419 Mass. 763 | Mass. | 1995
This case concerns the constitutionality of certain portions of the corporate excise statute, namely, G. L. c. 63, § 30 (8) and (9) (1992 ed.), which define the taxable net worth of domestic and foreign intangible property corporations. The challenged provisions allow a domestic intangible property corporation to deduct from its taxable net worth the value of a subsidiary of which it owns 80% or more of the voting stock, but only if that subsidiary is incorporated in Massachusetts. A foreign intangible property corporation may deduct from its taxable net worth the value of a subsidiary of which it owns 80% or more of the voting stock, but only if that subsidiary is incorporated outside of Massachusetts and does no business in Massachusetts. The plaintiffs allege that the excise discriminates against interstate commerce in violation of the commerce clause of the United States Constitution, and also that the excise discriminates on the basis of domicil in violation of the equal protection clause of the Fourteenth Amendment to the United States Constitution. The plaintiffs commenced this action in the county court pursuant to G. L. c. 214, § 1 (1992 ed.); G. L. c. 231 A, § 1 (1992 ed.); and 42 U.S.C. § 1983 (1988), seeking declaratory and injunctive relief, and attorney’s fees pursuant to 42 U.S.C. § 1988 (1988). A single justice of this court reserved and reported the case to the full court based on the pleadings and the statement of agreed facts. We conclude that the challenged provisions of the corporate excise, G. L. c. 63, § 30 (8) and (9), facially discriminate against interstate commerce in violation of the commerce clause.
For domestic intangible property corporations, net worth is calculated according to the definition set forth in G. L. c. 63, § 30 (8).
For foreign intangible property corporations, a different net worth definition applies.
The plaintiffs, Perini Corporation (Perini), Perini Land and Development Corporation (PL&D), Dynatech Corporation (Dynatech), and Neworld Bancorp, Inc. (Neworld), are all intangible property corporations as defined in G. L. c. 63, § 30 (11). Each plaintiff conducts business in Massachusetts and is subject to the annual corporate excise. Each plaintiff is also a parent corporation which owns 80% or more of the voting stock of one or more subsidiaries.
Two plaintiffs, Perini and Dynatech, are Massachusetts corporations with subsidiaries incorporated both in and outside of Massachusetts. Many of the subsidiaries owned by these corporations either do business in Massachusetts or are incorporated in Massachusetts, and as such, must also pay the annual corporate excise. Under the terms of § 30 (8), Perini and Dynatech have been able to exclude from their taxable net worth the value of their Massachusetts subsidiaries, but not the value of their foreign subsidiaries.
The other two plaintiffs, PL&D and Neworld, are both foreign corporations each of which wholly owns a Massachusetts subsidiary. Because PL&D and Neworld are foreign corporations, neither corporation has been able to exclude from its taxable net worth the value of its Massachusetts subsidiary. G. L. c. 63, § 30 (9).
Before considering whether the challenged excise violates interstate commerce, we consider whether the excise has a sufficient effect on interstate commerce to evoke commerce clause scrutiny. Aronson v. Commonwealth, 401 Mass. 244, 248 (1987), cert. denied, 488 U.S. 818 (1988). The plaintiffs are parent corporations which currently conduct business in Massachusetts. The plaintiffs own subsidiaries located both in and outside of Massachusetts. “By its nature, a unitary business is characterized by a flow of value among its compo
Having concluded that the excise has impact on interstate commerce, we turn next to the question whether the challenged provisions are unconstitutional under the commerce clause, which provides that “congress shall have power ... to regulate commerce . . . among the several states.” “Though phrased as a grant of regulatory power to Congress, the Clause has long been understood to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce.” Oregon Waste Sys., Inc. v. Department of Envtl. Quality, 114 S. Ct. 1345, 1349 (1994). The first step in analyzing a law subject to judicial scrutiny under the negative commerce clause is to determine whether the law regulates evenhandedly with only incidental effects on interstate commerce, or whether it discriminates against interstate commerce. Id. at 1350. The term “discrimination” as used in this context means “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Id. The purpose of, or justification for, a law has no bearing on whether it is facially discriminatory. “If a restriction on commerce is discriminatory, it is virtually per se invalid.” Id.
