Jefferson County v. Acker ( 1995 )

United States Court of Appeals,
Eleventh Circuit.
No. 94-6400.
JEFFERSON COUNTY, A political subdivision of the State of
Alabama, Plaintiff-Appellant,
v.
William M. ACKER, Jr., Defendant-Appellee.
JEFFERSON COUNTY, A political subdivision of the State of
Alabama, Plaintiff-Appellant,
v.
U.W. CLEMON, Defendant-Appellee,
The Federal Judges Association, Amicus.
Aug. 21, 1995.
Appeal from the United States District Court for the Northern
District of Alabama. (Nos. CV93-M-69-S and CV93-M-196-S), Charles
A. Moye, Jr., Judge.
Before TJOFLAT, Chief Judge, BIRCH, Circuit Judge, and HENDERSON,
Senior Circuit Judge.
BIRCH, Circuit Judge:
In this case, we decide whether a tax, imposed by a county
government for the privilege of engaging in any occupation within
that county and measured by the taxpayer's gross receipts, can be
1
levied against an Article III judge. The district court held
that, as applied to federal judges, such a tax violates the
intergovernmental tax immunity doctrine and the Compensation Clause
of Article III. We REVERSE and REMAND.
1
Article III of the United States Constitution vests
judicial power in the Supreme Court "and in such inferior Courts
as the Congress may from time to time ordain and establish."
U.S. Const. art. III, § 1. Article III judges include federal
district court judges, judges for the circuit courts of appeals,
and justices of the Supreme Court.
I. BACKGROUND
As authorized by the Alabama state legislature,
plaintiff-appellant Jefferson County, Alabama, enacted a tax
applicable to all workers who were not already subject to paying
license fees at either the county or the state level. Variously
styled as an occupational, license or privilege tax, Ordinance 1120
provides:
It shall be unlawful for any person to engage in or follow any
vocation, occupation, calling or profession ... within
[Jefferson] County on and after the 1st day of January, 1988,
without paying license fees to the County for the privilege of
engaging in or following such vocation, occupation, calling or
profession, which license fees shall be measured by one-half
percent (1/2%) of the gross receipts of each such person.
Jefferson County, Ala., Ordinance 1120, § 2 (Sept. 29, 1987)
[hereinafter Ordinance 1120]. 2 Where a person subject to the tax
2
The ordinance provides the following definitions:
(A) The word "person" shall mean any natural
person. Whenever the word "person" is used in any
clause prescribing and imposing a penalty in the nature
of a fine or imprisonment, the wor[d] as applied to a
partnership or other form of unincorporated enterprise
shall mean the partners or members thereof, and as
applied to corporations shall mean the officers and
directors thereof.
(B) The words "vocation, occupation, calling and
profession" shall mean and include the doing of any
kind of work, the rendering of any kind of personal
services, or the holding of any kind of position or job
within Jefferson County, Alabama, by any clerk,
laborer, tradesman, manager, official or other
employee, including any non-resident of Jefferson
County who is employed by any employer ... where the
relationship between the individual performing the
services and the person for whom such services are
rendered is, as to those services, the legal
relationship of employer and employee, including also a
partner of a firm or an officer of a firm or
corporation, if such partner or officer receives a
salary for his personal services rendered in the
business of such firm or corporation, but they shall
works both inside and outside Jefferson County, the ordinance
requires the person to compute his or her tax based on the
percentage of work performed within the county. Id. § 3. The
ordinance directs employers to withhold the license fees, to file
returns on behalf of their employees, and to maintain records
thereof for five years. Id. § 4. Where an employer has failed to
comply with the occupational tax provisions, employees remain
responsible for paying the tax and for filing their own returns.
Id. Failure to withhold or to pay the occupational tax may result
in the assessment of interest and penalties, plus "punishment
within the limits of and as provided by law for each offense." Id.
not mean or include domestic servants employed in
private homes and shall not include businesses,
professions or occupations for which license fees are
required to be paid under any General License Code of
the County or to the State of Alabama or the County....
(C) The words "vocation, occupation, calling and
profession" shall also mean and include the holding of
any kind of office or position either by election or
appointment, by any federal, state, county or city
officer or employee where the services of such official
or employee are rendered within Jefferson County,
Alabama.
....
(F) The words "gross receipts" and "compensation"
shall have the same meaning, and both words shall mean
and include the total gross amount of all salaries,
wages, commissions, bonuses or other money payment of
any kind, or any other considerations having monetary
value, which a person receives from or is entitled to
receive from or be given credit for by his employer for
any work done or personal services rendered in any
vocation, occupation, calling or profession....
