Hecht Dissent in First American Title v. Comptroller Combs (Tex. May 16,
Also see: Majority Opinion in First American Title Ins. Co. v. Combs (Tex. 2008)(by
First American Title Ins. Co. v. Susan Combs, Comptroller, No. 05-0541 (Tex. May 16, 2008)(Majority
Opinion by Don Willett) (taxation of out-of-state insurers, retaliatory tax)
FIRST AMERICAN TITLE INSURANCE COMPANY AND OLD REPUBLIC NATIONAL TITLE INSURANCE
COMPANY v. SUSAN COMBS, COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS,
AND GREGG ABBOTT, ATTORNEY GENERAL OF TEXAS; from Travis County; 3rd district (03-04-
00342-CV, 169 S.W.3d 298, 06-03-05)
The Court affirms the court of appeals' judgment.
Justice Willett delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Harriet O'Neill,
Justice Paul W. Green, and Justice Phil Johnson joined.
Justice Hecht delivered a dissenting opinion, in which Justice Dale Wainwright, Justice Scott A. Brister,
Justice David Medina joined.
Terms: State taxation law | regulation of insurance business | retaliatory taxes on out of state insurance
companies | discriminatory taxation | discrimination against foreign corporation | preference to domestic
in-state corporations | interstate commerce clause | equal protection challenge |
See more --> 2008 Texas Supreme Court Opinions | Per Curiam Opinions | 2007 Texas Supreme Court
Dissent by Justice Hecht in First American Title Company v. Combs (Tex.
Argued April 11, 2007
Justice Hecht, joined by Justice Wainwright, Justice Brister, and Justice Medina, dissenting.
Texas, like most other states, taxes gross premiums for insurance of risks and property in the state,
 and like every other state but Hawaii, Texas imposes an additional retaliatory tax on out-of-state
insurers doing business in Texas whose home states tax more heavily than Texas does, all other things
being equal. Such retaliatory taxes have been “a common feature of insurance taxation for over a
century”, and though they obviously impinge on interstate commerce, they do not implicate the
“implied limitation on the power of the States to interfere with or impose burdens on interstate
commerce” contained in the Commerce Clause of the United States Constitution because “Congress
removed all Commerce Clause limitations on the authority of the States to regulate and tax the business
of insurance when it passed the McCarran-Ferguson Act.” But the Fourteenth Amendment Equal
Protection guaranty does not permit states to impose “more onerous taxes or other burdens on foreign
corporations than those imposed on domestic corporations, unless the discrimination between foreign
and domestic corporations bears a rational relation to a legitimate state purpose.” “[T]he principal
purpose of retaliatory tax laws is to promote the interstate business of domestic insurers by deterring
other States from enacting discriminatory or excessive taxes.” The United States Supreme Court has
held that this purpose is legitimate and that a retaliatory tax rationally related to it does not violate Equal
Texas’ retaliatory tax, first enacted in 1935 and consistently applied until this case, falls squarely
within the Supreme Court’s holding. But in this case, the Comptroller has reinterpreted the statute as it
applies to title insurers, multiplying the tax due and transforming it into a penalty on nonresident insurers
doing business in Texas. This sudden departure from the settled application of the retaliatory tax was
not prompted by any legislative revision of the statute or any change in retaliatory taxation in other
states. The only apparent purpose for the Comptroller’s new position is to generate revenue from
nonresident title insurers simply because they are nonresident. In my view, the Comptroller has
misconstrued the tax statute so that it now violates Equal Protection. Because the Court disagrees, I
When insurance is sold through an agent, the insurer and the agent share the premium revenue. For
title insurance in Texas, the revenue division is set by the Commissioner of Insurance. During the
times material to this case, that division has been 15% to the insurer and 85% to the agent. For
decades, the retaliatory tax in Texas and other states has been determined by comparing the taxes on
total premiums, not just the insurer’s share. A few years ago, it is not clear exactly when, the Comptroller
decided for the first time to compare other states’ taxes on total premiums with Texas’ tax on only the
insurer’s 15% share. Simply put, the Comptroller now takes the position that “total” means 100% in
every other state and 15% in Texas.
