Jefferson County v. Acker

• Decision Date: 30 August 1996
• Docket Number: No. 94-6400,94-6400
• Citation: 92 F.3d 1561
• 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 1561

92 F.3d 1561

65 USLW 2170

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. 30, 1996.

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 Association (Amicus).

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

Before TJOFLAT, Chief Judge, KRAVITCH, HATCHETT, ANDERSON, EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES and BARKETT, Circuit Judges, and HENDERSON ^*, Senior Circuit Judge.

COX, Circuit Judge:

We decide in this case whether Jefferson County, Alabama, may impose on federal judges holding office under Article III of the Constitution ¹ a tax for the privilege of engaging in their occupation within the county. We hold that such a tax violates the Supremacy Clause of the Constitution. ²

I. FACTS AND PROCEDURAL HISTORY

Jefferson County, Alabama, sued William M. Acker, Jr., and U.W. Clemon, United States District Judges for the Northern District of Alabama, to recover delinquent county taxes due under Jefferson County Ordinance No. 1120. Ordinance No. 1120 imposes a license or privilege tax (the "privilege tax") on persons not otherwise required to pay any license or privilege tax to the State of Alabama or Jefferson County. The ordinance provides:

It shall be unlawful for any person to engage in or follow any vocation, occupation, calling or profession ... within the County on or 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 No. 1120, § 2 (Sept. 29, 1987).

The ordinance defines "vocation, occupation, calling and profession" to include the holding of any kind of office, by election or appointment, by any federal, state, county, or city officer or employee where the officer's or employee's services are rendered within Jefferson County. Id. § 1(C). ³ It is undisputed that the ordinance facially applies to federal judges. Non-residents of Jefferson County performing work in Jefferson County must pay the privilege tax. See id. § 1(B). The ordinance defines "gross receipts," by which it measures the privilege tax, as the total gross amount of all salaries, wages, or other monetary payments of any kind which a person receives or is entitled to receive for work or services. Id. § 1(F). ⁴ If compensation is earned from work both inside and outside Jefferson County, the privilege tax is based on the proportion of work performed within Jefferson County. Id. § 3. The computation of the percentage of work done within Jefferson County must be supported by oath. Id.

The ordinance requires employers to withhold privilege taxes, to file returns with the Director of Revenue, and to keep and maintain certain records for five years. Id. § 4. The Administrative Office of the United States Courts has never withheld Jefferson County privilege taxes from the salary of any federal judge or court employee. Under the ordinance, an employer's failure to withhold the privilege tax does not relieve employees from the obligation to pay. Id. An employee whose employer has failed to comply with the ordinance must file a return and pay the privilege tax. Id. § 5.

The ordinance grants certain investigative powers to the Jefferson County Director of Revenue. These include the power to examine the books, records, and papers of any employer or licensee to determine the accuracy of any return or to determine the amount of privilege taxes due if no return was filed, as well as the power to examine any person under oath concerning any gross receipts which were or should have been shown in a return. Id. § 7. The Director of Revenue also may promulgate regulations for the administration and enforcement of the ordinance. Id. § 8.

The ordinance imposes interest and penalties for the failure to pay privilege taxes and the failure to withhold privilege taxes. Id. § 10(A). In addition, the ordinance alludes to other punishment for failing to comply with its requirements:

Any person or employee who shall fail, neglect or refuse to pay a license fee ... or any employer who shall fail to withhold said license fees, or to pay over to County such license fees ..., or any person required to file a return ... who shall fail, neglect or refuse to file such return, or any person or employer who shall refuse to permit the Director of Revenue or any Id. § 10(B). Alabama law provides that each violation ⁵ of a city or town ordinance requiring the payment of privilege taxes is punishable by a fine, as prescribed by the ordinance, of up to $500, by up to six months imprisonment, or by both. Alabama Code § 11-51-93 (1989). Alabama law does not appear to provide criminal sanctions for violating county ordinances requiring the payment of privilege taxes.

agent or employee designated by him ... to examine his books, records and papers for any purpose authorized by this Ordinance ... shall upon conviction be subject to punishment within the limits of and as provided by law for each offense. Such punishment shall be in addition to the penalties imposed under subsection (A) of this section.

