Jefferson County v. Acker

• Decision Date: 21 August 1995
• Docket Number: No. 94-6400,94-6400
• Citation: 61 F.3d 848
• Parties: JEFFERSON COUNTY, A political subdivision of the State of Alabama, Plaintiff-Appellant, v. William M. ACKER, Jr., Defendant-Appellee. JEFFERSON COUNTY, A political subdivision of the State of Alabama, Plaintiff-Appellant, v. U.W. CLEMON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 848

61 F.3d 848

64 USLW 2141

JEFFERSON COUNTY, A political subdivision of the State of

Alabama, Plaintiff-Appellant, v. William M. ACKER, Jr., Defendant-Appellee.

JEFFERSON COUNTY, A political subdivision of the State of

Alabama, Plaintiff-Appellant, v. U.W. CLEMON, Defendant-Appellee.

No. 94-6400.

United States Court of Appeals Eleventh Circuit.

Aug. 21, 1995.

Edwin A. Strickland, Jeffrey M. Sewell, Charles S. Wagner, Birmingham, AL, for appellant.

Irwin W. Stolz, Jr., Seaton D. Purdom, Gambrell & Stolz, Atlanta, GA, for Acker & Clemon.

Kevin M. Forde, Richard J. Prendergast, Chicago, IL, for Federal Judges Assn. (Amicus).

Appeal from the United States District Court for the Northern District of Alabama.

Before TJOFLAT, Chief Judge, BIRCH, Circuit Judge, and HENDERSON, Senior Circuit Judge.

BIRCH, Circuit Judge:

In this case, we decide whether a tax, imposed by a county government for the privilege of engaging in any occupation within that county and measured by the taxpayer's gross receipts, can be levied against an Article III judge. ¹ The district court held that, as applied to federal judges, such a tax violates the intergovernmental tax immunity doctrine and the Compensation Clause of Article III. We REVERSE and REMAND.

I. BACKGROUND

As authorized by the Alabama state legislature, plaintiff-appellant, Jefferson County, Alabama, enacted a tax applicable to all workers who were not already subject to paying license fees at either the county or the state level. Variously styled as an occupational, license or privilege tax, Ordinance 1120 provides It shall be unlawful for any person to engage in or follow any vocation, occupation, calling or profession ... within [Jefferson] County on and after the 1st day of January, 1988, without paying license fees to the County for the privilege of engaging in or following such vocation, occupation, calling or profession, which license fees shall be measured by one-half percent ( 1/2%) of the gross receipts of each such person.

Jefferson County, Ala., Ordinance 1120, Sec. 2 (Sept. 29, 1987) [hereinafter "Ordinance 1120"]. ² When a person subject to the tax works both inside and outside Jefferson County, the ordinance requires the person to compute his or her tax based on the percentage of work performed within the county. Id. Sec. 3. The ordinance directs employers to withhold the license fees, to file returns on behalf of their employees, and to maintain records thereof for five years. Id. Sec. 4. Where an employer has failed to comply with the occupational tax provisions, employees remain responsible for paying the tax and for filing their own returns. Id. Failure to withhold or to pay the occupational tax may result in the assessment of interest and penalties, plus "punishment within the limits of and as provided by law for each offense." Id. Sec. 10. ³

Defendants-appellees, the Honorable William M. Acker, Jr. and the Honorable U.W. Clemon, are federal district judges in the Northern District of Alabama, which encompasses Jefferson County. Both Judge Acker and Judge Clemon have their principal offices in Jefferson County. With the exception of Judge Acker and Judge Clemon, all active judges in the Northern District of Alabama have paid their occupational taxes based on differing percentages of their salaries ⁴; additionally, all state district and circuit court judges in the Tenth Judicial Circuit of Alabama and the three Alabama Supreme Court Justices with satellite offices in Jefferson County have paid their occupational taxes based on portions of their salaries. During their tenures as federal judges, both Judge Acker and Judge Clemon have paid their state income taxes. Notwithstanding the frequently articulated boast that they reside in "God's country," the judges have steadfastly refused to "tithe."

When Judge Acker and Judge Clemon failed to pay their occupational taxes pursuant to Ordinance 1120, Jefferson County brought suit in state court to recover the delinquent taxes; Judge Acker and Judge Clemon removed the case to federal court. On cross-motions for summary judgment, ⁵ the district court held that the license tax was "imposed directly upon a governmental function--the performance in the federal courthouse in Birmingham, Alabama of federal judicial functions. Those functions are the actual event taxed (the legal incidence of the tax)." Jefferson County v. Acker, 850 F.Supp. 1536, 1543 (N.D.Ala.1994). Accordingly, the court ruled that the occupational tax, as applied to Article III judges, was a direct tax on the federal judiciary in violation of the intergovernmental tax immunity doctrine. Moreover, because the occupational tax "becomes effective even before the income is earned, and before it is paid, and before it is received," id. at 1546 n. 14, the court also held that the occupational tax diminished rather than taxed the judges' salaries, in violation of the Compensation Clause of Article III. ⁶ The court granted summary judgment on behalf of Judge Acker and Judge Clemon. The county appealed.