Ordinarily, everything is bigger in Texas, and though “total” is now smaller here, taxes have
increased. The Comptroller’s “new math”, as the Court refers to it, multiplies the retaliatory tax and
discriminates against out-of-state insurers doing business in Texas. For example, suppose an insurer
from a state with a 2% premium tax rate does business in Texas, where the rate is 1.35%. On a $1,000
premium, the total tax would be $20 in the other state and $13.50 in Texas. Requiring the out-of-state
insurer to pay a $6.50 retaliatory tax on its Texas business equalizes the tax burden on the two insurers’
business in each other’s state. Each insurer and its respective agents would, together, pay $20 in taxes
and collect $980 in revenue. But in the Comptroller’s view, the retaliatory tax is determined by the
difference between the other state’s $20 premium tax and the insurer’s 15% share of Texas’ $13.50
premium tax – $2.03 – a difference of $17.97. Hence, the out-of-state insurer together with its respective
agents pays $31.47 in taxes and collects $969.73 in revenue. The Comptroller’s new math increases the
out-of-state title insurer’s tax burden merely because the insurer is out-of-state.
By artificially reducing the size of Texas’ premium tax, the Comptroller’s new position dictates that
Texas impose retaliatory taxes even when insurers hail from states imposing lower premium taxes than
Texas. Suppose an insurer from a state with a 1% premium tax does business in Texas. On a $1,000
premium, the Comptroller would compare the $2.03 insurer’s share of the Texas tax to the $10 premium
tax in the other state and assess a $7.97 surcharge. In essence, for purposes of applying the retaliatory
tax, the Comptroller has reduced Texas’ gross premiums tax rate by 85%, from 1.35% to 0.2025%.
Virtually every other state taxes gross premiums, but none has so low a rate. The tax now applies to all
out-of-state insurers doing business in Texas merely because they are not domestic companies. The
retaliatory tax, thus construed, no longer operates to discourage excessive taxation in other states; it
now operates to discourage foreign insurers from doing business in Texas.
The Comptroller’s change in position transforms the retaliatory tax, long a means of equalizing tax
burdens on domestic and foreign insurers doing business in Texas, into a penalty against out-of-state
insurers. The Comptroller’s new position is not based on any change in the law. The relevant statutory
provisions have been materially the same for decades. The retaliatory tax statute imposes “a tax . . . on
a foreign insurer if . . . the foreign insurer’s state of organization . . . imposes a tax . . . on a similar
domestic insurer that is . . . more than the [tax] this state directly imposes on the foreign insurer.”
The retaliatory tax must be “impose[d] and collect[ed] . . . in the same manner and for the same
purpose” as the tax on the insurer in the other state. These provisions, recodified in 2003, were
enacted in 1957 and derived from the first retaliatory tax statute enacted in 1935. The premium
tax statute imposes a “tax . . . on all premiums from the business of title insurance”, “regardless of
whether paid to a title insurance company or retained by a title insurance agent”, to be paid by the
insurer. These provisions, also recodified in 2003, and amended in 2007, were enacted in
1987 and derived from prior premium tax statutes, the first one dating to 1893.
The Comptroller argues that the premium tax on the agent’s 85% share of premiums is not “directly
impose[d]” on the insurer within the meaning of the retaliatory tax statute, even though the insurer must
remit the tax. In furtherance of its view, the Comptroller in 2001 adopted a rule limiting an insurer’s
liability for the premium tax to the amount due on its share. The Comptroller acknowledges that no
one took this position in the forty years after the phrase “directly imposes” was adopted in the 1957
statute, or in the ten years after the premium tax imposition and collection provisions were detailed in
1987. The Comptroller’s position not only discards a settled, decades-old application of statutory
provisions frequently revisited and left substantively unchanged by the Legislature, it contradicts the
purpose of a tax in place since at least 1935. This tax was based on the burden imposed by other states
on the insurance industry and not on an artificial allocation of the tax burden between insurers and their
The Court concludes that the Comptroller’s reinterpretation of the statute is due deference under
Tarrant Appraisal District v. Moore. While an agency’s initial interpretation of a statute “is not carved
in stone”, an agency’s decision to depart from a longstanding interpretation is entitled to
“considerably less deference” unless the agency provides some reasonable explanation for the change.
