Ex parte Kimberly-Clark Corporation and Kimberly-Clark Worldwide, Inc. PETITION FOR WRIT OF MANDAMUS (In re: Alabama Department of Revenue v. Kimberly-Clark Corporation and Kimberly-Clark Worldwide, Inc.) (Montgomery Circuit Court: CV-03-2157)

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REL: 02/17/2012 Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter. Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections may be made before the opinion is printed in Southern Reporter. ALABAMA COURT OF CIVIL APPEALS OCTOBER TERM, 2011-2012 _________________________ 2100803 _________________________ Ex parte Kimberly-Clark Corporation and Kimberly-Clark Worldwide, Inc. PETITION FOR WRIT OF MANDAMUS (In re: Alabama Department of Revenue v. Kimberly-Clark Corporation and Kimberly-Clark Worldwide, Inc.) (Montgomery Circuit Court, CV-03-2157) _________________________ 2100811 _________________________ Kimberly-Clark Corporation and Kimberly-Clark Worldwide, Inc. v. Alabama Department of Revenue Appeal from Montgomery Circuit Court (CV-03-994 and CV-03-2157) 2100803 & 2100811 PITTMAN, Judge. This appeal and this petition for a writ of mandamus arise out of a dispute that has engendered more than 10 years of litigation between the Alabama Department of Revenue ("the Department") and Kimberly-Clark Corporation ("KC") and its subsidiary, Kimberly-Clark Worldwide, Inc. ("KCW"). The dispute -- whether the gain derived from the sale by KC of a pulp-and-paper-manufacturing facility in Alabama known as the Coosa Mill and the sale by KCW of 375,000 acres of adjacent timberland known as the Coosa Timberlands should be classified as "business income" or "nonbusiness income" for purposes of Alabama corporate income taxation -- was finally resolved by our supreme court when it determined, in Ex parte Alabama Department of Revenue, 69 So. 3d 144 (Ala. 2010), that the gain on the sales of the Coosa properties was nonbusiness income. In case no. 2100811, KC and KCW appeal from an April 14, 2011, ruling of the Montgomery Circuit Court denying their motion to remand the matter to an administrative law judge ("ALJ") in the Department's Administrative Law Division for a ruling on constitutional issues that, KC and KCW say, were 2 2100803 & 2100811 left unresolved by the decision in Ex parte Alabama Department of Revenue, supra. In case no. 2100803, KC and KCW petition for a writ of mandamus directing the circuit court to vacate its April 14, 2011, ruling and to remand the matter to the ALJ. We have consolidated the appeal and the petition for the writ of mandamus for the purpose of writing one opinion Facts and Procedural History KC and KCW (hereinafter collectively referred to as "the taxpayers") are Delaware corporations commercially domiciled in Texas. They are part of a multistate, multinational business enterprise that does business and pays taxes in many jurisdictions, including Alabama. the Coosa properties, they After the taxpayers sold reported on their Alabama corporate-income-tax returns the gains derived from the sales as "business income" pursuant to Ala. Code 1975, § 40 27 1, Art. IV, ¶¶ 1(a) and 9, which are part of Alabama's version of the Multistate Tax Compact ("MTC"). Article IV, ¶ 1(a), defines "business income" as "income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral 3 2100803 & 2100811 parts of the taxpayer's regular trade or business operations." Article IV, ¶ 9, requires that business income earned by a corporation that is operating in more than one state be apportioned among all the states in which the corporation does business. "Alabama has adopted the Multistate Tax Compact ('MTC'), see Ala. Code 1975, § 40 27 1, which was intended to create a uniform system by which states can accurately identify and fairly apportion taxes with respect to income attributable to multiple states. The tax attributable to each state is based on the allocation and apportionment rules established in 1957 by the Uniform Division of Income for Tax Purposes Act ('UDITPA'). Ex parte Uniroyal Tire Co., 779 So. 2d 227, 230 (Ala. 2000). Under the MTC and UDITPA, income is divided into business income and nonbusiness income. A multistate corporation's business income is apportioned among the states in which the corporation operates, generally in accordance with an equally weighted three-factor formula encompassing sales, payroll, and property. Ala. Code 1975, § 40 27 1, art. IV, ¶ 9. Nonbusiness income, however, is wholly allocated to a single state: although, in certain instances, such income [e.g., the sale of intangible personal property] is allocated to the corporation's 'state of commercial domicile,' the income from the sale of real property is allocated to the state in which the property is located. Ala. Code 1975, § 40 27 1, art. IV, ¶¶ 5 8." Kimberly-Clark Corp. v. Alabama Dep't of Revenue, 69 So. 3d 135, 139 (Ala. Civ. App. 2008), reversed on other grounds, Ex 4 2100803 & 2100811 parte Alabama Dep't of Revenue, supra. Scheafer, Division Annot., of Construction and See generally Larry D. Application of Uniform Income for Tax Purposes Act, 8 A.L.R.4th 934 (1981). In 2001, the Department classified the gain on the sales as "nonbusiness income" and allocated all the income to