Lead Opinion
delivered the opinion of the Court.
The basic question in this ease is whether tax Alabama assesses on foreign corporations violates the Commerce Clause. We conclude that it does.
I
Alabama requires each corporation doing 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. Ala. Const., Art. XII, §229; Ala. Code §40-14-40 (1993); App. to Pet. for Cert. 50a, 52a, 61a (Stipulated Facts). 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. Ala. Const., Art. XII, §232; Ala. Code §40-14-41(a) (Supp. 1998). 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. App. to Pet. for Cert. 52a-5Ba (Stipulated Facts). 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 whieh depends upon the
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. Although the tax favored foreign firms in some respects (granting them a lower tax rate and excluding any capital not employed in Alabama), that favorable treatment was more than offset by the fact that a domestic firm, unlike a foreign firm, could shrink its tax base significantly simply by setting the par value of its stock at a low level. As a result, Reynolds Metals said, the tax burden borne by foreign corporations was much higher than the burden on domestic corporations, and the tax consequently violated both the Commerce and Equal Protection Clauses. U. S. Const., Art. I, §8, cl. 3, and Arndt. 14, § 1.
The Alabama Supreme Court rejected these claims. White v. Reynolds Metals Co.,
While the Alabama courts were considering Reynolds Metals, a different foreign corporation, South Central Bell Telephone Company, brought the lawsuit now before us.
The Bell plaintiffs that the empirical premises that underlay Reynolds Metals were -wrong: Despite the differences in franchise tax rates, Alabama’s franchise tax scheme in practice discriminates substantially against foreign corporations, and the Alabama tax on shares of domestic corporations does not offset the discrimination in the franchise tax. The Alabama trial court agreed with the Bell plaintiffs 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.” Memorandum Opinion in App. to Pet. for Cert. 21a-22a (hereinafter Mem. Op.) (citing Oregon Waste Systems, Inc. v. Department of Environmental Quality of Ore.,
The Alabama Supreme a vote of 5 to 4. The majority’s decision cited Reynolds Metals and a procedural rule regarding summary dispositions and simply said, “PER CURIAM. AFFIRMED. NO OPINION.”
granted the Bell plaintiffs’ petition for certiorari, agreeing to decide (1) whether the Alabama courts’ refusal to permit the Bell plaintiffs to raise their constitutional claims because of res judicata “deprived” the Bell plaintiffs “of the due process of law guaranteed by the Fourteenth Amendment,” Pet. for Cert. (i); see Richards v. Jefferson County,
hH
A
outset, the respondents — the State of Alabama and its State Department of Revenue (collectively, the State)— argue that this Court lacks “appellate jurisdiction over this case.” Brief for Respondents 15. The State points to the Eleventh Amendment, which provides:
“The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State ....”
The State claims that this Amendment’s literal language applies here because this case began in state court as a suit brought against one State, namely, Alabama, by citizens of another; because we, in hearing this case, would be exereis-
the very argument that the State now makes. In McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Fla. Dept. of Business Regulation,
“[X]t is ‘inherent in the a state court takes cognizance of a case, the State assents to appellate review by this Court of the federal issues raised in the case ‘whoever may be the parties to the original suit, whether private persons, or the state itself.’ ” Id., at 30 (quoting Principality of Monaco v. Mississippi,292 U. S. 313 , 329 (1934); Proprietors of Charles River Bridge v. Proprietors of Warren Bridge,11 Pet. 420 , 585 (1837) (Story, J., dissenting)).
Our holding in McKesson confirmed a long-established and uniform practice of reviewing state-court decisions on federal matters, regardless of whether the State was the plaintiff or the defendant in the trial court.
Although the State now Brief for Respondents 27, it does not provide a convincing reason why we should revisit that relatively recent precedent, and we shall not do so. Cf. Planned Parenthood of Southeastern Pa. v. Casey,
The State, in opposing Bell’s petition for certiorari, argued that the Alabama Supreme Court’s decision rested upon an adequate state ground, namely, state-law principles of res judicata. It now believes, however, that the Alabama Supreme Court’s decision rejected the plaintiffs’ claims on their merits and relied upon Reynolds Metals under principles of stare decisis, not res judicata. Brief for Respondents 3. For that reason, the State “offer[s] no defense of the decision as a valid application of the doctrine of res judicata.” Ibid. Nor do we believe a valid defense could be made. See Richards v. Jefferson County, supra.
