Opposition Brief — Knight v. Mingledorff

(7) | E1LED

No. 94-548 ™ OCT 23 1994

BE CORE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

PHILLIP W. KNIGHT,

Petitioner, Q

vs.

GEORGE MINGLEDOREFF,

COMMISSIONER OF REVENUE FOR

THE STATE OF ALABAMA,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI |

TO THE COURT OF CIVIL APPEALS OF ALABAMA |

BRIEF OF RESPONDENT IN OPPO

SITION

TO PETITION FOR A WRIT OF CERTIO

RAR]

JAMES H. EVANS

Attorney General, State of Alabama

RON BOWDEN, Chief Counsel

Department of Revenue and Assistant

Attorney General, State of Alabama

* J. WADE HOPE, Assistant Counsel

Department of Revenue and Assistant

Attorney General, State of Alabama

P. O. Box 320001

Montgomery, AL 36132-0001

Telephone: 242-9690

*Counsel of Record for Respondent

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> i aagetone 1 Sias Sai aes

QUESTION PRESENTED

Whether 16 U.S.C. §8311 pro-

hibits the imposition of the Alabama

Utility Gross Receipts Tax, §40-21-80,

et seq., ALA. CODE 1975, on the

Plaintiff's retail purchase of

electricity from the City of Decatur

when the electricity is purchased by the

city from the Tennessee Valley Authority.

TABLE OF CONTENTS

QUESTION PRESENTED ...++e+-ee-e-« i

Smee OR CONZENSS - «+ © «© we «wo ow se GS

TABLE OF AUTHORITIES ........ iii

STATEMENT OF THE CASE ....... . 1

pr ee ee ee ee ee ee ee ee ee oe ee ee 3

Pee oe fy yn a a a a a a 3

II. THE DECISION OF THE ALABAMA

COURTS DOES NOT DECIDE A

FEDERAL QUESTION IN A WAY

THAT CONFLICTS WITH THE

DECISION OF ANOTHER STATE

COURT OF LAST RESORT NOR A

UNITED STATES COURT OF APPEALS. 5

III. THE DECISION OF THE ALABAMA

COURTS DOES NOT PRESENT A

FEDERAL QUESTION THAT WAS

INCORRECTLY DECIDED oe # @ « 7

eee ek ne ee ee a ee ee ee ee ee >

ii

TABLE OF AUTHORITIES

CASES PAGE

Bacchus Imports, Ltd. v. Dias,

468 U.S. 263, 104 $.Ct. 3049,

Sa &.8a.420 200 (1964) ..... 10, li

City of Birmingham v. Alabama Gas

Corp.,

564 So.2d 416, (Ala. 1990)... 8

Ex parte White,

477 So.2d 422, (Ala. 1985) » 4 8, 9

M'Culloch v. Maryland,

17 U.S. (4 Wheat.) 316, 4 L.Ed.

579 (1819) ee ae 9

Tennessee Electric Power Co. v. TVA,

21 F.Supp. 947 (D.C.Tenn. 1938),

affirmed, 306 U.S. 118, 83 L.Ed.

pan, oe Boe. SOO £39a0n) -« - « - LI, 12

Town of North Courtland v. Town of

Courtland,

597 So.2d 1336 (Ala. 1992) . . . passim

CONSTITUTIONAL PROVISIONS AND STATUTES:

a0 Gimet. Seek . . «' s - « Peesin

§40-21-80, Ala. Code 1975 .. . . passim

§40-21-83(1), Ala. Code 1975... a, 9

§40-21-85, Ala. Code 1975 .... 11

§40-21-86, Ala. Code 1975 .... ? s

§40-23-8, Ala. Code 1975 is Mes 11

iii

STATEMENT OF THE CASE

The City of Decatur, Alabama,

through its Utilities Board, distributes

electricity to retail consumers in its

geographic areas (North-Central Alabama)

pursuant to a contract with the

Tennessee Valley Authority, (TVA) which

is a federally chartered corporation

under 16 U.S.C. §831, et seq.

The Plaintiff, Phillip Knight, is a

retail purchaser of electric utility

services from the City of Decatur. Each

billing period there has been added to

the Plaintiff's bill for electric

services a charge of four percent (4%)

of the amount of the bill. This

additional charge represents the amount

of the Alabama Utility Gross Receipts

Tax, §40-21-80, et seq., Ala. Code

1975, which is passed on by the City of

Decatur to its customers as required by

§40-21-86.

The Plaintiff brought this action,

as a purported class action on behalf of

himself . and all others similarly

situated (i.e. retail consumers of TVA

supplied electricity) alleging that the

taxation of the activity of he City of

Decatur, in furnishing electricity under

contract with TVA violates the tax

exemption established in 16 U.S.C.

