NORTH GEORGIA ELEC. v. City of Calhoun, Ga.

• Decision Date: 02 January 1992
• Docket Number: Civ. A. No. 4:-91-cv-57-HLM.
• Citation: 820 F. Supp. 1403
• Parties: NORTH GEORGIA ELECTRIC MEMBERSHIP CORPORATION, Plaintiff, v. CITY OF CALHOUN, GEORGIA, Defendant.
• Court: U.S. District Court — Northern District of Georgia

820 F. Supp. 1403

NORTH GEORGIA ELECTRIC MEMBERSHIP CORPORATION, Plaintiff, v. CITY OF CALHOUN, GEORGIA, Defendant.

Civ. A. No. 4:-91-cv-57-HLM.

United States District Court, N.D. Georgia, Rome Division.

January 2, 1992.

James C. Brim, Jr., Office of James C. Brim, Jr., Camilla, GA, Lemuel Hugh Kemp, Kinney, Kemp, Pickell, Sponcler & Joiner, Dalton, GA, Herbert S. Sanger, pro hac vice, Charles W. Van Beke, pro hac vice, Wagner, Myers & Sanger, Knoxville, TN, for plaintiff.

Thomas J. Campbell, Office of Thomas J. Campbell, Calhoun, GA, L. Clifford Adams, Jr., Robert J. Middleton, Jr., Hurt, Richardson, Garner, Todd & Cadenhead, Atlanta, GA, for defendant.

ORDER

HAROLD L. MURPHY, District Judge.

This declaratory judgment action is before the Court on Defendant's Motion to Dismiss.

North Georgia Electric Membership Corporation, ("Plaintiff"), has brought the instant action seeking a declaration that the City of Calhoun's, ("Defendant"), imposition of a franchise tax is prohibited by the Tennessee Valley Authority Act and the Supremacy Clause of the United States Constitution.

The action is, apparently, only the latest round in a series of lawsuits between these parties. By order of this Court, dated July 20, 1988, a previous lawsuit filed by the Plaintiff was ended by a grant of summary judgment in favor of the Defendant as to all of Plaintiff's antitrust and civil rights claims and by the dismissal of Plaintiff's state taxation claims. In its July 20, 1988, order this Court held that Plaintiff's claims regarding the Defendant's franchise tax were barred by the Tax Injunction Act, 28 U.S.C. § 1341, and independently by principles of comity. This Court indicated that such claims should be litigated, if at all, in state courts. Since the entry of this Court's July 20, 1988 order, the Defendant has instituted an action in the Superior Court of Gordon County to force Plaintiff to pay back franchise taxes. This state court action has been pending for approximately two years.

Plaintiff is a large rural electric cooperative organized under the laws of the State of Georgia and which serves several Georgia counties. The Defendant municipality is the county seat of Gordon County. Defendant's franchise tax was enacted, apparently, in 1987. The tax is imposed for use of the municipal streets and facilities and in the amount of 4% of the gross sales of electricity within municipal limits.

In the instant case Plaintiff contends that the doctrine of federal governmental immunity from taxation bars the imposition of a franchise tax on its gross sales. Plaintiff argues that it is a "franchise" of an agency of the United States, the Tennessee Valley Authority, and is therefore specifically exempted by Congress from this type of taxation.

Defendant, supporting the instant motion to dismiss, argues that the Tax Injunction Act, 28 U.S.C. § 1341, bars the exercise of federal jurisdiction over Plaintiff's tax challenge. Second, Defendant argues that under the federal abstention doctrine this case should be dismissed to allow the prior pending proceeding in the Superior Court of Gordon County to go forward.

Tax Injunction Act, 28 U.S.C. § 1341

The Tax Injunction Act provides as follows:

"The district court shall not enjoin, suspend or restrain the assessment levy or collection of any tax under state law where a plain, speedy and efficient remedy may be had in the courts of such state."

28 U.S.C. § 1341. The provision recognizes that a federal court order to restrain the collection of taxes inevitably interferes with the state's internal economy. See, e.g., Moe v. Confederated Salish and Kootenai Tribes of the Flathead Reservation, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976). Such interference with the fiscal affairs of a state implicates the Tenth Amendment. National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976). "Accordingly, equitable principles, principles of federalism, and `recognition of the imperative need of a State to administer its own fiscal operations' require that special restrictions be placed on federal jurisdiction when the validity of a state tax law is challenged." A Bonding Co. v. Sunnuck, 629 F.2d 1127, 1130 (5th Cir.1980), quoting Tully v. Griffin, Inc., 429 U.S. 68, 73, 97 S.Ct. 219, 222, 50 L.Ed.2d 227 (1976). 28 U.S.C. § 1341 is the present codification of this practice of judicial restraint. Id., at 1130.

