Black Eagle Minerals, LLC v. Ala. Dep't of Revenue

338 So.3d 771

BLACK EAGLE MINERALS, LLC

v.ALABAMA DEPARTMENT OF REVENUE

2200050

Court of Civil Appeals of Alabama.

March 5, 2021

Rehearing Denied May 7, 2021

Michael J. Bowen of Akerman, LLP, Jacksonville, Florida, for appellee.

Ralph Mayo Clements III, asst. counsel and asst. att'y gen., Alabama Department of Revenue, Legal Division, for appellee.

MOORE, Judge.

Black Eagle Minerals, LLC ("Black Eagle"), appeals from a judgment of the Montgomery Circuit Court ("the trial court") sustaining a January 23, 2018, decision of the Alabama Tax Tribunal ("the tribunal") insofar as it affirmed certain tax assessments that had been issued by the Alabama Department of Revenue ("the department") to Black Eagle. We affirm the trial court's judgment.

Facts and Procedural History

Black Eagle is a Virginia limited-liability company that earned income from its business operations in a facility located near Tuscumbia from 2008 to 2011. In 2009, the Alabama Legislature enacted § 40-18-24.2, Ala. Code 1975, which requires that a composite income-tax return be filed by a pass-through entity on behalf of its nonresident members. A "pass-through entity" is defined by § 40-18-24.2(a)(3), in pertinent part, as "[a] partnership or other entity classified as a Subchapter K entity under [§] 40-18-1[, Ala. Code 1975]." The parties do not dispute that Black Eagle falls within the definition of a pass-through entity or that it has nonresident members, as defined in § 40-18-24.2. Section 40-18-24.2(b)(1) provides:

"Except as provided in subsection (c), a pass-through entity shall file with the Department of Revenue, at the time the entity's annual return is required to be filed with the Department of Revenue for each taxable year, a composite income tax return on behalf of its nonresident members and shall report and pay the income tax imposed by this chapter [i.e., Title 40, Chapter 18, "Income Taxes'] at the highest applicable marginal rate provided in [§] 40-18-5[, Ala. Code 1975,] on the nonresident members' distributive shares of the income of the pass-through entity apportioned and allocated at the entity level to this state under Chapter 27 of this title [i.e., the Multistate Tax Compact]."

Section 40-18-5, Ala. Code 1975, outlines the tax rates imposed on taxable income for individuals in the State of Alabama. Following the enactment of § 40-18-24.2, the department issued assessments to Black Eagle pursuant to that statute for the 2008 through 2011 tax years.¹

On December 16, 2011, Black Eagle filed notices of appeal to the tribunal, challenging the Alabama income-tax assessments it had been issued by the department for the 2008, 2009, and 2010 tax years insofar as those assessments required Black Eagle to remit taxes on behalf of its nonresident members. Black Eagle asserted, among other things, that the tax assessments issued to Black Eagle for the 2008, 2009, and 2010 tax years, pursuant to § 40-18-24.2(b)(1), were invalid because, it argued, the express language of § 40-18-24.2(b)(1) violates the Due Process Clause and the Commerce Clause of the United States Constitution. See Amend. XIV, § 1, and Art. I, § 8, cl. 3, United States Constitution. Black Eagle also asserted that the assessments were invalid because, it argued, those assessments violate the Due Process Clause and the Commerce Clause as applied to the facts in the present case. The department filed an answer to Black Eagle's notices of appeal, asserting, among other things, that, for the tax years in question, the department had a record of the income-tax returns filed by two of the three nonresident members of Black Eagle and that the Department had computed the subject tax assessments against Black Eagle for only the third nonresident member's share of income. The department stated that, if Black Eagle could provide documentation to show that the third nonresident member had filed and paid taxes for the 2008, 2009, and 2010 tax years to the department based on its pro rata share of Black Eagle's Alabama income, then it would credit Black Eagle for those payments.

On October 17, 2012, Black Eagle filed a notice of appeal to the tribunal, challenging the 2011 tax assessment entered against it with regard to the requirement that Black Eagle remit income taxes on behalf of its nonresident members. Black Eagle reiterated its arguments from its previous notices of appeal that § 40-18-24.2(b)(1) and the 2011 tax assessment violated the Due Process Clause and the Commerce Clause of the United States Constitution. The department filed an answer, asserting, among other things, that Black Eagle had failed to file a 2011 composite income-tax return with the department and had not made a corresponding tax payment and that the department had nevertheless computed the tax owed by Black Eagle and had entered a 2011 assessment against it in that amount. The tribunal entered an order consolidating Black Eagle's appeals.