we considered an Alabama Supreme Court holding that state-law principles of res judicata prevented certain taxpayers from bringing a case (which we will call Case Two) to challenge on federal constitutional grounds a state tax that the Alabama Supreme Court had upheld in an earlier case (Case One) brought by different taxpayers. We held that the Fourteenth Amendment forbade this “extreme” application of state-law preclusion (res judicata) principles, id., at 797, because the plaintiffs in Case Two were “strangers” to the earlier judgment, id., at 802.
case before us. In Richards, we pointed out that the taxpayers in Case One “did not sue on behalf of a class; their pleadings did not purport to assert any claim against or on behalf of any nonparties; and the judgment they received did not purport to bind any .. . taxpayers who were nonparties.” Id., at 801. We added that the taxpayers in Case One did not understand their suit “to be on behalf of” the different taxpayers involved in Case Two, nor did the Case One court make any special effort “to protect the interests” of the Case Two plaintiffs. Id., at 802. As far as we are aware, the same can be said of the circumstances now before us. The two relevant cases involve different plaintiffs and different tax years. Neither is a class action, and no one claims that there
The Alabama trial court stances before us from those in Richards by pointing out that the plaintiffs here were aware of the earlier Reynolds Metals litigation and that one of the Reynolds Metals lawyers also represented the Bell plaintiffs. See Mem. Op. 18a-19a. These circumstances, however, created no special representational relationship between the earlier and later plaintiffs. Nor could these facts have led the later plaintiffs to expect to be precluded, as a matter of res judicata, by the earlier judgment itself, even though they may well have expected that the rule of law announced in Reynolds Metals would bind them in the same way that a decided case binds every citizen.
A concurring cluded that the Bell plaintiffs had “agreed that the final decision in Reynolds Metals would be controlling” when, in a letter to the trial court, they “specifically requested that [their] case be held in abeyance until Reynolds Metals was decided.”
In sum, if the case rests on state-law claim or issue preclusion (res judicata or collateral estoppel), that holding is inconsistent with Richards and with the Fourteenth Amendment’s due process guarantee.
Turning to the merits, we conclude that this Court’s Commerce Clause precedent requires us to hold Alabama’s franchise tax unconstitutional. Alabama law defines a domestic corporation’s tax base as including only one item — the par value of capital stock — which the corporation may set at whatever level it chooses. A foreign corporation’s tax base, on the other hand, contains many additional balance sheet items that are valued in accordance with generally accepted accounting principles, rather than by arbitrary assignment by the corporation. Accordingly, as the State has admitted, Alabama law gives domestic corporations the ability to reduce their franchise tax liability simply by reducing the par value of their stock, while it denies foreign corporations that same ability. App. to Pet. for Cert. 52a-53a (Stipulated Facts). And no one claims that the different tax rates for foreign and domestic corporations offset the difference in the tax base. The tax therefore facially discriminates against interstate commerce and is unconstitutional unless the State can offer a sufficient justification for it. Cf. Fulton Corp. v. Faulkner,
cannot justify this discrimination on the ground that the foreign franchise tax is a “complementary” or “compensatory” tax that offsets the tax burden that the domestic shares tax imposes upon domestic corporations. E. g., Hen-
In this case, however, “roughly approximate.” See App. to Pet. for Cert. 36a-37a (plaintiffs’ statement of facts, showing that the foreign franchise tax burden far exceeds the domestic franchise tax and the domestic shares tax combined); Mem. Op. 21a, n. 7 (adopting plaintiffs’ statement of facts); cf.
Nor are the two tax bama imposes its foreign franchise tax upon a foreign firm’s decision to do business in the State; Alabama imposes its domestic shares tax upon the ownership of a certain form of property, namely, shares in domestic corporations. Compare Ala. Code §40-14-41 with §40-14-70 (1993 and Supp. 1998). No one has explained to us how the one could be seen as a “proxy” for the other.
stead says, with “respect to the merits,” that “the flaw in petitioners’ claim lies not in the application to Alabama’s corporate franchise tax of this Court’s recent negative Commerce Clause cases; the flaw lies rather in the negative Commerce Clause cases themselves.” Brief for Respondents 3.
For these reasons, the judgment of the Alabama Supreme Court is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.
It is so ordered.
Concurrence Opinion
concurring.
I join the opinion of the Court, and I agree that the State’s failure to properly raise its challenge to our negative Commerce Glause jurisprudence supports a decision not to pass on the merits of this claim. Ante this page. I further note, however, that the State does nothing that would persuade me to reconsider or abandon our well-established body of negative Commerce Clause jurisprudence.
Concurrence Opinion
concurring.
I join the opinion of the Court. I agree that it would be inappropriate to take up the State’s invitation to reconsider our negative Commerce Clause doctrine in this case because “the State did not make clear it intended to máke this argument until it filed its brief on the merits.” Ante this page.