JOHNSON & JOHNSON VS. DIRECTOR, DIVISION OF TAXATION (TAX COURT OF NEW JERSEY)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5423-17T3
JOHNSON & JOHNSON,
Plaintiff-Appellant, APPROVED FOR PUBLICATION
v. September 25, 2019
APPELLATE DIVISION
DIRECTOR, DIVISION OF
TAXATION, and COMMISSIONER,
DEPARTMENT OF BANKING
AND INSURANCE,
Defendants-Respondents.
_______________________________
Submitted September 18, 2019 – Decided September 25, 2019
Before Judges Fuentes, Haas and Mayer.
On appeal from the Tax Court of New Jersey, Docket
No. 013502-2016, whose opinion is reported at 30 N.J.
Tax 479 (Tax Ct. 2018).
Wilson Law Group, LLC, attorneys for appellant
(Margaret C. Wilson and Beth F. Bressler, on the
briefs).
Gurbir S. Grewal, Attorney General, attorney for
respondents (Melissa H. Raksa, Assistant Attorney
General, of counsel; William B. Puskas, Jr., Deputy
Attorney General, on the brief).
The opinion of the court was delivered by
HAAS, J.A.D.
In this appeal, we address the issue of whether, following the Legislature's
2011 amendment of N.J.S.A. 17:22-6.64, plaintiff Johnson & Johnson (J&J) was
required to pay an insurance premium tax (IPT) based upon all the risks it
insured throughout the United States or based upon only those risks localized in
New Jersey. Because both before and after the 2011 amendment, N.J.S.A.
17:22-6.64 provided that IPT was to be calculated at the rate of "5% of the gross
amount of such premium" paid for insurance procured "upon a sub ject of
insurance resident, located or to be performed within [New Jersey]," we
conclude that J&J's IPT obligation should have continued to be based solely
upon the risks it insured that were located within New Jersey, rather than upon
the total United States premium for the applicable coverage policies.
Accordingly, we reverse the Tax Court's contrary interpretation of the statute
which is at odds with the plain language of N.J.S.A. 17:22-6.64, and remand for
further proceedings.
The facts underlying the dispute between the parties are fully set forth in
the Tax Court's decision, Johnson & Johnson v. Director, Div. of Taxation, 30
N.J. Tax 479, 485-91 (Tax Ct. 2018), and are not in dispute. J&J is a New Jersey
corporation headquartered in New Brunswick that engages in a global
pharmaceutical, medical device, and consumer health care business. Id. at 485.
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In 1970, plaintiff formed Middlesex Assurance Company Limited
(Middlesex Assurance) to secure broader coverage and lower the costs and fees
associated with its substantial global insurance needs. Id. at 485-86.
Incorporated in Bermuda and subsequently re-domiciled in Vermont, Middlesex
Assurance provides insurance coverage only to J&J and J&J's risks in the United
States. Ibid. Middlesex Assurance can only conduct business in Vermont and
exclusively sells insurance coverage to J&J's corporate risk management group.
Id. at 486. Headquartered in New Brunswick, J&J's corporate risk management
group is responsible for placing and servicing the vast insurance programs that
cover J&J, its subsidiaries, and its affiliates. Ibid.
From an insurance perspective, Middlesex Assurance is a "single-parent"
or "pure" captive insurance company. Ibid. A captive insurance company is
one that insures the liabilities of its owner, who is typically its only shareholder
and insured. Black's Law Dictionary 926 (10th ed. 2010). A single parent or a
"pure" captive insurance company "insure[s] only the risk of its parent." Captive
Insurance Companies, https://www.naic.org/cipr_topics/topic_captives.htm
(last visited September 18, 2019).
The tax consequences that flow from this classification form the basis of
the parties' dispute in the present appeal. Specifically, this dispute arises as a
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result of statutory amendments our State's Legislature enacted in response to the
Nonadmitted and Reinsurance Reform Act (NRRA), 15 U.S.C. § 8201 to § 8206.
In relevant part, the NRRA specified rules for the reporting, payment, and
allocation of IPT for nonadmitted insurance. 15 U.S.C. § 8201(a).
