Farmers Underwriters Ass'n v. Franchise Tax Board

The sole issue on this appeal is the effective date of the 1963 amendments to Insurance Code, section 1530, and to Revenue and Taxation Code, section 12003 (Stats. 1963, eh. 1909). These amendments were intended to equalize the tax treatment of stock, mutual, and reciprocal insurers by reducing the amount of corporate franchise taxes paid by corporate attorneys in fact for reciprocal insurers.

Plaintiffs are corporate attorneys in fact which manage the insurance business of their respective reciprocal or interinsurance exchanges. Before the 1963 amendments, each plaintiff paid a corporate franchise tax on its entire net income in the same manner as other corporations within the state. The corporate franchise tax is a tax on the privilege of doing business in any given year, and its amount is calculated as a percentage of the corporation’s net income for the preceding year. (Rev. & Tax. Code, § 23151.) Under the 1963 amendments, plaintiffs’ income from the management of insurance exchanges is no longer taken into consideration in the calculation of their franchise taxes. Instead, each plaintiff is treated as a single unit with its insurance exchange and the unit pays a tax on the…