§831l. The Plaintiff contended

that 16 U.S.C. §8311 preempts

the State from imposing any kind of tax

on electricity generated. The Plaintiff

argued in the trial court that his

purchase of electricity from the City of

Decatur is excluded from the "gross

receipts" of the City of Decatur

pursuant to §40-18-83(1) and excluded

from the levy of tax. [This should be

§40-21-83(1)].

The Plaintiff repeated his argument

and contentions on appeal to the Alabama

Court of Civil Appeals.

ARGUMENT

I. INTRODUCTION

The Petitioner, Phillip Knight,

alleges two separate grounds for review

of the decision rendered by the Alabama

courts. The Petitioner alleges first

that the decision in this case directly

conflicts with a prior decision of the

Alabama Supreme Court in construing 16

U.S.C. §8311 in Town of North

Courtland v. Town of Courtland, 597

So.2d 1336 (Ala. 1992). Second, the

Petitioner alleges that the question

raised involves an important federal

question, wrongly decided by the Alabama

court, which has not been, but should be

decided by this Court. An examination

of the alleged grounds for review

reveals that neither of the alleged

3

grounds warrant granting the Petition

for Writ of Certiorari.

The Town of North Courtland case,

surpra, does not address the question

raised by Plaintiff in the present

case. Although unreported federal

district court cases were cited in Town

of North Courtland as authority for not

allowing one municipality to impose a

tax. on another municipality operator, an

electric utility on a non-profit basis

pursuant to the TVA Act, there was no

discussion concerning whether the

utilities operated by the municipalities

were a "franchise" of TVA and thereby

exempt from all taxation pursuant to the

last sentence of the first paragraph in

16 U.S.C., §8311.

In addition, the Alabama Utility

Gross Receipts Tax does not impact the

revenues of the utilities, nor TVA,

because the tax is, like a sales tax,

4

required to be added to ae retail

purchaser's utility bill pursuant to

§40-21-86, Ala. Code 1975. The law in

Alabama is well established that the

utility gross receipts tax is a direct

tax levied on the consumer and not the

utility. Therefore, the present case

does not present a federal question

sufficiently important to invoke the

jurisdiction of this Court.

II. THE DECISION OF THE ALABAMA COURTS

DOES NOT DECIDE A FEDERAL QUESTION IN A

WAY THAT CONFLICTS WITH THE DECISION OF

ANOTHER STATE COURT OF LAST RESORT NOR A

UNITED STATES COURT OF APPEALS.

The Petitioner relies heavily upon

the Alabama Supreme Court's decision in

Town of North Courtland v. Town of

Courtland, supra, for the proposition

that the utility gross receipts tax

found at §40-21-80, et seq. can not be.

levied upon the Petitioner. The North

Courtland case and the decision of the

trial court in the present case do ane

conflict with each other. The North

Courtland case is distinguishable

because it involved the imposition of a

municipal privilege license tax upon the

gross receipts of a utility owned by the

town of Courtland. The tax was imposed

upon the furnishing of utility services

in the town of North Courtland. The

Alabama Supreme Court held that in

ruling on a Motion For Summary Judgment,

the trial court was justified in relying

upon a federal district court's

recognition that 16 U.S.C. §8311

prohibits a municipality from levying "

a

tax against another municipal

corporation which operates an electric

operation on a non-profit basis pursuant

to the TVA Act." 597 So.2d 1336, 1338.

However, the North Courtland case |

was remanded back to the trial court

because of the possible requirement that

6

the Town of Courtland may be required to

pay North Courtland a portion of

revenues retained from its’ electric

operations as being in lieu of taxes.

597 So.2d 1336, 1339-1340.

The present case does not involve

the imposition of a tax upon the

revenues of the utility. Therefore, the

issues raised in the North Courtland

case are not applicable to the facts of

the present case. Accordingly, the

Petition for Writ of Certiorari should

be denied.

III. THE DECISION OF THE ALABAMA

COURTS DOES NOT PRESENT A_ FEDERAL

QUESTION THAT WAS INCORRECTLY DECIDED.

The Petitioner alleges that the

question presented to the Alabama courts

involves an important federal question

which was incorrectly decided. The

Petitioner argues that the decision in

this case incorrectly determined that

the retail purchase of electricity by

7

the Petitioner was subject to the

utility gross receipts tax found at

§40-21-80, et. seq., Code of Alabama

1975.

With all due respect, the Order of

the Montgomery County Circuit Court

which was affirmed without opinion by

the Alabese Court of Civil Appeals took

into account prior decisions of the

Alabama Supreme Court Court when it

wrote at page 3 that:

The Alabama Supreme Court has

reaffirmed this principle

several times, stating that

aAhe—utitity gross receipts tax

is a direct tax levied on the

consumer and not the

utility. See City of

Birmingham Vv. Alabama Gas

Corp., 564 So.2d 416, 417

(Ala. 1990); Ex parte White,

477 So.2d 422, 423-24 fn.2

(Ala. 1985).