By way of background, there are two different insurances markets:
admitted and nonadmitted insurance or, as they are known in New Jersey,
authorized and unauthorized. Johnson & Johnson, 30 N.J. Tax. at 495. An
"authorized insurer" is one who has a license to transact business within a
particular state whereas an "unauthorized insurer" is one who does not. See 2
Julie Mix McPeak, New Appleman on Insurance Law Library Edition §§ 9.06,
9.09. Although an unauthorized insurer does not have a license to transact
business in a given state, citizens have a constitutional right to purchase
insurance from the company of their choosing. See Allgeyer v. Louisiana, 165
U.S. 578, 588 (1897). Therefore, unauthorized insurance companies can still
issue insurance policies to residents of states in which they are not licensed
under certain circumstances. See, e.g. N.J.S.A. 17:22-6.42, -6.64.
In New Jersey, there are two main types of unauthorized insurance
markets: the surplus lines market and the self-procured market. See N.J.S.A.
17:22-6.64. As the Tax Court correctly stated in this case, these two markets
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"are separate and distinct from each other." Johnson & Johnson, 30 N.J. Tax at
502.
"Surplus lines insurance involves New Jersey risks which insurance
companies authorized or admitted to do business in this State have refused to
cover by reason of the nature of the risk." Railroad Roofing & Bldg. Supply Co.
v. Fin. Fire & Cas. Co., 85 N.J. 384, 389 (1981). The surplus lines market
involves insurance obtained from a surplus line agent who is licensed to place
coverage from a surplus lines insurer. N.J.S.A. 17:22-6.41, -6.42, -6.45. It is
regulated by the Surplus Lines Law, N.J.S.A. 17:22-6.40 to -6.67. That statutory
scheme defines a surplus lines agent as "an individual licensed as a surplus lines
insurance producer with surplus lines authority . . . to handle the placement of
insurance coverages on behalf of unauthorized insurers." N.J.S.A. 17:22-6.41(a)
(citation omitted). A surplus lines insurer is "an unauthorized insurer in which
an insurance coverage is placed or may be placed under [the] surplus lines law."
N.J.S.A. 17:22-6.41(b). The Surplus Lines Law outlines specific requirements
for eligibility as a surplus lines insurer, and explicitly does not apply to
"insurance coverages which are [self-procured] as provided in [N.J.S.A. 17:22-
6.64]." N.J.S.A. 17:22-6.40.
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The self-procured insurance market consists of unauthorized insurers
directly providing coverage to the insured. N.J.S.A. 17:22-6.64. Put differently,
this insurance is "independently procured" and obtained without the assistance
of a surplus lines agent. N.J.S.A. 17:22-6.40, -6.64. By definition then,
insurance that is independently or self-procured cannot be a surplus lines policy
since "such coverage[] . . . must be so placed through a licensed New Jersey
surplus lines agent." N.J.S.A. 17:22-6.42.
As the Tax Court properly recognized, "[c]aptive insurance . . . is a part
of the self-procured insurance market." Johnson & Johnson, 30 N.J. at 501.
While an insured may presumably use a captive insurance company to
independently procure surplus lines coverage through a surplus lines agent that
did not occur in the present case. Instead, J&J used Middlesex Assurance for
routine insurance coverage that included but was not limited to, "Worker
Compensation, Automobile Liability, General Liability, Product Liability,
Excess Product Liability, Executive Protection, Property, and Casualty
coverages." Id. at 485. None of the coverage that J&J procured can be
characterized as surplus lines insurance.
The taxation of surplus lines insurance and self-procured insurance
coverages are also separate and distinct. Prior to 2011, the year in which the
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NRRA went into effect, New Jersey collected IPT on all unauthorized insurance
covering New Jersey risks. Surplus lines insurance was taxed under the
authority of N.J.S.A. 17:22-6.59 (2010). That statute required the insurance
agent to "collect from the insured" a "tax of 5% of all gross premiums" charged
by the insurer, and to remit this amount to the State. Ibid. The statute further
stated: "If a surplus lines policy covers risks or exposures only partially in this
State, the tax payable shall be computed on the portion of the premium which is
properly allocable to the risks or exposures located in this State."
On the other hand, the tax on insurance coverage that an insured
independently procures from a captive insurer located outside the State is
handled differently. This is so because, as the Tax Court properly found, "the
New Jersey Legislature specifically and unambiguously determined that the
self-procurement statute [N.J.S.A. 17:22-6.64] was not subject to the Surplus
Lines Law." Johnson & Johnson, 30 N.J. Tax at 501. Indeed, N.J.S.A. 17:22-
6.40 specifically states that the Surplus Lines Law does not apply "to insurance
coverages which are independently procured as provided in" N.J.S.A. 17:22 -
6.64, which governs the taxation of the premiums paid for these coverages.