The challenged deductions also create an incentive for domestic corporations to acquire in-State subsidiaries, and penalize corporations that choose to cross State lines. State laws that tax a transaction or incident more heavily when it crosses State lines than when it occurs entirely within the State have repeatedly been struck down as discriminatory. Oregon Waste Sys., Inc. v. Department of Envtl. Quality, supra at 1350, quoting Chemical Waste Management, Inc. v. Hunt, 504 U.S. 334, 342 (1992). In Healy v. Beer Inst., Inc., 491 U.S. 324, 326 (1989), a Connecticut statute requiring out-of-State shippers of beer to affirm that their posted prices for products sold to Connecticut wholesalers were no higher than the prices at which those products were sold in bordering States, was struck down as violative of the commerce clause. The Supreme Court held that the statute on its face discriminated against brewers and shippers of beer engaged in interstate commerce. Id. at 341. The Court stated: “This discriminatory treatment establishes a substantial disincentive for companies doing business in Connecticut to engage in interstate commerce, essentially penalizing Connecticut brewers if they seek border-state markets and out-
The challenged provisions also treat foreign parent corporations less favorably than similarly situated domestic parent corporations. “In considering claims of discriminatory taxation under the Commerce Clause ... it is necessary to compare the taxpayers who are ‘most similarly situated.’ ” Kraft Gen. Foods, Inc. v. Iowa Dep’t of Revenue & Fin., supra at 80 n.23. Therefore, we compare a domestic corporation that owns a Massachusetts subsidiary to a foreign corporation that owns a Massachusetts subsidiary. Although the domestic corporation would be entitled to deduct the value of its subsidiary, the foreign corporation would not. See G. L. c. 63, § 30 (8) and (9). Thus, as currently formulated, the excise discriminates against foreign corporations. See West Lynn Creamery, Inc. v. Healy, 114 S. Ct. 2205, 2212, 2214 (1994), rev’g West Lynn Creamery, Inc. v. Commissioner of the Dep’t of Food & Agric., 415 Mass. 8 (1993) (Massachusetts pricing order which effectively benefited in-State economic interests by burdening out-of-State competitors held to be unconstitutional in violation of commerce clause).
The commissioner argues, however, that the statute does not discriminate or unduly burden interstate commerce because the deduction given to foreign corporations for certain foreign subsidiaries adequately compensates for the deduction given to domestic corporations for domestic subsidiaries. The commissioner further argues that, because the deduction given to foreign corporations encourages foreign corporations to organize its subsidiaries outside of Massachusetts, there is no concomitant benefit to Massachusetts, and thus, no commerce clause violation. While it is true that under § 30 (9) a foreign corporation is entitled to deduct from its taxable net worth the value of any foreign subsidiaries which do no business in Massachusetts, the commissioner’s argument fails to persuade us for several reasons. First, because the net worth
The discriminatory effect of such a taxing scheme is further demonstrated by applying the so-called “internal consistency test.” “[A] tax must have ‘what might be called internal consistency — that is the [tax] must be such that, if applied by every jurisdiction,’ there would be no impermissible interference with free trade.” Armco Inc. v. Hardesty, 467 U.S. 638, 644 (1984), quoting Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159, 169 (1983). Clearly, if every State applied a similar excise, the acquisition of foreign subsidiaries would be reduced and multi-State corporate structures would be significantly burdened. Such a scheme clearly interferes with free trade among the States and cannot be considered consistent with the commerce clause.
The commissioner argues that the deductions at issue advance the legitimate State goal of preventing double taxation. Although we agree that preventing double taxation is a legitimate local purpose, § 30 (8) and (9) are not narrowly tailored to serve that interest. The excise deductions only prevent double taxation for Massachusetts corporations which own Massachusetts subsidiaries. All subsidiaries that do business in Massachusetts, regardless of their State of incorporation, however, are subject to the annual corporate excise. Thus, although double taxation is avoided for Massachusetts corporations which own only Massachusetts subsidiaries, the problem of double taxation persists for multi-State corporate families. In light of this fact, we conclude that the challenged provisions do not significantly advance the legitimate State interest in avoiding double taxation, and thus, cannot withstand scrutiny.