Alabama pursuant to Ala. Code 1975, § 40 27 1, art. IV, ¶ 6(a). Article IV, ¶ 6(a), provides that "[c]apital gains and losses from sales of real property located in this state are allocable to this state." The Department entered a final assessment of $21 million of corporate income tax against the taxpayers. The taxpayers sought review of the assessment by the Department's Administrative Law Division, arguing three issues: (a) that the gain on the sales of the real property located in Alabama applicable Alabama conducting an was business statute; integrated (b) business income that pursuant the to the taxpayers are enterprise, taxation of which is subject to apportionment under the "unitary-business" principle; 1 and (3) that, for 1 apportionment purposes, the The unitary-business principle is used to determine the portion of a corporate taxpayer's total income that is 5 2100803 & 2100811 income derived from the sales at issue should be excluded from the Alabama "sales factor" under Regulation 810 27 1 4 .18(3)(a), Ala. Admin. Code (Dep't of Revenue). The Department's ALJ determined that the income should be classified as business income but that it excluded from the Alabama sales factor. expressly address the taxpayers' should not be The ALJ did not argument concerning the unitary-business principle. The Department appealed from the ALJ's ruling to the Montgomery Circuit § 40-2A-9(g)(2). Court, pursuant to Ala. Code 1975, The taxpayers cross-appealed from the ALJ's ruling regarding nonexclusion from the Alabama sales factor. Section 40 2A-9(g)(2) provides: "The appeal to circuit court from an order issued by the administrative law judge shall be a trial de novo, provided the order of the administrative law judge shall be presumed prima facie correct and the burden shall be upon the appealing party to show otherwise. The court shall hear the case in attributable to a particular state. "'A unitary business is generally defined as two or more business entities that are commonly owned and integrated in a way that transfers value among the affiliated entities.'" Apple, Inc. v. Franchise Tax Bd., 199 Cal. App. 4th 1, 9, 132 Cal. Rptr. 3d 401, 407 (2011) (quoting Citicorp North America, Inc. v. Franchise Tax Bd. 83 Cal. App. 4th 1403, 1411 n.5, 100 Cal. Rptr. 2d 509, 517 n.5 (2000)). See generally Container Corporation of America v. Franchise Tax Bd., 463 U.S. 159 (1983). 6 2100803 & 2100811 accordance with its own rules and shall decide all questions of fact and law. The administrative record and transcript shall be transmitted to the reviewing court as provided herein, and shall be admitted into evidence in the trial de novo, subject to the rights of either party to assign errors, objections, or motions to exclude calling attention to any testimony or any evidence in the administrative record or transcript which is deemed objectionable or inadmissible. Notwithstanding the foregoing, with the consent of all parties, judicial review may be on the administrative record and transcript. The court, upon request, shall hear oral argument and receive written briefs." The circuit court received no testimonial evidence. It decided the case on the briefs and arguments of counsel and the record of the hearing before the ALJ. The circuit court reversed the ALJ's decision, concluding that the gain on the sales of the Coosa properties should be classified as nonbusiness income and allocated solely to Alabama. The taxpayers appealed to this court. In 2008, we reversed the circuit court's judgment and held that the income should be classified as business income. v. Alabama Dep't of Revenue, supra. Alabama granted the Department's Kimberly-Clark Corp. The Supreme Court of petition for certiorari review of our decision and reversed it, holding that the income from the sales of the Coosa properties was nonbusiness income. On February 26, 2010, the supreme court remanded the 7 2100803 & 2100811 case "for the reinstatement of the order of the circuit court upholding the taxpayers]." Department's final assessments against [the Ex parte Alabama Dep't of Revenue, 69 So. 3d at 154. The taxpayers applied for a rehearing, arguing that the supreme court's decision had "result[ed] in an extraordinarily unfair and unconstitutional double taxation of the taxpayers' income by Alabama" and requesting the supreme court to "remand the case for further consideration and possible amelioration of the double taxation now imposed on the taxpayers." The taxpayers' amicus curiae, the Council on State Taxation, filed a brief in support of the application for rehearing, arguing that the supreme court's opinion had "[f]ail[ed] to consider the constitutional restrictions that limit Alabama's ability to tax the entire gain from the transactions" and citing several decisions by the United States Supreme Court standing for the proposition that the business income of a unitary business must be apportioned among all the states in which it conducts business. to the The Department filed a brief in opposition application established rules for of a rehearing, appellate 8 arguing procedure that well- precluded 2100803 & 2100811 consideration of an argument advanced for the first time on rehearing. The supreme court overruled the