N.J.S.A. 17:22-6.40.
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Prior to the 2011 amendments at issue here, N.J.S.A. 17:22-6.64 (2010)
required the insured to directly pay a 5% tax (the IPT) on the gross premiums it
paid to procure "excess loss, catastrophe or other insurance" with an
unauthorized captive insurer. Johnson & Johnson, 30 N.J. Tax at 501. This tax
had to be paid only if the insurance provided coverage "upon a subject of
insurance resident, located or to be performed with this State, other than
insurance procured through a surplus lines agent pursuant to" N.J.S.A. 17:22-
6.59. N.J.S.A. 17:22-6.64 (2010).
To summarize:
From 1960 until 2011, the premium receipts tax
[paid by insurance agents under N.J.S.A. 17:22-6.59 for
surplus lines insurance coverage] and the self-
procurement tax [paid by the insured under N.J.S.A.
17:22-6.64 for coverage obtained from an unauthorized
captive insurer] were calculated based on an allocation
of the insured's risks within the state. If an insured had
risks outside of New Jersey, the tax only applied to that
portion of the premium allocable to the risks in New
Jersey. Other states with nexus to the insured were also
able to impose and collect nonadmitted IPT from the
insured.
[Johnson & Johnson, 30 N.J. Tax at 503.]
In 2008, J&J began to remit IPT to New Jersey under N.J.S.A. 17:22-6.64
after it reported to the Department of Banking and Insurance (DOBI) that it was
transacting business with Middlesex Assurance that would make it subject to
A-5423-17T3
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that statute. Id. at 488 n.8.1 J&J never purchased surplus lines insurance from
Middlesex Assurance and, therefore, the State never assessed it surplus lines
insurance tax under N.J.S.A. 17:22-6.59. Pursuant to the clear language of
N.J.S.A. 17:22-6.64, which provided that IPT was only to be assessed on
"subject[s] of insurance resident, located or to be performed within" New Jersey,
"[t]he amount of tax due [from J&J] was calculated . . . based only on that
portion of the premium allocated to risks in New Jersey." Johnson & Johnson,
30 N.J. Tax at 488.
In 2011, the NRRA became effective. Ibid. In pertinent part, the NRRA
created the "Home State Rule," which provides that "[n]o State other than the
home State of an insured may require any premium tax payment for nonadmitted
insurance." Id. § 8201(a). The NRRA defines "Home State" as either
(i) the State in which an insured maintains its principal
place of business or, in the case of an individual, the
individual's principal residence; or
(ii) if 100 percent of the insured risk is located out of
the State referred to in clause (i), the State to which the
greatest percentage of the insured's taxable premium
for that insurance contract is allocated.
[Id. § 8206(6)(A).]
1
J&J paid these taxes retroactive to 2005. Ibid.
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The NRRA also defines a nonadmitted insurer as an insurer who is not
licensed to engage in the insurance business of a particular state. Id. § 8206(11).
Nonadmitted insurance under the statute is "any property and casualty insurance
permitted to be placed directly or through a surplus lines broker with a
nonadmitted insurer eligible to accept such insurance." Id. § 8206(9).
The Tax Court accurately described the relevance of the enactment of the
NRRA to the statutory interpretation issue presented in our case in the following
terms:
The NRRA sought to clarify and simplify the
process for collecting nonadmitted premium taxes by
creating a uniform system of premium taxation for
nonadmitted insurance covering multistate risks. To
accomplish this, the NRRA provided that "no state
other than the home state of an insured may require any
premium tax payment for nonadmitted insurance"
("Home State Rule"). 15 U.S.C. § 8201(a).
[Johnson & Johnson, 30 N.J. Tax at 498.]
Significantly, the Tax Court noted, and we agree, that "[t]he NRRA does
not require taxation, nor does it specify that a home state has the authority to tax
100 percent of [United States] premiums. However, the Home State Rule gives
the home state the authority to tax all nonadmitted insurance premiums in the
[United States.]" Ibid. (emphasis added). "[I]n order for states to avail
themselves of this authority, and to offset the loss of tax revenue, they had to
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amend their nonadmitted IPT statutes." Id. at 499. However, nothing in the
NRRA required the states to do so either in whole or in part. Id. at 498.
