Decided: March 1, 2013
The Municipal Association of South Carolina (the “MASC”) sought a declaration in district court that South Carolina municipalities are entitled to assess “municipal business taxes” against insurance companies. The taxes are measured by the total flood insurance premiums collected in the particular municipality by insurance companies under an arrangement with the Federal Emergency Management Agency (“FEMA”). Various insurance companies filed motions for summary judgment challenging the declaratory judgment. The district court denied the motions. On appeal, the Fourth Circuit Court of Appeals held that the taxes violated principles of sovereign immunity. Therefore, the court reversed the district’s court’s decision.
The MASC consists of almost all of the municipalities in South Carolina, and one of its primary duties is to collects business license taxes from insurance companies that conduct business within the participating municipalities. The business license tax imposed on each insurance company is two percent of the gross premiums received by the insurance company in the prior calendar year in a particular municipality. The party-insurance companies write and sell policies in South Carolina, and they offer and collect premiums on Standard Flood Insurance Policies (“SFIPs”) pursuant to the FEMA National Flood Insurance Program (the “NFIP”). At the district court proceedings, the insurance companies argued that the municipal business taxes would violate principles of sovereign immunity and preemption because the flood insurance premiums were federal property. The district court disagreed, and the insurance companies appealed.
On appeal, the Fourth Circuit held that the flood insurance premiums collected by the insurance companies were federal property and therefore could not be taxed by the state of South Carolina. The court also held that since the insurance companies participated in the NFIP, they are federal instrumentalities are therefore immune from taxation. Therefore, the court reversed the district court’s denial of the insurance companies’ summary judgment motions.