In a decision with significant ramifications for the state's fiscal health, South Dakota's current premium tax statutes were held constitutional in a unanimous decision by the South Dakota Supreme Court in a case handled by DEHS.
In the litigation, Metropolitan Life claimed the statutes deny equal protection to foreign insurers. The laws impose identical tax rates on both foreign and domestic insurers but allow insurance companies with a principal or regional home office in South Dakota to apply for a credit of up to 50 percent. Metropolitan Life asserted it was easier for domestic companies to qualify for the credit and, thus, the tax structure was discriminatory. Following a trial last year, the trial court held the statutes were unconstitutional.
The Supreme Court reversed that decision, saying the statutes do not discriminate on the basis of the insurer's residence. Because foreign companies can obtain the credit by opening a principal or regional home office in South Dakota, "it is the insurer's business decision that determine its tax, not any discrimination by the State." The premium tax is a significant source of revenue for South Dakota. It accounted for more than $55 million in general fund receipts over each of the last three fiscal years and is projected to account for more than $64 million in general fund receipts in fiscal 2008.
The Supreme Court did not address the constitutionality of the version of the statutes in effect before 1982 because it said Metropolitan Life had not overcome preliminary issues that needed to be resolved before any constitutional claims could arise. It sent the case back to the trial court to address those issues.
The case was argued before the Supreme Court on February 13 by DEHS lawyer Tim Gebhart. DEHS associate Eric Johnson assisted in preparing the Supreme Court briefs.