SOUTH CENT. BELL TELEPHONE CO. v. State

• Decision Date: 07 January 2000
• Citation: 789 So.2d 147
• Parties: SOUTH CENTRAL BELL TELEPHONE COMPANY et al. v. STATE of Alabama and State Department of Revenue.
• Court: Alabama Supreme Court

789 So.2d 147

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

1960591.

Supreme Court of Alabama.

January 7, 2000.

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.

(Second Interim Order)

PER CURIAM.

We are aware that the Alabama Legislature has passed Act No. 665, Ala. Acts 1999, which purports to solve prospectively the Commerce Clause problem with Alabama's franchise tax (see our First Interim Order in this case, dated Nov. 17, 1999), and that this Act has become law with the Governor's signature.

In South Central Bell Telephone Co. v. Alabama, 526 U.S. 160, 119 S.Ct. 1180, 143 L.Ed.2d 258 (1999) ("South Central Bell"), the Supreme Court did not reserve the question whether its holding should apply retroactively. "When [the Supreme] Court does not reserve the question whether its holding should be applied to the parties before it, ... an opinion announcing a rule of federal law is properly understood to have followed the normal rule of retroactive application and must be read to hold that its rule should apply retroactively to the litigants then before the Court." Harper v. Virginia Dep't of Taxation, 509 U.S. 86, 97-98, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993) (internal quotation marks and ellipses omitted). The Taxpayers and interests aligned with the State, including the Attorney General, the Department of Revenue, and the Governor, all agree that the Supreme Court's decision in South Central Bell must be applied retroactively. The question remaining for this Court's determination is what remedy, if any, should be fashioned.

Harper makes it clear that when a tax is ruled unconstitutional, and that ruling is applied retroactively, a State must give a remedy that comports with Federal due-process principles. Harper, 509 U.S. at 100, 113 S.Ct. 2510 (citing American Trucking Ass'ns, Inc. v. Smith, 496 U.S. 167, 181, 110 S.Ct. 2323, 110 L.Ed.2d 148 (1990)). These principles of due process are found in a line of cases that begin with McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), and its companion case American Trucking Ass'ns., Inc. The McKesson case allows a State to comport with due process by:

1) giving a taxpayer a refund;¹

2) collecting back taxes from the favored class;²

3) combining aspects of these first two options;³

4) barring a refund to a taxpayer that did not follow a state procedural law in seeking the refund;⁴ or

5) refusing to give a remedy, in the rare case in which the State relied on now overturned precedent and the State now faces an extreme hardship if it must give a remedy.⁵

The United States Supreme Court has remanded this case for proceedings not inconsistent with its opinion. In order to discharge that responsibility, this Court needs further evidence that it, as an appellate court, is ill-suited to gather.

The evidence that we require falls into several categories. We first must have specific statements of position of all parties concerning the efficacy of Act No. 665, Ala. Acts 1999, as a cure for the constitutional defect recognized in South Central Bell. We also require position statements on the question whether Act No. 665 is consistent with §§ 229 and 232 of the Constitution of Alabama of 1901. We further require information as to the extent to which the Bell Companies⁶ and CSXT, Inc., have borne the economic impact of the excess franchise taxes collected, so that we can consider the legal effect of any passing through of the burden to customers. See James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 538-39, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991). We require a detailed explanation of the manner in which the Bell Companies and CSXT, Inc., contend that they complied with applicable provisions of state law⁷ governing contests of assessments.

We also require information in another area because we cannot at this juncture foreclose the prospect that this case constitutes that "rare case" of reliance coupled with hardship (see item 5 in the listing above). In 1989, this Court held that Alabama's franchise tax did not violate the Commerce Clause.⁸White v. Reynolds Metals Co., 558 So.2d 373 (Ala.1989). The United States Supreme Court, consistent with its prior holdings, denied certiorari review, 496 U.S. 912, 110 S.Ct. 2602, 110 L.Ed.2d 282 (1990). However, in 1999 the United States Supreme Court declared the Alabama franchise tax unconstitutional as violating the Commerce Clause. South Central Bell v. Alabama, supra.

In his dissent to this Court's opinion on the original appeal in this present case, dated March 20, 1998,⁹ Justice See observed that our holding in Reynolds Metals was premised on the State's argument, renewed in the original appeal in this case, that the combination of the effects of a higher rate applicable to domestic corporations and the shares tax also imposed on domestic corporations created an intrastate burden that compensated for the higher foreign franchise tax. 711 So.2d at 1011. Then, Justice See observed that "the Supreme Court has since [our decision in Reynolds Metals] clarified and narrowed the definition of a compensatory tax." Id. Justice See then cited a trilogy of United States Supreme Court cases: Oregon Waste Systems, Inc. v. Department of Environmental Quality of Oregon, 511 U.S. 93, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994); Associated Industries of Missouri. v. Lohman, 511 U.S. 641, 114 S.Ct. 1815, 128 L.Ed.2d 639 (1994); and Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996). The United States Supreme Court also noted the evolving nature of recent cases, stating:

"The Alabama trial court agreed with the Bell plaintiffs that their evidence, taken together with this Court's recent Commerce Clause cases, `clearly and abundantly demonstrates that the franchise tax on foreign corporations discriminates against them for no other reason than the state of their incorporation.' Memorandum Opinion in App. to Pet. for Cert. 21a-22a ... (citing Oregon Waste Systems, Inc. v. Department of Environmental Quality of Oregon, 511 U.S. 93, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994); Associated Industries of Mo. v. Lohman, 511 U.S. 641, 114 S.Ct. 1815, 128 L.Ed.2d 639 (1994); Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996))."

South Central Bell, id., 526 U.S. at 164, 119 S.Ct. at 1183 (emphasis added). When the first of the trilogy, all decided after Reynolds Metals, was released, Chief Justice Rehnquist stated in his dissent:

"Once again, ... as in [Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978),] and [Chemical Waste Management, Inc. v. Hunt, 504 U.S. 334, 112 S.Ct. 2009, 119 L.Ed.2d 121 (1992) ], the Court further cranks the dormant Commerce Clause ratchet against the States by striking down such cost-based fees, and by so doing ties the hands of the States in addressing the vexing national problem of solid waste disposal. I dissent."

Oregon Waste Systems, Inc., supra, 511 U.S. at 109, 114 S.Ct. 1345 (emphasis added).

With each crank of the ratchet, the increased effect on a State-taxing authority that relies on the former law can be enormous. After it had decided McKesson Corp., the Supreme Court addressed the role of reliance, in James B. Beam Distilling Co. v. Georgia, 501 U.S. at 543-44, 111 S.Ct. 2439, stating that "nothing we say here precludes consideration of individual equities when deciding remedial issues in specific cases," and that "[n]othing we say here deprives [the State of its] opportunity... to demonstrate reliance interests entitled to consideration in determining the nature of the remedy that must be provided, a matter with which McKesson did not deal."

After James B. Beam Distilling Co., the Supreme Court rejected the imposition of a remedial limitation upon the retroactive application of a new rule to pending cases, in the context of an Ohio tolling statute that discriminated against out-of-state defendants. See Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 757-58, 115 S.Ct. 1745, 131 L.Ed.2d 820 (1995), where the Court declined to extend the rule protecting a state official sued individually from personal liability where the unconstitutional conduct of the official was not "clearly established" at the time of the arrest. In so holding, the Court noted the absence of "significant policy justifications" that are presented in proceedings such as actions against law-enforcement officers where burdens would fall on "society as a whole" if the rule were otherwise. 514 U.S. at 758-59, 115 S.Ct. 1745.¹⁰ However, because of the inadequacy...