South Central Bell Telephone Co. Et Al. v. Alabama Et Al

526 U.S. 160 (1999)

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Nature of the Case

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Facts

Alabama requires each corporation doing business in that State to pay a franchise tax based upon the firm's capital. A domestic firm, organized under the laws of Alabama, must pay tax in an amount equal to 1% of the par value of the firm's stock. A foreign firm, organized under the laws of a State other than Alabama, must pay tax in an amount equal to 0.3% of the value of 'the actual amount of capital employed' in Alabama. Alabama law grants domestic firms considerable leeway in controlling their own tax base and tax liability, as a firm may set its stock's par value at a level well below its book or market value. Alabama law does not grant a foreign firm similar leeway to control its tax base, however, as the value of the 'actual' capital upon which Alabama calculates the foreign franchise tax includes not only the value of capital stock but also other accounting items (e.g., long-term debt, surplus), the value of which depends upon the firm's financial status. In 1986, the Reynolds Metals Company and three 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. The Alabama Supreme Court rejected these claims because this special burden simply offset a different burden imposed exclusively upon domestic corporations by Alabama's 'domestic shares tax.' This latter tax is a property tax on shares of domestic stock; it is assessed against shareholders based upon the value of the shares they hold, but in practice, it is normally paid by the corporation itself. While the Alabama courts were considering Reynolds Metals, a different foreign corporation, South Central Bell Telephone Company (P), brought this lawsuit. P asserted the same Commerce Clause and Equal Protection Clause claims as had Reynolds Metals, though in respect to different tax years. The Alabama trial court agreed with Ps that their evidence, taken together with this Court's recent Commerce Clause cases, 'clearly and abundantly demonstrates that the franchise tax on foreign corporations discriminates against them for no other reason than the state of their incorporation.' But the trial court nonetheless dismissed their claims for a different reason, namely, that given the Alabama Supreme Court's decision in Reynolds Metals, 'the Taxpayer[s'] claims [in this case] are barred by res judicata .' The Alabama Supreme Court affirmed the trial court by a vote of 5 to 4. The Supreme Court granted certiorari.