Following the enactment of the NRRA, the New Jersey Senate introduced
legislation to "[r]evise methods of regulation and collection of surplus lines
insurance premium taxes." S. 2930 (2011) (emphasis added). As the Tax Court
specifically found after carefully reviewing the parties' submissions on the
question of legislative intent, nothing in the legislative history of the enactment
that followed, L. 2011, c. 119, indicated that the amendments related to anything
other than the taxation of insurance premiums paid for surplus lines coverage.
Johnson & Johnson, 30 N.J. Tax at 512. In short, the taxation of independently
procured insurance from an unauthorized captive insurer was not specifically
mentioned in any of the committee statements pertaining to the 2011
amendments.
With regard to those amendments, Section 1 of L. 2011, c. 119 amended
N.J.S.A. 17:22-6.41 to define "home state" consistently with how that term is
defined under NRRA. As noted above, prior to the 2011 amendment N.J.S.A.
17:22-6.59 provided that "[i]f a surplus lines policy covers risk or exposures
only partially in this State, the tax payable shall be computed on the portion of
the premium which is properly allocable to the risks or exposures located in this
A-5423-17T3
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State." However, Section 2 of L. 2011, c. 119 specifically amended N.J.S.A.
17:22-6.59 to permit the State, for the first time, to tax all the premiums
collected by the surplus lines agent for surplus lines coverage provided in New
Jersey and other states if New Jersey was the home state under N.J.S.A. 17:22 -
6.41. As amended, and in pertinent part, N.J.S.A. 17:22-6.59 now states:
If a surplus lines policy covers risks or exposures in this
State and other states, where this State is the home state,
as defined in [N.J.S.A. 17:22-6.41], the tax payable
pursuant to this section shall be based on the total
United States premium for the applicable policy.
Section 3 of L. 2011, c. 119 amended N.J.S.A. 17:22-6.64 to include the
same paragraph quoted immediately above. Thus, N.J.S.A. 17:22-6.64 now
states in pertinent part:
If a surplus lines policy covers risks or exposures
in this State and other states, where this State is the
home state, as defined in [N.J.S.A. 17:22-6.41], the tax
payable pursuant to this section shall be based on the
total United States premium for the applicable policy.
However, nothing else in the statute was changed. Thus, N.J.S.A. 17:22-6.64
continues to provide, as it did before the amendment, that the insured must pay
a 5% tax on the gross amount of any premium it pays to a nonadmitted captive
insurer "upon a subject of insurance resident, located or to be performed within
this State, other than insurance procured through a surplus lines agen t pursuant
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to the surplus lines law of this State or exempted from tax under [N.J.S.A. 17:22-
6.59]."
As stated above, J&J never purchased surplus lines coverage through
Middlesex Assurance and, on the face of the 2011 amendments which only
applied to surplus lines insurance, was still only required to pay IPT upon the
premiums it paid for coverage involving a "subject of insurance resident, located
or to be performed within" New Jersey. N.J.S.A. 17:22-6.64. Indeed, the record
contains no evidence that the State ever assessed J&J for a tax based on the total
premium it paid for all of the coverage it purchased from Middlesex Assurance
for risks or exposures in New Jersey and the other forty-nine states.
Nevertheless, and "as a precautionary measure," J&J "began to calculate
and remit [IPT] based on its total [United States] premiums" shortly after the
Legislature enacted L. 2011, c. 119 in August 2011. Johnson & Johnson, 30
N.J. Tax at 489. J&J continued to make these voluntary payments until
November 2015, when it filed a claim with DOBI and the Director of the
Division of Taxation (Division) seeking a refund of IPT in the amount of
$55,902,070.95, plus interest. Ibid.
The Division denied J&J's refund claim in August 2016, and J&J
thereafter filed a complaint against the Division and DOBI in the Tax Court. Id.
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at 489-90. Because the facts were not in dispute and the matter involved only a
question of law, the parties each filed motions for summary judgment. Id. at
490-91.
J&J argued that the 2011 amendments to N.J.S.A. 17:22-6.59 and N.J.S.A.
17:22-6.64 that allowed the State to impose an IPT based upon the total premium
paid by an insured for all risks covered in the entire United States only applied
to surplus lines insurance coverage. Here, J&J did not purchase any surplus
lines coverage from Middlesex Assurance and, therefore, it asserted that its IPT
should continue to be assessed based solely "upon [those] subject[s] of insurance
resident, located or to be performed within this State" as expressly stated in
N.J.S.A. 17:22-6.64.