Ordinance 1120, § 1.
§ 10.3
Defendants-appellees, the Honorable William M. Acker, Jr. and
the Honorable U.W. Clemon, are federal district judges in the
Northern District of Alabama, which encompasses Jefferson County.
Both Judge Acker and Judge Clemon have their principal offices in
Jefferson County. With the exception of Judge Acker and Judge
Clemon, all active judges in the Northern District of Alabama have
paid their occupational taxes based on differing percentages of
their salaries4; additionally, all state district and circuit
court judges in the Tenth Judicial Circuit of Alabama and the three
Alabama Supreme Court Justices with satellite offices in Jefferson
County have paid their occupational taxes based on portions of
their salaries. During their tenures as federal judges, both Judge
Acker and Judge Clemon have paid their state income taxes.
Notwithstanding the frequently articulated boast that they reside
in "God's country", the judges have steadfastly refused to "tithe".
When Judge Acker and Judge Clemon each failed to pay their
occupational taxes pursuant to Ordinance 1120, Jefferson County
brought suit in state court to recover the delinquent taxes; Judge
Acker and Judge Clemon removed the case to federal court. On
3
Ordinance 1120 prescribes no punishment other than interest
and penalty payments, but the ordinance grants the county's
Director of Revenue authority to adopt and to enforce binding
regulations pertaining to the enforcement of the license tax.
Id. § 8.
4
At least one Article III judge, who is not a party to this
suit, has paid the occupational tax under protest. The late
Honorable Robert S. Vance, United States Circuit Judge, who had
his principal office in Jefferson County, did not pay the
occupational tax from its effective date in January, 1988, until
his death in December, 1989.
cross-motions for summary judgment,5 the district court held that
the license tax was "imposed directly upon a governmental
function—the performance in the federal courthouse in Birmingham,
Alabama of federal judicial functions. Those functions are the
actual event taxed (the legal incidence of the tax)." Jefferson
County v. Acker, 850 F.Supp. 1536, 1543 (N.D.Ala.1994).
Accordingly, the court ruled that the occupational tax, as applied
to Article III judges, was a direct tax on the federal judiciary in
violation of the intergovernmental tax immunity doctrine.
Moreover, because the occupational tax "becomes effective even
before the income is earned, and before it is paid, and before it
is received," id. at 1546 n. 14, the court also held that the
occupational tax diminished rather than taxed the judges' salaries,
in violation of the Compensation Clause of Article III.6 The court
5
The parties agreed that there were no material facts to be
decided by trial; consequently they stipulated to the facts of
the case and submitted the following issues of law for decision
on summary judgment:
(1) Does ... Ordinance 1120 discriminate against
defendants by reason of the federal source of their pay
or compensation contrary to 4 U.S.C. §§ 105-111?
(2) If not, does ... Ordinance 1120 contravene the
Constitution of the United States as applied to the
defendant Article III judges?
Jefferson County v. Acker, 850 F.Supp. 1536, 1537
(N.D.Ala.1994). Because the district court held for the
county on issue one, the county did not appeal that portion
of the decision, and we do not address it.
6
Article III, Section 1 of the United States Constitution
provides in pertinent part that "[t]he Judges, both of the
supreme and inferior Courts, shall hold their Offices during good
Behavior, and shall, at stated Times, receive for their Services,
a Compensation, which shall not be diminished during their
Continuance in Office." U.S. Const. art. III, § 1.
granted summary judgment on behalf of Judge Acker and Judge Clemon.
The county appealed.
II. DISCUSSION
The parties have not cited, and we have not found, any
Supreme Court or Court of Appeals precedents addressing whether an
occupational tax levied against Article III judges violates either
the intergovernmental tax immunity doctrine or the Compensation
Clause.7 Consequently, we apply the Supreme Court's general
jurisprudence regarding the intergovernmental tax immunity doctrine
and the Compensation Clause to the tax in question. We review de
novo the district court's grant of summary judgment. Jaques v.
Kendrick, 43 F.3d 628, 630 (11th Cir.1995).
A. Intergovernmental Tax Immunity Doctrine
Rooted in the Supremacy Clause,8 the intergovernmental tax
immunity doctrine is a core tenet of federalism that prevents
either the federal government or the state governments from
directly taxing the activities of the other. See generally United
7
In James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct.
