White v. Reynolds Metals Co.

• Court: Supreme Court of Alabama
• Writing for the Court: ALMON; HORNSBY
• Citation: 558 So.2d 373
• Parties: In re James C. WHITE, Jr., etc., and State Department of Revenue v. REYNOLDS METALS COMPANY, et al. 89-386.
• Decision Date: 21 December 1989

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558 So.2d 373 In re James C. WHITE, Jr., etc., and State Department of Revenue
v.
REYNOLDS METALS COMPANY, et al. 89-386. Supreme Court of Alabama. Dec. 21, 1989.
Rehearing Denied Jan. 12, 1990.
Certiorari Denied June 4, 1990. See 110 S.Ct. 2602.

Don Siegelman, Atty. Gen., and B. Frank Loeb, Chief Counsel, and Ron Bowden and Nancy I. Cottle, Asst. Counsel, Dept. of Revenue, and Asst. Attys. Gen. and Robert D. Hunter, J. Franklin Osment, and M. Beth O'Neill of Lange, Simpson, Robinson & Somerville, Birmingham, for petitioners.

Joseph W. Letzer, Bruce A. Rawls and Orion G. Callison III, Birmingham, for respondents.

Robert W. Bradford, Jr., and Laura L. Crum of Hill, Hill, Carter, Franco, Cole & Black for respondents GMAC Leasing Corp., General Motors Acceptance Corp. , and General Motors Corporation.

Edward M. Selfe, Vice Chairman & Gen. Counsel for Amicus Curiae Secor Bank, Federal Savings Bank.

ALMON, Justice.

This Court issued a writ of certiorari in this case to address the questions raised by an advisory opinion request from the Governor. See Opinion of the Justices No. 330, 558 So.2d 390 (Ala.1989). At issue is the constitutionality of Alabama's franchise tax on corporations

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that are incorporated under the laws of other states, Ala.Code 1975, § 40-14-41 (foreign corporations). The challenge to § 40-14-41 concerns the relation of the tax imposed by that section to the franchise tax on corporations that are incorporated under the laws of this state, Ala.Code 1975, § 40-14-40 (domestic corporations). The two taxes are mandated by Ala. Const.1901, Art. XII, §§ 229 and 232. The trial court held that Ys-40-14-41 violates the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution, pretermitting discussion of the plaintiffs' challenge under the Commerce Clause, U.S. Const. Art. I, § 8, cl. 3. The Court of Civil Appeals affirmed, White v. Reynolds Metals Co., 558 So.2d 367 (Ala.Civ.App.1989).

On July 28, 1986, Reynolds Metals Company filed a petition for a writ of mandamus ordering the Commissioner of Revenue to set aside assessments of franchise taxes paid by Reynolds in 1982 and 1983 and to refund the taxes paid. Similar petitions, or appeals from denials of refunds, were filed by General Motors Acceptance Corporation ("GMAC"), GMAC Leasing Corporation, and General Motors Corporation ("GM"). Because all of the proceedings challenged assessments made pursuant to § 40-14-41 as violating the Equal Protection Clause and the Commerce Clause, the cases were consolidated. Amended pleadings were filed regarding subsequent tax years. The trial court entered a summary judgment for the plaintiffs.

Section 229 of the Constitution, as amended by Amendment 27, reads, in pertinent part:

"The legislature shall, 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.)

Section 232 of the Constitution, as amended by Amendment 473, ¹ reads, in pertinent part:

"No foreign corporation shall do business in this state without having at least one known place of business and an authorized agent or agents therein, and without filing with the secretary of state a certified copy of its articles of incorporation or association.... The legislature shall, 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.)

Section 40-14-40 imposes on domestic corporations an annual franchise tax of $10 on each $1000 of capital stock, or a minimum of $50. Section 40-14-41(a) imposes on foreign corporations an annual franchise tax of $3 on each $1,000 of "the actual amount of its capital employed in this state," or a minimum of $25. Paragraph (b) of § 40-14-41 defines "capital," as we shall more fully discuss below; paragraph (c) provides that the actual amount of capital employed in this state "shall be determined in accordance with generally accepted accounting principles appropriate in the particular case"; and paragraph (d) sets forth exclusions and deductions. ²

The circuit court and the Court of Civil Appeals viewed the Equal Protection Clause as requiring that the same franchise tax be imposed on both domestic and foreign corporations. However, § 40-14-40 imposes a tax that is "in proportion to the amount of capital stock" of a domestic corporation, that is, exactly as prescribed by § 229 of the Constitution; and, although § 40-14-41 provides in detail for the measurement of the "actual amount of capital employed" by a foreign corporation in this state, that section also sets forth a method of taxation that is designed to follow the mandate of the corresponding section of the constitution, § 232.