The Tax Injunction Act applies to local and municipal taxes. See, Noble v. Joint City-County Board of Tax Assessors, 672 F.2d 872 (11th Cir.1982); A. Bonding Company v. Sunnuck, 629 F.2d 1127 (5th Cir.1980). Moreover, the gross receipts franchise tax imposed by the Defendant is a "tax" for the purposes of the Tax Injunction Act. See, Robinson Protective Alarm Company v. City of Philadelphia, 581 F.2d 371, 376 (3rd Cir.1978).

Plaintiff argues, however, that it is an entity so closely connected with the federal government that, like the federal government itself, it is not barred by the Tax Injunction Act from asserting a sovereign immunity challenge to a state or local tax.¹ Plaintiff contends that it is an instrumentality of the United States, or at least an entity in which the United States has a real and significant interest.

Plaintiff is correct that the United States, and instrumentalities of the United States, are not barred by the Tax Injunction Act from seeking to enjoin the enforcement of a state tax law in a federal court. Department of Employment v. United States, 385 U.S. 355, 87 S.Ct. 464, 17 L.Ed.2d 414 (1966); United States v. Sullivan, 270 F.Supp. 236 (D.Conn.1967). This exception to the Tax Injunction Act has been expanded to reach an action brought by a private party in whom the United States holds an express interest and "whom Congress intended to have the same access to federal court as that available to the United States." National Carriers' Conference Committee v. Heffernan, 440 F.Supp. 1280, 1283 (D.Conn.1977). Moe v. Confederated Salish and Kootenai Tribes, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1975).

In Moe, supra, the Supreme Court found that an indian tribe, which sought to challenge certain state taxes, was not barred by the Tax Injunction Act from asserting their challenge in federal court. The Court found that private entities in which the United States had a "real and significant interest" and which could point to some congressional expression of intent that they be accorded the same access to federal court as that enjoyed by the United States, were not barred from challenging a state tax in situations where the United States could have prosecuted the suit on their behalf.

In that case, the indian tribe was considered an entity in which the United States had a "real and significant interest." The Court also found that a jurisdictional statute, 28 U.S.C. 1362, had given the federal courts original jurisdiction over civil actions brought by indian tribes arising under the Constitution, statutes, or treaties of the United States. Moe, 425 U.S., at 471-72, 96 S.Ct. at 1640-41. The Court read the legislative history of 28 U.S.C. 1362, as expressing a congressional intent to give the tribe the same access to federal courts that the United States would have if it brought suit on behalf of the tribe. Moe, 425 U.S., at 472-73, 96 S.Ct. at 1640-41. Lastly, the Court found that suit was one that the United States could have brought, and concluded that since the Tax Injunction Act could not bar the United States, it should not bar the private plaintiff either. Moe, 425 U.S., at 473-74, 96 S.Ct. at 1641. See also, Heffernan, 440 F.Supp., at 1284.

In the instant case, Plaintiff argues that the ruling in Moe entitles it to assert its tax immunity claim in federal court. Plaintiff contends it is a franchise of the Tennessee Valley Authority and therefore either an instrumentality of the United States or at least an entity "in which the United States has a real and significant interest." Moe, 425 U.S., at 474, 96 S.Ct. at 1641. Plaintiff points to 16 U.S.C. 8311², and 28 U.S.C. 1331, as an expression of congressional intent that franchises of the TVA, such as Plaintiff, should be accorded the same treatment as the United States. Lastly, since the action is based on federal immunity from taxation, Plaintiff implies that the action could have been instituted by the federal government on its behalf. Plaintiff concludes that an entity such as itself, like the indian tribe in Moe, is not barred by the Tax Injunction Act from proceeding with its challenge to the municipal franchise tax in federal court.

The rest of Plaintiff's argument is an attempt to have this Court reach the merits of its action during its consideration of this jurisdictional motion. Plaintiff has continued to argue that a decision on the merits of its declaratory judgment complaint is inextricably intertwined with a decision on the instant motion to dismiss.³ "If Plaintiff is a franchise of TVA, and, as such, is immune from the Tax, then the Tax Injunction Act is inapplicable. However, if Plaintiff is not a franchise of TVA and has not been granted federal government immunity from the Tax, then the Tax Injunction Act applies." Plaintiff's Brief in Opposition to Defendant's Motion to Dismiss, at 10.

As this Court has repeatedly stated, however, a decision on the instant motion to dismiss is not dependent on this Court's view of the merits of Plaintiff's claim. Assuming, without deciding, that Plaintiff is a franchise of the TVA, it is nonetheless clear that Plaintiff cannot avoid the bar of the Tax Injunction Act.

Several courts have visited the analysis set forth in Moe and noted the Supreme Court's reliance on the existence of a jurisdictional statute indicating a Congressional intent that the party in question be given access to the federal courts similar to that of the United States. See, Southern Railway Company v. State Board of Equalization, 715 F.2d 522 ...