Multistate Tax Com'n v. U.S. Steel Corp., 83-3611

• Decision Date: 31 August 1983
• Docket Number: No. 83-3611,83-3611
• Parties: MULTISTATE TAX COMMISSION Eugene F. Corrigan, et al., Petitioners-Appellants, v. UNITED STATES STEEL CORPORATION, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 925

714 F.2d 925

MULTISTATE TAX COMMISSION Eugene F. Corrigan, et al Petitioners-Appellants, v. UNITED STATES STEEL CORPORATION, Respondent-Appellee.

No. 83-3611.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 8, 1983.

Decided Aug. 31, 1983.

William D. Dexter, Gen. Counsel, Tumwater, Wash., for petitioners-appellants.

Dale G. Higer, Eberle, Berlin, Kading, Turnbow & Gillespie, Boise, Idaho, Neil Papiano, Iverson, Yoakum, Papiano & Hatch, Los Angeles, Cal., for respondent-appellee.

Appeal from the United States District Court for the District of Idaho.

Before ANDERSON and FLETCHER, Circuit Judges and JAMESON, ^* District Judge.

PER CURIAM:

This is an appeal by the Multistate Tax Commission (MTC) from an order of the district court dismissing MTC's action to enforce its income tax audit of United States Steel Corporation, the court concluding that there was no remaining judicial controversy upon which it might grant further relief. We remand for more specific findings with respect to the substantiality of U.S. Steel's compliance with a prior order of the court.

I. History of Proceedings

MTC was created under the Multistate Tax Compact, which became effective in 1967 and which has now been adopted by more than 20 states. The Supreme Court upheld the constitutionality of the Compact in United States Steel Corp. v. Multistate Tax Commission, 434 U.S. 452, 98 S.Ct. 799, 54 L.Ed.2d 682 (1978). Article VIII of the Compact authorizes MTC to conduct audits on behalf of member states and to seek compulsory process to enforce its audits in the courts of any member state.

Eight states ¹ requested MTC to audit several corporations, including U.S. Steel. On August 23, 1976, MTC petitioned an Idaho state court for an order compelling production of documents. U.S. Steel with other corporations subject to the audit removed the action to federal court. During the years 1977 to 1980 the district court entered various orders to facilitate the audit and settle periodic disputes between the parties.

On October 16, 1980, the district court entered a comprehensive order compelling production of 12 categories of documents. Both parties appealed from the order to this court, which affirmed the order as modified to permit in camera inspection of certain sensitive documents. Multistate Tax Commission v. United States Steel Corp., 659 F.2d 931 (9 Cir.1981). Meanwhile, to avoid the statute of limitations bar, the eight states participating in the audit issued deficiency assessments against U.S. Steel, which then filed administrative appeals in each state. On November 25, 1981, U.S. Steel moved to dismiss on the ground that no justiciable controversy existed between the parties because separate assessment proceedings had rendered the audit unnecessary or redundant. The district court granted the motion, dismissing the matter "without prejudice to the right of the petitioners to pursue any remedies that they may have under state law."

II. Issues on Appeal

Two primary issues are presented on this appeal: (1) whether MTC may proceed further with its unitary audit since all of the states have issued provisional assessments and each may proceed with its own method of discovery and review under standards promulgated in the respective states; and (2) whether U.S. Steel has complied with the district court's production order of October 16, 1980, affirmed as modified by this court.

III. Effect of State Assessments

In the order of dismissal the district court noted that each state had issued its own deficiency assessment, that U.S. Steel had filed a protest to each assessment, and that the matter is now before the administrative bodies or courts in each state. The court found that the burden to disprove the validity of the assessments had shifted to U.S. Steel, including the necessity of producing additional information or documents to disprove the validity of the assessments. The court, therefore, concluded that there was no remaining judicial controversy upon which the court might grant relief. In urging the correctness of this conclusion, U.S. Steel argues that the various taxing agencies of the individual states may subpoena additional documents and persons to assist the agencies in determining whether the deficiency assessments are correct.

We cannot agree that the state procedures alone obviate the need for completion of the unitary audit undertaken by MTC. Among the purposes which the Multistate Tax Compact is supposed to serve are: "(1) facilitating proper determination of state and local tax liability of multistate taxpayers; ... (3) facilitating taxpayer convenience and compliance in the filing of tax returns and in other phases of tax administration; and (4) avoiding duplicative taxation." United States Steel Corp., 434 U.S. at 456, 98 S.Ct. at 804. Separate state assessment proceedings do not seriously conflict with the way MTC serves these purposes. In fact, separate state proceedings are an integral part of the Compact and a limitation on the power of MTC. ² U.S. Steel must proceed through state administrative processes any time it protests an assessment. Under such circumstances, the information supplied the states by MTC...