In response, the Division and DOBI (sometimes referred to collectively as
the State) argued, as they do again in this appeal, that the Legislature has always
treated IPT imposed under N.J.S.A. 17:22-6.59 and -6.64 "as the same tax since
their enactment in 1960" and that the only difference between the two taxes is
that the surplus lines agent pays the tax under N.J.S.A. 17:22-6.59, and the
insured pays the tax directly under N.J.S.A. 17:22-6.64. The State also
contended that the fact that the Legislature only, and consistently, referred to
surplus lines insurance coverage when it amended these two statutes, was merely
A-5423-17T3
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a "loophole" that should not act to excuse J&J from paying taxes on coverage
that has never involved surplus lines insurance.
Following oral argument, the Tax Court rendered a written opinion on
June 15, 2018. For the most part, the Tax Court agreed with J&J's position.
Thus, the Tax Court found that while N.J.S.A. 17:22-6.64 was included in the
Surplus Lines Law, this provision is merely "a catch-all for nonadmitted insurers
not regulated by the Surplus Lines Law." Johnson & Johnson, 30 N.J. Tax at
501. Indeed, the Tax Court noted that "[d]espite being contained within the four
corners of the [Surplus Lines Law,] the New Jersey Legislature specifically and
unambiguously determined that the self-procurement statute [N.J.S.A. 17:22-
6.64] was not subject to the Surplus Lines Law." Ibid. Accordingly, the Tax
Court concluded that "self-procured insurance coverages" that an insured
procures from an unauthorized captive insurance company, which is not surplus
lines coverage, "are exempt from the provisions of the Surplus Lines Law, and
have their own prescribed tax, albeit at the same rate as the premium receipts
tax" paid for surplus lines coverage under N.J.S.A. 17:22-6.59. See id. at 501,
510.
The Tax Court further found that the Legislature "did not remove the
portion of the original statutory language in N.J.S.A. 17:22-6.64 that applied the
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[IPT] to premiums paid 'upon a subject of insurance resident, located or to be
performed within this State.'" Id. at 509. And, as noted above, the Tax Court
specifically held that there was no pertinent legislative history indicating any
intent by the Legislature to permit the State to tax an insured under N.J.S.A.
17:22-6.64 on the total premium it paid for all the coverage it obtained
throughout the United States. Id. at 512.
The Tax Court also rejected the State's contention "that the term 'surplus
lines policy' is applicable to both types of insurance" under N.J.S.A. 17:22-6.59
and -6.64. Id. at 511. As the Tax Court stated, J&J had not obtained any surplus
lines coverage from Middlesex Assurance. Id. at 485. Thus, the Tax Court held
that the State's application of this term was "contrary to the NRRA, contrary to
the Surplus Lines law, and not meaningfully defensible." Id. at 511.
Nevertheless, the Tax Court ruled that the Legislature must have intended
to include the insurance J&J procured under N.J.S.A. 17:22-6.64 "in the
adoption of the Home State Rule because it intended to include all nonadmitted
insurers, and not to limit it to only surplus lines insurance." Id. at 512. In
support of this determination, the Tax Court stated that the Legislature amended
N.J.S.A. 17:22-6.64 at the same time it amended N.J.S.A. 17:22-6.59.
Therefore, the Tax Court reasoned that the Legislature likely intended to treat
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both types of insurance the same by basing the tax upon total United States
premiums rather than upon the premium paid to cover New Jersey risks and
exposures. Ibid. Otherwise, the Tax Court held, there was no reason for the
Legislature to refer to surplus lines coverage in its amendment to N.J.S.A.
17:22-6.64. Id. at 512-13.
At the same time, however, the Tax Court recognized that the Legislature
"fail[ed] to remove the original language [in N.J.S.A. 17:22-6.64] allocating the
IPT to the location of the risk" rather than permitting an assessment to be made
on the total United States premium. Id. at 513. Even so, the Tax Court
concluded that "[w]hile reasonable minds may disagree, this court finds the
legislative intent to be more persuasive than the precise language of N.J.S.A.
