The New Jersey Supreme Court recently ruled that Johnson & Johnson is required to pay an insurance premium tax (IPT) based only on its premiums for risks located within the state of New Jersey rather than nationwide, entitling the company to a $56 million tax refund.
Prior to 2011, New Jersey insurance laws required J&J, as a holder of self-procured insurance, to pay its IPT based only on risks located in New Jersey. However, in a 2011 amendment to the state’s insurance laws, the Legislature authorized additional taxation on surplus lines insurance policies by adding the following sentence to N.J.S.A. 17:22-6.64: “If a surplus lines policy covers risks or exposures in this State and other states, where this State is the home state, … the tax payable pursuant to this section shall be based on the total United States premium for the applicable policy.” J&J, despite not being a holder of surplus lines coverage, thereafter voluntarily increased its IPT payments to reflect the amount due on its nationwide insurance premiums. In November 2015, J&J filed a claim with the New Jersey Department of Banking and Insurance (DOBI) and the director of the Division of Taxation, seeking a refund of nearly $56 million in excess IPT that it had paid since 2011.
After the division denied its refund claim, J&J filed a complaint in the Tax Court. The Tax Court found in favor of the DOBI and the division, concluding that the 2011 amendments that authorized the collection of IPT for surplus lines insurance coverage based on total nationwide premiums applied equally to self-procured coverage. The Appellate Division reversed, finding that J&J’s IPT obligations should have continued to be based solely on the risks it insured that were located within New Jersey. Stressing that the original plain language of the statute “clearly limited J&J’s tax liability to the risks it insured in New Jersey [and] was not changed in any way, shape, or form in the 2011 amendment,” the Appellate Division explained that it was “bound to follow and apply” that language. The Appellate Division ultimately declared itself unable to conclude that the New Jersey Legislature, by specifically stating that the amendment applied only to surplus lines insurance coverage, likewise intended to extend it to self-procured coverage.
In a one-paragraph majority decision, the New Jersey Supreme Court affirmed the ruling “substantially for the reasons expressed” by the Appellate Division.