M & Associates, Inc. v. City of Irondale

• Decision Date: 31 July 1998
• Citation: 723 So.2d 592
• Parties: M & ASSOCIATES, INC. v. CITY OF IRONDALE.
• Court: Alabama Supreme Court

723 So.2d 592

M & ASSOCIATES, INC. v. CITY OF IRONDALE.

1962143.

Supreme Court of Alabama.

July 31, 1998.

Rehearing Denied October 16, 1998.

Susan S. Wagner, Frank S. James III, and Elise B. May of Berkowitz, Lefkovits, Isom & Kushner, P.C., Birmingham, for appellant.

Frank R. Parsons, Birmingham, for appellee.

Kenneth Smith, league counsel, for amicus curiae Alabama League of Municipalities.

HOUSTON, Justice.

This appeal concerns the validity of a city ordinance that bases the amount to be paid for a business license on the total gross receipts from the sales of the business both from its facilities inside the city limits and from its facilities outside the city limits. The trial court entered a judgment upholding the ordinance. We reverse and remand.

M & Associates, Inc., d/b/a Industrial Electric Supply Company, is an Alabama corporation engaged in the wholesale electrical supply business. The company, which is headquartered in the City of Irondale, sells electrical supplies from its Irondale facility, as well as from its facilities in Mobile; Marietta, Georgia; Nashville, Tennessee; Pascagoula, Mississippi; and Belle Chasse, Louisiana. M & Associates does invoicing and billing from its corporate headquarters, through a centralized accounting system. All gross receipts are transmitted to its headquarters in Irondale.

From 1990 to 1994, M & Associates calculated its business license taxes based solely on the gross receipts from sales made from its Irondale facility. Based on those calculations, M & Associates paid $5,072.84 in 1990; $6,050.50 in 1991; $5,173.00 in 1992; $5,223.86 in 1993; and $4,584.20 in 1994. Following an audit in 1994, the City of Irondale notified M & Associates that it had not properly calculated its license taxes over the previous five-year period and that it owed $116,223.46 in past-due license taxes and penalties. The city based that assessment on its Ordinance No. 805-89, entitled "An Ordinance to Prescribe and Fix Licenses for Businesses, Occupations and Professions in the City of Irondale, Alabama."¹ The ordinance applied to "diverse businesses, vocations, occupations, and professions engaged in or carried on in the City of Irondale." M & Associates was classified under § 1(107) of the ordinance, which assessed a license tax against corporations "engaged in the business of offering for sale, taking or soliciting orders for sale, or selling merchandise of any description, including any such products stored in a warehouse for sale, distribution or delivery, whether as owner, dealer, agent or cosignee." M & Associates was charged the "basic rate," which was "$100.00 plus an amount equal to 1/10 of 1% of gross receipts in excess of $50,000 during the preceding year." Section 3(a) of the ordinance provided:

"Where the amount of a license is based upon gross receipts, unless the contrary clearly appears, the term shall mean the entire receipts of the business, vocation, occupation or profession engaged in, including all receipts from sales regardless of the place where the sale was solicited, or place where the contract of sale was consummated or the place of delivery, and shall not contemplate any deductions for any purpose not specifically provided for."

(Emphasis added.)

After M & Associates questioned the city's authority to tax its sales made from facilities outside the city limits, the city filed an action in the Jefferson County Circuit Court, seeking a judgment for the amount of its assessment. The city also threatened to revoke M & Associates' business license if it did not pay the assessment. M & Associates paid $92,677.97 to the city, under protest, as payment in full for the taxes the city claimed were due for the years 1990-1994. The city agreed to accept this amount (reserving its right to sue to recover the interest it claimed was owed) and to dismiss its action; M & Associates filed this present action to recover its payment, plus attorney fees and expenses of litigation, under the Alabama Litigation Accountability Act, Ala. Code 1975, § 12-19-270 et seq. The trial court's order read, in pertinent part, as follows:

"This case came before the Court for a decision on August 11, 1997, pursuant to a stipulation of the parties filed on July 7, 1997. The stipulation reads as follows:

"STIPULATION

"Whereas:

"1. the parties agreed that the evidence before the Court on plaintiff's motion for summary judgment and defendant's opposition thereto demonstrates that there are no issues of material fact to be tried and that only questions of law remain; and

"2. the sole legal issue to be decided by the Court is whether defendant's tax on plaintiff's total gross receipts from within and without the State of Alabama discriminates against interstate commerce, violating the Commerce Clause and the Due Process Clause of the Fourteenth Amendment of the United States Constitution by unfairly apportioning activity from other states.

