
TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN




NO. 03-00-00427-CV


All American Life Insurance Company; American General Life Insurance Company;
American National Insurance Company; American National Life Insurance

Company of Texas; IDS Life Insurance Company; and USLIFE Life

Insurance Company, Appellants


v.


Carol Keeton Rylander, Comptroller of Public Accounts of Texas; and

John Cornyn, Attorney General of Texas, Appellees





FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT

NO. 98-00195-A, HONORABLE JERRY A. DELLANA, JUDGE PRESIDING





	Several insurance companies sued the Comptroller and the Attorney General
(collectively, "the State") to recover premium and maintenance taxes assessed by the Comptroller
under the insurance code on internal rollover transactions.  Tex. Ins. Code Ann. arts. 4.11 & 4.17
(West Supp. 2001).  The district court entered a take-nothing judgment against the companies.  The
companies complain that the trial court did not properly construe the tax statutes.  We will reverse
the judgment, render judgment in part, and remand the case in part for further proceedings.



BACKGROUND	We draw the following background from the district court's findings of fact, which
are not challenged on appeal.  See Des Champ v. Featherston, 886 S.W.2d 536, 541-42 (Tex.
App.--Austin 1994, no writ) (unchallenged findings of fact binding on all parties).
	The dispute in this case is over the Comptroller's decision to tax transfers of funds
within a single company the same as premiums paid into the company.  The "internal rollover"
transactions involve holders of existing policies who decide they want a new insurance policy with
the same company.  To instigate the internal rollovers, the policyholders submit applications and
cash surrender forms to the companies indicating the amount of accumulation values--amounts
policyholders have built up in their existing life-insurance polices--to apply toward the purchase of
the new policy.  The companies then apply the accumulation values to the purchase of the new
policies, and the policyholders give up all rights under the original policies.  The companies account
for the accumulation values as premiums, but then net them out because the companies did not
receive any new money. (1)  The Comptroller, however, views the internal rollovers as purchases of
new policies--with the rolled-over accumulation values being the consideration or premiums for the
new policies--and assesses taxes on the rolled-over amounts the same as on other gross premiums
collected.
	After a trial de novo (2) to the court, the district court affirmed the Comptroller's
characterization of the rolled-over accumulation values as gross premiums.  The court concluded that
the policyholders' surrender of rights and transfer of accumulation values under the original policy
were consideration for the new policies.  The court rendered judgment that the companies take
nothing by their suit to recover the taxes they paid on the rolled-over accumulation values.

DISCUSSION
	Underlying all of the appellants' issues on appeal is one general issue: whether the
trial court properly construed articles 4.11 and 4.17 of the Texas Insurance Code. (3)  We will review
de novo the district court's conclusions of law regarding the construction of these statutes.  Lopez
v. Texas Workers' Comp. Ins. Fund, 11 S.W.3d 490, 494 (Tex. App.--Austin 2000, pet. denied)
(citing Johnson v. City of Fort Worth, 774 S.W.2d 653, 656 (Tex. 1989); Republic Western Ins. Co.
v. State, 985 S.W.2d 698, 701 (Tex. App.--Austin 1999, pet. dism'd w.o.j.)); see also TeleVentures,
Inc. v. Int'l Game Tech., 12 S.W.3d 900, 907 (Tex. App.--Austin 2000, pet. denied) (conclusions
of law generally).  Taxing statutes must be strictly construed against the taxing authority, resolving
any ambiguity in favor of the taxpayer.  See First Nat'l Bank of Fort Worth v. Bullock, 584 S.W.2d
548, 551 (Tex. Civ. App.--Austin 1979, writ ref'd n.r.e.).  We must try to give effect to the
legislature's intent by looking to the plain and common meaning of the words of the statute.  Tex.
Gov't Code Ann. § 312.005 (West 1998); See Albertson's, Inc. v. Sinclair, 984 S.W.2d 958, 960
(Tex. 1999); Fulton v. Associated Indem. Corp., 46 S.W.3d 364, 370 (Tex. App.--Austin 2001, pet.
filed).
	The companies complain that the district court erred in concluding that internal
rollovers should be taxed as gross premiums under articles 4.11 and 4.17.  The premium tax
provision states, "Every insurance carrier receiving premiums from the business of life insurance . . .
shall pay to the comptroller a tax upon its gross premiums as provided in this article."  Tex. Ins.
Code Ann. art. 4.11, § 1, (West Supp. 2001).  "'Gross premiums' are the total gross amount of all
premiums, membership fees, assessments, dues, and any other considerations for such insurance
received during the taxable year on each and every kind of such insurance policy . . . ."  Id. § 2(c). 
The maintenance tax on gross premiums "may not exceed .04 percent of the correctly reported gross
premiums of life, health, and accident insurance coverages and the gross considerations for annuity
and endowment contracts collected" by life-insurance providers.  Id. art. 4.17(a).  By their first issue,
the companies complain that assessment of a tax on the internal rollovers is erroneous because the
funds rolled over were neither "received" nor "collected" during the taxable year; they also assert
that the accounting procedures that the State requires support the companies' interpretation of the
nature of the internally rolled-over funds.  By their third issue, the companies contend that the rolled-over funds were not consideration for the new policies.
	The State argues that the rolled-over funds were consideration received for the new
policies and therefore were taxable.  See Taylor v. Bonilla, 801 S.W.2d 553, 557 (Tex. App.--Austin
1990, writ denied) (policy value surrendered for new policy is consideration).  The State also points
to the companies' receipt of new promises, documents, and direction from the customers as
consideration received by the companies.  The State contends that the rollovers fall within the term
"any other considerations" and are therefore gross premiums.  The State views the rollover as
essentially a barter transaction, and suggests that when the legislature intends to exclude bartered
goods from taxation it does so expressly.  See Tex. Tax Code Ann. § 151.007(c)(5) (sales price or
receipts excludes value of tangible personal property taken in trade if it is type of property regularly
sold by seller) & § 152.002(b)(5) (total consideration in car sale excludes value of car traded in). 
The State argues that the legislature's failure to expressly exclude rollover-transaction premiums
demonstrates that they should be included gross premiums.
	We conclude that the State's taxation of the rolled-over amounts as consideration
received or collected is at odds with the statute.  Because the statutes do not define the words
"receive" and "collect," we look to the ordinary meanings of the words.  "Receive" means "to take
possession or delivery of" or "to knowingly accept."  Webster's Third New International Dictionary
1894 (1986).  "Collect" means "to receive, gather, or exact from a number of persons or other
sources."  Id. at 444.  Both connote a transfer of something from without to within, a taking from
an external source.  The accumulation values of the old policies were within the companies in the
customers' life-insurance policies, belonged to the policyholders while held by the companies, and
remained within the companies in the customers' new life-insurance policies after the rollovers. (4) 
Regardless of whether the accumulation values were consideration for the new policies, the
companies did not "receive" or "collect" them when rolling them into the new policies.
	The State argues that the companies received consideration in the form of new
promises and authorizations to roll over the accumulation values.  Assuming this is so does not alter
our conclusion.  The insurance code authorizes taxation of consideration received or collected, but
does not authorize taxation of all value associated with consideration received.  Though the
accumulation values were associated with these new promises, as discussed above, the companies
did not receive or collect the accumulation values when conducting the rollovers.  Assuming the
rolled-over accumulation values are consideration, they are not taxable when rolled over internally
because the companies did not receive or collect them.
	This opinion applies only to internal rollovers.  As the companies concede, the
internal rollovers are easily distinguished from "external rollovers" in which the accumulation values
are paid to the policyholder and used to purchase a policy from a different company.  That is a
taxable event because the new issuing company has added a new policy and policyholder from which
it receives or collects premiums.  A similar taxable event occurs when a policy is terminated, a
company pays out accumulation values, and the customer subsequently uses the payout to buy a new
policy from the same company; once the accumulation value is paid out, the company receives or
collects it when the customer returns it to the company.
	We resolve the first issue in favor of the companies.  We need not consider the
remaining issues because their resolution would not change the result.  See Tex. R. App. P. 47.1(a). 