17:22-6.64. Furthermore, the court has hope that, beginning with this decision,
any confusion and inconsistences will be addressed and remedied." Id. at 512-
13. This appeal followed.
On appeal, J&J contends that the Tax Court erred by interpreting N.J.S.A.
17:22-6.64 as subjecting it to the Home State Rule and requiring it to pay IPT
on the total premium it pays for all of the insurance it procures through
Middlesex Assurance throughout the United States. J&J points out that the
Legislature in both N.J.S.A. 17:22-6.59 and -6.64 only extended the Home State
A-5423-17T3
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Rule to surplus lines policies, which J&J has never procured from Middlesex
Assurance. Indeed, the Legislature did nothing to alter the language in N.J.S.A.
17:22-6.64 that clearly provides that J&J is only required to pay IPT for the
insurance it obtains from Middlesex Assurance "upon a subject of insurance
resident, located or to be performed within this State, other than insurance
procured through a surplus lines agent pursuant to the surplus lines law of this
State[.]" Because the Tax Court extended the Home State Rule beyond the limits
established by the Legislature, J&J argues that the Tax Court's decision should
be reversed. We agree.
Our standard of review of the Tax Court's decision is well settled. We
review the Tax Court's grant of summary judgment to the State de novo,
applying the same legal standards employed by that tribunal. Waksal v.
Director, Div. of Taxation, 215 N.J. 224, 231-32 (2013). While the "factual
findings of a Tax Court judge are entitled to deference because of that court's
expertise in the field, the judge's interpretation of a statute is not subject to such
deference" under our de novo review. Id. at 231 (quoting Advance Hous., Inc.
v Twp. of Teaneck, 422 N.J. Super. 317, 327 (App. Div. 2011)).
Here, we must determine whether J&J is obligated to pay a tax under the
2011 amendment to N.J.S.A. 17:22-6.64 on the premium it pays Middlesex
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Assurance for the insurance coverage it receives for subjects located in New
Jersey, or for all of the insurance coverage it maintains throughout the United
States. In interpreting statutes, our primary goal is discerning the Legislature's
intent. Garden State Check Cashing Serv. Inc. v. State, Dep't of Banking & Ins.,
237 N.J. 482, 489 (2019). "[G]enerally, the best indicator of that intent is the
statutory language." Ibid. (quoting DiProspero v. Penn, 183 N.J. 477, 492
(2005)). Thus, our analysis of a statute begins with its plain language, giving
the words their ordinary meaning and significance. Ibid. Where the language
is clear and unambiguous, and subject to only one interpretation, we must infer
the Legislature's intent from the statute's plain meaning. Ibid.; O'Connell v.
State, 171 N.J. 484, 488 (2002). "A court may neither rewrite a plainly-written
enactment of the Legislature nor presume that the Legislature intended
something other than that expressed by way of the plain language." O'Connell,
171 N.J. at 488.
These principles of statutory interpretation apply equally in the context of
tax statutes with one additional constraint. As our Supreme Court has explained,
two considerations guide our analysis of a tax statute:
First, the court should follow the clear import of
statutory language . . . Second, when interpretation of a
taxing provision is in doubt, and there is no legislative
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history that dispels that doubt, the court should construe
the statute in favor of the taxpayer.
[Fedders Fin. Corp. v. Dir., Division of Taxation, 96
N.J. 376, 384 (1984) (citation omitted).]
Applying these standards, we are constrained to conclude that the Tax
Court erred in interpreting the 2011 amendment to N.J.S.A. 17:22-6.64 to permit
the State to assess IPT on all of the premiums paid by J&J for insurance coverage
it obtained through Middlesex Assurance throughout the United States. Nothing
in the plain language of the statute, as amended, supports this interpretation.
Prior to the amendment, N.J.S.A. 17:22-6.64 expressly stated:
Every insured who in this State procures or
causes to be procured or continues or renews insurance
with an unauthorized foreign or alien insurer, or any
insured or self-insurer who procures or continues
excess loss, catastrophe or other insurance, upon a
subject of insurance resident, located or to be
performed within this State, other than insurance
procured through a surplus lines agent pursuant to the
surplus lines law of this State . . . under [N.J.S.A.
17:22-6.59] . . . [shall pay] a tax at the rate of 5% of the
gross amount of such premium less any return
premiums charged for such insurance.