2. Attorney’s fees. The plaintiffs also seek attorney’s fees under 42 U.S.C. §§ 1983 and 1988 (1988). Section 1983 provides a Federal cause of action against every person who under the color of State law deprives another person of any rights, privileges, or immunities guaranteed by the Constitution or the laws of the United States. Section 1988 authorizes a court, in its discretion, to award reasonable attorney’s fees to a prevailing party in any action to enforce a provision of § 1983. A court’s discretion in this regard is limited, however. Blanchard v. Bergeron, 489 U.S. 87, 89 n.1 (1989). A court should deny a prevailing party attorney’s fees only if there are special circumstances which would render an award unjust. Id.
The commissioner offers no special circumstances which would justify the denial of attorney’s fees. Rather, he argues that the Tax Injunction Act, 28 U.S.C. § 1341 (1988), evinces a congressional intent that adequate State remedies are to be the exclusive means for resolving State tax disputes.
State courts have split on whether, in a State tax dispute, a plaintiff may maintain a § 1983 action where an adequate State remedy exists. Compare State ex rel. Hanson v. Quill Corp., 500 N.W.2d 196, 197 (N.D.), cert. denied, 510 U.S. 859 (1993) (where adequate remedy exists under State law, taxpayer not entitled to recover attorney’s fees under
3. Conclusion. We remand the case to the county court for the entry of a suitable declaration that the challenged deductions in G. L. c. 63, § 30 (8) and (9), violate the commerce clause of the United States Constitution, and for the entry of an order that the Appellate Tax Board should decide the amount of the abatements to be made to the plaintiffs. We remand the matter of attorney’s fees to the single justice for consideration and decision based on further, argument of counsel and such guidance as may be obtained in the opinion or opinions in Private Truck Council of Am., Inc. v. Oklahoma Tax Comm’n, supra.
So ordered.
Each plaintiff has applied to the Department of Revenue for abatement of the corporate excise which it paid in prior tax years. Abatement applications which have been denied are currently being appealed to the Appellate Tax Board. We do not consider whether the plaintiffs are entitled to abatements as this issue is currently pending before the board and should be decided there. See Space Bldg. Corp. v. Commissioner of Revenue, 413 Mass. 445, 446 n.l (1992).
An “[i]ntangible property corporation,” is defined in G. L. c. 63, § 30 (11) (1992 ed.), as “a corporation whose tangible property situated in the commonwealth . . . and not subject to local taxation is less than ten per cent of . . . its total assets . . . less those assets as are situated in the commonwealth . . . and are subject to local taxation.”
“‘Domestic corporations” are defined in G. L. c. 63, § 30 (1) (1992 ed.), as “every corporation organized under or subject to [c. 156, c. 156A, c. 156B, or c. 180] which has privileges, powers, rights or immunities not possessed by individuals or partnerships.”
“Foreign corporations” are defined in G. L. c. 63, § 30 (2) (1992 ed.), as “every corporation, association, or organization established, organized or chartered under laws other than those of the commonwealth.”
The effect on interstate commerce is best demonstrated by examining Dynatech’s business. Dynatech is a parent corporation currently owning over forty subsidiaries incorporated and doing business in various States and countries. Dynatech’s business includes the acquisition, incorporation, management, and ownership of high technology companies. When choosing which companies to purchase, Dynatech must consider the different tax treatments that will apply according to the State of incorporation of each company.
We note that the extent of the economic burden imposed by the excise “is of no relevance to the determination whether a State has discriminated against interstate commerce.” Wyoming v. Oklahoma, 502 U.S. 437, 455 (1992). “When a tax, on its face, is designed to have discriminatory
The commissioner also argues that the deduction given to a foreign corporation for a foreign subsidiary under § 30 (9) is constitutional because it recognizes that Massachusetts may not tax a foreign corporation on the value of a foreign subsidiary which does no business in Massachusetts. Although such a deduction may be warranted, this argument fails to address
The Tax Injunction Act, 28 U.S.C. § 1341 (1988), prevents a Federal court from “enjoin [ing], suspending] or restrain [ing] the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” The principle of comity likewise prevents a Federal court from entertaining any action for damages under § 1983 to redress an allegedly unconstitutional State tax. Fair Assessment in Real Estate Ass’n v. McNary, 454 U.S. 100 (1981).