Reply Brief — First Union National Bank v. Florida Department of Revenue

NO. 87-1074 YOSEPH F. SPANIOL, JR.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1987

FIRST UNION NATIONAL BANK OF FLORIDA

and FIRST UNION CORPORATION OF FLORIDA,

Appellants,

vs.

FLORIDA D®SPARTMENT OF REVENUE and

GERALD A. LEWIS, Comptroller of Florida,

Appellees.

ON APPEAL FROM THE

SUPREME COURT OF THE STATE OF FLORIDA

REPLY TO APPELLEES'

MOTION TO DISMISS OR AFFIRM

JOSEPH C. JACOBS

THOMAS M. ERVIN, JR.*

STUART E. GOLDBERG

ERVIN, VARN, JACOBS,

ODOM & KITCHEN

POST OFFICE DRAWER 1170

TALLAHASSEE, FL 32302

(904)224-9135

ATTORNEYS FOR APPELLANTS

*COUNSEL OF RECORD

QUESTIONS_PRESENTED

The Questions Presented by This Appeal

Are:

I. WHETHER PART VII, CH. 220,

FLA. STAT., VIOLATES THE FEDERAL

PUBLIC DEBT STATUTE, 31 U.S.C.

§3124, BY IMPOSING A STATE

INCOME TAX ON OBLIGATIONS OF

THE UNITED STATES GOVERNMENT.

II. WHETHER PART VII, CH. 220,

FLA. STAT., VIOLATES THE FEDERAL

PUBLIC DEBT STATUTE, 31 U.S.C.

§3124, BY DISCRIMINATING AGAINST

INVESTMENT IN OBLIGATIONS OF

THE UNITED STATES GOVERNMENT

BY TAX CREDITS GIVEN FOR SELECTED

FORMS OF IN-STATE INVESTMENT.

INTRODUCTORY STATEMENT AS

- TO CONTENTS OF REPLY BRIEF

As this is a reply brief authorized

by Rule 16.5, Rules of the Supreme Court

of the United States, appellants will

present herein only direct reply to appellees'

"Reasons for Dismissal or Affirmation,"

and will not repeat or reiterate the

other portions included as required in

Appellants' Jurisdictional Statement.

oifse

TABLE OF CONTENTS

PAGE(S)

QUESTIONS PRESENTED i

INTRODUCTORY STATEMENT AS ii

TO CONTENTS OF REPLY BRIEF

TABLE OF AUTHORITIES iv

REPLY TO APPELLEES' "REASONS | 1

FOR DISMISSAL OR AFFIRMATION"

I. THE TAX IMPOSED BY PART 1

VII, CHAPTER 220, FLORIDA STATUTES,

IS A PURE "INCOME TAX" WHICB

IS PROSCRIBED BY 31 U.S.C. §3124.

II. THE TAX IMPOSED BY PART 6

VII, CHAPTER 220, FLORIDA STATUTES

IS DISCRIMINATORY AND, THEREFORE,

PROHIBITED BY 31 U.S.C. §3124.

CONCLUSION 10

-iii-

ee

TABLE OF AUTHORITIES

ry

DERAL CASES:

= aS eS

American Bank and Trust Company

v. Dallas County, 463 U.S. 855

(1983)

Anderson v. Celebreeze, 460 U.S.

780 (1983)

Bowers v. Hardwick, 478 U.S. ’

106 S.Ct. , 92 L.Ed.2d 140

(1986)

Edutational Films Corp. v. Ward,

350 U.S. 492 (1931)

First National Bank v. Bartow

County Board of Tax Assessors,

470 U.S. 583 (1985)

Garfield Trust Co. v. Director,

Division of Taxation, U.S.

, 107 S.Ct. 390, 93 L.Ed.2d

345 (1986)

Hicks v. Miranda, 422 U.S. 332

(1975)

Maryland v. Louisiana, 451 U.S.

725 (1981)

Memphis Bank & Trust Company v.

Garner, 459 U.S. 392 (1983)

Metromedia, Inc. v. San Diego,

eae

453 U.S. 490 (1981)

-iv-

PAGE(S)

1,2,6

1,2,6

PAGE(S)

FEDERAL CASES CONTINUED:

Reuben L. Anderson-Cherne, Inc.

