Ex parte Louisville & N. R. Co.

• Decision Date: 06 March 1981
• Docket Number: No. 79-463,79-463
• Citation: 398 So.2d 291
• Parties: Ex parte LOUISVILLE & NASHVILLE RAILROAD COMPANY. In re: State of Alabama v. Louisville & Nashville Railroad Company).
• Court: Alabama Supreme Court

Page 291

398 So.2d 291

Ex parte LOUISVILLE & NASHVILLE RAILROAD COMPANY In re: State of Alabama v. Louisville & Nashville Railroad Company).

No. 79-463.

Special Supreme Court of Alabama.

March 6, 1981.

M. R. Nachman, Jr. of Steiner, Crum & Baker, Montgomery, for petitioner.

Charles A. Graddick, Atty. Gen., and Herbert I. Burson, Jr., and Ronald J. Bowden, Asst. Counsel, Department of Revenue, and Asst. Attys. Gen., for respondent.

ALMON, Justice.

This appeal presents the question of whether Alabama's gross receipts tax upon a railroad's earnings from "intrastate business" applies to receipts generated by the L & N Railroad's movement of goods between two points in Alabama. The Court of Civil Appeals held these receipts are taxable under the statute. We reverse.

The railroad gross receipts tax statute presently provides:

In addition to all other taxes imposed by this title, there is hereby levied a license or privilege tax upon each person engaged in the business of operating a railroad in the state of Alabama for the privilege of engaging in such business; said license tax or privilege tax shall be ... in a sum equal to two and one-half percent of the gross receipts in excess of $150,000.00 of such railroad from all intrastate business of such railroad within the state of Alabama during the preceding year, the gross intrastate earning to be determined by the amount received from intrastate business.

Code 1975, § 40-21-57 (emphasis supplied).

The receipts the State seeks to tax under this statute were derived from L & N's movement of various products to and from the Port of Mobile. These movements, stipulated by the parties as typical of the transactions at issue, consist of both export and import shipments. Export shipments involve transportation of paper goods from Selma to the Port, where the goods are then off-loaded onto a ship and subsequently exported. Import shipments involve the movement of iron ore pellets from Lima, Peru, to Birmingham via the Port; L & N's role in these shipments is limited to transporting the ore from the Mobile docks to Birmingham.

No questions concerning taxes due under the statute arose until 1976, when L & N petitioned the Department of Revenue for a refund of taxes paid on receipts earned in 1972 and 1973. L & N asserted taxes on these movements were erroneously paid because of a clerical and/or computer error, and that no taxes were due on these "interstate" shipments. The Department denied L & N's petition and soon thereafter entered assessments for similar receipts earned during 1974, 1975 and 1976.

It is clear from recent decisions of the United States Supreme Court that, under proper circumstances and regardless of whether the transaction is characterized as interstate or intrastate, the State may tax the gross receipts generated by L & N's services without offending either the Commerce Clause, Art. I, § 8, cl. 3, or Import-Export Clause, Art. I, § 10, cl. 2, of the Federal Constitution. Washington Revenue Department v. Stevedoring Association, 435 U.S. 734, 98 S.Ct. 1388, 55 L.Ed.2d 682 (1978); Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). ¹ That fact alone, however, does not necessarily justify the imposition of the tax to the transactions in this case. As we have stated, recent pronouncements of the United States Supreme Court which enlarge the permissible area of state taxation cannot change the intent or enlarge the scope of enactments passed by our Legislature. State v. Southern Electric Generating Co., 274 Ala. 668, 151 So.2d 216 (1963). Therefore, the question is not whether the State may, under prevailing caselaw, impose a tax upon the gross receipts earned from these transactions. Rather, the controlling issue is whether, in originally enacting this statute, the Legislature intended to tax these transactions. To determine that intent, we must look to the nature of the activity involved as well as the "history of the times" when the statute was enacted. Champion v. McLean, 266 Ala. 103, 95 So.2d 82 (1957); Houston County v. Martin, 232 Ala. 511, 169 So. 13 (1936); Standard Oil v. State, 55 Ala.App. 103, 313 So.2d 532 (Ala.Civ.App.1975).

I

We begin by noting that the issue before us cannot be resolved by simply resorting to the literal meaning of the phrase "intrastate business." Nor can the proper resolution be reached by dissecting the phrase into two words and applying their respective definitions. Numerous decisions have used the terms "business" and "commerce" interchangeably in the context of state taxation of commerce. See, e. g., Puget Sound Stevedoring Co. v. Tax Commission, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68 (1937); Shannon v. Streckfus Steamers, 279 Ky. 649, 131 S.W.2d 833 (1939). An even greater number of decisions have indicated that whether an activity is truly intrastate or interstate depends upon many factors beyond whether the activity occurred within the boundaries of one or more states. See, e. g., The Daniel Ball, 77 (Wall.) U.S. 557, 19 L.Ed. 999 (1870); Merchants Fast Motor Service, Inc. v. I. C. C., 528 F.2d 1042 (5th Cir. 1976); United States v. Philadelphia & R. Ry. Co., 232 F. 946 (D.C.Pa.1916); HC & D Moving & Storage Co. v. Yemane, 48 Haw. 486, 405 P.2d 382 (1965); Beam v. Baltimore & O. R. Co., 77 Ohio App. 419, 68 N.E.2d 159 (1945).