taxpayers' application for a rehearing on September 17, 2010, declining to extend its opinion to expressly address the double-taxation argument or to remand the case for further consideration of that argument. On September 24, 2010, the taxpayers filed a motion in the circuit court before this court had acted on the supreme court's mandate, resolution argument of to the raised remand the taxpayers' before case to remaining the [ALJ] the and ALJ "for a yet-unresolved concerning whether the Department's tax assessment violates certain constitutional principles Supreme .... Court specifically, precedent, the that, under taxpayers United were States conducting 'unitary business' and thus that the income at issue apportionable." December 8, The 2010, circuit correctly court denied concluding the that motion it had a was on no jurisdiction to act because the case remained pending before this court on remand from the supreme court. On December 30, 2010, the taxpayers filed a motion with the ALJ, requesting that he rule on their constitutional arguments. 9 The ALJ 2100803 & 2100811 denied that motion, concluding that he, like the circuit court, had no jurisdiction because the case was pending on remand to this court. On March 18, 2011, this court, in compliance with the supreme court's decision in Ex parte Alabama Department of Revenue, supra, "affirm[ed] the judgment of the Montgomery Circuit Court reversing the decision of the upholding the [Department's] final assessments." [ALJ] and Kimberly- Clark Corp. v. Alabama Dep't of Revenue, 69 So. 3d 155, 156 ((Ala. Civ. App. 2011). This court's certificate of judgment was issued on April 6, 2011. On the same day, the taxpayers filed in the circuit court a renewed motion to remand the case to the ALJ for resolution of their constitutional arguments. The circuit court denied that motion on April 14, 2011. The taxpayers filed both a notice of appeal and a petition for a writ of mandamus to this court challenging that decision. This court, ex mero motu, consolidated the appeal and the mandamus petition because they both sought review of the same ruling denying the taxpayers' motion to remand to the ALJ. Discussion 10 2100803 & 2100811 As a threshold matter, we must determine whether this case is properly before us by way of a petition for a writ of mandamus or an appeal. After the circuit court denied the taxpayers' motion to remand to the ALJ on April 14, 2011, nothing further remained for the circuit court to adjudicate. Thus, the circuit court's April 14, 2011, ruling was a final judgment that supports an appeal. See Price v. Clayton, 18 So. 3d 370, 374 (Ala. Civ. App. 2008). Affinity Hosp., LLC, Compare Ex parte [Ms. 2100614, December 9, 2011] ___ So. 3d ___ (Ala. Civ. App. 2011) (holding that the circuit court's order remanding action to the ALJ for an evidentiary hearing was not a final judgment that would support an appeal because three claims remained pending in the circuit court and the circuit court specifically noted that those claims were not yet ripe for consideration). "'It is well established in Alabama that a writ of mandamus, which is a drastic and extraordinary remedy, will not issue when there is an adequate remedy by appeal, and that the writ review.'" cannot be used as a substitute for appellate Ex parte Weaver, 781 So. 2d 944, 949 (Ala. 2000) (quoting Ex parte Fowler, 574 So. 2d 745, 747 (Ala. 1990)). 11 2100803 & 2100811 Accordingly, we deny the taxpayers' petition for a writ of mandamus in case no. 2100803. In Ex parte Alabama Department of Revenue, supra, the supreme court reversed this court's judgment in Kimberly-Clark Corp. v. Alabama Department of Revenue, supra, and remanded the cause "for the reinstatement of the order of the circuit court upholding the Department's final assessments against [the taxpayers]." 69 So. 3d at 154. When an appellate court directs that a specific judgment be entered on remand, the lower court must strictly comply with that mandate. In Ex parte Alabama Power Co., 431 So. 2d 151 (Ala. 1983), our supreme court stated: Id. "'It is the duty of the [lower] court, on remand, to comply strictly with the mandate of the appellate court according to its true intent and meaning, as determined by the directions given by the reviewing court. No judgment other than that directed or permitted by the reviewing court may be entered .... The appellate court's decision is final as to all matters before it, becomes the law of the case, and must be executed according to the mandate ....'" at 155 (quoting 5 Am. Jur. 2d Appeal & Error § (1962)). The court continued: "'"Where a particular judgment is directed by the appellate court, the lower court is not acting of its own motion, but in obedience to the order of its superior. ... 