# Amicus Curiae Brief — South Central Bell Telephone Co. v. Alabama

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1999
- **Citation:** 526 U.S. 160

## Text

MOTION FILED i)
JUL 20 i998 No. 97-2045
In The
Supreme Court of the United States
+

October Term, 1997
SOUTH CENTRAL BELL TELEPHONE COMPANY, e? ai.,
Petitioners,

vs.

STATE OF ALABAMA AND
STATE DEPARTMENT OF REVENUE,

Respondents.

On Petition for Writ of Certiorari to
the Supreme Court of Alabama

MOTION OF AMICI CURIAE ALLIEDSIGNAL INC., AVON
PRODUCTS, INC., BURGER KING CORPORATION, CYTEC
INDUSTRIES, INC., DARDEN RESTAURANTS, ELI LILLY AND
COMPANY, GEORGIA-PACIFIC CORPORATION,
MATSUSHITA ELECTRIC CORPORATION OF AMERICA,
MORTON INTERNATIONAL, INC., NABISCO, INC.,
PICCADILLY CAFETERIAS, INC., R.J. REYNOLDS TOBACCO
COMPANY, THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, AND TRICON GLOBAL RESTAURANTS, INC. IN
SUPPORT OF PETITION AND BRIEF AMICI CURIAE

WILLIAM L. GOLDMAN
Counsel of Record
CARL R. ERDMANN
McDERMOTT, WILL & EMERY
Attorneys for Amici Curiae
600 13th Street, N.W.
Washington, D.C. 20005-3096
(202) 756-8000

utz

147471 (800) 274-3321 * (800) 359-6859 M nrgesat
A DIVISION OF COUNSEL PRESS erctese, ine.

AlliedSignal Inc., Avon Products, Inc., Burger King
Corporation, Cytec Industries Inc., Darden Restaurants, Eli Lilly
and Company, Georgia-Pacific Corporation, Matsushita Electric
Corporation of America, Morton International, Inc., Nabisco,
Inc., Piccadilly Cafeterias, Inc., R.J. Reynolds Tobacco
Company, The Prudential Insurance Company of America, and-
Tricon Global Restaurants, Inc. (“amici”) hereby move, pursuant
to S. Ct. R. 37.2, for leave to file a brief amicus curiae in support
of the petition for a writ of certiorari to the Supreme Court of
Alabama. Amici are filing this motion because Respondents have
declined to consent to this amicus curiae brief.' A copy of the
proposed brief is attached.

As more fully explained at pages 1.2 of the attached brief
under “Interest of Amici Curiae,” amici are corporations
incorporated in States other than Alabama and conduct business
in interstate commerce, including in Alabama. All suffer the effects
of Alabama’s discriminatory franchise tax since they are forced
to bear a heavier franchise tax burden than competing corporations
that are incorporated in Alabama.

The brief will assist the Court in determining whether to grant
certiorari because amici are uniquely positioned to point out: (1)
the importance of this case to all foreign corporations doing
business in Alabama in view of Alabama’s continuing enforcement
of its discriminatory taxing scheme; (2) the need to for this Court
to grant certiorari in this case in view of Alabama’s inability to
comply voluntarily with clear precedent of this Court; and (3) the
challenge to the integrity of this Court’s decisions in view of (i)
Alabama’s continuing reliance on its earlier decision in White v.
Reynolds Metal Co., 558 So. 2d 373 (Ala. 1989), cert. denied,
496 U.S. 912 (1990) (“Reynolds”), despite subsequent decisions

1. In response to a request for consent of Respondents to the filing of an
amicus curiae brief, Respondents’ counsel replied by letter of July 14, 1998,
that “the Alabama Revenue Department respectfully declines to consent to your
filing an Amicus Brief on behalf of your clients who are not parties to this litigation.”

of this Court that have repudiated Reynolds; and (ii) Alabama's
use of res judicata to block attempts by taxpayers who were
strangers to Reynolds from obtaining judicial review of Alabama's
unconstitutional tax, a denial of due process that also conflicts
directly with a decision of this Court. Given Respondents’
position on the res judicata issue (i.e., that non-parties are bound
by Reynolds), it is particularly ironic that Respondents would
not consent to this brief on the grounds that amici were “not
parties to this litigation.”

