Mercury Casualty Co. v. State Board of Equalization

Plaintiff appeals from an adverse judgment in an action involving the validity of a tax. We reverse.

I

Plaintiff is an insurance company, doing business in California, writing only so-called “casualty” insurance. As such', it is taxable by the State of California at a rate based on the “gross premiums” received by it from its business in this state. Plaintiff offers to prospective insureds the option of either paying, in advance, in cash, the annual premiums on policies written by it, or of paying part of such premiums in cash and partly by an installment note for the balance. In the latter case, the insured is charged an amount calculated to cover the increased overhead to plaintiff for handling the notes and collecting them, plus a sum equal to interest at the going rate on the principal of the notes.

Plaintiff treats the face of the note as part of the “gross premium” and pays the “gross income” tax thereon; it also treats the “service charge” as part of the premium and pays the tax thereon. It regards the interest charged as not being part of the “gross premium” and, in this litigation, resists the board’s position that it is a third element of the “gross premium.”…