Can North Carolina constitutionally pay part of an insurance-premium tax to the State Firemen's Association, a private nonprofit, and require fire departments to join the Association in order to receive any share of the tax?
Plain-English summary
For decades North Carolina has charged a tax on fire-and-lightning insurance premiums and dedicated the proceeds to firefighter relief funds. The mechanics are intricate. The Commissioner of Insurance collects the tax under § 58-84-10. Most of the money flows to local firemen's relief funds in qualifying cities and towns. A 3% slice goes to the State Firemen's Association for general purposes under § 58-84-25, and the Association in turn passes a sixth of that to the North Carolina State Volunteer Firemen's Association under § 58-85-30. There is also a "disqualified accounts" channel: a city or town whose fire department fails to comply with the Association's constitution and bylaws forfeits its next-year payment, and that forfeited amount goes to the Association. For fiscal year 1994-95, the 3% share was $74,419 and the disqualified-accounts share was $129,678.
A separate additional gross premiums tax under § 105-228.5(d) at 1.33% applies to fire and lightning coverage outside marine and automobile policies, with 25% of the net proceeds going to the Rural Volunteer Fire Department Fund.
Two constitutional questions were put to the AG. First, is it constitutional to disburse a portion of a state premium tax to the Association, given that the Association is a private nonprofit corporation? Second, is it constitutional to condition a fire department's or fireman's eligibility for any of the tax revenue on Association membership?
Chief Deputy Attorney General Andrew A. Vanore, Jr. and Assistant Attorney General Sue Y. Little answered yes to both.
On the disbursement question, the AG relied on Article V, § 2(7) of the North Carolina Constitution, added in 1973, which expressly permits the General Assembly to enact laws "whereby the State, any county, city or town, and any other public corporation may contract with and appropriate money to any person, association, or corporation for the accomplishment of public purposes only." The North Carolina Supreme Court in Hughey v. Cloninger, 297 N.C. 86, 95 (1979), had read that provision as authorizing direct disbursement of public funds to private entities for public purposes if statutory authority for the disbursement exists. The State Firemen's Association's purpose, as stated in Chapter 251 of the Private Laws of 1889, was the protection and promotion of the best interests of the firemen of North Carolina, compilation of fire statistics, examination of apparatus and improvements, and the cultivation of fraternal fellowship. That, the AG concluded, is plainly a public purpose. Whether the Association is properly classified as public or private is therefore not dispositive. The funds can flow.
The AG went further and concluded that the Association is actually a "body politic" exercising governmental functions. The 1889 act creating the Association declared it to be a "body politic and corporate." Student Bar Association v. Byrd, 293 N.C. 594, 601 (1977), defined "body politic" as a body acting as a government, exercising powers pertaining exclusively to government. Under Chapter 58 of the General Statutes, the Association exercises real governmental powers: it certifies actuarial soundness of local funds, approves expenditures, audits decisions of local boards, and administers the fraternal-fund framework. So the Association is not purely private even though it operates outside the formal state structure.
On the membership-requirement question, the AG relied on the General Assembly's general legislative power. § 58-84-50 has required Association membership as a condition of receiving relief-fund benefits since 1907. The opinion read this as a legitimate means of administering the public-purpose program. Martin v. Housing Corp., 277 N.C. 29, 41 (1970), confirmed that the General Assembly has full legislative power absent express constitutional restraint. The choice to channel public benefits through a single Association rather than through a state agency is a policy choice within legislative discretion. Redevelopment Commission v. Bank, 252 N.C. 595 (1960), confirmed that once a public purpose is established, the means of execution are for the General Assembly to determine.
Currency note
This opinion was issued in 1996. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The fire-and-lightning premium-tax statutes have been amended several times since 1996 with adjustments to percentages, distribution mechanics, and Association duties. The Rural Volunteer Fire Department Fund under § 105-228.5(d) has also been revised. The basic constitutional principle (that public funds may flow to private entities for genuine public purposes under Article V, § 2(7)) remains the law, but the specific percentages and conditions described in this opinion are dated and should be verified against the current statutes.