This language, which clearly limited J&J's tax liability to the risks it
insured in New Jersey, was not changed in any way, shape, or form in the 2011
amendment to N.J.S.A. 17:22-6.64. See L. 2011, c. 119, § 3. Thus, J&J had no
obligation to pay an additional tax on the premiums it paid to insure risks outside
A-5423-17T3
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of this State. Because the language of the statute is plain, and remained the same
after the 2011 amendment, we are bound to follow and apply it.
In reaching its contrary conclusion, the Tax Court pointed to the fact that
the Legislature included a paragraph in N.J.S.A. 17:22-6.64 concerning the
taxation of surplus lines coverage. As already noted, this paragraph stated:
If a surplus lines policy covers risks or exposures
in this State and other states, where this State is the
home state, as defined in [N.J.S.A. 17:22-6.41], the tax
payable pursuant to this section shall be based on the
total United States premium for the applicable policy.
The Tax Court reasoned that because this provision refers to the Home State
Rule and permits the State to impose a tax on premiums paid throughout the
entire United States on surplus lines policies, the Legislature must have intended
to also apply that same tax to all of J&J's insurance coverage throughout the
country. Johnson & Johnson, 30 N.J. Tax at 512. We disagree.
As previously discussed, the above paragraph is limited by its express
terms to "surplus lines polic[ies] cover[ing] risks or exposures in this State and
other states[.]" J&J does not procure surplus lines coverage from Middlesex
Assurance. Thus, this paragraph of N.J.S.A. 17:22-6.64 is simply inapplicable
to J&J.
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The Tax Court also stated that there was no reason for the Legislature to
include this paragraph in N.J.S.A. 17:22-6.64 because it had already included it
in N.J.S.A. 17:22-6.59, which specifically applies to surplus line insurance.
Ibid. Although the Tax Court stated it would
not speculate on how or why the term "surplus lines
policy" was used when amending N.J.S.A. 17:22-6.64
to conform to the NRRA[,] [t]he court [was] convinced
that the New Jersey Legislature intended to include
self-procured insurance in the adoption of the Home
State Rule because it intended to include all
nonadmitted insurers, and not to limit it to only surplus
lines insurance. There is no other reason to have
amended N.J.S.A. 17:22-6.64 in 2011.
[Ibid.]
However, nothing in the plain language of N.J.S.A. 17:22-6.64 supports
this interpretation. Even if the language of the statute is somehow ambiguous,
the Tax Court specifically found that there was nothing in the legislative history
of L. 2011, c. 119 that even discusses the self-procurement statute. Ibid. Under
these circumstances, we are unable to conclude that the Legislature, by
specifically stating that the Home State Rule only applied to surplus insurance
coverage obtained through surplus line agents, likewise intended to extend it to
the types of insurance coverage procured by J&J from Middlesex Assurance.
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Thus, we believe that the Tax Court erred by effectively rewriting N.J.S.A.
17:22-6.64 to apply to J&J. O'Connell, 171 N.J. 488.
Moreover, even if the Legislature's action in specifically referring to
surplus lines policies in N.J.S.A. 17:22-6.64 rendered that statute ambiguous,
and its application to non-surplus lines insurance in doubt, this doubt would
have to be resolved in J&J's favor. Fedders Fin. Corp., 96 N.J. at 384. Indeed,
as the Supreme Court made clear in Fedders:
In the interpretation of statutes levying taxes[,] it is the
established rule not to extend their provisions, by
implication, beyond the clear import of the language
used, or to enlarge their operations so as to embrace
matters not specifically pointed out. In case of doubt[,]
they are construed most strongly against the
government, and in favor of the [taxpayer].
[Id. at 385 (quoting Gould v. Gould, 245 U.S. 151, 153
(1917)).]
Thus, the Home State Rule tax applicable to surplus lines policies and premiums
should not be imposed upon J&J.
In sum, the plain language of N.J.S.A. 17:22-6.64 does not apply to J&J.
This is so because J&J obtained insurance from Middlesex Assurance, a
subsidiary and a captive insurance company. The insurance was self-procured
and was not obtained from either a surplus lines insurer or a surplus lines agent.
It was definitely not a surplus lines policy, a condition precedent to the
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application of the Home State Rule under the clear language of the statute. Thus,
the Tax Court erred in extending the Home State Rule to J&J.
Accordingly, we reverse the Tax Court's denial of J&J's refund request,
and remand for a determination of the amount of the refund due J&J.
Reversed and remanded. We do not retain jurisdiction.
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