CONCLUSION

	We reverse the district court's take-nothing judgment against the companies and
render judgment that the State refund the taxable amounts.  Because the amounts taxed and paid are
liquidated, we can remand the damages aspect of this case even though liability was contested.  See
Tex. R. App. P. 44.1(b).  We remand the cause for determination of the amounts for the Comptroller
to refund and for rendition of judgment accordingly.


  
					David Puryear, Justice
Before Justices Kidd, B. A. Smith and Puryear
Reversed and Rendered in Part; Remanded in Part
Filed:   August 30, 2001
Do Not Publish Released for publication May 23, 2002.  Tex. R. App. P. 47.3(c).
1.      	The companies adduced testimony that this procedure complied with the statutes and
instructions they were given regarding the mechanics of reporting premiums.  We repeat this for
informational purposes, but our determination does not hinge on them.  The companies never have
counted the rolled-over amounts as premiums received on the annual statements that they are
required to file with the Texas Department of Insurance ("the Department").  As part of the annual
statement, insurers are required to complete Schedule T, a summary of gross premiums received for
life insurance.  The State did not require the companies to include internal rollovers as gross
premiums received in Schedule T.  The Department's accounting procedures require that companies
treat internal rollovers as transfers of liabilities rather than receipts of premiums.  The instructions
on the tax forms from the Comptroller and the Department require the companies to report as gross
premiums the same amounts they reported on their Schedule T.

	The companies also adduced testimony that with internal rollovers coverage ran uninterrupted
and contestability provisions that applied to new policies did not apply to the amounts rolled over.

	The State adduced testimony that the Comptroller has consistently treated the rollovers as
taxable gross premiums.  The State also adduced testimony that, though no commissions were paid
on straight rollovers, commissions were paid if the new policy had a higher face value.
2.      	See Tex. Tax. Code Ann. § 112.054 (West 1992).
3.      	Tex. Ins. Code Ann. arts. 4.11 & 4.17 (West Supp. 2001).
4.        The State analogizes the rollover to a bank customer writing a check to pay for a loan from the
same bank; the State argues that the bank has collected or received the loan payment even though
the transaction occurred entirely within the bank.  We conclude this analogy mischaracterizes the
rollovers.  We find the internal rollovers to be more like a bank customer moving funds from one
type of checking account to another; instead of reducing both the checking (liability) and loan (asset)
balances as in the State's example, the bank's balances are unchanged--the only change is the
provisions of the customer's checking account.  Similarly, the insurance companies retain the
accumulation values, while modifying the terms of how those values will be handled in the future.