208, 82 L.Ed. 155 (1937), the Court did find that a license tax
levied against a government contractor did not violate the
intergovernmental tax immunity doctrine. Id. at 138, 161, 58
S.Ct. 211, 221. In that opinion, however, the Court explicitly
noted that the tax had been levied upon an independent
contractor, rather than an officer of the federal government.
Id. at 149, 58 S.Ct. at 216. Thus, while James rejected "[t]he
theory, which once won a qualified approval, that a tax on income
is legally or economically a tax on its source," Graves v. New
York ex rel. O'Keefe, 306 U.S. 466, 480, 59 S.Ct. 595, 598, 83
L.Ed. 927 (1939), the Court did not confront the specific
question of whether an occupation tax levied on a federal officer
is a direct tax on the United States government.
8
"This Constitution, and the Laws of the United States which
shall be made in Pursuance thereof ... shall be the supreme Law
of the Land...." U.S. Const. art. VI, cl. 2.
States v. New Mexico, 455 U.S. 720, 730-33, 102 S.Ct. 1373, 1380-
82, 71 L.Ed.2d 580 (1982) (describing the history of this " "much
litigated and often confused field' " (quoting United States v.
City of Detroit, 355 U.S. 466, 473, 78 S.Ct. 474, 478, 2 L.Ed.2d
424 (1958))). At the pinnacle of its application, the doctrine was
interpreted to exempt federal employees from any state taxation.
After its decision in James v. Dravo Contracting Co., 302 U.S. 134,
58 S.Ct. 208, 82 L.Ed. 155 (1937), however, the Supreme Court has
upheld state taxation of federal employees except in instances of
discriminatory taxes directed against federal employees or direct
taxation of the federal government by the states:
"[U]nder current intergovernmental tax immunity doctrine the
States can never tax the United States directly but can tax
any private parties with whom it does business, even though
the financial burden falls on the United States, as long as
the tax does not discriminate against the United States or
those with whom it deals." Absolute tax immunity is
appropriate only when the tax is on the United States itself
"or on an agency or instrumentality so closely connected to
the Government that the two cannot realistically be viewed as
separate entities, at least insofar as the activity being
taxed is concerned."
California State Bd. of Equalization v. Sierra Summit, Inc., 490
U.S. 844, 848-49, 109 S.Ct. 2228, 2232, 104 L.Ed.2d 910 (1989)
(alteration in original) (citation omitted) (emphasis added)
(quoting South Carolina v. Baker, 485 U.S. 505, 523, 108 S.Ct.
1355, 1366, 99 L.Ed.2d 592 (1988) and New Mexico, 455 U.S. at 735,
102 S.Ct. at 1383); see also United States v. California, --- U.S.
----, ----, 113 S.Ct. 1784, 1788-89, 123 L.Ed.2d 528 (1993); Davis
v. Michigan Dept. of Treasury, 489 U.S. 803, 811, 109 S.Ct. 1500,
1505, 103 L.Ed.2d 891 (1989). Thus, under the intergovernmental
tax immunity doctrine, we must strike down Ordinance 1120 if it
discriminates against federal employees9 or if it taxes the federal
government directly.
1. Discrimination Against Federal Employees
A state tax does not discriminate unconstitutionally against
federal employees if the tax is imposed equally upon similarly
situated constituents of the state, see United States v. County of
Fresno, 429 U.S. 452, 462, 97 S.Ct. 699, 704-05, 50 L.Ed.2d 683(1977), particularly those constituents who are in privity with the
state imposing the tax, see Davis, 489 U.S. at 815 n. 4, 109 S.Ct.
at 1507 n. 4. The Jefferson County tax expressly includes within
its scope elected and appointed officials at the municipal, county,
and state levels. See Ordinance 1120, § 1(C).10 Jefferson County
has applied the occupational tax to state district and circuit
court judges and to Alabama Supreme Court Justices serving in the
county, and all of these state judges and justices have complied
with the ordinance.
Significantly, the occupational tax does not discriminate
against judges vis-a-vis other professions. The ordinance imposes
a general tax, exempting only those workers who already are subject
to state or county license fees. Cf. Fresno, 429 U.S. at 464-65,
97 S.Ct. at 705-06 (holding that a state tax imposed solely on
lessees of land owned by tax-exempt entities is not discriminatory
9
Because it found that Ordinance 1120 directly taxed the
United States government, the district court did not decide
whether the Jefferson County occupational tax discriminated
against federal employees. Acker, 850 F.Supp. at 1548. We
address the issue for the first time on appeal.