A franchise tax that apportioned a domestic corporation's capital stock according to how much of it was employed in thisstate,

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or that used a different measure than "capital stock," would presumably not be "in proportion to the amount of capital stock" and thus would violate § 229. A franchise tax on the full amount of a foreign corporation's capital stock would clearly violate § 232. Thus, it appears that a tax calculated in the same manner for both domestic and foreign corporations would violate either § 229 or § 232 and that the legislature would be justified in enacting franchise taxes tailored to the terms of those sections.

Therefore, a holding that the Equal Protection Clause or the Commerce Clause requires the same tax to be applied to both domestic and foreign corporations appears to require a holding that either § 229 or § 232 of our Constitution violates the United States Constitution. This we are loath to do. Although the Supremacy Clause, U.S. Const. Art. VI, cl. 2, binds "the judges in every state" to abide by the United States Constitution, "any thing in the Constitution or laws of any state to the contrary notwithstanding," we are also sworn to "support the Constitution of the United States, and the Constitution of the State of Alabama." Ala. Const.1901, Art. XVI, § 279. It is therefore our duty to support both, if that be possible, before we conclude that the one violates the other.

History of the Franchise Taxes

To clarify the current relationship of the domestic and foreign corporation franchise taxes, we shall summarize their historical development.

After the adoption of the Constitution of 1901, the legislature adopted a franchise tax only on foreign corporations. Ala.Code 1907, §§ 2391-2400. This Court affirmed an assessment of taxes under that act, Southern Ry. v. Greene, 160 Ala. 396, 49 So. 404 (1909), but the Supreme Court of the United States reversed, 216 U.S. 400, 30 S.Ct. 287, 54 L.Ed. 536 (1910), holding that the tax violated the Equal Protection Clause.

The legislature responded by enacting a franchise tax on both domestic and foreign corporations, in the manner prescribed by the respective constitutional sections. Acts 1915, Act No. 464. In Louisville & N. R.R. v. State, 201 Ala. 317, 318, 78 So. 93, 94 (1918), ³ the Court held that the tax did not "operate as an arbitrary discrimination against foreign corporations." The statute levied a tax on every domestic corporation, with exceptions as provided in § 229, of 40 cents per $1,000 "of its paid-up capital stock" and a tax on foreign corporations, with exceptions as provided in § 232, of 40 cents per $1,000 "on the amount of capital actually employed in this state." The Court distinguished the tax from the one invalidated in Southern Ry. v. Greene, supra, and included the following discussion of the history of §§ 229 and 232:

"The act, both as to foreign and domestic corporations, employs the exact language of the Constitution, and if we look to the journal and debates of the constitutional convention upon the adoption of sections 229 and 232, we think it is well demonstrated that the difference between the two was made for the sole purpose of avoiding a discrimination against foreign corporations. The committee on corporations reported to the convention section 229 as it now appears in our Constitution, and section 232, as reported, contained the words 'in proportion to the amount of its capital stock.' An amendment was offered by Mr. Kyle, changing the words as italicized so as to read, 'shall be based on the actual amount of capital employed in this state.' In support of this amendment Mr. Kyle, among other things, said:

" 'For instance, take the Tennessee Coal & Iron Co. They have a capitalization of $30,000,000. They have large property in Tennessee as well as in Alabama. Therefore it should not be required of them, or any other corporation of like character, to pay its franchise tax upon property they own in other states. Take the Southern Iron & Foundry Company. They have a capitalization of $600,000 and own a small plant in this state. The main plant is in Tennessee. This amendment would reach all the capital they had in use in Alabama, but they would

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not have to pay upon the entire capital stock. The Western Union Telegraph Company, with $80,000,000 capital, would have to pay on the capital of $80,000,000 instead of what she has in this state. So this reaches the matter and makes it the property in possession of the state. The committee will accept that I hope.'

"The section as amended was then adopted. Of course, this court is not bound by the debates of the constitutional convention, but they are often looked to, and the one in question is very persuasive that the framers of our organic law did not intend to discriminate against foreign corporations as to a franchise tax and adopted the foregoing amendment to section 232 for the sole purpose of avoiding a discrimination by fixing the basis for the franchise tax upon the amount of property...