Background and statutory framework
The relationship between North Carolina's fire-insurance premium tax and its firefighter-relief system is one of the older arrangements in state public finance. The Association was created in 1889 as a "body politic and corporate" for the protection and promotion of the state's firemen, compilation of fire statistics, examination of equipment, and fraternal fellowship. In Carroll v. Firemen's Asso., 230 N.C. 436 (1949), the North Carolina Supreme Court noted that the Association had been created "without appropriation" and operated on its own resources until 1891, when the General Assembly appropriated $2,500 annually for a firemen's relief fund.
In 1907 the General Assembly enacted what is now § 58-84-10, taxing fire-and-lightning insurance premiums at fifty cents per $100 of covered premiums for property within qualifying cities and towns. The proceeds were dedicated to the firemen's relief fund and channeled through the Commissioner of Insurance. From the start, the statute required fire departments to be members of the Association as a condition of receiving the funds.
The system has functioned, with periodic adjustments, ever since. The 1986 amendment cut the Association's general-purpose share from 5% to 3%. The Volunteer Firemen's Association share, the disqualified-accounts mechanic, and the parallel Rural Volunteer Fire Department Fund under § 105-228.5(d) were layered in over time.
The constitutional questions the AG addressed in 1996 are recurring ones for any state that funds a private association out of dedicated tax revenue. Article V, § 2(7) was added to the state constitution in 1973 specifically to clarify that such arrangements are permissible if they serve a public purpose. The State Firemen's Association is the kind of arrangement the 1973 amendment was meant to authorize, and the AG's opinion read the legal framework that way.
Common questions
How does the Association receive money from the state?
Two channels. First, under § 58-84-25, 3% of the fire-and-lightning insurance premium tax is paid by the Commissioner of Insurance to the Association for general purposes. The Association passes a sixth of that share on to the Volunteer Firemen's Association under § 58-85-30. Second, "disqualified accounts" forfeited by non-compliant city or town fire departments under § 58-84-50 flow to the Association.
Why is it constitutional to give tax money to a private organization?
Article V, § 2(7) of the state constitution, added in 1973, expressly permits the General Assembly to authorize disbursement of public funds to private persons or associations for public purposes. The Association's statutory mission (statewide firefighter welfare, training, statistics) is plainly a public purpose. The AG also concluded the Association is itself a "body politic" exercising governmental functions.
Why can the legislature condition tax-revenue eligibility on Association membership?
Once a public purpose is established, the General Assembly has wide discretion in choosing the means of executing the program. Channeling the funds through one Association with statewide reach is a rational method. The Association also acts as an actuarial-soundness check on local boards and a centralized administrator. The 1907 statute building this in has been continuously in force.
What is the Volunteer Firemen's Association?
The North Carolina State Volunteer Firemen's Association is a separate organization. Under § 58-85-30, the Association is required to pass one-sixth of its 3% share to the Volunteer Firemen's Association for purposes set out in § 58-84-35.
How do "disqualified accounts" work?
If a city or town fire department fails to comply with the Association's constitution and bylaws under § 58-84-50, the city or town forfeits its next annual payment from the firemen's relief fund. The Commissioner of Insurance pays that amount to the Association instead. In fiscal year 1994-95 this amounted to $129,678.
Source
Citations
- N.C. Const. art. V, § 2(1) (taxation; just and equitable; public purposes)
- N.C. Const. art. V, § 2(7) (appropriations to private persons for public purposes)
- N.C.G.S. § 58-84-10 (premium tax on fire and lightning insurance)
- N.C.G.S. § 58-84-25 (distribution; 3% to Association)
- N.C.G.S. § 58-84-35 (use of firemen's relief fund)
- N.C.G.S. § 58-84-40 (Association governmental powers)
- N.C.G.S. § 58-84-50 (membership condition; disqualified accounts)
- N.C.G.S. § 58-85-30 (Volunteer Firemen's Association share)
- N.C.G.S. § 105-228.5(d) (additional gross premiums tax; Rural Volunteer Fire Department Fund)
- Carroll v. Firemen's Asso., 230 N.C. 436 (1949)
- Hughey v. Cloninger, 297 N.C. 86 (1979)
- Student Bar Association v. Byrd, 293 N.C. 594 (1977)
- Martin v. Housing Corp., 277 N.C. 29 (1970)
- Redevelopment Commission v. Bank, 252 N.C. 595 (1960)
Original opinion text
(Date: March 14, 1996. The published page omits the recipient salutation; the opinion responds to a memorandum addressed to Jane P. Gray, Deputy Attorney General, dated February 28, 1996.)