(Emphasis original) a

The decision of the Circuit Court

cited City of Birmingham v. Alabama Gas |

Corp., supra, for support in holding

that the clear intent of the Alabama

Legislature was to impose the tax on the

customers of all utilities in Alabama.

The Circuit Court decision also

cited Ex parte White, supra, in

holding that §40-21-83(1) provides an

"exclusion" from tax which has been

characterized as exempting sortnin uses

of electricity from tax. The Court

concluded that the exclusion in

§40-21-83(1) excludes utility services

that are provided to the federal

government.

The Petitioner argues that the

decision of the Alabama Courts conflicts

with M'Culloch v. Maryland, 17 U.S. (4

Wheat) 316, 4 L.Ed. 579 (1819) because

the utility gross receipts tax

unlawfully taxes the income of the

Tennessee Valley Authority, an agency of

the United States. (See Petition for

Writ of Certiorari, pages 4-5). As

previously stated herein, the trial

9

court held that the tax under

§40-21-80, et seq., is imposed on

customers of the utilities in Alabama,

and not the utility nor TVA. In fact,

the Court held that the furnishing of

utility services to the federal

government is excluded from tax.

Therefore, the income of TVA is not

subject to the tax as argued by the

Petitioner.

Although Plaintiff cites Bacchus

Imports, Ltd. v. Dias, 468 U.S. 263, 104

S.Ct. 3049, 82 L.Ed.2d 200 (1984) as

support for his argument that’ the

Alabama Utility Gross Receipts Tax is

actually levied upon the utility, this

Court held that wholesalers had standing

to challenge the discriminatory tax

because it had an adverse competitive

impact on their business. The tax

discriminated on its face against

interstate commerce and clearly the

10

wholesalers had standing to challenge

the tax in this Court.

However, in the present case, the

utilities are not in the same position

as the wholesalers in Bacchus. The

utilities are not required to pay the

gross receipts tax if their retail

customer fails to pay the bill. Section

40-21-85 incorporates §40-23-8 into

the provisions of the Utility Gross

Receipts Tax which only requires the tax

to be paid on cash sales and credit

collections made during the month. The

utility is only liable if it fails to

add the tax to the sale price of the

utility services.

In Tennessee Electric Power

Company v. Tennessee Valley Authority,

306 U.S. 118, 59 S.Ct. 366 (1979) this

Court characterized the purchasers of

electricity from TVA as vendees of TVA

and not as franchisers or franchisees.

ll

nhl

This Court described the right conferred

upon TVA as a right to exist as a

corporation and to improve navigation

and control flood waters along the

Tennessee River by developing a series

of dams for flood control and to sell

the electrical power created from the

erection of the dams. It is submitted

that the right to do these things is the

"franchise" that was conferred upon TVA

by Congress and which is exempted from

tax in 16 U.S.C., §8311. |

Likewise, the State also has

authorized the incorporation of

nonprofit entities to exist as public

utilities and to contract with TVA to

purchase and resell electrical energy.

This is the type of franchise that has

been granted by the State to entities

such as the Defendants in the present

case. See Tennessee Electric Power

Company v. Tennessee Valley Authority,

12

306 U.S. at p. 139-141, 59 S‘Ct. at p.

370-371, discussing the term franchise

and certain Alabama Acts.

It is submitted that the trial

court and the Court of Civil Appeals

decision properly refused to

characterize the Decatur Utilities Board

as a franchise or franchisee of TVA.

CONCLUS ION

Phillip Knight has petitioned this

Court for Writ of Certiorari asserting

two grounds for review, neither of which

warrant the issuance of a Writ of

Certiorari. This case (and the statutes

involved) was correctly decided by the

Montgomery County Circuit Court and the

Court of Civil Appeals. In addition,

the prior decision cited by Petitioner,

as being in conflict with this case,

does not involve the same issues as are

present in this case. The Alabama gross

13

receipts tax is imposed upon the retail

customers (ultimate consumer ) of

utilities. It is not imposed upon the

utility that purchases electricity from

TVA nor TVA. Accordingly, the Petition

for Writ of Certiorari should be denied.

Respectfully submitted,

Udede_ . hae.

J. WADE HOPE, AssiStant Counsel

Department of Revenue and Assistant

Attorney Generali, State of Alabama

P.O. Box 320001

Montgomery, AL 36132-0001

Telephone: (205) 242-9690

COUNSEL OF RECORD FOR RESPONDENT

JWH:eb158

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