 This is particularly so where the agency’s earlier interpretation is accompanied by legislative
But even if the Comptroller’s interpretation of “directly imposed” were entitled to more serious
consideration, the plain language of the rest of the statute makes clear that the new interpretation is
unreasonable. The statute clearly requires the Comptroller to make apples-to-apples comparisons.
Section 281.004 instructs the Comptroller to impose and collect the retaliatory tax “in the same manner
and for the same purpose” as the foreign insurer’s state tax. The Court insists that the retaliatory tax
focuses on the insurance company to the exclusion of agents, but it is myopic to view a tax on gross
revenue as affecting only some of the participants in the business who must share that revenue. One
cannot assume that insurers and agents in other states do not share premium revenues merely
because Texas has a statute specifying how they must do so. Indeed, one must assume that insurers
and agents expect to be paid and to share in premium revenue. If only the insurer’s share of the Texas
premium tax is to be considered, then that share must be compared to the insurer’s share of the
premium tax in the other state. But by comparing only the insurer’s share of the Texas premium tax to
another state’s undivided premium tax, the Comptroller imposes and collects the retaliatory tax in a
different manner and for a different purpose than the other state in imposing and collecting its tax.
There is another equally important reason to reject the Comptroller’s new interpretation: it makes no
sense. In Western & Southern, the Supreme Court acknowledged that a state has a legitimate interest in
promoting interstate commerce by “deterring other States from enacting discriminatory or excessive
taxes.” But there is no rational basis for comparing 100% of another state’s premium taxes with 15%
of Texas’ premium taxes to determine whether the other state’s taxes are excessive. Texas’ legitimate
interests in deterring excessive taxation by other states are not served by retaliating whenever another
state’s industry-wide tax would exceed Texas’ tax on some of the participants, or whenever another state
employs a different accounting method for calculating and assessing premium taxes. Nor is it served by
retaliating against states whose total premium taxes are lower than Texas’. Under the Comptroller’s new
construction, the retaliatory tax provisions have been transformed into a means for blatant and
unapologetic discrimination against out-of-state insurers and parochial protectionism.
The Court asserts that “the Comptroller’s interpretation is consistent with the statutory scheme
developed by the Legislature”, but the fact is that the Comptroller and others who administered the
retaliatory tax for decades thought a contrary interpretation was required by the statute. The Court adds
that “[t]he Comptroller did not develop this scheme independently as a revenue-raising plan”, but no
other basis for the “scheme” has been advanced, and none is apparent. The Comptroller’s sudden
multiplication of the retaliatory tax cannot serve the legitimate state purpose of discouraging excessive
taxation in other states because even when a state’s tax rate is a fraction of the rate in Texas, insurers
from that state must, in the Comptroller’s view, pay a retaliatory tax.
I agree with the Court that whether other states may react in a way that is ultimately unfavorable to
Texas insurers, or whether the Comptroller’s position may have other “unforeseen or unintended
results”, is none of our business. But it is certainly our business to ensure that persons similarly situated
are afforded the equal protection of the law guaranteed by the Fourteenth Amendment. The Court
concludes that the retaliatory tax remains “an equalizer between similarly situated title insurers.” The
Comptroller’s treatment of Texas title insurers doing business in other states and out-of-state title
insurers doing business in Texas is as equal as 15 is to 100.
I would hold that the Comptroller’s position is not permitted by the text of the retaliatory tax statute or
by the Fourteenth Amendment. Accordingly, I respectfully dissent.
