White v. Reynolds Metals Co.
Decision Date | 21 December 1989 |
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. |
Court | Alabama Supreme Court |
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.
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 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, 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, Amendment 473, 1 reads, in pertinent part:
(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 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.
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:
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