Accordingly, Amici respectfully request that the Court grant
leave to file the attached brief amici curiae.

Respectfully submitted,

WILLIAM L. GOLDMAN
Counsel of Record

CARL R. ERDMANN
McDERMOTT, WILL & EMERY
Attorneys for Amici Curiae

600 13th Street, N.W.
Washington, D.C. 20005-3096
(202) 756-8000

TABLE OF CONTENTS

THIS COURT SHOULD GRANT CERTIORARI
BECAUSE THE RULING OF THE ALABAMA
SUPREME COURT IS IN DIRECT CONFLICT
WITH DECISIONS OF THIS COURT, AND,
UNDER THE CIRCUMSTANCES HERE,
CERTIORARI IS PARTICULARLY
WARRANTED IN ORDER TO PROTECT THE
INTEGRITY OF THIS COURT'S
EES SEF

1. The fact that Alabama’s “extreme
application” of res judicata prevents
taxpayers who were strangers to the Reynolds
case from relying on subsequent Commerce
Clause decisions of this Court compounds
the unconstitutionality of the result
PE BURG Bes ach nod 6oeeseedosecess.

il

Contents
Page

2. Alabama inappropriately relies on Reynolds
to avoid compliance with this Court's
subsequent decisions in Fulton, Oregon
Waste, and Associated Industries. ....... 9

3. Alabama also relies inappropriately on
Reynolds in claiming that, even if its franchise
tax on foreign corporations is
unconstitutional, any relief should be
prospective for all taxpayers and that none
of its unconstitutional tax collections need

be ee . .ocscceuasceseecbeceenss 12

QComaieshan ..cccccccccdhenesceseesescscessseves

TABLE OF CITATIONS

Cases Cited:

Associated Indus. v. Lohman,
Si1 U.S. G41 (IDDE) 2. cccccccccccccess 3, 5, 7, 8, 9, 10

Commissioner v. Sunnen, 333 U.S. 591 (1948) ...... 7,8,9

Fulton Corp. v. Faulkner,
516 U.S. 325 (1996) ..... 6... c cece en eeee 3, 5, 7, 8, 9, 10

Harper v. Virginia Dep't of Taxation,
S09 U.S. 86 (1993) ... 2. ccc c cece cccececcececes 12

Hooven & Allison Co. v. Evatt, 324 U.S. 652 (1945) ... 8

Contents
Page
H. P. Hood & Sons, Inc. v. D« Mond,
arene GI I i eS 5
Hudson v. Louisiana, 450 U.S. 40 6 ee 4
Hughes v. Oklahoma, 441 U.S. 322 (1979) ......... 5
James Beam Distilling Co. v. Georgia,
I ae I i 12
Limbach v. Hooven & Allison Co.,
i & f EERa Rae Se os pe Sr ae 4,7, 8
McKesson Corp. v. Division of Alcoholic B
everages &
Tobacco, 496 U.S. 18 (1990) .............. sti 12
Michelin Tire Corp. vy. Wages, 423 U.S. 276 (1976) .. S
Monroe v. Gladwin Corp., Ala. S. Ct. No. 1961871
Petition For Extraordinary Writ (Jan. 30, 1998),
reprinted in State Tax Notes, 97 STN 174-1 )
8 YP RR Sie onrrer ie aaa 13
Newsweek v. Florida Dep't of Revenue,
SU a Pas ae 12
Oregon Waste Sys. v. Department of Envtl Quali
.v. . Quality,
Pee WB ov cn nccskcccdciccs 3, 5, 7, 8, 9, 10, 11
Pittsburgh v. Alco Parking Corp.,
ae I i ad re eh ace oe 4

iv

Contents

Reich v. Collins, 513 U.S. 106 (1994) ............. 12
Richards v. Jefferson County, 517 U.S. 793 (1996)... 2, 6,9

State v. Plantation Pipeline Co., 265 Ala. 69,

cert. denied, 352 U.S. 943 (1956) ............... 7
White v. Reynolds Metals Co., 558 So. 2d 373 (Ala.