10
See also Ordinance 1120, § 1(H) ("The word "county' shall
mean Jefferson County, Alabama.").
because the law leaves such lessees "no worse off" than tenants who
rent from landowners who are taxed). Although employees subject to
the Jefferson County tax in some instances may be taxed more than
professionals subject to state professional fees, this slight
difference in economic burden does not compel a finding of
discrimination. There is no evidence in the ordinance of
"crippling obstruction of any of the Government's functions, no
sinister effort to hamstring its power, not even the slightest
interference with its property." City of Detroit v. Murray Corp.
of Am., 355 U.S. 489, 495, 78 S.Ct. 458, 462, 2 L.Ed.2d 441 (1958).
Thus, the occupational tax does not discriminate unconstitutionally
against federal employees.
2. Direct Tax on Federal Government
The Supreme Court has adopted a number of tests to determine
whether a state tax falls upon the federal government directly,
rather than upon a private individual dealing with the federal
government. An individual's employment with the federal government
is insufficient to transform that person into a part of the federal
government for the purpose of the intergovernmental tax immunity
doctrine. Instead, to qualify for tax immunity, the taxed entity
must "actually "stand in the Government's shoes,' " United States
v. New Mexico, 455 U.S. at 736, 102 S.Ct. at 1383 (quoting City of
Detroit v. Murray Corp., 355 U.S. at 503, 78 S.Ct. at 491)
(separate opinion of Frankfurter, J., concurring in part and
dissenting in part), or be " "so intimately connected with the
exercise of a power or the performance of a duty' by the Government
that taxation of it would be " "a direct interference with the
functions of government itself," ' " id. (quoting James v. Dravo
Contracting Co., 302 U.S. at 157, 58 S.Ct. at 219) (quoting Metcalf
& Eddy v. Mitchell, 269 U.S. 514, 524, 46 S.Ct. 172, 174-75, 70
L.Ed. 384 (1926)).11
In this case, the federal judges must pay the occupational tax
out of their own resources. If the tax had been imposed upon the
Eleventh Circuit or the Northern District of Alabama, then the
ordinance would tax directly the federal government. Article III
judges, however, are federal officers rather than " "an arm of the
Government,' " id. at 736-37, 102 S.Ct. at 1384 (alteration in
original) (quoting Department of Employment v. United States, 385
U.S. 355, 359-60, 87 S.Ct. 464, 467, 17 L.Ed.2d 414 (1966)). The
legal incidence of the occupational tax thus falls upon federal
employees, not upon the federal government directly. Consequently,
because Ordinance 1120 neither discriminates against federal
employees nor taxes the United States directly, the county may
apply the tax to Article III judges without violating the Supremacy
11
Other formulations of this test state that, to tax the
federal government directly, the tax must be levied against an
entity " " "so assimilated by the Government as to become one of
its constituent parts," ' " New Mexico, 455 U.S. at 736, 102
S.Ct. at 1384 (quoting United States v. Boyd, 378 U.S. 39, 47, 84
S.Ct. 1518, 1523, 12 L.Ed.2d 713 (1964) (quoting United States v.
Township of Muskegon, 355 U.S. 484, 486, 78 S.Ct. 483, 485, 2
L.Ed.2d 436 (1958))), " " "so incorporated into the government
structure as to become instrumentalities of the United States," '
" id. (quoting Boyd, 378 U.S. at 48, 84 S.Ct. at 1524), "
"virtually ... an arm of the Government,' " id. at 736-37, 102
S.Ct. at 1384 (alteration in original) (quoting Department of
Employment v. United States, 385 U.S. 355, 359-60, 87 S.Ct. 464,
467, 17 L.Ed.2d 414 (1966)), or " "integral parts of [a
governmental department],' and "arms of the Government deemed by
it essential for the performance of governmental functions,' "
id. at 737, 102 S.Ct. at 1384 (alteration in original) (quoting
Standard Oil Co. v. Johnson, 316 U.S. 481, 485, 62 S.Ct. 1168,
1170, 86 L.Ed. 1611 (1942)).
Clause.
While the district court acknowledged that the economic burden
of Ordinance 1120 was on the individual judges, it nevertheless
concluded that the legal incidence of the tax was on the United
States. The district court reasoned that a true income tax is laid
upon the privilege of receiving income, which is the property of
the taxpayer once it is received as compensation for his services.
In contrast, a license or privilege tax is laid upon the privilege
of practicing or engaging in one's trade, occupation or profession.
Whereas an income tax levied on federal employees burdens the
property of those employees, a license tax levied on federal
employees burdens the functions of the federal government itself.