Nathan L. Hecht
Opinion delivered: May 16, 2008
 CCH State Tax Guide, All States ¶ 88, at 9705 (2006) (stating that gross premiums taxes are “the
most common form of insurance company tax” and are “imposed in every state upon some kind of
 Tex. Ins. Code §§ 221.001-228.007.
 Prudential Ins. Co. of Am. v. Comm’r of Rev., 709 N.E.2d 1096, 1098, 1099 n.7 (Mass. 1999).
 Tex. Ins. Code §§ 281.001-.052, formerly Tex. Ins. Code art. 21.46. The retaliatory provision
compares not just premium taxes but “the sum of the taxes or other charges, prohibitions, and
restrictions imposed” on an insurer. Id. §§ 281.004(a)(2) (“The comptroller shall impose and collect a tax
or other charge or a prohibition or restriction on a foreign insurer authorized to engage in business in
this state if . . . the sum of the taxes or other charges, prohibitions, and restrictions imposed by that
other state is more than the sum of the taxes or other charges, prohibitions, and restrictions that this
state directly imposes on the foreign insurer.”), 281.052 (providing for “a penalty or other obligation”,
under certain circumstances, to match the penalty or obligation imposed on a domestic insurer by the
foreign insurer’s state of organization). This case involves only taxes.
 Western & S. Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 668 (1981).
 Id. at 652-653; id. at 654 (“The Court has squarely rejected the argument that discriminatory state
insurance taxes may be challenged under the Commerce Clause despite the McCarran-Ferguson Act.”
(citing Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 414 (1946), and Prudential Ins. Co. v. Hobbs, 328
U.S. 822 (1946) (per curiam)).
 Id. at 668 (internal punctuation omitted).
 Id. at 671-672.
 Act of May 2, 1935, 44th Leg., R.S., ch. 307, § 1, 1935 Tex. Gen. Laws 713, 713-714 (“Whenever,
by any law in force without this State, an insurance corporation . . . of this State or agent thereof is
required to make any deposit of securities . . . or to make payment for taxes, fines, penalties, certificates
of authority, valuation of policies, license fees, or otherwise, or any special burden is imposed, greater
than is required by the laws of this State for similar foreign corporations or their agents, the insurance
companies . . . of such States or governments shall be and they are hereby required as a condition
precedent to their transacting business in this State, to make a like deposit for like purposes . . . and to
pay . . . for taxes, fines, penalties, certificates of authority, valuation of policies, license fees and
otherwise a rate equal to such charges and payments imposed by the laws of such other State upon
similar corporations of this State and the agents thereof.”) (amending former Tex. Rev. Civ. Stat. art.
4758 (1925)), repealed by Act of May 28, 1945, 49th Leg., R. S., ch. 279, § 4, 1945 Tex. Gen. Laws
442, 445, and by Act of May 23, 1951, 52d Leg., R.S., ch. 491, § 4, 1951 Tex. Gen. Laws 868, 1093.
The first retaliatory provision appears to have been enacted in 1909, but it referred only to different
security deposit requirements in different states, not different taxes. Act approved Mar. 22, 1909, 31st
Leg., R.S., ch. 108, § 29, 1909 Tex. Gen. Laws 192, 203, formerly Tex. Rev. Civ. Stat. art. 4768 (1911),
then Tex. Rev. Civ. Stat. art. 4758 (1925).
 Tex. Ins. Code § 2502.054(b)(1)(B) (“This subchapter does not . . . prohibit a title insurance
company from . . . arranging for a division of premiums with the agent as set by the commissioner . . . .”),
formerly Tex. Ins. Code art. 9.30, § B(1) (“This Article may not be construed as prohibiting . . . a foreign
or domestic title insurance company doing business in this state . . . from . . . making the arrangement
for division of premiums with the agent as shall be set by the commissioner . . . .”).
 See Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas
§ IV, P-23(f) (“During 2000, and thereafter until changed by the Commissioner, on all title insurance
written by title insurance agents, the division of premiums between title insurance companies and title
insurance agents shall be as follows: (1) title insurance companies shall receive 15% of each title
insurance premium, and (2) title insurance agents shall receive 85% of each title insurance premium . . .