1989), cert. denied, 496 U.S. 912 (1990) ........ passim
William E. Arnold Co. v. Carpenters Dist. Council,

SEF BRA Geen 0 cob cdevwendebaseedandueees 4
Statutes Cited:
Rie, Gas BGO 0 cctbedesddedbbesdciedesens 10
Bie, Gate BESO 6 okkcceevdaébdteneetseatocne 1, 10

United States Constitution Cited:

BS, Goeet, OE EOE DS cccescesesédsoccnen caer 2
Rules Cited:

Pat, R, Gow BD sacs ccvcccssdvccgesetdavtendes 6
BD. Ge GD i ccicesccascdtvawnccdevcaneaeussise 4

BD. GR BR. FF ccvccvccccaccctussbvtscesécvctevnes l

Contents

S. Ct. R. 37.2(b)
S. Ct. R. 37.6
Other Authorities Cited:

Ala. Const. of 1901 art. XII, § 229
The Federalist No. 42 (James Madison)

R. Stern, et al., Supreme Court Practice 208
(7th ed. 1993)

Page

Ihe Sarg 3,4

CONSENT OF THE PARTIES

Petitioners have consented to the filing of this amicus curiae
brief, but Respondents have declined to consent. Amici,
therefore, have filed a motion for leave to file this brief in
accordance with S. Ct. R. 37.2(b).'

INTEREST OF AMICI CURIAE

Pursuant to S. Ct. R. 37, AlliedSignal Inc., Avon Products,
Inc., Burger King Corporation, Cytec Industries Inc., Darden
Restaurants, Eli Lilly and Company, Georgia-Pacific
Corporation, Matsushita Electric Corporation of America,
Morton International, Inc., Nabisco, Inc., Piccadilly Cafeterias,
Inc., R.J. Reynolds Tobacco Company, The Prudential Insurance
Company of America, and Tricon Global Restaurants, Inc.
(“amici”) respectfully submit this brief as amici curiae in support
of the petition for a writ of certiorari filed by Petitioners in the
above-captioned case.

Amici, corporations organized under laws of States other
than Alabama (referred to herein as “foreign corporations”), are
engaged in interstate commerce, including doing business in
Alabama. Consequently, amici are subject to the discriminatory
Alabama franchise tax on foreign corporations. Ala. Code
§ 40-14-41 (1993). This case is important to amici because
Alabama continues to collect this tax from amici in reliance on
White v. Reynolds Metals Co., 558 So. 2d 373 (Ala. 1989),
cert. denied, 496 U.S. 912 (1990) (“Reynolds”). This places
amici at a competitive disadvantage to corporations engaged in
business in Alabama that are organized under the laws of
Alabama (referred to herein as “domestic corporations”).

1. The letters from counsel for Petitioners and Respondents have been
filed with the Clerk of the Court. Pursuant to S. Ct. R. 37.6, amici state that
no counsel for a party has written this brief in whole or in part and that no
person or entity, other than amici, has made a monetary contribution to the
preparation or submission of this brief.