I

v. Div. of Taxation, 423 U.S.

886 (1975) 1

Werner Machine Co. v. Director, Div.

of Taxation, 350 U.S. 492 (1956) 3

Westinghouse Electric Corp. v. Tully,

466 U.S. 388 (1984) 8

FEDERAL STATUTORY PROVISIONS:

U.S.C.

Vol. 31, §3124 1,2,5,6,7,8,9

STATE STATUTORY PROVISIONS:

Fla. Stat.

Part VII, Ch. 220 1,4,

§220.18

6

9

§220.182 9

§220.183 9

9

§220.184 —

-V~-

REPLY TO APPELLEES’ “REASONS

FOR DISMISSAL OR AFFIRMATION"

I. THE TAX IMPOSED BY PART VII,

CHAPTER 220, FLORIDA STATUTES,

IS A PURE “INCOME TAX" WHICH

IS PROSCRIBED BY 31 U.S.C. §3124.

Appellees' primary contention is

that the “income tax" issue has previously

been resolved by dismissal for want of

a substantial federal question in Reuben L.

Anderson-Cherne, Inc. v. Div, of Taxation,

423 U.S. 886 (1975), and Garfield Trust

Company v. Director, Div. of Taxation,

U.S. , 107 S.Ct. 390, 93 L.Ed.2d

345 (1986).

In this, appellees err. Reuben L.

Anderson-Cherne, Inc. v. Div. of Taxation,

supra, was dismissed in 1975, prior to

this Court's full decisions in American

Bank and Trust Company v. Dallas County,

463 U.S. 855 (1983), and First Nat. Bank

470 U.S. 583 (1985), which specifically

explained that the 1959 amendments to

31 U.S.C. §3124 were intended to prohibit

use of the "measured by” device or ploy

as a means to circumvent the prohibitions

of federal law and impose a state income

tax on federal obligations and interest

thereon.

Doctrinal developments may render

substantial an issue or question formerly

viewed as unsubstantial. Hicks v. Miranda,

422 U.S. 332 (1975). The recent pronounce-

ments by this Court in American Bank

and Trust Company v. Dallas County, supra,

and First Nat. Bank v. Bartow County

Board of Tax Assessors, supra, are such

doctrinal developments.

The precedential effect of a summary

affirmance extends no further than the

precise issues presented and necessarily

determined. Anderson v. Celebreeze,

460 U.S. 780 (1983). This Court's 1986

dismissal in Garfield Trust Company v.

Director, Div. of Taxation, supra, therefore

- fails as precedent because the statute

in question was an established franchise

tax which merely included as one component

part an income admeasurement. The case did

not present the issue of a pure state income

_tax imposed on United States obligations.

Finally, such summary dispositions

do not have the same precedential authority

in this Court as decisions rendered after

plenary consideration, Metromedia, Inc. v. San

Diego, 453 U.S. 490 (1981). This Court

may, and often does, grant plenary review

despite prior summary disposition. Bowers

v. Hardwick, 478 U.S. ___, 106 S.Ct.

_» 92 L.Ed.2d 140 (1986).

Appellees have relied heavily on

disjunctive language in Werner Machine

Co. v. Director, Div. of Taxation, 350

U.S. 492 (1956), in contending that said

decision is dispositive. Again, appellees

err for that decision merely recognizes

that a legitimate state franchise tax

may be measured by a yardstick which

includes tax-exempt income or property.

The decision does not hold that a pure

state income tax may be validated by

merely mislabeling it a franchise tax.

What appellees have steadfastly

attempted to obscure is that Part VII1

of Chapter 220, Florida Statutes, is

part of the Florida Income Tax Code.

In 1971 the State of Florida amended

its constitution for the specific purpose

of removing the prohibition against a

corporate income tax and authorizing

the income tax imposed under Chapter

220, Florida Statutes.

Part VII of Chapter 220, the purported

"franchise tax" on banks, te specifically

stated to be "in lieu of" the state corporate

income tax, and is identical in its

application and operation. Appellees

have not demonstrated or even offered

a single distinguishing characteristic,

other than legislative label, between

the Florida corporate income tax and

the purported "franchise tax" on banks.

