THEA-~--~• RNEYGENERAL
OF TEXAS
PRICE DANIEL
**IORNEY GENERAL
March 9, 1948
Honorable George B. Butler
Chairman Opinion No V-516
Board of Insurance Commissioners
Austin, Texas Re: The taxability of reinsur-
ante premiums of a for _
eign corporation when the
gross premium tax has
been paid by the initial
insurer, a Texas corpo-
ration. in which the for-
eign corporation in ques-
tion owns h majority of
the capitll stock.
Dear Sir:
You have requested the opinion of this Department upon the
following factual situation:
“Lawyers Title of Texas, Inc., was chartered by
the State of Texas on the 28th day of September, 1937,
under the provisions of Section 49, Article 1302, of
the Revised Civil Statutes of the State of Texas. The
purpose clause is as follows: ‘To accumulate and
lend money; purchase, sell and deal in notes, bonds
and securities, but without banking and discounting
privileges; to act as Trustee under any lawful ex-
press trust committed to them by contract and as
Agent for the performance of any lawful act.’ Law-
yers Title of Texas, Inc., has been acting as General
Agent in Texas for Lawyers Title Insurance Corpora-
tion, a Virginia corporation, having a certificate of
authority to do a title insurance business in Texas.
“The stockholders and directors of Lawyers Ti-
tle of Texas, Inc., contemplate the organization of a
title insurance company to be formed under the pro-
visions of Article 1302(a) of Vernon’s Annotated Civil
Statutes, with a capital stock of at least $100.000.00
and in compliance with all other provisions of the law.
“The corporation will be organized with Texas
citizens as original incorporators and subscribers
Honorable George B. Butler, Page 2 (v-516)
to the capital stock; however, it is contemplated that
ultimately Lawyers Title Insurance Corporation of
Richmond, Virginia, will acquire all of the common
stock of the proposed corporation, with the exception
of several qualifying shares.
“It is further contemplated that at least for the
first two or three years of operations it will be net-
essary for the proposed corporation to reinsure a
substantial part of its business, and it is proposed
that all of such reinsurance will be offered to Law-
yers Title Insurance Corporation. It is the present
belief of the officers and directors of Lawyers Title
of Texas, Inc., that as much as g!3% of the business
of the proposed corporation will be re-insured for
the first several years of operations.
“The Lawyer’s Title Insurance Corporation of
Virginia first secured a certificate of authority from
the Board of Insurance Commissioners in 1937 under
the provisions of Article 1302a. Vernon’s Annotated
Civil Statutes, which has been renewed annually there-
after and will in due course file its application for re-.
newal for the year 1948.
“The proposed local corporation will operate as
a corporate entity wholly separate and apart from
Lawyers Title Insurance Corporation. It will hold
its stockholders and directors meetings in Texas,
whereas those of Lawyers Title Insurance Corpora-
tion will be held in Richmond, Virginia. The records
of the two corporations will be kept separately. The
management of the two corporations will be entirely
separate; however, it is contemplated that there will
be some interlocking of officers and directors. There
will be no agency relationship between the two corpo-
rations, and the proposed local corporation will not
be represented to the public or to its customers as
being the same corporation as Lawyers Title Insur-
ance Corporation.
“In the light of the facts presented above, I am
requesting your opinion and answer to the following
questions.
“1. Under the provisions of Article 7064, Revis-
ed Civil Statutes, as amended, which provides that
where the gross premium tax has been paid by the in-
suring, no taxes are payable by the reinsuring company
-c -
Honorable George B. Butler, Edge 3 (V-516)
upon contracts of reinsurance, would there be
any tax due by the Lawyers Title Insurance Cor-
poration of Richmond, Virginia, incident to its
reinsurance of policies originally issued by the
proposed corporation7
“2. Would the premiums collected by the
proposed local corporation upon its policies be
treated as received by Lawyers Title Insurance
Corporation for purposes of computing the gross
premiums tax of the latter corporation7 n
Article 7064, R. C. S. Texas, 1925, as amended, is in
part as follows:
“Every insurance corporation . . . and any
other organization or concern transacting the
business of . . title . . . or any other kind or
character of insurance business . . , at the time
of filing its annual statement, shall report to the
Board of Insurance Commissioners the gross a-
mount of premiums received upon property locat-
ed in this State or on risks located in this State
during the preceding year, and each of such in-
surance carriers shall pay an annual tax upon
such gross premium receipts of three and five-
tenths per cent (3.5%) . . . and the gross premi-
um receipts where referred to in this law shall
be the total gross amount of premiums received
on each and every kind of insurance or risk writ-
ten, except premiums received from other licensed
companies for remsurance, less return premiums
and dividends paid policyholders, but there shall
”
be no deduction for premiums paid f or remsurance.. . .