2

Furthermore, in view of Alabama's continuing exploitation
of Reynolds in collecting the tax, asserting res judicata in this
case, and contending that any relief should be prospective only
if the tax is ever declared unconstitutional, it is particularly
important to amici that this Court grant certiorari in this case.
Otherwise, it is apparent that Alabama will continue to levy
and collect its clearly unconstitutional tax for as long as possible,
and it is doubtful whether Alabama will ever comply voluntarily
with the Commerce Clause’ precedents of this Court. In the
meantime, amici are at risk that future litigation efforts in
Alabama will be similarly frustrated by the contentions Alabama
has made in this case. Amici, like other foreign corporations in
Alabama, intend to pursue claims for refunds of franchise tax

for past years.
SUMMARY OF ARGUMENT

Alabama’s continuing reliance on Reynolds to justify its
discriminatory taxing scheme (despite subsequent decisions of
this Court) and Alabama’s resort to res judicata to avoid judicial
review (also in conflict with a decision of this Court) are an
affront to this Court’s Commerce Clause jurisprudence. This
Court should grant certiorari to protect the integrity of its
decisions.

Alabama's “extreme application” of res judicata directly
conflicts with Richards v. Jefferson County, 517 U.S. 793
(1996) by depriving Petitioners, who were strangers to Reynolds,
of due process. In addition, Petitioners are deprived of the ability
to rely on both subsequent Commerce Clause decisions of this
Court and further factual development, a harsher result than
applies to the parties themselves in an earlier tax case. This
further compounds the unconstitutionality of the result below.

2. U.S. Const. art. I, § 8, cl. 3.

3

The unconstitutionality of Alabama's discriminatory
taxation of foreign corporations has been confirmed by
subsequent decisions of this Court, which have repudiated the
constitutional analysis in Reynolds. Consequently, it is important
for this Court to grant certiorari in order to bring Alabama’s
reliance on Reynolds to an end.

Finally, in view of still more precedent of this Court
confirming a State’s obligation to provide meaningful backward-
looking relief, this Court also should reject Alabama's arguments
for prospective relief only. Alabama must not be permitted to

ignore this Court’s precedent and then retain its unconstitutional
tax collections.

ARGUMENT

THIS COURT SHOULD GRANT CERTIORARI
BECAUSE THE RULING OF THE ALABAMA SUPREME
COURT IS IN DIRECT CONFLICT WITH DECISIONS
OF THIS COURT, AND, UNDER THE CIRCUMSTANCES
HERE, CERTIORARI IS PARTICULARLY WARRANTED
IN ORDER TO PROTECT THE INTEGRITY OF THIS
COURT’S DECISIONS.

It is important for this Court to grant certiorari in this case
because of Alabama’s continuing reliance on and continuing
exploitation of Reynolds — a 1989 decision that is
unquestionably in direct conflict with this Court’s subsequent
decisions in Fulton Corp. v. Faulkner, 516 U.S. 325 (1996)
(“Fulton”); Oregon Waste Sys. v. Department of Envtl. Quality,
511 U.S. 93 (1994) (“Oregon Waste”); and Associated Indus.
v. Lohman, 511 U.S. 641 (1994) (“Associated Industries”).

3. This case involves a direct “conflict between a decision of the highest
state court and that of the Supreme Court on a matter of federal law [which]
is a strong reason for the granting of certiorari.” R. Stern, et al., Supreme

(Cont'd)

4

Every position Alabama takes with respect to every issue
(including res judicata, the constitutionality of its discriminatory
franchise tax on foreign corporations, and the relief to be
accorded taxpayers if the tax ultimately is held to be
unconstitutional) is grounded on the State’s continued reliance
on Reynolds. Furthermore, Alabama's arguments in this case
confirm that all future litigation in Alabama involving these
issues also will be infected by the State’s claim that, until
Reynolds is directly overruled, the State is entitled to continue
to rely on Reynolds in collecting and then retaining the franchise
taxes paid by foreign corporations. As noted by Justice Maddox
in his concurring opinion, the only opinion issued by a member
of the majority in the Alabama Supreme Court:

[A]lthough I realize that the [United States] Supreme
Court has released some opinions that could be
interpreted as indicating a change in that Court’s view
of the constitutionality of state taxes such as that at
issue in this case, the fact remains that the Supreme
Court refused to review this Court’s decision in
Reynolds Metals, and that, as of today, Reynolds
Metals remains the law.