The district court concluded that
[t]he tax imposed by Ordinance 1120 is not an income tax as
such is generally understood, nor is it any income tax under
Alabama law. That is so because it is not, in fact, a tax
upon the receipt of income, pay, or compensation ... but
rather, is a license or privilege tax which finds its taxable
event, or incidence, in the performance of a federal judicial
function. Its incidence, thus, is upon the performance of
judicial functions by a judicial officer, antecedent to the
point that the salary therefor having been paid by the
government becomes the property of the individual citizen of
Alabama ... subject to the protection and benefits he receives
as a citizen of Alabama.
Acker, 850 F.Supp. at 1547-48 (citations omitted). The court
acknowledged that the occupational tax was measured by the judges'
gross receipts; nevertheless, it held, "the actual event taxed
(the legal incidence of the tax)" is the privilege of acting as a
federal district judge. Id. at 1543. Hence, the tax constituted
a direct tax on the United States, thereby violating the
intergovernmental tax immunity doctrine.
Support for the view that Ordinance 1120 imposes a license tax
rather than an income tax can be found in the plain language of the
ordinance. The ordinance is entitled the "Occupational Tax of
Jefferson County Alabama," and its stated purpose is to establish
a "license or privilege tax on persons engaged in any vocation,
occupation, calling or profession in Jefferson County who is not
required by law to pay any license or privilege tax to either the
State of Alabama or the County as set out herein." Ordinance 1120.
The ordinance requires the payment of "license fees" and makes it
"unlawful for any person to engage in or follow any vocation,
occupation, calling or profession ... without paying license fees."
Ordinance 1120, § 2 (emphasis added).
Additionally, judicial interpretation of Ordinance 1120 and
similar occupational taxes by the Alabama Supreme Court supports
the claim that the Jefferson County tax is a license tax. The
Supreme Court of Alabama has held that Ordinance 1120 was enacted
pursuant to a state law "authorizing [counties] to impose a
privilege or license tax." Bedingfield v. Jefferson County, 527
So.2d 1270, 1274 (Ala.1988). The court has also held that a city
ordinance similar to the one at bar imposed a license tax rather
than an income tax. McPheeter v. City of Auburn, 288 Ala. 286, 259
So.2d 833, 837 (1972). In McPheeter, the City of Auburn had
imposed a tax upon the privilege of engaging in a trade, occupation
or profession in the city and upon the privilege of using the
city's facilities while so engaged; the tax was measured based on
a percentage of each taxpayer's gross salary or wages. Id. 259
So.2d at 834-35. The court reasoned that
[t]he tax is occasioned when the taxpayer performs services
within the Auburn city limits, and not when the taxpayer
receives income. Therefore, the ordinance taxes the privilege
of working and the engagement of rendering services within the
City of Auburn, and it only measures the tax due by the amount
of the taxpayers' gross receipts which result from such
privilege.... It is evident that the tax is not even measured
by a person's income, but only by his salary or wages earned.
So in no sense can the Auburn tax be considered an income tax.
Id. 259 So.2d at 837 (citation omitted) (emphasis added).12
Nevertheless, in deciding whether Ordinance 1120 taxes the
judges' income or the federal judicial function itself, we are not
constrained by the formal phrasing of the Jefferson County
Commission or the labels assigned by state courts.
[I]n passing on the constitutionality of a state tax "we are
concerned only with its practical operation, not its
definition or the precise form of descriptive words which may
be applied to it." Lawrence v. State Tax Comm'n, 286 U.S.
276, 280, 52 S.Ct. 556, 557, 76 L.Ed. 1102. Consequently in
determining whether these taxes violate the Government's
constitutional immunity we must look through form and behind
labels to substance.
City of Detroit v. Murray Corp. of Am., 355 U.S. at 492, 78 S.Ct.
at 460 (emphasis added); cf. Railway Express Agency v. Virginia,
347 U.S. 359, 363, 74 S.Ct. 558, 561, 98 L.Ed. 757 (1954) (stating
in the context of the Commerce Clause that " "neither the state
12
However, the effect of McPheeter is not altogether clear.
Even as it ruled that the Auburn ordinance imposed a license tax
rather than an income tax, the McPheeter court also held that the
"license tax" did not violate the intergovernmental tax immunity
doctrine as applied to either state or federal employees.