At least three other local governments in Alabama have ordinances requiring the payment of license or privilege taxes. The Cities of Gadsden and Birmingham, in the Northern District of Alabama, ⁶ and Auburn, in the Middle District of Alabama, have ordinances almost identical to Jefferson County's, though their ordinances tax gross receipts at a higher rate and, because they are city ordinances, are backed by criminal penalties under Alabama law. See id. Counsel for Jefferson County told us at oral argument that Jefferson County simply copied Birmingham's ordinance when enacting Ordinance No. 1120.

Judge Acker and Judge Clemon maintain their principal offices in the Hugo Black Federal Courthouse in Birmingham, Alabama, which lies within Jefferson County. They routinely perform some but not all of their duties outside of Jefferson County. Judges Acker and Clemon have refused to pay the privilege tax imposed by the ordinance. Before the district court's opinion in this case, all other active judges of the Northern District of Alabama paid the privilege tax on differing percentages of their judicial salaries without supporting those percentages by an oath or any formal accounting procedure. In addition, all state judges with offices in Jefferson County have paid the privilege tax based on portions of their salaries.

Jefferson County sued Judge Acker and Judge Clemon in state court to recover delinquent privilege taxes due under the ordinance. Each judge removed his case to federal court, where the cases were consolidated. The parties stipulated to the facts and submitted cross-motions for summary judgment.

The district court ⁷ held that, under the intergovernmental tax immunity doctrine, the ordinance is unconstitutional as applied to Judge Acker and Judge Clemon. The court concluded that the legal incidence of the privilege tax falls on the federal judicial function. Jefferson County v. Acker, 850 F.Supp. 1536, 1543 (N.D.Ala.1994). According to the court, the privilege tax, "by express intention and in real effect, is a franchise tax imposed upon the federal judicial operations and is unconstitutional as a direct tax upon an officer and instrumentality of the United States, that is, upon the sovereign itself." Id. at 1545-46.

The district court also held that applying the ordinance to Judges Acker and Clemon violates the Compensation Clause of Article III. ⁸ Id. at 1547. The privilege tax diminishes a judge's compensation, rather than taxing his salary, the court held, because its incidence "is upon the performance of judicial functions by a judicial officer, antecedent to the point that the salary therefor having been paid by the government becomes the property of the individual citizen of Alabama." Id. at 1547-48. Jefferson County A panel of this court reversed, holding that the ordinance may be applied to Article III judges without violating the intergovernmental tax immunity doctrine or the Compensation Clause. Jefferson County v. Acker, 61 F.3d 848 (11th Cir.1995). Chief Judge Tjoflat dissented. The panel majority disagreed with the district court's conclusion that the ordinance taxes the federal judicial function. The panel majority determined that "the practical effect of [the ordinance] is to tax the income that federal judges derive from the performance of their judicial functions," not "to impose a license tax as a precondition to the performance of those functions." Id. at 855. And the panel majority determined that federal judges are federal officers rather than arms of the federal government. Id. at 853. Therefore, the panel held, the ordinance does not directly tax the operations of the federal government in violation of the intergovernmental tax immunity doctrine. Id. at 856.

appealed. ⁹

Also based on its determination that the practical effect of the privilege tax is that of an income tax, the panel majority held that the Compensation Clause does not bar applying the ordinance to federal judges. Id. According to the panel majority, "[i]t is well established that the Compensation Clause does not forbid ... levying an income tax on federal judges." Id. (citing O'Malley v. Woodrough, 307 U.S. 277, 282, 59 S.Ct. 838, 840, 83 L.Ed. 1289 (1939)).

Judges Acker and Clemon filed a...