As a general rule, it is both the origin and intended destination of a transaction which governs whether the transportation is interstate; and once the movement acquires its interstate character, it remains until the final destination is reached. HC & D Moving & Storage Co. v. Yemane, supra; Shannon v. Streckfus Steamers, supra; State v. Department of Public Service, 1 Wash.2d 102, 95 P.2d 1007 (1939). Furthermore, "(t)he fact that several different and independent agencies are employed in transporting the commodity, some acting entirely in one State, and some acting through two or more States, does in no respect affect the character of the transaction." The Daniel Ball, 77 (Wall.) U.S. 557, 565, 19 L.Ed. 999 (1870). Accord, Merchants Fast Motor Lines, Inc. v. I. C. C., 528 F.2d 1042 (5th Cir. 1976). Here the transactions were import and export shipments. Based upon the foregoing, we are of the opinion that L & N's movements whether they occurred in 1975 or 1875 constitute the intrastate segment of interstate commerce. That finding, however, does not resolve the issue, for "even if it be found that certain transactions are in fact interstate commerce, such conclusion does not answer the further inquiry whether a particular assertion of power by a State over such transactions offends the Commerce Clause." Central Greyhound Lines of New York v. Mealey, 334 U.S. 653, 655, 68 S.Ct. 1260, 1262, 92 L.Ed. 1633 (1948).

II

The United States Supreme Court has been more receptive to those regulatory measures affecting interstate commerce which are based upon a state's police power than it has been to those measures based upon a state's power to tax. Freeman v. Hewitt, 329 U.S. 249, 253, 67 S.Ct. 274, 277, 91 L.Ed. 265 (1946). The Court's early attitude towards state taxation of interstate commerce was illustrated in Minnesota v. Blasius, 290 U.S. 1, 54 S.Ct. 34, 78 L.Ed. 131 (1933), wherein it was stated:

The States may not impose direct burdens upon interstate commerce, that is, they may not regulate or restrain that which from its nature should be under the control of the one authority and be free from restrictions save as it is governed in the manner that the national legislature constitutionally ordains. This limitation applies to the exertion of the State's taxing power as well as to any other interference by the State with the essential freedom of interstate commerce. Thus, the States cannot tax interstate commerce, either by laying the tax upon the business which constitutes such commerce or the privilege of engaging in it, or upon the receipts, as such, derived from it.

290 U.S. at 8-9, 54 S.Ct. at 36-37 (footnote omitted and emphasis supplied). It was upon this basis, i. e., an impermissible burden upon interstate commerce, that the Court struck down many gross receipts tax statutes. See, e. g., Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed 272 (1939); Adams Mfg. Co. v. Storen, 304 U.S. 307, 58 S.Ct. 913, 82 L.Ed. 1365 (1938); Philadelphia & Southern SS Co. v. Pennsylvania, 122 U.S. 326, 7 S.Ct. 1118, 30 L.Ed. 1200 (1887); Fargo v. Michigan, 121 U.S. 230, 7 S.Ct. 857, 30 L.Ed. 888 (1887).

Tax immunity for interstate commerce did not remain absolute, however. In 1938, the Court's decision in Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823 (1938), demonstrated a philosophical change in the Court. In that case it was indicated that interstate commerce was not totally immune from state regulation, that it should pay its own way, and that certain taxes could be levied on interstate commerce as long as the tax was fairly apportioned. See also, Central Greyhound Lines of New York, Inc. v. Mealey, 334 U.S. 653, 68 S.Ct. 1260, 92 L.Ed. 1633 (1948).

Despite the conservative position adopted by the Court, some gross receipts taxes were upheld in limited circumstances. Such taxes were sustained against constitutional attack when the tax was imposed "in lieu of" all other taxes the state could levy upon the taxpayer. See, e. g., Illinois Central RR. v. Minnesota, 309 U.S. 157, 60 S.Ct. 419, 84 L.Ed. 670 (1940); Pullman v. Richardson, 261 U.S. 330, 43 S.Ct. 366, 67 L.Ed. 682 (1923); United States Express Co. v. Minnesota, 223 U.S. 335, 32 S.Ct. 211, 56 L.Ed. 459 (1912). In this context, the gross receipts tax was considered a fair substitute for other taxes such as property taxes, and could be imposed as long as it was a fair equivalent to other tax burdens and was not levied in addition to other taxes. See New Jersey Bell Tel. Co. v. State Board of Taxes, 280 U.S. 338, 50 S.Ct. 111,...