South Central Bell Co. v. Dept. of Revenue, Pet. App. 7a.*

(Cont'd)

Court Practice 208 (7th ed. 1993); see also S. Ct. R. 10. The Alabama
Supreme Court's disregard of clear precedent of this Court bears striking
resemblance to the Ohio Supreme Court's actions in Limbach v. Hooven &
Allison Co., 466 U.S. 353 (1984), where this Court granted certiorari because
“a state court has disregarded a federal constitutional ruling of this Court.”
Id. at 362: see also Hudson v. Louisiana, 450 U.S. 40, 42 (1981); William E.
Arnold Co. v. Carpenters Dist. Council, 417 U.S. 12, 14 (1974); Pittsburgh
v. Alco Parking Corp., 417 U.S. 369, 371-72 (1974).

4. “Pet.” references are to the petition for a writ of certiorari filed in
this case. “Pet. App.” references are to the appendices to the petition.

5

It is intolerable for a State to continue in this fashio
ignore and avoid the clear, unequivocal constitutional ah
of this Court. Such intransigence itself raises a serious Commerce
Clause concern. A State must not think that, because of an earlier
decision in that State, it may ignore with impunity subsequent
decisions of this Court and collect plainly unconstitutional taxes
That is exactly what Alabama is doing. ,

Apparently, Alabama thinks that Fulton, Ore
Associated Industries apply everywhere in ty re
except in Alabama and that it is permanently shielded from
further Commerce Clause precedent of this Court because of
the 1989 decision in Reynolds. Such a notion is a direct affront
thee + genom ane because it would result in varying

Ss of constitution ti i i
which business is pal cory ace scpetina tc eaaadan

Under these circumstances, it is important for this Court to
grant certiorari in order to protect the integrity of its decisions
Alabama must be told that it must conform its taxing practices
to the requirements of the Commerce Clause as clearly stated

5. This Court has repeatedly recognized the i i
Nation as one economic unit. ' ee ee

{I}n order to succeed, the new Union would have to avoid the
tendencies toward economic Balkanization that had plagued
relations among the Colonies and later among the States under
the Articles of Confederation.

Oregon Waste at 98 (citing Hughes v. Oklahoma, 44

, » 441 U.S. 322 (1979)); see
generally The Federalist No. 42 (James Madison). “{[O]ur economic unit is
the Nation, which alone has the gamut of powers necessary to control the
economy, . . . [and] has as its corollary that the states are not separable
economic units.” Oregon Waste at 98-99 (citing H. P Hood
Du Mond, 336 U.S. 525 (1949)). : ses nedks

6

by this Court. Otherwise, Alabama will be rewarded for its
intransigence, and other States will be encouraged to hold out
for as long as possible in similar circumstances in the hope of
retaining their unconstitutional gains.

In this case, the decision of the Alabama Supreme Court is
particularly egregious in view of the multiplicity of decisions
of this Court with which it is in direct conflict.

1. The fact that Alabama’s “extreme application” of res
judicata prevents taxpayers who were strangers to the
Reynolds case from relying on subsequent Commerce Clause
decisions of this Court compounds the unconstitutionality
of the result below.

Alabama's application of res judicata, in effect, creates a
new, unprecedented class action — a class of all foreign
corporations doing business in Alabama — without any of the
usual class action protections. See Fed. R. Civ. P. 23. Petitioners
have demonstrated that the res judicata issue warrants this
Court’s review in light of the direct conflict with this Court's
decision in Richards v. Jefferson County, 517 U.S. 793 (1996),
another case from Alabama. See Pet. 19-24. As in Richards, the
“extreme application” of res judicata to Petitioners in this case
“deprived them of the due process of law guaranteed by the
Fourteenth Amendment.” /d. at 797.

