South Cent. Bell Telephone Co. v. State

• Citation: 789 So.2d 133
• Parties: SOUTH CENTRAL BELL TELEPHONE COMPANY et al. v. STATE of Alabama and State Department of Revenue.
• Decision Date: 17 November 1999
• Court: Supreme Court of Alabama

789 So.2d 133

SOUTH CENTRAL BELL TELEPHONE COMPANY et al. v. STATE of Alabama and State Department of Revenue.

1960591.

Supreme Court of Alabama.

November 17, 1999.

Walter R. Byars of Steiner-Crum, Byars & Main, P.C., Montgomery; David J. Bowling and Courtney G. Hyers of CSX Transportation, Inc., Richmond, Virginia; Walter Hellerstein, University of Georgia School of Law, Athens, Georgia; and D. Owen Blake, Jr., of BellSouth Telecommunications, Inc., Birmingham, for appellants. Bill Pryor, atty. gen., and Raymond L. Jackson, asst. atty. gen., Edward A. Hosp, deputy legal adviser, Governor's Office; and Joe Espy III of Melton, Espy, Williams & Hayes, P.C., Montgomery, for appellees.

Alton B. Parker, Jr., David P. Donahue, and Frances H. Jackson of Spain & Gillon, L.L.C., Birmingham, for amicus curiae Kane-Miller Corporation.

Russell Jackson Drake and Charlene P. Cullen of Whatley Drake, L.L.P., Birmingham; Roger W. Kirby, Richard L. Stone and Andrea Bierstein of Kirby, McInerney & Squire, L.L.P., New York City, New York; and Charles Dauphin of Baxley, Dillard, Dauphin & McKnight, Birmingham, for amicus curiae Gladwin Corporation.

David R. Boyd and Dorman Walker of Balch & Bingham, L.L.P., Montgomery; and James F. Hughey, Jr., and Alex B. Leath III of Balch & Bingham, L.L.P., Birmingham, for amicus curiae Alabama Power Company.

Bruce P. Ely, D.W. Wilson, and Christopher R. Grissom of Tanner & Guin, L.L.C., Tuscaloosa, for amici curiae Allegheny Teledyne Incorporated and 62 other foreign corporations.

(Interim Order)

PER CURIAM.

This is a franchise-tax case.

The Century Dictionary (1891), Vol. VI, p. 6201, defines the word "tax" in its first definition as follows:

"(1) A disagreeable or burdensome duty or charge; an exaction; a requisition; an oppressive demand; strain; burden; task."

The same dictionary, Vol. II, p. 2360, defines "franchise" as:

"A privilege arising from the grant of a sovereign or government or from prescription, which presupposes a grant; a privilege of a public nature conferred on individuals by grant from government: as, a corporate franchise (the right to be and act as a corporation)."

Yet, this is far more than a franchise-tax case. It is a very important matter with great economic impact.¹ We are forced by a unanimous decision of the United States Supreme Court to come to grips with a propensity to favor domestic corporations over foreign corporations, a propensity that has permeated the decisions of all branches of State government.

I. Procedural History

Several foreign corporations, including South Central Bell Telephone Company, a number of related Bell companies, and CSX Transportation, Inc. (collectively, the "Taxpayers"), filed separate actions against the State Department of Revenue (the "Revenue Department"), alleging that Alabama's franchise-tax scheme discriminated against foreign corporations in a way that violated the Commerce Clause of the Constitution of the United States. The Taxpayers' actions were filed while another action filed by Reynolds Metals Company raising the same constitutional challenge was on appeal to this Court. The Taxpayers' actions were stayed pending the outcome of the Reynolds Metals appeal. In that case, White v. Reynolds Metals Co., 558 So.2d 373 (Ala.1989),cert. denied, 496 U.S. 912, 110 S.Ct. 2602, 110 L.Ed.2d 282 (1990), this Court held that Alabama's franchise-tax scheme did not violate the Commerce Clause. The Taxpayers then proceeded with their actions, seeking refunds of franchise taxes they had paid, as foreign corporations, for the tax years 1982 through 1991. After consolidating the actions for trial, the Circuit Court of Montgomery County dismissed the Taxpayers' claims, holding that Reynolds Metals finally decided the interstate-commerce issue against the Taxpayers and, thus, that their claims were barred under the doctrine of res judicata. The Taxpayers appealed; this Court affirmed, without an opinion. See South Cent. Bell Tel. Co. v. State, 711 So.2d 1005 (Ala.1998).

