State, Dept. of Revenue v. Hoover, Inc.

• Decision Date: 31 August 2007
• Docket Number: 2060142.
• Citation: 993 So.2d 889
• Parties: STATE of Alabama DEPARTMENT OF REVENUE v. HOOVER, INC.
• Court: Alabama Court of Civil Appeals

993 So.2d 889

STATE of Alabama DEPARTMENT OF REVENUE v. HOOVER, INC.

2060142.

Court of Civil Appeals of Alabama.

August 31, 2007.

Troy King, atty. gen., and J. Wade Hope and Margaret Johnson McNeill, asst. attys. gen. and asst. gen. counsel, Department of Revenue, for appellant.

Bruce P. Ely and Philip J. Carroll III of Bradley Arant Rose & White, LLP, Birmingham; and Blake A. Madison and Justin

G. Williams of Tanner & Guin, LLC, Tuscaloosa, for appellee.

THOMAS, Judge.

These parties have previously been before both this court, see State Dep't of Revenue v. Hoover, Inc., 956 So.2d 1157 (Ala.Civ.App.2006), and State Dep't of Revenue v. Hoover, Inc., 956 So.2d 1142 (Ala. Civ.App.2005), and the Alabama Supreme Court, see Ex parte Hoover, Inc., 956 So.2d 1149 (Ala.2006), and Hoover, Inc. v. State Dep't of Revenue, 833 So.2d 32 (Ala. 2002), in previous litigation (hereinafter sometimes collectively referred to as "the Hoover I litigation"), involving the same fundamental issue that is the subject of this appeal, except that the Hoover I litigation and the present case deal with different tax years and different amounts of sales taxes assessed by the Alabama Department of Revenue ("the Department").

Relevant Background Facts & Procedural History

Hoover, Inc., is a Tennessee corporation headquartered in LaVergne, Tennessee. Hoover is engaged in the retail sale of crushed stone and other products in Alabama, Mississippi, and Tennessee. Hoover owns and operates three rock quarries in Alabama, one of which is located in Colbert County. Some of Hoover's customers are governmental entities in both Alabama and Mississippi. During the years in question here, and during the years in question in the Hoover I litigation, Hoover sold its products to Alabama and Mississippi governmental entities and neither collected nor paid sales tax on those transactions.

Pursuant to § 40-23-4(a)(11), Ala.Code 1975, Alabama governmental entities are exempt from paying sales tax on transactions in which an Alabama sales tax would normally apply. That statute contains no such exemption for out-of-state governmental entities. Therefore, the Department entered tax assessments against Hoover because it had failed to collect or pay sales tax on sales of its crushed stone and other products to Mississippi governmental entities that took place in Alabama. In the Hoover I litigation, the Department entered a final tax assessment against Hoover in the amount of $159,520.97, covering the period from July 1996 through June 1999. In the present case, the Department entered a final tax assessment against Hoover in the amount of $133,892.06, covering the period from May 2000 through April 2003. Hoover paid both of the tax assessments under protest.

Arguing that the exemption for Alabama governmental entities violated the Commerce Clause of the United States Constitution (Art. 1, § 8, cl.3) because there was no analogous exemption for out-of-state governmental entities, Hoover appealed the tax assessment in the Hoover I litigation by filing a complaint in the Colbert Circuit Court. The Department then moved for a summary judgment, asserting that it was not unconstitutional to exempt Alabama governmental entities from the sales tax while imposing the sales tax on out-of-state governmental entities when those entities took delivery of the goods in Alabama. The trial court entered a summary judgment in favor of the Department.

The Alabama Supreme Court reversed the trial court's judgment and remanded the cause, holding that the sales-tax exemption in § 40-23-4(a)(11) facially discriminated against interstate commerce, and was thus "`"virtually per se invalid,"'" and that a genuine issue of material fact existed as to "the Department's justification for any discriminatory treatment in assessing sales taxes." Hoover, Inc. v. State Dep't of Revenue, 833 So.2d at 35, 36 (quoting Fulton Corp. v. Faulkner, 516 U.S. 325, 331, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996)). The supreme court specifically stated that the Department had "completely ignore[d]" the United States Supreme Court cases relied on by Hoover for the proposition that the tax-exemption statute discriminated against interstate commerce and had, instead, relied on State v. Leary & Owens Equipment Co., 54 Ala. App. 49, 304 So.2d 604 (Civ.1974) (holding that Alabama could tax the sales of repair parts to county governments in Florida when the transactions were conducted entirely within Alabama), for its contention that taxing out-of-state governmental entities on transactions that take place in Alabama is constitutional. Hoover, Inc. v. State Dep't of Revenue, 833 So.2d at 34. In Ex parte Hoover, 956 So.2d at 1151, the supreme court subsequently explained that, by ignoring the United States Supreme Court decisions relied upon by Hoover, "the Department passed on the opportunity to explain how and why the Supreme Court's negative Commerce Clause jurisprudence on which Hoover relied was inapplicable or distinguishable, essentially allowing Hoover's negative Commerce Clause argument to go unchallenged."