Amici wish to point out that the “extreme application” of
res judicata in this case also has the effect of preventing
taxpayers, who were strangers to the Reynolds case, from being
able to rely on subsequent Commerce Clause precedent of this
Court, including cases that are directly contrary to Reynolds. It
is hard to imagine a more “extreme application” of res judicata
given the general recognition that the parties themselves in an
earlier tax case are not prevented from relying on such

7

subsequent decisions of this Court when later tax years are
litigated. See Limbach v. Hooven & Allison Co., 466 U.S. 353
(1984) (“Hooven II”); Commissioner v. Sunnen, 333 U.S. 591
(1948); see also State v. Plantation Pipeline Co., 265 Ala. 69,
cert. denied, 352 U.S. 943 (1956).

In Sunnen, this Court rejected the attempt by the
Commissioner of the Internal Revenue Service to invoke

collateral estoppel in a later tax year, noting that collateral
estoppel —

is designed to prevent repetitious lawsuits over
matters which have once been decided and which
have remained substantially static, factually and
legally. It is not meant to created vested rights in

s lete or erroneous
with time, thereby causing inequities among
taxpayers.

Sunnen, 333 U.S. at 599 (emphasis added).° It is interesting to
note that there was no suggestion that the more preclusive
doctrine of res judicata was potentially applicable.

. 6. In the present case, intervening developments of both the law and
significant facts have occurred. As discussed below in part 2, the legal basis
upon which Reynolds was decided was unequivocally rejected by this Court
in Fulton, Oregon Waste, and Associated Industries. Further, the Alabama
Supreme Court based the decision in Reynolds in part upon an asserted lack
of proof that the franchise tax in fact discriminates against foreign

corporations. Reynolds, 558 So. 2d at 370. The trial court in this case found
no such evidentiary gaps.

The Court finds that the Taxpayer's evidence in this action
clearly and abundantly demonstrates that the franchise tax on
foreign corporations discriminates against them for no other
reason than the state of their incorporation.

Pet. App. 21a-22a (footnote omitted). Therefore, intervening developments
in both the law and the facts have occurred, a circumstance that would render
collateral estoppel inapplicable if the parties were the same.

The result in Hooven II is particularly illuminating. In
Hooven II, the taxpayer argued that the Ohio Tax Commissioner
was barred by collateral estoppel because of the prior holding
in Hooven & Allison Co. v. Evatt, 324 U.S. 652 (1945)
(“Hooven I’), which held that the “original package” doctrine
of the Import-Export Clause of the United States Constitution
prevented the State from taxing certain imported goods.
However, the original package doctrine was subsequently
invalidated in Michelin Tire Corp. v. Wages, 423 U.S. 276
(1976), although the Court never specifically overruled Hooven
I. The Ohio Supreme Court agreed with the taxpayer’s argument
that, notwithstanding the intervening decision of this Court,
the Commissioner was collaterally estopped from re-litigating
the validity of the original package doctrine in Hooven I] because
Hooven I| dealt with the same issues and the same taxpayer. In
reversing, this Court held that

[t]he years involved in this tax case, however, are
not the same tax years at issue in Hooven |. Because
of this, Commissioner v. Sunnen, supra, is pertinent
and, indeed, is controlling . . .

Hooven II, 466 U.S. at 362. This Court held that collateral
estoppel could not repudiate this Court’s intervening
pronouncement, noting that the reason for limiting the scope
of collateral estoppel is especially strong when important
constitutional issues are involved and the “constitutional analysis
of the earlier case is repudiated by this Court’s intervening
pronouncement.” /d.

In this case, Alabama argued for res judicata so that it could
avoid both the unmistakable impact of this Court’s decisions in
Fulton, Oregon Waste, and Associated Industries (which have
repudiated the constitutional analysis of Reynolds) and
Petitioners’ further factual development. Thus, in addition to

(

9

being in direct conflict with Richards, the “extreme application”
of res judicata also is contrary to Sunnen and plainly a denial
of due process. How can a stranger to an earlier decision be
more bound by that decision in dealing with different taxable
years than the parties to that decision would be? This Court
should not permit its decisions to be avoided in this way.