.”), adopted 28 Tex. Admin. Code § 9.1, available at http://www.tdi.state.tx.us/title/titlem4d.html#P-23.
 Tex. Ins. Code § 281.004(a) (“The comptroller shall impose and collect a tax or other charge or a
prohibition or restriction on a foreign insurer authorized to engage in business in this state if: (1) the
foreign insurer's state of organization by law imposes a tax or other charge or a prohibition or restriction
on a similar domestic insurer that is or may be authorized to engage in business in that other state; and
(2) the sum of the taxes or other charges, prohibitions, and restrictions imposed by that other state is
more than the sum of the taxes or other charges, prohibitions, and restrictions that this state directly
imposes on the foreign insurer.”).
 Id. § 281.004(b) (“The comptroller shall impose and collect the tax or other charge, prohibition, or
restriction under Subsection (a) in the same manner and for the same purpose as the foreign insurer’s
state of organization.”).
 Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 1, 2003 Tex. Gen. Laws 3611, 3638-3641, 4138.
 Act of May 22, 1957, 55th Leg., R.S., ch. 396, § 1, 1957 Tex. Gen. Laws 1184, 1185 (“Whenever by
the laws of any other state or territory of the United States any taxes, licenses, fees, fines, penalties,
deposit requirements or other obligations, prohibitions or restrictions are imposed upon any insurance
company organized in this State and licensed and actually doing business in such other state or territory
which, in the aggregate are in excess of the aggregate of taxes, licenses, fees, fines, penalties, deposit
requirements or other obligations, prohibitions or restrictions directly imposed upon a similar insurance
company of such other state or territory doing business in this State, the Board of Insurance
Commissioners of this State shall impose upon any similar company of such state or territory in the
same manner and for the same purpose, the same taxes, licenses, fees, fines, penalties, deposit
requirements or other obligations, prohibitions or restrictions . . . .”), formerly Tex. Ins. Code art. 21.46.
 Supra note 10.
 Tex. Ins. Code § 223.003(a) (“An annual tax is imposed on all premiums from the business of title
insurance. The rate of the tax is 1.35 percent of title insurance taxable premiums for a calendar year,
including any premiums retained by a title insurance agent”.).
 Id. § 223.005 (a) (“Premiums received from the business of title insurance are subject to the tax
under this chapter regardless of whether paid to a title insurance company or retained by a title
insurance agent, with the tax being in lieu of the tax on the premiums retained by a title insurance
 Id. § 223.005(b) (“The state facilitates the collection of the premium tax on the premiums retained
by a title insurance agent by establishing the division of the premiums between the title insurance
company and title insurance agent so that the company receives the premium tax due on the agent's
portion of the premiums and remits it to the state.”).
 Act of May 22, 2003, 78th Leg., ch. 1274, §§ 1, 26(b)(4), 2003 Tex. Gen. Laws 3611, 3622-3624,
 Act of May 27, 2007, 80th Leg., R.S., ch. 932, § 3, 2007 Tex. Gen. Laws 3194, 3195 (amending
Section 223.003(a), which previously read: “An annual tax is imposed on each title insurance company
that receives premiums from the business of title insurance. The rate of the tax is 1.35 percent of the
title insurance company’s taxable premiums for a calendar year, including any premiums retained by a
title insurance agent”.).
 Act of June 1, 1987, 70th Leg., R.S., ch. 1073, § 22, 1987 Tex. Gen. Laws 3610, 3638-3640,
formerly Tex. Ins. Code art. 9.59 §§ 1 (“Each title insurance company receiving premiums from the
business of title insurance shall pay . . . an annual tax on those premiums . . . .”), 8(b) (“The premium tax
is levied on all amounts defined to be premium . . . , whether paid to the title insurance company or
retained by the title insurance agent . . . . The State of Texas facilitates the collection of the premium tax
on the premium retained by the agent by setting the division of the premium between insurer and agent
so that the insurer receives the premium tax due on the agent’s portion of the premium and remits it to
 Act approved May 11, 1893, 23d Leg., R.S., ch. 102, § 1, 1893 Tex. Gen. Laws 156. The premium
tax statutes have been frequently amended, and codified over the years as Tex. Rev. Civ. Stat. art.