After a number of filings by the parties and the entry of preliminary orders by the tribunal, the tribunal entered an order on February 27, 2017, indicating that the parties had submitted a joint stipulation of facts and setting the case for a hearing, which was conducted on April 11, 2017. On January 23, 2018, the tribunal entered an opinion and final order, concluding, among other things, that it lacked jurisdiction to rule on the constitutional issues raised by Black Eagle and that Black Eagle had failed to raise additional issues related to the tax assessments;² accordingly, the tribunal affirmed the final assessments and entered a judgment in favor of the department. Black Eagle filed its notice of appeal to the trial court on February 22, 2018.

Black Eagle argued before the trial court, among other things, that the tax assessments issued to Black Eagle for the tax years 2008, 2009, 2010, and 2011, pursuant to § 40-18-24.2(b)(1), were invalid because, it said, the express language of § 40-18-24.2(b)(1) violates the Due Process Clause and the Commerce Clause of the United States Constitution. Black Eagle also asserted that the assessments were invalid because, it argued, under the facts of the present case, those assessments violate the Due Process Clause and the Commerce Clause. On July 27, 2020, the trial court entered a final judgment sustaining the final order of the tribunal and entering a judgment against Black Eagle for the 2008 through 2011 tax years. The trial court concluded, in pertinent part, that § 40-18-24.2(b)(1) is merely a method of collecting Alabama income taxes from pass-through entities that have nonresident members, that Alabama's income-tax statutes impose taxes equally on both residents and nonresidents, and that, accordingly, there was no discrimination that would violate the Commerce Clause of the United States Constitution with regard to the department's applying § 40-18-24.2(b)(1) to collect income taxes from Black Eagle. Black Eagle filed a notice of appeal to the Alabama Supreme Court on September 4, 2020; that court transferred the appeal to this court, pursuant to § 12-2-7(6), Ala. Code 1975.

Standard of Review

"[An appellate court's] review of constitutional challenges to legislative enactments is de novo." Northington v. Alabama Dep't of Conservation & Nat. Res., 33 So. 3d 560, 564 (Ala. 2009). Additionally, our supreme court has stated, in pertinent part, that

" ‘acts of the legislature are presumed constitutional.

State v. Alabama Mun. Ins. Corp., 730 So. 2d 107, 110 (Ala. 1998). See also Dobbs v. Shelby County Econ. & Indus. Dev. Auth., 749 So. 2d 425, 428 (Ala. 1999) ("In reviewing the constitutionality of a legislative act, this Court will sustain the act ‘ "unless it is clear beyond reasonable doubt that it is violative of the fundamental law. " ’ White v. Reynolds Metals Co., 558 So. 2d 373, 383 (Ala. 1989) (quoting Alabama State Fed'n of Labor v. McAdory, 246 Ala. 1, 9, 18 So. 2d 810, 815 (1944) )."). We approach the question of the constitutionality of a legislative act " ‘ "with every presumption and intendment in favor of its validity, and seek to sustain rather than strike down the enactment of a coordinate branch of the government." ’ " Monroe v. Harco, Inc., 762 So. 2d 828, 831 (Ala. 2000) (quoting Moore v. Mobile Infirmary Ass'n, 592 So. 2d 156, 159 (Ala. 1991), quoting in turn McAdory, 246 Ala. at 9, 18 So. 2d at 815 ).

" ‘Moreover, in order to overcome the presumption of constitutionality, ... the party asserting the unconstitutionality of the Act ... bears the burden "to show that [the Act] is not constitutional." Board of Trustees of Employees' Retirement Sys. of Montgomery v. Talley, 291 Ala. 307, 310, 280 So. 2d 553, 556 (1973). See also Thorn v. Jefferson County, 375 So. 2d 780, 787 (Ala. 1979) ("It is the law, of course, that a party attacking a statute has the burden of overcoming the presumption of constitutionality....").’

" State ex rel. King v. Morton, 955 So. 2d 1012, 1017 (Ala. 2006)."

Bynum v. City of Oneonta, 175 So. 3d 63, 66-67 (Ala. 2015).

Analysis

Black Eagle first argues on appeal that § 40-18-24.2(b)(1) is unconstitutional under the Commerce Clause because, Black Eagle asserts, it facially discriminates against interstate commerce.

"The Commerce Clause of the United States Constitution states that ‘[t]he Congress shall have power ... [t]o regulate commerce ... among the several states....’ U.S. Const., Art. I, § 8, cl. 3. Notably absent from this text is any explicit prohibition on state regulation of interstate commercial activity. Nonetheless, the United States Supreme Court, in what is referred to as its ‘dormant’ or ‘negative’ Commerce Clause jurisprudence, has concluded that such a constitutional principle exists. ‘The negative or dormant implication of the Commerce Clause prohibits state taxation ... or regulation ... that discriminates against or unduly burdens interstate commerce and thereby "imped[es] free private trade in the national marketplace." ’ General Motors Corp. v. Tracy, 519 U.S. 278,

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