The Supreme Court of the United States, after granting the Taxpayers' petition for certiorari review, reversed this Court's decision and remanded the case "for further proceedings not inconsistent with [its] opinion." South Cent. Bell Tel. Co. v. Alabama, 526 U.S. 160, 167, 119 S.Ct. 1180, 1185, 143 L.Ed.2d 258 (1999) ("South Central Bell"). The Supreme Court held that, to the extent this Court's decision had "rest[ed] on state-law claim or issue preclusion (res judicata or collateral estoppel) that holding [was] inconsistent with [Richards v. Jefferson County, 517 U.S. 793, 116 S.Ct. 1761, 135 L.Ed.2d 76 (1996),] and with the Fourteenth Amendment's due process guarantee." The Supreme Court also held that Alabama's franchise-tax scheme is discriminatory on its face and as applied, see 526 U.S. at 169-70, 119 S.Ct. at 1185-86 (stating that "[t]he tax ... facially discriminates against interstate commerce" and that "[t]his discrimination is borne out in practice"), and, therefore, that "Alabama's franchise tax [Ala.Code 1975, §§ 40-14-40, 40-14-41] [is] unconstitutional." However, the Supreme Court did not declare that the provisions of the Constitution of Alabama of 1901—art. XII, § 229 and § 232—that mandate the enactment of the domestic-and foreign-corporation franchise-tax statutes are unconstitutional as violating the Commerce Clause. As we consider the franchise-tax scheme, we find it clear that the discrimination against interstate commerce is not the result of the State constitutional provisions found at §§ 229 and 232.

II. Alabama's Franchise-Tax Scheme²

Alabama's franchise-tax scheme is composed of constitutional and statutory provisions. The Constitution of Alabama of 1901 provides for the imposition of franchise taxes on domestic corporations (§ 229) and on foreign corporations (§ 232). Section 229, as amended by Amendment No. 27, requires the imposition of a franchise tax on domestic corporations, providing in pertinent part:

"The Legislature shall,³ by general laws, provide for the payment to the state of Alabama of a franchise tax by corporations organized under the laws of this state which shall be in proportion to the amount of capital stock...."

(Emphasis added.) Pursuant to the mandate of § 229, the Legislature has enacted § 40-14-40, levying a franchise tax on domestic corporations. That section provides in pertinent part:

"Every corporation organized under the laws of this state ... shall pay annually to the state an annual franchise tax based on its capital stock as follows:

"For the tax year Rate on each $1000.00 beginning of capital stock "January 1, 1984 $10.00 "And all years thereafter $10.00

"provided, that in no event shall the amount paid by any corporation for annual franchise tax be less than the sum of $50."

(Emphasis added.)

Neither the Constitution of Alabama of 1901 nor § 40-14-40 defines the term "capital stock." Early in our post-1901 jurisprudence, this Court defined the term "capital stock," as used in § 229, as the paid-in, or paid-up, capital stock, but never as par value.⁴ Ultimately, for reasons not clear from the record in this present case,⁵ the term "capital stock," as it is used in the domestic-corporation franchise-tax statute, came to be interpreted by Alabama courts as meaning the par value of the corporation's shares of stock.⁶ Thus, in practice, the term "capital stock" has consistently been interpreted strictly to refer to shares of equity ownership in the corporation.

Section 232 of the Constitution of Alabama of 1901, as amended by Amendment No. 473, provides for the imposition of a franchise tax on foreign corporations. It states in pertinent part:

"The legislature shall,⁷ by general law, provide for the payment to the state of Alabama of a franchise tax by such corporation, but such franchise tax shall be based on the actual amount of capital employed in this state."

(Emphasis added.) The foreign-corporation franchise tax differs basically from the domestic-corporation franchise tax in that it is a tax on the foreign corporation's "actual amount of capital employed in this state," rather than one on the corporation's "capital stock." The Constitution of Alabama of 1901 does not define the term "capital." Pursuant to the mandate of § 232, the Legislature has enacted § 40-14-41, levying a franchise tax on foreign corporations.⁸ Section 40-14-41 provides in pertinent part:

"(a) Amount of levy.—Every corporation organized under the laws of any other state, nation, or territory and doing business in this state ... shall pay... to the state an annual franchise tax of three dollars ($3) on each one thousand dollars ($1,000) of the actual amount of its capital employed in this state...."

(Emphasis added.)

The term "capital," as it is used in § 232 and in the foreign-corporation franchise-tax statute, has been construed several times by this Court. This Court has construed "capital" to mean "all assets which have an actual or a legal situs in Alabama and which are used or employed by the foreign corporation in Alabama in the exercise of any business whatsoever." Alabama Textile Prods. Corp. v. State, 263 Ala. 533, 544, 83 So.2d 42, 50 (1955) (noting that the phrase "actual capital employed in this state" does not mean the net worth of the corporation). 263 Ala. at 543, 83 So.2d at 50.⁹

In 1961, the Legislature amended the foreign-corporation franchise-tax statute, expressly defining the term "capital" and specifying a method for determining the actual amount of capital employed by a foreign corporation in Alabama.¹⁰ See Act No. 912, 1961 Ala. Acts 1462 (presently codified, as amended, at Ala.Code 1975, § 40-14-41(b)). The 1961 Act clearly intended "capital" to mean the property of the corporation, since it limited the actual amount of capital employed in this State to the "sum of (1) [the foreign corporation's] tangible property located in the State and (2) its intangible property employed in...