12 991 2100803 & 2100811 Public interests require that an end shall be put to litigation, and when a given cause has received the consideration of a reviewing court, has had its merits determined, and has been remanded with specific directions, the court to which such mandate is directed has no power to do anything but obey, otherwise, litigation would never be ended." ...'" Id. (quoting Kinney v. White, 215 Ala. 247, 248-49, 110 So. 394, 394 (1926)). In this case, the circuit court's order upholding the Department's ordered by direction final the assessments against the taxpayers supreme court to be "reinstate[d]." neither expressly nor impliedly permitted was That any further substantive proceedings in the case, much less allowed the circuit court to remand the action to the ALJ to consider any issues. On the contrary, if the circuit court had granted the taxpayers' motion to remand, the Department would have been entitled to mandamus relief. See Ex parte Queen, 959 So. 2d 620, 621 (Ala. 2006) (stating that "[a] petition for a writ of mandamus is the proper method by which to bring before an appellate court the question whether the [lower] court, on remand, has complied with the appellate court's mandate"). 13 2100803 & 2100811 Although it is true that a "trial court has the discretion to consider new issues on remand if the appellate court's opinion did not constitute or require a final adjudication of the case," Ex parte Insurance Co. of North America, 523 So. 2d 1064, 1069 (Ala. 1988), and that, "where the supreme court gives no precise directions as to how a cause is to proceed as to a certain matter on remand, the lower court may proceed in any manner that is not inconsistent with the supreme court's opinion," Durbin v. Durbin, 818 So. 2d 409, 411 (Ala. Civ. App. 2001), those principles have no application here. The judgment in Ex parte Alabama Department of Revenue, supra, did constitute a final adjudication of the case, and it did give precise directions as to which judgment would be in effect. Moreover, a remand to the ALJ for consideration of the taxpayers' constitutional arguments would have been inconsistent with the supreme court's opinion and would have violated the law-of-the-case doctrine. "The issues decided by an appellate court become the law of the case on remand to the trial court, and the trial court is not free to reconsider those issues." Ex parte S.T.S., 806 So. 2d 336, 341 (Ala. 14 2100803 & 2100811 2001) (citing Murphree v. Murphree, 600 So.2d 301 (Ala. Civ. App. 1992)). sales of The supreme court's holding that the gain on the the Coosa properties should be classified as nonbusiness income foreclosed any argument by the taxpayers that the income at issue was apportionable. The requirement that the business income of a unitary business be apportioned among all the jurisdictions in which it does business is rooted in the Commerce Clause and the Due Process Clause of the United States Constitution. See MeadWestvaco Corp. v. Illinois Dep't of Revenue, 553 U.S. 16, 24-25 (2008). "The Commerce Clause forbids the States to levy taxes that discriminate against interstate commerce or that burden it by subjecting activities to multiple or unfairly apportioned taxation." Id. at 24. Consequently, "[u]nder UDITPA [the Uniform Division of Income for Tax Purposes Act] and similar business] is allocated." statutes, all apportioned business and all income [of nonbusiness a unitary income is I Jerome R. Hellerstein and Walter Hellerstein, State Taxation ¶ 9.05 (3d ed. 1998). In Container Corp. of America v. Franchise Tax Board, 463 U.S. 159 (1983), the Supreme Court of the United States explained: 15 2100803 & 2100811 "[T]he [Uniform Division of Income for Tax Purposes Act] distinguishes between the 'business income' of a multi-jurisdictional enterprise, which is apportioned by formula, and its 'non-business' income, which is not. 1 __________ 1 Certain forms of non-business income, such as dividends, are allocated on the basis of the taxpayer's commercial domicile. Other forms of non-business income, such as capital gains on sales of real property, are allocated on the basis of situs." Id. at 167 (citations to the California Revenue & Tax Code omitted). Section § 40-27-1, Art. IV, ¶ 9, a part of the MTC that was modeled on the Uniform Division of Income for Tax Purposes Act, provides that "[a]ll business income shall be apportioned to this state fraction ...." constitutional apportioned. has (Emphasis by multiplying the income by a added.) requirement that There is, nonbusiness however, no income be That is so because such income, by definition, not been generated by a taxpayer's doing business in interstate commerce. Accordingly, § 40 27 1, art. IV, ¶ 6(a), part of Alabama's version of the MTC, requires that the income at issue in this case be allocated to Alabama. When our supreme court determined in Ex parte Alabama Department of Revenue that 16 the taxpayers had derived 2100803 & 2100811 nonbusiness income from the sales of the Coosa properties, the taxpayers' constitutional arguments based on the unitary- business principle requiring the apportionment of business income became moot. Conclusion The circuit court correctly denied the taxpayers' motion to remand the constitutional action issues to the concerning ALJ for resolution apportionment of because a remand would have been contrary to the supreme court's mandate in Ex parte Alabama Department of Revenue, supra, and would have violated the law-of-the-case doctrine. The circuit court's order of April 14, 2011, is affirmed. 2100803 - PETITION DENIED. 2100811 - AFFIRMED. Thompson, P.J., and Bryan, concur. 17 Thomas, and Moore, JJ.,

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