McPheeter, 259 So.2d at 836. Auburn University employees had
argued that they "perform[ed] essential functions for the
operation of [the state] government," id. 259 So.2d at 835;
accordingly, as applied to them, the Auburn license tax was a
direct burden upon the Alabama state government. The Alabama
Supreme Court rejected this argument and reasoned that the
license tax created no condition precedent to state employment.
Id. 259 So.2d at 835-36 (" "Payment of the tax is not a
prerequisite to being appointed or elected, nor does continuation
to the state position depend on payment of the tax.' " (quoting
Hamilton v. City and County of Denver, 176 Colo. 6, 490 P.2d
1289, 1293 (1971))).
courts nor the legislatures, by giving the tax a particular name or
by the use of some form of words, can take away our duty to
consider its nature and effect,' in which inquiry "we are concerned
only with its practical operation' " (citations omitted)).
The critical question, therefore, is whether the practical
effect of Ordinance 1120 is to tax the income that federal judges
derive from the performance of their judicial functions or to
impose a license tax as a precondition to the performance of those
functions.13 Viewed in this light, the practical effect of
13
Although the Supreme Court has not defined a license tax
in the context of the intergovernmental tax immunity doctrine, it
has done so in the context of the First Amendment. In Murdock v.
Pennsylvania, 319 U.S. 105, 63 S.Ct. 870, 87 L.Ed. 1292 (1943),
the Court considered a city ordinance which required solicitors
to pay a flat rate license tax before they could operate in the
city. The Court struck down the ordinance as facially
unconstitutional, noting that "[a] state may not impose a charge
for the enjoyment of a right granted by the federal
constitution." Id. at 113, 63 S.Ct. at 875. In doing so, the
Court described at length "the nature of this tax":
It is a license tax—a flat tax imposed on the exercise
of a privilege granted by the Bill of Rights.... [T]he
license tax is fixed in amount and unrelated to the
scope of the activities of petitioners or to their
realized revenues. It is not a nominal fee imposed as
a regulatory measure to defray the expenses of policing
the activities in question. It is in no way
apportioned. It is a flat license tax levied and
collected as a condition to the pursuit of activities
whose enjoyment is guaranteed by the First Amendment.
Accordingly, it restrains in advance those
constitutional liberties of press and religion and
inevitably tends to suppress their exercise. That is
almost uniformly recognized as the inherent vice and
evil of this flat license tax.
Id. at 113-14, 63 S.Ct. at 875 (citations and footnote
omitted) (emphasis added). The Court was careful to
distinguish a license tax from a tax on the income of one
who engages in religious activities. "It is one thing to
impose a tax on the income or property of a preacher. It is
quite another thing to exact a tax from him for the
privilege of delivering a sermon." Id. at 112, 63 S.Ct. at
Ordinance 1120 is that of an income tax, rather than a license tax.
The ordinance does not impose a flat fee on those performing
federal functions, nor does it create a condition precedent to the
performance of those functions.14 By the terms of the ordinance,
the required license fees "shall be measured by one-half percent
(1/2%) of the gross receipts" of each person subject to the tax.
Ordinance 1120, § 2. Thus, it is only if a federal employee is
compensated that he or she becomes liable to Jefferson County for
the occupational tax. A federal employee in Jefferson County could
refuse to pay any license fees and still lawfully perform his or
her federal duties under the ordinance so long as that employee
received no income from performing those duties. Consequently, the
occupational tax is not a precondition to the performance of any
federal government functions but a consequence of receiving any
compensation therefor.15
874; see also Jimmy Swaggart Ministries v. Board of
Equalization, 493 U.S. 378, 386-87, 110 S.Ct. 688, 694, 107
L.Ed.2d 796 (1990) (distinguishing between sales and use
taxes and flat license taxes).
14
Significantly, Jefferson County probably could not obtain
an injunction, pursuant to Ordinance 1120, to prevent a federal
judge from "unlawfully" performing his or her judicial functions
without paying the required license fee. Before granting such
equitable relief, a court would have to find that Jefferson
County would suffer irreparable harm in the absence of an
injunction and that the county has no adequate remedy at law.
United Steelworkers of Am. v. USX Corp., 966 F.2d 1394, 1404
(11th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1386, 122
L.Ed.2d 762 (1993). It is doubtful that Jefferson County could
make either showing in a tax collection case: the loss of
revenues from a single taxpayer is not likely to cause the county
irreparable harm; further, garnishing the taxpayer's wages would
afford the county an adequate remedy at law.
