New Jersey ~ Insurance Tax: Exclusion From Tax Cap Not Unconstitutional

The New Jersey insurance gross premiums tax statute (N.J.S.A. 54A:18-6) as amended by Ch. 128 (A.B. 4401), Laws 2005, which added a provision excluding health service corporations (HSCs) from the 12.5% cap was constitutional because the statute is related to a legitimate government purpose and there was a rational basis for the amendment. The taxpayer, who was the only health service corporation in the state, alleged that the amended statute violated the Equal Protection and Due Process clauses of the U.S. Constitution. The taxpayer also contended that the New Jersey Constitution was violated because Ch. 128 was an impermissible special law that created a false or deficient classification and created a bill of attainder that singled out an individual or group for punishment without a trial. The amendment was rationally related to the legislative goals of raising revenue to reduce a budget deficit as well as to eliminate a loophole in the tax law whereby HSCs had a lower effective tax rate than other health insurance carriers. By enacting the statutory amendment, the New Jersey Legislature was attempting to regulate HSCs as a class. Prior New Jersey case law has held that equal protection is not violated when a legislative classification consists of a single member. Likewise, the fact that the HSC class consisted of one member did not, in itself, make the amendment special legislation, as no entities were excluded that should have been included.

Furthermore, the amendment was not a bill of attainder because (1) taxation did not constitute a traditional definition of punishment, (2) it furthered non-punitive goals by having a legitimate purpose, and (3) the taxpayer did not provide sufficient evidence that the legislative intent in enacting the amendment was to punish the taxpayer for not becoming a for-profit corporation. Finally, there was no manifest injustice in the retroactive effect of the amendment because the taxpayer was already subject to the insurance gross premiums tax and the amendment merely increased that tax liability.

Horizon Blue Cross Blue Shield of New Jersey v. State of New Jersey, Superior Court of New Jersey, Appellate Division, No. A-2232-09T3, March 7, 2012,

Other References:

Explanations at ¶88-130


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