LOCATION: Attorney General Office
DOCKET NO.: 97-2045
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: Supreme Court of Alabama
CITATION: 526 US 160 (1999)
ARGUED: Jan 19, 1999
DECIDED: Mar 23, 1999
Charles J. Cooper - Argued the cause for the respondents
Mark L. Evans - Argued the cause for the petitioners
Facts of the case
Alabama requires each corporation doing business in that state to pay a franchise tax based on the firm's capital. A domestic firm, organized under the laws of Alabama, has leeway in controlling its own tax base and tax liability. A foreign firm, organized under the laws of a State other than Alabama, does not have similar leeway to control its tax base. In 1986, the Reynolds Metals Company and other foreign corporations sued Alabama's tax authorities, seeking a refund of the foreign franchise tax they had paid on the ground that the tax discriminated against foreign corporations in violation of the Commerce and Equal Protection Clauses. The Alabama Supreme Court rejected Reynolds' claims, holding that the special burden imposed on foreign corporations simply offset a different burden imposed exclusively on domestic corporations by Alabama's domestic shares tax. During the Reynolds case, the South Central Bell Telephone Company and others brought a suit asserting similar Commerce and Equal Protection Clause claims. The Alabama trial court agreed with South Central Bell that the tax substantially discriminated against foreign corporations, but nonetheless dismissed their claims as barred by res judicata in light of the State Supreme Court's Reynolds decision. The Alabama Supreme Court affirmed.
Does Alabama's franchise tax discriminates against interstate commerce, in violation of the Commerce Clause? Did the Alabama Supreme Court's refusal to permit the South Central Bell Telephone Company and others to raise their constitutional claims because of res judicata deprive them of the due process of law guaranteed by the Fourteenth Amendment?
Media for South Central Bell Telephone Company v. AlabamaAudio Transcription for Oral Argument - January 19, 1999 in South Central Bell Telephone Company v. Alabama
Audio Transcription for Opinion Announcement - March 23, 1999 in South Central Bell Telephone Company v. Alabama
Stephen G. Breyer:
The second case which is not about tires is the South Central Bell Telephone Company versus The State of Alabama.
That case has to do with a franchise tax on corporations.
Alabama calculates its state tax differently depending on whether the corporation at issue is a foreign i.e. a non-Alabama corporation or domestic Alabama corporation and the basic question before us in that case is whether in light of the difference the franchise tax on the foreign corporation violates the Commerce Clause.
Our holding is it does violate the Commerce Clause.
Before we reach that question on the merit, however, we have to decide whether the Eleventh Amendment bars our consideration of the case because the Eleventh Amendment says that the federal judicial powers doesn't extend to a suit brought against the state by citizens of another state.
Now, Alabama points out that this case is a suit brought by citizens of another state against this state and it before this got to this court it was only in the State Courts.
Nonetheless this Court has previously held that the Eleventh Amendment does not prevent this Court from reviewing State Court lawsuits where the state is a party whether it is the plaintiff or it is the defendant and we reject Alabama's Eleventh Amendment claim primarily on the basis of that precedent.
We also have to decide a preliminary matter whether Alabama's courts could have ruled in favor of the state mistakes for a special reason.
There have been an earlier case, State Courts might have said it was somewhat ambivalent on this, rather elliptical that the eason that stated one because of the principles of res judicator, and we have to decide is that a proper ground.
There is an earlier case decided by this Court that goes into that matter in some detail and basically we reject that the claim on the basis of that earlier cases.
The parties in the second case were strangers to the earlier law suit and the Fourteenth Amendment prevents a state from stop a firm from using rec judicator to bar the estrangers.
So, we finally get to the merits and we note that Alabama measures its tax on domestic corporations by the power value of the corporation stock.
A number that the corporation can easily reduce if it wants, well below any actual market value.
But when it measure the tax on foreign corporations, it does so by the value of the capital the foreign corporation actually implies in Alabama as determined by certain balance sheet numbers that the corporation cannot easily reduce.
Now, that difference significantly discriminates against non Alabama corporations.
In our view it is not justified and under our case law the resulting discrimination makes the tax unconstitutional.
The state argued that we should reconsider and abandoned our earlier case law in particular our long standing negatives Commerce Clause jurisprudents.
But the state did not make clear it intended to make any such sweeping arguments when it filed it opposition to the petitions for certiorari and therefore we do not consider that far reaching claim.
For those reasons we reverse the decision of the Alabama Supreme Court.
We remand the case for further proceedings.
Justice O'Connor has filed a concurring opinion and Justice Thomas has also filed a different concurring opinion.