2. Alabama inappropriately relies on Reynolds to avoid
compliance with this Court’s subsequent decisions in Fulon,
Oregon Waste, and Associated Industries.

Alabama's principal defense of its facially discriminatory
treatment of foreign corporations against Commerce Clause
challenge is its reliance on the compensatory or complementary
tax doctrine as applied in Reynolds. In setting forth its
complementary tax argument in its brief in this case to the
Alabama Supreme Court, the State made no fewer than 18
references to Reynolds. State Department of Revenue’s Brief to
Ala. Sup. Ct. (“DOR Brief”), pp. 23-34 (May 25, 1997).

But, the subsequent opinions of this Court in Fulton,
Oregon Waste, and Associated Industries, which more fully
delineated the three requirements for application of the
compensatory or complementary tax doctrine, directly repudiate
the Alabama Supreme Court's analysis in Reynolds. For
example, in Reynolds, the Alabama Supreme Court stated:

The question, as we see it, is whether the franchise
tax on foreign corporations invidiously discriminates
against them by imposing a grossly disproportionate
tax on them for no other reason than to provide a
competitive advantage to domestic corporations. We
emphasize the term “invidiously” because the tax
will be sustained if its classifications are rationally
related to a legitimate state purpose and because, in

10

enacting taxing statutes, legislatures are not required
to reach equality with mathematical precision.

558 So. 2d at 382. But, in Associated Industries, this Court
rejected as irrelevant the State’s motive in enacting a tax, stating:

A court need not inquire into the purpose or
motivation behind a ... law in order to determine
that, in actuality, the law impermissibly discriminates
against interstate commerce.

511 U.S. at 641. This Court also confirmed, in Associated
Industries, that there is a “strict rule of equality” in applying
the complementary tax doctrine. The State must show that its
tax on interstate commerce does not exceed its tax on intrastate
commerce. 511 U.S. at 646.

The Alabama Supreme Court in Reynolds also failed to
analyze, as required by this Court’s decisions, whether the taxes
in issue (the domestic franchise tax and the domestic shares tax
paid by domestic corporations and the foreign franchise tax
paid by foreign corporations) were imposed on “substantially
equivalent events” so that they served “as mutually exclusive
‘prox{ies}]’ for each other.” Oregon Waste, 511 U.S. at 103;
Fulton, 516 U.S. at 340 n.6. The franchise tax on domestic
corporations is imposed on their capital stock regardless where
they engage in business, whereas the franchise tax on foreign
corporations is imposed on the amount of their capital employed
in Alabama.’ A domestic corporation's issuance of capital stock
and the employment of capital in a State are not substantially
equivalent events. If Alabama wants to tax corporations on the
amount of their capital employed in Alabama, it can and should
impose such a tax on a nondiscriminatory basis on both domestic

7. Ala. Code § 40-14-40 and Ala. Code § 40-14-41 are set forth at Pet.
App. 90a-97a.

and foreign corporations. Until it does so, a separate decision
to tax domestic corporations on their capital stock cannot serve
as a basis for taxing only foreign corporations on their capital
employed in Alabama.*

Rather than address the three requirements for application
of the complementary tax doctrine, as appliéd by this Court's
post-Reynolds decisions, Alabama essentially argues that these
decisions “do not constitute a significant (if any) departure from
the standards in effect at the time” Reynolds was decided. DOR
Brief, p. 32. That argument would merely confirm that Reynolds
was wrong when it was decided. But the point here is that, in
all events, taxpayers are entitled to have Reynolds reconsidered
in light of this Court's subsequent decisions. That is what
Alabama seeks to avoid — for as long as possible.