II. DISCUSSION

The parties have not cited, and we have not found, any Supreme Court or Court of Appeals precedents addressing whether an occupational tax levied against Article III judges violates either the intergovernmental tax immunity doctrine or the Compensation Clause. ⁷ Consequently, we apply the Supreme Court's general jurisprudence regarding the intergovernmental tax immunity doctrine and the Compensation Clause to the tax in question. We review de novo the district court's grant of summary judgment. Jaques v. Kendrick, 43 F.3d 628, 630 (11th Cir.1995).

A. Intergovernmental Tax Immunity Doctrine

Rooted in the Supremacy Clause, ⁸ the intergovernmental tax immunity doctrine is a core tenet of federalism that prevents either the federal government or the state governments from directly taxing the activities of the other. See generally United States v. New Mexico, 455 U.S. 720, 730-33, 102 S.Ct. 1373, 1380-82, 71 L.Ed.2d 580 (1982) (describing the history of this " 'much litigated and often confused field' " (quoting United States v. City of Detroit, 355 U.S. 466, 473, 78 S.Ct. 474, 478, 2 L.Ed.2d 424 (1958))). At the pinnacle of its application, the doctrine was interpreted to exempt federal employees from any state taxation. After its decision in James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155 (1937), however, the Supreme Court has upheld state taxation of federal employees except in instances of discriminatory taxes directed against federal employees or direct taxation of the federal government by the states:

"[U]nder current intergovernmental tax immunity doctrine the States can never tax the United States directly but can tax any private parties with whom it does business, even though the financial burden falls on the United States, as long as the tax does not discriminate against the United States or those with whom it deals." Absolute tax immunity is appropriate only when the tax is on the United States itself "or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned."

California State Bd. of Equalization v. Sierra Summit, Inc., 490 U.S. 844, 848-49, 109 S.Ct. 2228, 2232, 104 L.Ed.2d 910 (1989) (alteration in original) (citation omitted) (emphasis added) (quoting South Carolina v. Baker, 485 U.S. 505, 523, 108 S.Ct. 1355, 1366, 99 L.Ed.2d 592 (1988) and New Mexico, 455 U.S. at 735, 102 S.Ct. at 1383); see also United States v. California, --- U.S. ----, ----, 113 S.Ct. 1784, 1788-89, 123 L.Ed.2d 528 (1993); Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 811, 109 S.Ct. 1500, 1505, 103 L.Ed.2d 891 (1989). Thus, under the intergovernmental tax immunity doctrine, we must strike down Ordinance 1120 if it discriminates against federal employees ⁹ or if it taxes the federal government directly.

1. Discrimination Against Federal Employees

A state tax does not discriminate unconstitutionally against federal employees if the tax is imposed equally upon similarly situated constituents of the state, see United States v. County of Fresno, 429 U.S. 452, 462, 97 S.Ct. 699, 704-05, 50 L.Ed.2d 683 (1977), particularly, those constituents who are in privity with the state imposing the tax, see Davis, 489 U.S. at 815 n. 4, 109 S.Ct. at 1507 n. 4. The Jefferson County tax expressly includes within its scope elected and appointed officials at the municipal, county, and state levels. See Ordinance 1120, Sec. 1(C). ¹⁰ Jefferson County has applied the occupational tax to state district and circuit court judges and to Alabama Supreme Court Justices serving in the county, and all of these state judges and justices have complied with the ordinance.

Significantly, the occupational tax does not discriminate against judges vis-a-vis other professions. The ordinance imposes a general tax, exempting only those workers who already are subject to state or county license fees. Cf. Fresno, 429 U.S. at 464-65, 97 S.Ct. at 705-06 (holding that a state tax imposed solely on lessees of land owned by tax-exempt entities is not discriminatory because the law leaves such lessees "no worse off" than tenants who rent from landowners who are taxed). Although employees subject to the Jefferson County tax in some instances may be taxed more than professionals subject to state professional fees, this slight difference in economic burden does not compel a finding of discrimination. There is no evidence in the ordinance of "crippling obstruction of any of the Government's functions, no sinister effort to hamstring its power, not even the slightest interference with its property." City of Detroit v. Murray Corp. of Am., 355 U.S. 489, 495, 78 S.Ct. 458, 462, 2 L.Ed.2d 441 (1958). Thus, the occupational tax does not discriminate unconstitutionally against federal employees.

2. Direct Tax on Federal...