5243e (1895) (taxing “gross premium receipts” of “every life, fire, marine, accident, or other insurance
company”), Tex. Rev. Civ. Stat. art. 7376 (1911), and Tex. Rev. Civ. Stat. art. 7064 (1925). Article 7064
was amended by Act of May 29, 1981, 67th Leg., R.S., ch. 844, § 1, 1981 Tex. Gen. Laws 3212, 3212-
3215 and later recodified as articles 4.10 (applicable to title insurance companies) and 4.11 of the
Insurance Code. Act of May 31, 1981, 67th Leg., R.S., ch. 389, § 36, 1981 Tex. Gen. Laws 1490, 1780-
1784. Article 4.10 was, in turn, amended by Act of May 30,1983, 68th Leg., R.S., ch. 283, 1983 Tex.
Gen. Laws 1367 and Act of May 24, 1985, 69th Leg., R.S., ch. 161, §§ 3-4, 1985 Tex. Gen. Laws 715,
716. Eventually, in 1987, separate provisions for title insurance were enacted and codified at art. 9.59.
Act of June 1, 1987, 70th Leg., R.S., ch. 1073, §§ 22, 23, 1987 Tex. Gen. Laws 3610, 3638-3641.
Currently, provisions for gross premium taxes on various kinds of insurance are found in Chapters 221
through 226 of the Insurance Code. Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 1, 2003 Tex. Gen.
 34 Tex. Admin. Code § 3.831(4)(c) (“Title insurers and title agents are both subject to the premium
and maintenance tax on their proportional share of the premiums and are separately liable for the tax if
the insurer fails to remit the tax due on the agent’s portion.”).
 845 S.W.2d 820, 823 (Tex. 1993) (“[C]onstruction of a statute by an administrative agency charged
with its enforcement is entitled to serious consideration, so long as the construction is reasonable and
does not contradict the plain language of the statute.”).
 Rust v. Sullivan, 500 U.S. 173, 186 (1991) (quoting Chevron USA, Inc. v. NRDC, 467 U.S. 837, 863
(1984)); see also FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 157 ( 2000) (an agency has
ample latitude to adapt its rulings or policies to changing circumstances).
 Watt v. Alaska, 451 U.S. 259, 273 (1981); see Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 698
(1991) (though an agency decision to reinterpret a statute is entitled to Chevron deference, such an
interpretation is “less persuasive”); Rust, 500 U.S. at 187 (the agency provided “reasoned analysis” to
support its changed interpretation); Flores v. Employees Ret. Sys., 74 S.W.3d 532, 544-545 (Tex. App.–
Austin 2002, pet. denied) (an agency must explain a decision to depart from a longstanding policy); City
of El Paso v. El Paso Elec. Co., 851 S.W.2d 896, 900 (Tex. App.–Austin 1993, writ denied).
 See Stanford v. Butler, 181 S.W.2d 269, 273 (Tex. 1944) (contemporaneous construction of an act
by those charged with its enforcement is “‘worthy of serious consideration as an aid to interpretation,
particularly where the construction has been sanctioned by long acquiescence. Although a
contemporaneous or practical construction is not absolutely controlling, it has much persuasive force
and is entitled to great weight in determining the meaning of an ambiguous or doubtful provision.’”)
 Continental Cas. Co. v. Downs, 81 S.W.3d 803, 807 (Tex. 2002) (“Construction of a statute by the
agency charged with its enforcement is entitled to serious consideration only if that construction is
reasonable and does not contradict the statute's plain language.”) (citations omitted).
 451 U.S. at 668.
 Ante at ___.
 Ante at ___.
 Ante at ___.