8. This Court has made it clear that —

the concept of the compensatory tax . . . is merely a specific
way of justifying a facially discriminatory tax as achieving a
legitimate local purpose that cannot be achieved through

Oregon Waste at 102 (emphasis added). There is no justification for using
different tax bases for taxing foreign and domestic corporations in this case
since a nondiscriminatory method is plainly available. Amici understand that
the Alabama Constitution prevents the State from imposing an apportioned
tax on the domestic corporations based on their capital employed in the state.
Ala. Const. of 1901 art. XII, § 229. But this constraint in the Alabama
Constitution can hardly justify a taxing scheme that violates the Commerce
Clause of the United States Constitution.

12

3. Alabama also relies inappropriately on Reynolds in
claiming that, even if its franchise tax on foreign corporations
is unconstitutional, any relief should be prospective for all
taxpayers and that none of its unconstitutional tax
collections need be refunded.

Alabama’s arguments to the Alabama Supreme Court for
prospectivity are more of the same — reliance on Reynolds and
a complete disregard of this Court’s precedents. Alabama ignores
this Court’s clear precedent regarding a State’s obligation to
provide “meaningful backward-looking relief.” See Newsweek
v. Florida Dep't of Revenue, 118 S. Ct. 804 (1998); Reich v.
Collins, 513 U.S. 106 (1994); Harper v. Virginia Dep't of
Taxation, 509 U.S. 86 (1993); James Beam Distilling Co. v.
Georgia, 501 U.S. 529 (1991); McKesson Corp. v. Division of
Alcoholic Beverages & Tobacco, 496 U.S. 18 (1990).

Despite all of this precedent of this Court, the State argued
below to the Alabama Supreme Court that:

[T}he Alabama Court of Civil Appeals in White v.
Reynolds Metals Company, 558 So. 2d 367 (Ala.
Civ. App. 1989), ruled that its decision that the
Alabama franchise tax scheme unconstitutionally
discriminates against foreign corporations would be
given prospective application. The ruling regarding
the prospective application ... has never been
reversed. Consequently, should this Court decide
on the merits of the case adversely to the Department,
it should give deference to the Court of Civil
Appeals’ ruling under the doctrine of stare decisis
in deciding whether to grant prospective application.

DOR Brief, p. 45.

13

Re Apparently, Alabama recognizes the doctrine of stare decisis:
it Is Just confused as to which court's precedent it should follow.’
The important point here is that such arguments further confirm
the need for this Court to grant certiorari. Otherwise, it is apparent
that Alabama will continue disregarding this Court’s precedent.

CONCLUSION

This Court’s denial of certiorari in Reynolds has emboldened
aa mse isions of this Court in an effort to collect
i tax for as long as ible. Such a strategy i
serious challenge to this Court's Commerce Clause jurisprudence
Accordingly, amici urge this Court to grant certiorari in this case
in order to protect the integrity of this Court’s decisions and make
it plain that such a strategy must ultimately be unavailing. In
addition, given the clear precedent of this Court, amici also suggest
that it would be appropriate for this Court to summarily reverse
without plenary review.

Respectfully submitted,

WILLIAM L. GOLDMAN
Counsel of Record

CARL R. ERDMANN
McDERMOTT, WILL & EMERY
Attorneys for Amici Curiae

600 13th Street, N.W.
Washington, D.C. 20005-3096
(202) 756-8000

July 20, 1998

9. Not only is Alabama arguing for denial of taxpayers’ right to substantial
backward-looking relief, Alabama also has foiled taxpayers’ attempts to avail
themselves of a predeprivation remedy by withholding payment of franchise tax
and placing bonds in escrow with the Alabama courts. See Monroe v. Gladwin
Corp., Ala. S.Ct. No. 1961871, Petition For Extraordinary Writ (Jan. 30, 1998),
reprinted in State Tax Notes, 97 STN 174-1 (Sept. 9, 1997).

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0188%3A10. Public record. Not legal advice.