15
This result is not altered by the fact that Article III
guarantees that the salaries of federal judges shall not be
diminished during their tenure. See supra note 5. To contend
As suggested by the Alabama Supreme Court in McPheeter, it may
be argued that Ordinance 1120 directly taxes the performance of
government functions and is only measured by the income which
results from the exercise of that privilege. The Supreme Court,
however, repeatedly has distinguished between the taxation of a
constitutional right and the taxation of receipts flowing from the
exercise of a constitutional right; it has held that the latter is
permissible. See, e.g., Jimmy Swaggart Ministries v. Board of
Equalization, 493 U.S. 378, 390-92, 110 S.Ct. 688, 696-97, 107
L.Ed.2d 796 (1990) (holding that a state sales tax based on a
taxpayer's realized revenues constitutionally may be imposed on
religious activity); Arkansas Writers' Project, Inc. v. Ragland,
481 U.S. 221, 229, 107 S.Ct. 1722, 1727, 95 L.Ed.2d 209 (1987)
(noting that "a genuinely nondiscriminatory tax on the receipts of
newspapers would be constitutionally permissible"). Because
Ordinance 1120 imposes not even a nominal burden on the
uncompensated practice of any vocation, occupation, calling or
profession, no matter how extensive, we conclude that the tax is
not merely measured by but actually laid upon the taxpayer's
receipts. Accordingly, the practical effect of the ordinance is
that of an income tax; the ordinance does not directly tax the
operations of the federal government.
B. Compensation Clause
that the performance of federal judicial functions is inseparable
from compensation under Article III (and thus taxation of the
latter implies taxation of the former) is to argue that the
intergovernmental tax immunity doctrine also prevents state,
perhaps even federal, income taxation of the federal judiciary.
This argument is unavailing. See O'Malley v. Woodrough, 307 U.S.
277, 282, 59 S.Ct. 838, 840, 83 L.Ed. 1289 (1939).
The Compensation Clause provides that the compensation of
Article III judges shall not be diminished during their tenure in
office. U.S. Const. art. III, § 1; for text of Compensation
Clause, see supra note 6. In order to prevail on a Compensation
Clause claim, the judges must show a "direct, discriminatory
assault on judicial independence, [a] "plan fashioned by the
political branches ... ineluctably operating to punish the judges
qua judges....' " Duplantier v. United States, 606 F.2d 654, 669
(5th Cir.1979) (quoting Atkins v. United States, 556 F.2d 1028,
1054, 214 Ct.Cl. 186, cert. denied, 434 U.S. 1009, 98 S.Ct. 718, 54
L.Ed.2d 751 (1978)) (second and third alterations in original),
cert. denied, 449 U.S. 1076, 101 S.Ct. 854, 66 L.Ed.2d 798 (1981).
" "Indirect, nondiscriminatory diminishments of judicial
compensation, those which do not amount to an assault upon the
independence of the third branch or any of its members, fall
outside the protection of the Compensation Clause....' " Id.(quoting Atkins, 556 F.2d at 1045).
The district court concluded that the Jefferson County
occupational tax constitutes a diminishment of the judges'
salaries. The court relied upon its earlier conclusion that
Ordinance 1120 "is not, in fact, a tax upon the receipt of income,
pay, or compensation, (the taxable event held in O'Malley to be
constitutionally permissible), but rather is a license or privilege
tax which finds its taxable event, or incidence, in the performance
of a federal judicial function." Acker, 850 F.Supp. at 1547.
Because the incidence of the tax is thus "antecedent to the point
that the salary therefor having been paid by the government becomes
the property of the [judges]," the court reasoned, the ordinance
diminished rather than taxed the judges' salaries.
As discussed supra, however, the practical effect of Ordinance
1120 is that of an income tax. It is well established that the
Compensation Clause does not forbid the federal government from
levying an income tax on federal judges. O'Malley v. Woodrough,
307 U.S. 277, 282, 59 S.Ct. 838, 840, 83 L.Ed. 1289 (1939).
Moreover, Judge Acker and Judge Clemon have failed to show that the
judges are being taxed purely for their judicial function. By its
terms, Ordinance 1120 taxes persons "holding ... any kind of office
or position either by election or appointment, by any federal,
state, county or city officer or employee," Ordinance 1120, § 1(C)
(emphasis added); this provision applies equally to the executive
and legislative branches as well as to the judicial branch.
Consequently, the Jefferson County occupational tax " "do[es] not
amount to an assault upon the independence of the third branch or
any of its members,' " Duplantier, 606 F.2d at 669 (quoting Atkins,
556 F.2d at 1045), and as such its application to Article III
judges is not barred by the Compensation Clause.