On remand, and following an evidentiary hearing, the trial court entered a summary judgment in Hoover's favor, concluding that the Department had failed to establish a justification for the discriminatory taxation and that, "`[a]lthough rationalizations for the disparaging treatment conceivably exist, the Department offered no evidence, which would justify the facially discriminatory scheme of taxation.'" Ex parte Hoover, 956 So.2d at 1152. The Department appealed the judgment in favor of Hoover to this court, which concluded that the Department had met its evidentiary burden to provide justification for the scheme of taxation in question. See State Dep't of Revenue v. Hoover, Inc., 956 So.2d 1142. In an opinion authored by Judge Murdock, this court held that the Department had offered a "logical, and reasonable, justification" for the tax scheme by arguing that the sales-tax exemption for Alabama governmental entities mitigates the administrative costs of an Alabama governmental entity's having to pay sales tax to the State and then having the State disburse a portion of the tax right back to the entity to fund its various operations. 956 So.2d at 1146. This court, therefore, reversed the trial court's judgment and remanded the case with instructions for the trial court to enter a judgment for the Department. Id. at 1147.

However, the Alabama Supreme Court reversed this court's decision. Ex parte Hoover, 956 So.2d at 1156-57. The supreme court held that because the tax scheme in question was subject to the "virtually per se" rule of invalidity, the Department was required to provide evidentiary justification—not just legal argument—showing that the tax scheme "`"advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives."'" Ex parte Hoover, 956 So.2d at 1155 (quoting Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 581, 117 S.Ct. 1590, 137 L.Ed.2d 852 (1997)). The court then determined that the Department had failed to meet its evidentiary burden. Id. at 1156. On remand after reversal, this court affirmed the trial court's judgment in favor of Hoover. State Dep't of Revenue v. Hoover, Inc., 956 So.2d 1157.

The Department's subsequent $133,892.06 final tax assessment against Hoover, covering the period from May 2000 through April 2003, is the subject of the current appeal. Hoover filed a complaint in the Colbert Circuit Court, appealing that assessment and requesting a refund. After the Hoover I litigation was concluded, Hoover moved the trial court to enter a summary judgment in its favor in this case, arguing that the appellate decisions in the Hoover I litigation were dispositive of the current case; that the doctrine of collateral estoppel barred relitigation of the issue of whether the Department had established a justification for the facially discriminatory tax scheme; and that the Department continued to fail in meeting its heavy burden of presenting evidence to justify the facially discriminatory tax scheme. The Department countered that Hoover was not entitled to a summary judgment because, it asserted, the decisions in the Hoover I litigation are not dispositive of the current case, which is based on different tax years, and that the affidavit of Joseph W. Cohen, the director of the Sales, Use, and Business Tax Division of the Department, constituted evidence tending to show that the tax scheme is justifiable.¹ The trial court subsequently entered a summary judgment in favor of Hoover.

The Department timely appealed the judgment to this court pursuant to § 12-3-10, Ala.Code 1975, contending that the trial court had erred in entering a summary judgment in favor of Hoover for the following reasons: 1) the decisions in the Hoover I litigation are not dispositive of this case and the doctrine of collateral estoppel does not apply to bar the Department's claim; and 2) the Department presented a genuine issue of material fact through the uncontradicted affidavit of Cohen, which, it says, offered specific justifications for the differing treatment of in-state and out-of-state governmental entities under § 40-23-4(a)(11).

The trial court's order granting Hoover's summary-judgment motion did not specify the ground, or grounds, upon which it had based its decision. Therefore, we will assume, for the purposes of this appeal, that the trial court agreed with both the collateral-estoppel and the failed-justification assertions by Hoover.

After the Department filed its appeal with this court, the United States Supreme Court decided the case of United Haulers Association, Inc. v. Oneida-Herkimer Solid Waste Management Authority, 550 U.S. 330, 127 S.Ct. 1786, 167 L.Ed.2d 655 (2007), which dealt with state regulations that affect interstate commerce. Both parties moved for leave to supplement their briefs based on the decision...