"Now therefore, the parties stipulate that the Court may adjudicate fully this action on the evidence before the Court at this time.

"....

"After consideration of all the evidence in this case, the answer to the sole issue is No; therefore, judgment ... is hereby entered in favor of the defendant."

(Emphasis original.)

Section 11-51-90, Ala. Code 1975, provides in pertinent part:

"(a) All municipalities shall have the following powers:

"(1) To license any exhibition, trade, business, vocation, occupation, or profession not prohibited by the Constitution or laws of the state which may be engaged in or carried on in the city or town.

"....

"(3) To require sworn statements as to the amount of capital invested, value of goods or stocks, or amounts of sales or receipts where the amount of the license is made to depend upon the amount of capital invested, value of goods or stocks, or amount of sales or receipts and to punish any person or corporation for failure or refusal to furnish sworn statements or for giving of false statements in relation thereto.

"(b) The license authorized by subsection (a) of this section as to persons, firms, or corporations engaged in business in connection with interstate commerce shall be confined to that portion within the limits of the state and where the person, firm, or corporation has an office or transacts business in the city or town imposing the license.

"(c) The power to license conferred by this division may be used in the exercise of the police power as well as for the purpose of raising revenue, or both."

(Emphasis added.) Section 11-45-1, Ala. Code 1975, provides:

"Municipal corporations may from time to time adopt ordinances and resolutions not inconsistent with the laws of the state to carry into effect or discharge the powers and duties conferred by the applicable provisions of this title and any other applicable provisions of law and to provide for the safety, preserve the health, promote the prosperity and improve the morals, order, comfort and convenience of the inhabitants of the municipality, and may enforce obedience to such ordinances."

Section 11-51-90(b) "was an admonition to municipalities to so frame their tax ordinances as to avoid transgression of the commerce clause of the federal Constitution." Ingalls Iron Works Co. v. City of Birmingham, 248 Ala. 417, 421, 27 So.2d 788, 791 (1946) (construing Title 37, § 735, Code of 1940, the predecessor to § 11-51-90). Ordinance No. 805-89 specifically recognized that its scope was limited by federal and state law:

"Section 14. No provisions of this Ordinance shall be applied: (a) so as to impose any unlawful tax or unlawful burden on interstate commerce or on activity of the State or Federal Governments: or (b) in any manner which is repugnant to or violates any provision of the United States or Alabama Constitutions."

Relying on a number of decisions from the United States Supreme Court, including Gwin, White & Prince v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed. 272 (1939); Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977); and Tyler Pipe Industries, Inc. v. Washington State Department of Revenue, 483 U.S. 232, 107 S.Ct. 2810, 97 L.Ed.2d 199 (1987), M & Associates contends that the ordinance upon which the city's tax assessment is based violated the Commerce and Due Process Clauses of the United States Constitution by authorizing a tax based on the total gross receipts from sales made at its facilities outside the state. Citing Complete Auto Transit, which sets out a four-part test for determining the constitutionality of local taxes on interstate commerce, M & Associates argues that a tax of the sort imposed on it by the city can be upheld against a Commerce Clause challenge only "when the tax is applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State." 430 U.S. at 279,97 S.Ct. at 1079.² M & Associates maintains that the ordinance runs afoul of the second (fair apportionment) and fourth (fair relation) parts of the Complete Auto Transit test and, therefore, that it violates § 11-51-90. M & Associates also contends that the ordinance violates § 11-51-90 by authorizing a tax based on the gross receipts from in-state sales made at its Mobile facility.

The city contends that the Commerce Clause does not exempt businesses engaged in interstate commerce from paying a reasonable business license tax for the privilege of doing business in the city, provided that interstate commerce is not unduly burdened or discriminated against by the tax. It argues that it had the statutory authority to impose the tax and a concomitant statutory duty to enforce it. The city maintains that the amount of its tax assessment was reasonable when compared to the amount of M & Associates' gross receipts over the five years in question (approximately $110,000,000) and when considered...