U.S. Supreme Court

W. & S. Life Ins. Co. v. Board of Equalization, 451 U.S. 648 (1981)

Western & Southern Life Ins. Co. v. Board of Equalization

No. 79-1423

Argued January 12, 1981

Decided May 26, 1981

451 U.S. 648


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. Appellant, 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.


1. The retaliatory tax does not violate the Commerce Clause. The McCarran-Ferguson Act, which leaves the regulation and taxation of insurance companies to the States, removes entirely any Commerce Clause restriction upon California's power to tax the insurance business. Neither the language nor the history of that Act suggests that it does not permit, as appellant argues, "anticompetitive state taxation that discriminates against out-of-state insurers." Pp. 451 U. S. 652-655.

2. Nor does the retaliatory tax violate the Equal Protection Clause. Pp. 451 U. S. 655-674.

(a) Whatever the extent of a State's authority to exclude foreign corporations from doing business within the State, that authority does not justify imposition of more onerous taxes or other burdens on foreign corporations than those imposed on domestic corporations, unless the discrimination between foreign and domestic corporations bears a rational relation to a legitimate state purpose. Pp. 451 U. S. 655-668.

(b) The purpose of the retaliatory tax, to promote the interstate business of California insurers by deterring other States from imposing discriminatory or excessive taxes on California insurers, is a legitimate state purpose. And the California Legislature rationally could have

Page 451 U. S. 649

believed that the retaliatory tax would promote that purpose, it being immaterial whether, in fact, the tax will accomplish its objectives. Assuming that the lawmakers of each State are motivated in part by a desire to promote the interests of their domestic insurance industry, it is reasonable to suppose that California's retaliatory tax will induce other States to lower the burdens on California insurers in order to spare their domestic insurers the cost of the retaliatory tax in California. Pp. 451 U. S. 668-674.

99 Cal.App.3d 410, 159 Cal.Rptr. 539, affirmed.

BRENNAN, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, WHITE, MARSHALL, POWELL, and REHNQUIST, JJ., joined. STEVENS, J., filed a dissenting opinion, in which BLACKMUN, J., joined, post, p. 451 U. S. 674.

Primary Holding
If Congress has specifically authorized states to regulate in a certain area, a law that discriminates and retaliates against out-of-state commercial actors in that area is not unconstitutional.
Western & Southern Life Insurance Co. was an Ohio insurer doing business in California. It was subject to a retaliatory tax that California levied on all out-of-state insurers that were incorporated in states that imposed higher taxes on California insurers doing business in them than California would have imposed on that state's insurers that were doing business in California. Western sought refunds through the administrative claims process for the amounts that it paid in retaliatory taxes. When it failed, it argued in California state court that the tax was invalid under the Commerce Clause.



  • William Joseph Brennan, Jr. (Author)
  • Warren Earl Burger
  • Potter Stewart
  • Byron Raymond White
  • Thurgood Marshall
  • Lewis Franklin Powell, Jr.
  • William Hubbs Rehnquist

Although Congress has plenary power over interstate commerce, part of this power includes the authority to allow states to regulate interstate commerce. Any action taken by a state within the scope of the authority granted by Congress is per se valid under the Commerce Clause. In this instance, the federal McCarran-Ferguson Act explicitly allowed the states to regulate and tax the insurance business, notwithstanding the authority of Congress under the Commerce Clause.


  • John Paul Stevens (Author)
  • Harry Andrew Blackmun

Case Commentary

This law normally would be struck down under the dormant Commerce Clause, but it arose from a specific exception to this doctrine. States do have the authority to regulate, including enacting discriminatory taxes, when Congress has expressly authorized them to do so, as was the situation here.

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