mphasrs added)
Section 5, Article 1302a. V. A. C. S., is as follows:
“Any foreign or domestic corporation issuing
any form of policy or underwriting contracts or
charging any premium rates to the public on either
owners’ or mortgagees’ certificates or underwriting
contracts on Texas properties other than forms and
rates prescribed by the Board of Insurance Commis-
sioners, hereunder, shall forfeit its right to do busi-
ness in Texas; but this shall not be construed as in-
tended to require the charge made by one title inaur-
ante company, qualified to do business under this
Act and doing a general title insurance business for
Honorable George B. Butler, Page 4 (v-516)
the public in this State for reinsuring or under-
writing all or any part of the business of another
such company, to be the same as the charge to the
public. *’
Section 11, Article 1302a, V. A. C. S., is as follows:
“>:o company operating under the provisions of
this Act shall issue any policy of title insurance in-
volving a contingent liability on said koiicy of more
than fifty per cent of the capital stock and surplus
of the company, unless the excess shall be simulta-
neousiy reinsured in some other responsible company
qualified to do business in Texas. Such company may
reinsure any or all of its business provided the rein-
suring company shall be qualified to do business in
Texas and the reinsuring contract shall be first ap-
proved by the said Board.”
Section 22, Article 1302a. V. A. C. S., is as follows:
“Any corporation organized and incorporated
under the laws of any other state, territory or coun-
try for the purpose of transacting a title insurance or
title guaranty business shall be required to pay the
same filing fees and occupation tax as any foreign
casualty company is required to pay in order to pro-
cure a permit to do business in Texas. Such foreign
title companies will not be required to pay a franchise
tax. ”
According to the facts above stated, the proposed Texas
title insurance company which will be organized as a Texas corpo-
ration under the provisions of Art. 1302:~. V. A. C. S. may in the
future reinsure part of its anticipated business with Lawyers Ti-
tle Insurance Corporation, a Virginia corporation holding a cer-
tificate of authority to engage in the title insurance business in
Texas under the provisions of Art. 1302a. which certificate of au-
thority was first granted by the Board of Insurance Commissioners
.in 1937 and has since. been annually renewed. The proposed Texas
title insurance company will, of course, be subject to and liable for
the payment of the gross premium tax under the provisions of Art.
‘7064, supra. Hence, as to such title insurance business it may re-
insure with Lawyers Title Insurance Corporation, a Virginia cor-
poration, in accordance with the above Sections of Art. 1302a. the
domestic corporation will be allowed no deduction for the premiums
paid the Virginia corporation for reinsurance.
Also under the provisions of Art. 7064 the Lawyers Title
. ,. _
Honorable George B. Butler, Page 5 (V-516)
,., (
Insurance Corporation, a Virginia corporation, will be subject to
and liable for the gross premium tax on all insurance or risks
written in Texas under its certificate of authority *except premi-
ums received from other licensed companies for reinsurance.”
which, of course, would be applicable to all premiums for rein-
surance received from the proposed Texas corporation.
In answer to your first question there would not be any
tax due the State of Texas by the Lawyers Title Insurance Corpo-
ration, a Virginia corporation, upon premiums received for refn-
surance of policies originally issued by the proposed Texas cor-
poration.
Since the provisions of Art. 7064, supra, which provide
for the report to the Board of Insurance Commissioners, in con-
nection with filing its annual statement, of the gross amount of
premiums received upon property or risks located in this State,
as the term gross premium is defined in the article, the premi-
ums received for reinsurance by the Virginia corporation from
the Texas corporation would not be reported upon the Virginia
corporation’s annual statement; and hence the answer to your
second question is “no.”
Your request states that the Texas corporation will be
organized with Texas citizens as original incorporators and sub-
scribers to the capital stock, but that ultimately all of the common
stock of the proposed corporation, with the exception of several
qualifying shares, may be acquired by the Lawyers Title Insurance
Corporation, a Virginia corpor,ation. Under the rule of law an-
nounced in the case of State Y. Swift & Company, 187 S.W. (2) 127.
132-133 (err. ref.), such ultimate stock ownership in the Texas
corporation by the Virginia corporation is not forbidden by either
the laws or the public policy of the State of Texas and is not per se
unlawful, unless the result of such ownership is to create a trust
or restraint of trade or would be in furtherance of an attempt to
evade the laws of the State of Texas, No such intention being ap-
parent from your request, it is presumed that the ultimate acqui-
sition of the stock in the Texas corporation by the Virginia corpo-’
ration is for a lawful purpose, and therefore further discussion is
here pretermitted.
SUMh4AR Y
Under the provisions of Art. 7064. R.C.S., as
amended, where the gross premium tax due for in-
surance written on property or risks located in the
State of Texas is payable by a domestic title insur-
ance corporation and such risks are reinsured by a
foreign title insurance company authorized to do
. e-
Honorable George B. Butler, Page 6 (v-516)
business in Texas, no tax is due thereon by the re-
insuring foreign title insurance company. The pre-
miums for reinsurance received by the foreign ti-
tle insurance company from the domestic title in-
surance company for reinsuring the original risk
do not constitute a part of the taxable gross premi-
ums to be reported by the foreign title insurance
company.
Yours very truly
ATTORNEYGENERALOF TEXAS
BY
C. K Richards
Assistant
CKR/JCP
APPROVED
ASSLS TANT