CARPENTER v. PEOPLES MUT. LIFE INS. CO. et al.5n*
Two appeals are before us from the same judgment rendered by the trial court. One appeal is by the insurance commissioner of the state of California from that part of the judgment wherein it was decreed that the Peoples Mutual Life Insurance Company, a California corporation, was liable for the state insurance company tax which was assessed by the state board of equalization between the first Monday in March, 1933, and the first Monday in July of that year, notwithstanding the fact that the company was not doing business in this state on the first Monday in March, 1933, and had been prohibited from doing business in this state by order of the Superior Court, dated November 10, 1932, decreeing its insolvency and directing its liquidation. From that holding, the insurance commissioner, as statutory liquidator of the company, takes this appeal.
The second appeal is taken by the state controller from that part of the judgment which decreed that the insurance company, which was ordered liquidated by the Superior Court of the county of Los Angeles on November 10, 1932, and which thereafter did no business in California, was liable for penalties for default in the payment of taxes accruing prior to November 10, 1932, the date of the order of liquidation, but was not liable for penalties accruing after the date of such liquidation order.
The facts are undisputed, and epitomized, are that Peoples Mutual Life Insurance Company was an insurance company doing business as such in the state of California during that portion of the calendar year 1932 prior to November 10, 1932, on which day the court below, after full hearing upon the petition of the state insurance commissioner, adjudged the company insolvent, terminated its right to do business, and ordered it liquidated pursuant to the provisions of Act 3739 of Deering's General Laws 1931 (Stats. 1919, p. 265, and amendments thereto). By said order the insurance commissioner was appointed liquidator. At no time after November 10, 1932, was the company engaged in the business of insurance or doing business as an insurance company, in the state of California or elsewhere. Between the first Monday in March, 1933, and the first Monday in July, 1933, the state board of equalization purported to assess and levy a state tax against said company in the sum of $2,284.70, representing the statutory percentage of the gross premiums received by the company from business done by it in California during the calendar year 1932, less the deductions provided by law. That tax was not paid. The state controller filed with the liquidator a claim of the state of California for the tax in question. The claim was rejected by the liquidator, whereupon the action of the liquidator was reviewed by trial had in the manner provided by section 8c of the liquidation statute (as added, Stats. 1933, p. 1422 [Gen. Laws Supp.1933, No. 3739]).
On the appeal taken by the state insurance commissioner as liquidator, it is contended that the state insurance company tax imposed by section 14 of article 13 of the Constitution of California, as added in 1910, see St.1910, 2d Ex.Sess., p. 14, is a property tax; that it is imposable only upon a company doing business on the tax accrual date; that the accrual date of said tax for the 1933 levy was the first Monday in March of 1933; and that Peoples Mutual Life Insurance Company was not subject to that tax for the year 1933 because it was not doing business and was prohibited from doing business on the first Monday in March, 1933. Appellant insurance commissioner earnestly asserts that the test of tax liability is the existence of taxable property on the first Monday in March, and that because the insurance company was not engaged in the business of insurance on the first Monday in March, 1933, and had not been so engaged since November 10, 1932, the state board of equalization was without authority to levy what appellant insurance commissioner contends was a property tax as of the first Monday in March, 1933.
Appellant insurance commissioner argues that under subdivision (a) of section 14 of article 13 of the Constitution, there is imposed the so–called state gross receipts tax upon railroad companies, car companies, telegraph and telephone companies, and gas and electric companies; that our Supreme Court has declared that said tax upon each of these utilities was a property tax and not an excise or privilege tax; and that it follows therefrom that subdivision (b) of the same constitutional provision which we have under consideration imposes the same so–called state gross premiums tax upon insurance companies, and that the same constitutes a property tax and not an excise or privilege tax. However, our Supreme Court, in the case of Consolidated Title Securities Co. v. Hopkins, 1 Cal.(2d) 414, 417, 35 P.(2d) 320, 323, certiorari denied 294 U.S. 716, 55 S.Ct. 515, 79 L.Ed. 1249, declared that there are important distinctions between those provisions of section 14, subdivision (a), of article 13, establishing the public utilities gross receipts tax, and the provisions of section 14, subdivision (b), under which insurance companies are required to pay a gross premiums tax, by reason of which the decisions under the public utilities tax provisions are not necessarily controlling as to insurance companies. In the case just referred to, the Supreme Court, 1 Cal. (2d) 414, at page 418, 35 P.(2d) 320, after explaining that the theory of the public utilities tax under section 14, subdivision (a), is that gross receipts from operation furnish a fair measure for estimating the value of operative property and computing the tax upon it, uses this decisive language with reference to the tax on insurance companies, 1 Cal.(2d) 414, at page 419, 35 P.(2d) 320, 323: “The gross premiums tax required to be paid by insurance companies, although in lieu of certain taxes upon property, is not, like the public utilities gross receipts tax, by the terms of the constitutional provision itself a tax upon property. Rather, [italics added] it is a franchise tax exacted for the privilege of doing business in this state, and is recognized as such in the amendment to section 14 which goes into effect on January 1, 1935.” We therefore hold that the tax on insurance companies levied pursuant to section 14, subdivision (b), of article 13 of the Constitution is an excise or privilege tax and not, as contended by appellant insurance commissioner, a property tax. The trial court, therefore, was correct in holding that Peoples Mutual Life Insurance Company became liable for the tax here in question during 1932, because it received in the course of doing business the premiums upon which the tax was imposed, and such tax is for the privilege of doing business during the year in which the premiums were received by the insurance company.