It is respectfully submitted that

this Court should neither dismiss nor

summarily affirm. Rather, this Court

should grant plenary consideration and

address the issue of whether Congress

intended to authorize imposition of such

a pure state income tax on government

obligations by providing in the 1959

amendments to 31 U.S.C. §3124 that:

§ 3124. Exemption from taxation

(a) Stocks and obligations

of the United States Government

are exempt from taxation by

a State or political subdivision

of a State. The exemption

applies to each form of taxation

that would require the obligation,

the interest on the obligation,

or both, to be considered in

computing a tax, except--

|

(1) a nondiscriminatory

franchise tax or

another nonproperty

tax instead of a

franchise tax, imposed

on a corporation; and

(2) an estate or

inheritance tax.

Congress, in 1959, was well aware

of the device and term "income tax,"

and by omission of same prohibited such

a tax. Such was the very intent of Congress,

American Bank and Trust Company v. Dallas

County, supra; First Nat. Bank v. Bartow

County Board of Tax Assessors, supra;

which intent may not be circumvented

by merely labeling a prohibited income

tax a "franchise" tax. Educational Films

Corp. v. Ward, 350 U.S. 492 (1931).

II. THE TAX IMPOSED BY PART

VII, CHAPTER 220, FLORIDA STATUTES,

IS DISCRIMINATORY AND, THEREFORE,

PROHIBITED BY 31 U.S.C. §3124.

Appellees' contention in favor of

dismissal or summary affirmance is that

the Florida tax in question only discriminates

6

in favor of investment in selected in-state

projects (rather than securities or obliga-

tions) and therefore, does not violate

the nondiscriminatory requirement of

31 U.S.C. §3124.

31 0.8.C. $3124 does not by its

terms restrict or limit the prohibited

discrimination against investment in

United States government obligations.

It simply commands that such a franchise

tax, in order to be valid, must be "nondis-

criminatory."

It is true that Memphis Bank & Trust

Company v. Garner, 459 U.S. 392 (1983)

addressed and referred to discrimination,

by exemptions, between federal and local

securities. That was the particular

form of discrimination before this Court.

The decision does not purport to hold,

however, that all other forms of discrimin-

ation are authorized.

While the precise issue (tax credits

for investment in in-state projects)

does not appear to have yet been determined

by this Court in the context of 31 U.S.C.

§3124, decisions respecting the Interstate

Commerce Clause provide guidance. In

Maryland v. Louisiana, 451 U.S. 725 (1981),

this Court struck down as discriminatory

a Louisiana "First Use" tax which imposed

a tax on natural gas brought into the

state but gave local users a series of

exemptions and credits.

More recently, in Westinghouse Electric

Corp. v. Tully, 466 U.S. 388 (1984),

this Court struck down as discriminatory

a New York franchise tax credit in favor

of exports shipped from a regular place

of business within New York. This Court

noted at 466 U.S. 404 that it was irrelevant

that the discrimination was effected

by tax credit rather than by differing

tax rates, in that the real discriminatory

effect of such measures would be identical.

By like measure, Congress has proscribed

any state tax on obligations of the United

States government, except a "nondiscrimina-

tory" franchise or other nonproperty

tax. 31 U.S.C. §3124. Florida discriminates

by granting certain tax credits against

the "franchise" tax for investment in

favored local projects (see, §§220.18,

220.182, 220.183, 220.184, Fla. Stat.)

while granting no corresponding tax credit

for investment in, or income from, obligations

of the United States government.

Appellees fail to recognize that

while the protected class under 31 U.S.C.

§3124 is limited to "stocks and obligations"

of the United States government, the

stocks and obligations which come within

that class are protected from all forms

of discrimination which would place them

at a competitive disadvantage or make

them less attractive as an investment.

CONCLUSION I\

For the foregoing reasons, appellants

urge that the motion to dismiss or affirm

should be denied, and plenary review

afforded.

THOMAS M. ERVIN, JR.

and

STUART E. DBERG

of the law firm of

Ervin, Varn, Jacobs,

Odom & Kitchen

P. O. Drawer 1170

Tallahassee, FL 32302

s (904) 224-9135

ATTORNEYS FOR APPELLANTS

FIRST UNION NATIONAL

BANK OF FLORIDA }

and FIRST UNION

CORPORATION OF FLORIDA

_—_

10