You raised two questions:
- Is it constitutional for a portion of a premium tax to be disbursed to the State Firemen's Association, a private, nonprofit corporation?
- Is it constitutional to require that a fire department or its members be a member or members of the State Firemen's Association, a private, nonprofit corporation, in order to receive any portion of a premium tax?
It is our conclusion that the appropriate answer to each of these questions is "yes."
The North Carolina State Firemen's Association (hereinafter Association) was created by Chapter 251, Private Laws of 1889. In Section 1 of that Chapter, the General Assembly declared the Association to constitute a "body politic and corporate."
Section 2 of Chapter 251 provided as follows:
The purposes for which said association is organized are: the protection and promotion of the best interests of the firemen of North Carolina, the compilation of fire statistics, the collection of information concerning the practical workings of different systems of organization, the examination of and inquiry concerning the merits of the different kinds of apparatus in use and the improvements in the same, the cultivation of a fraternal fellowship between the different companies of the State.
There apparently was no original funding for the Association. In Carroll v. Firemen's Asso., 230 N.C. 436, 438 (1949), the Court noted that the Association was created for statistical research and fraternal purposes "without appropriation."
Two years after the Association was created the General Assembly, by Chapter 468, Public Laws of 1891, appropriated the sum of $2,500 annually to constitute a "firemen's relief fund." The source of the appropriation was the license taxes levied and collected by the State from insurance companies. The Treasurer of the State was required to pay the appropriation to the treasurer of the Association. The funds were to be used "for the relief of firemen, members of the association, who might be injured or rendered sick by disease contracted in the active discharge of duty as firemen, and for the relief of widows, children or dependent mothers of firemen killed or dying from disease contracted in discharge of duty." 230 N.C. at 438.
In 1907 the General Assembly enacted legislation requiring insurance companies to pay a tax of fifty cents on each one hundred dollars of premiums written on fire and lightning policies covering property situated within the limits of qualifying cities and towns in North Carolina. The taxes were to be used as a firemen's relief fund and were to be collected by the Commissioner of Insurance, who was directed to pay the taxes to the treasurer of each qualifying town or city, subject to the use of the board of trustees of the firemen's relief fund in each town or city. The act also provided that a sum not exceeding five per cent (5%) of the gross proceeds was to be turned over to the Association.
Currently the Association receives funds from two sources. First, three percent (3%) of the money collected by the Commissioner of Insurance from insurance companies pursuant to N.C.G.S. § 58-84-10 is deducted from the total and paid to the treasurer of the Association "for general purposes." N.C.G.S. § 58-84-25. The original percentage (5%) was reduced to three percent (3%) in 1986. For the fiscal year 1994-1995, this amount was $74,419.
The Association, however, does not retain this entire amount. Pursuant to N.C.G.S. § 58-85-30, the treasurer of the Association is required to pay to the treasurer of the North Carolina State Volunteer Firemen's Association one sixth of the funds generated by the three percent (3%), "to be used by said North Carolina State Volunteer Firemen's Association for the purposes set forth in G.S. 58-84-35."
The second source of funds for the Association is forfeited funds known as "disqualified accounts." After retaining two percent (2%) of the total in the budget of the Department of Insurance for administrative purposes, the Commissioner of Insurance pays ninety-five percent (95%) of the money collected from insurance companies to the treasurer of each qualifying town or city in North Carolina, who in turn pays the money to the treasurer of the local board of trustees for the use of the board of the firemen's local relief fund in each qualifying town or city. N.C.G.S. § 58-84-25. Pursuant to N.C.G.S. § 58-84-50, however, if the fire department of any "city, town or village" fails to comply with the constitution and bylaws of the Association, the "city, town or village" forfeits its right to the "next annual payment due from the funds mentioned in this Article, and the Commissioner of Insurance shall pay over said amount to the treasurer of the North Carolina State Firemen's Association and same shall constitute a part of the firemen's relief fund." For the fiscal year 1994-1995, this amount was $129,678.