We come now to a consideration of the question raised on the appeal by the state controller as to whether a penalty for delinquency in payment of the state insurance company tax is a legal charge against the estate of an insolvent company when the date for the accrual of the penalty succeeded the appointment of the state insurance commissioner as liquidator of the company under an order of the superior court placing the commissioner officially in possession of the company property, terminating the transaction of business by the company, and directing that the company be liquidated and its affairs wound up. In our opinion, a delinquency penalty set by statute to attach on a date succeeding a liquidation or wind–up order, such as the one involved here, is not a proper charge against the insolvent company. Contrary to the drift of some decisions, we hold that the status of delinquency tax claims becomes fixed upon the appointment of liquidators or receivers. The property then comes into custodia legis, subject to be handled and the proceeds of its sale distributed by the court, the instrument of the law, according to principles which govern the settlement of estates of that kind. In such an instance, the state cannot impose a penalty upon the lawful custodian. Had the property and assets of the insurance company come to the liquidator burdened with penalties, then, of course, he must pay them; but if it comes to the liquidator free from such burden, neither the liquidator nor the estate can be penalized for making distribution in the way the court directs. Liquidators are sub potestate curiae; and insolvent estates are under the protection of the law. Delay incident to the orderly settlement of an estate is an act of the law, not to be disturbed by impatient claimants. We think the instant case is controlled by the general rule that after property of an insolvent corporation has passed into the hands of its receivers, interest or penalties for the nonpayment of taxes, which penalties arise after such passing, are not allowable on claims against the funds or assets of such insolvent company. In the case before us, the status of all claims against the insolvent company, including tax claims, became fixed as of November 10, 1932, when the Superior Court made its order for liquidation, and the rights of the company creditors, including the state of California, and the liabilities of the insolvent company to its various obligees, including the state, became fixed as of that date. Williams v. American Bank, 4 Metc. (Mass.) 317, 323; McGinnis v. Corporation Funding Co. (D.C.) 8 F.(2d) 532; People v. American Loan & Trust Co., 172 N.Y. 371, 65 N.E. 200; Thomas v. Western Car Co., 149 U.S. 95, 96, 13 S.Ct. 824, 37 L.Ed. 663.
Concerning appellant's final contention, that in the event of our holding that the state is not entitled to the penalties, the trial court should nevertheless have ordered the liquidator to pay, in the regular course of administration, the ordinary legal rate of interest on the state's claim, if there be sufficient funds therefor, we find ourselves in accord with the holding in First Nat. Bank v. Cent. Coal, etc., Co. (D.C.) 3 F.Supp. 433, 438, where it is said: “It remains to consider the item of interest and penalties. It is apparent from the facts disclosed by the record in this case that interest and any penalties accrued after the property passed into the hands of the receiver. I am of the opinion that the better rule is that interest and penalties are not allowable in receivership proceedings. The reason is fairly stated in Thomas v. Western Car Co., 149 U.S. 95, 13 S.Ct. 824, 37 L.Ed. 663.” In the decision of the Supreme Court of the United States in Thomas v. Western Car Co., supra, it is said of “interest in the nature of a penalty” that: “As a general rule, after property of an insolvent passes into the hands of a receiver * * * interest is not allowed on the claims against the funds. The delay in distribution is the act of the law; it is a necessary incident to the settlement of the estate.” The order made by the trial court in connection with the application for imposition of penalties upon deliquent taxes was correct.
For the foregoing reasons, the judgment or “order” appealed from is in all respects affirmed.
WHITE, Justice pro tem.
We concur: YORK, Acting P. J.; DORAN, J.