It should be noted that the tax on fire and lightning insurance premiums imposed by N.C.G.S. § 58-84-10 is different from the additional gross premiums tax imposed by N.C.G.S. § 105-228.5(d). The latter statute provides in pertinent part that "[a]n additional tax shall be applied to amounts collected on contracts of insurance applicable to fire and lightning coverage, except in the case of marine and automobile policies, at the rate of one and thirty-three hundredths percent (1.33%); twenty-five percent (25%) of the net proceeds of this additional tax shall be deposited in the Rural Volunteer Fire Department Fund established in Articles 84 through 88 of Chapter 58 of the General Statutes."
Article V, § 2(1) of the North Carolina Constitution provides that "[t]he power of taxation shall be exercised in a just and equitable manner, for public purposes only." In 1973 Article V, § 2(7) was added to the North Carolina Constitution, specifically allowing direct appropriation to private entities for public purposes. This section provided:
The General Assembly may enact laws whereby the State, any county, city or town, and any other public corporation may contract with and appropriate money to any person, association, or corporation for the accomplishment of public purposes only.
N.C. Const. art. V, § 2(7).
"[U]nder subsection (7) direct disbursement of public funds to private entities is a constitutionally permissible means of accomplishing a public purpose provided there is statutory authority to make such appropriation." Hughey v. Cloninger, 297 N.C. 86, 95 (1979).
Therefore, whether the Association is a public or private entity matters not. So long as the Association serves a public purpose, which it clearly does, the Association may receive public funds. One need only to read Section 2 of Chapter 251 of the Private Laws of 1889 to see that the purposes of the Association are public, to better organize and train the firemen of North Carolina.
Moreover, we believe that the Association is in fact a public body. Although the Association was created by a private act of the legislature, it was declared to constitute a "body politic and corporate."
In Student Bar Association v. Byrd, 293 N.C. 594, 601 (1977), the Supreme Court of North Carolina defined the term "body politic" as "a body acting as a government; i.e., exercising powers which pertain exclusively to a government, as distinguished from those possessed also by a private individual or a private association."
It seems clear that the Association is acting as a body that exercises governmental powers. Pursuant to Article 84 of Chapter 58, certain duties and responsibilities are placed upon the Association. For example, the Secretary of the Association must approve the decision of a local board of trustees to provide assistance to a "destitute member fireman who has served honorably for at least five years." N.C.G.S. § 58-84-35(2.l). Similarly, the board of trustees is prohibited from making expenditures under subsection (5) and (6) of N.C.G.S. § 58-84-35 "unless the State Firemen's Association has certified that such expenditures will not render the Fund actuarially unsound for the purposes of providing the benefits set forth in subsections (1), (2), and (4) of this section." See also, N.C.G.S. §§ 58-84-40(a) and 58-84-50, which grant additional governmental powers to the Association.
It is also our conclusion that it is not unconstitutional to require that a fire department or its members be a member or members of the Association in order to receive a portion of the tax.
The first sentence of N.C.G.S. § 58-84-50 provides as follows: "For the purpose of supervision and as a guaranty that provisions of this Article shall be honestly administered in a businesslike manner, it is provided that every department enjoying the benefits of this law shall be a member of the North Carolina State Firemen's Association and comply with its constitution and bylaws." This requirement was included in the original version of the statute, which was enacted in 1907.
N.C.G.S. § 58-85-25 states that "[t]he provisions of G.S. 58-85-1, 58-85-10, 58-85-15, 58-85-20, and 58-85-25 shall apply to any fireman who is a member of a regularly organized fire company, and is a member in good standing of the North Carolina State Firemen's Association."
The General Assembly has full legislative powers "unless restrained by express constitutional provision or necessary implication therefrom." Martin v. Housing Corp., 277 N.C. 29, 41 (1970). Absent constitutional restraint, questions as to public policy are for legislative determination. We cannot conclude that any constitutional provision is violated by the requirement that fire departments and firemen must be members of the Association in order to enjoy the pertinent benefits.
Once the public purpose of an act has been established, the means of executing the project are for the General Assembly solely to determine. Redevelopment Commission v. Bank, 252 N.C. 595 (1960). Having concluded that the appropriation of tax revenue to the Association is for a public purpose, we also conclude that it is not unconstitutional to require that a fire department or its members be a member or members of the Association in order to benefit from the tax revenue.
Andrew A. Vanore, Jr. Chief Deputy Attorney General
Sue Y. Little Assistant Attorney General