III. CONCLUSION
The district court held that the intergovernmental tax
immunity doctrine and the Compensation Clause exempt federal judges
from Jefferson County's occupational tax.16 The occupational tax
16
We reject without discussion the judges' alternative
argument that federal judges, as practicing attorneys, are
subject to state bar fees and thus are exempt from Ordinance
1120. See Ala.Code § 40-12-49 ("Each attorney engaged in the
practice of law shall pay an annual license tax to the state, but
none to the county." (emphasis added)); Ala.Code § 34-3-11
(prohibiting the practice of law by judges). The Committee on
neither discriminates against federal judges, nor does it impede
the operation of the federal judiciary. Additionally, the tax does
not punish judges qua judges. Therefore, the Jefferson County tax,
as applied to Article III judges, is valid. We REVERSE the
district court's opinion and REMAND for a determination of the
taxes owed.
TJOFLAT, Chief Judge, dissenting:
I respectfully dissent.
The main issue to be decided in this case "is whether the
Jefferson County tax is "imposed directly on' the federal
government." Jefferson County v. Acker, 850 F.Supp. 1536, 1541
(N.D.Ala.1994). I agree with the district court's reasoning and
its conclusion that "the Jefferson County occupational tax is
imposed directly upon a governmental function—the performance in
the federal courthouse in Birmingham, Alabama of federal judicial
functions. Those functions are the actual event taxed (the legal
incidence of the tax)." Id. at 1543.
This is not a question of the taxation of an independent
contractor or agency official (parties in other cases challenging
taxes). See, e.g., James v. Dravo Contracting Co., 302 U.S. 134,
58 S.Ct. 208, 82 L.Ed. 155 (1937). The federal judiciary is surely
"so assimilated by the Government as to become one of its
constituent parts." Ante at 3160 n. 11 (quoting cases). "Here,
the tax is on the privilege of performing the federal judicial
Codes of Conduct of the Judicial Conference of the United States
encourages, but does not require, federal judges to participate
in local bar associations. See Advisory Opinion No. 85,
Committee on Codes of Conduct (June 14, 1991).
function itself—one of the three grand (Legislative; Executive;
Judicial) federal functions." Acker, 850 F.Supp. at 1542. Article
III judges are not independent contractors. The judiciary is not
merely a building or an administrative organizational body—it is
"an arm of the Government." Ante at 3160 (quoting cases). The
individual judges who administer justice are the judicial branch of
government. Taxation (based on income or an alternative measure)
of the performance of federal judges is, therefore, taxation of the
federal government.
Additionally, I would find for the judges on the Compensation
Clause claim because the Jefferson County occupational tax is a
"direct, discriminatory assault on judicial independence." Ante at
3163 (quoting cases). The court's opinion does not address the
onerous recordkeeping and reporting requirements imposed by
Ordinance 1120. The ordinance requires every judge to divide his
or her performance1 within Jefferson County from those functions
performed outside the county and to allocate compensation earned
only within Jefferson County for tax assessment. Thirty-one
counties comprise the Northern District of Alabama. 28 U.S.C. §
81(a).2 Although Judge Acker and Judge Clemon maintain chambers in
1
One wonders how a judge is even to define "performance" for
purposes of compliance with the ordinance. Does thinking about a
case that is not being prosecuted in Jefferson County while
driving home in Jefferson County constitute performance? Does
carrying court documents across Jefferson County to get to
another county in which court is being held constitute
"performance within Jefferson County"? Does work on a case
brought in another county but which has an impact on Jefferson
County fall within the meaning of the ordinance?
2
The Northern District of Alabama encompasses Jefferson
County along with the counties of Colbert, Franklin, Lauderdale,
Cullman, Jackson, Lawrence, Limestone, Madison, Morgan, Blount,
Jefferson County, they routinely perform judicial functions in
other counties3 and their decisions affect citizens of other
counties. Ordinance 1120 creates an administrative nightmare that
"impede[s] the operation of the federal judiciary." Ante at 3164.
Because this tax is a direct assault on the administration of
justice, I dissent.
Shelby, Calhoun, Clay, Cleburne, Talladega, Bibb, Greene,
Pickens, Sumter, Tuscaloosa, Cherokee, De Kalb, Etowah, Marshall,
Saint Clair, Fayette, Lamar, Marion, Walker, and Winston.
3
Congress has mandated that, in addition to Birmingham,
court be held at Florence, Huntsville, Decatur, Anniston,
Tuscaloosa, Gadsden, and Jasper. 28 U.S.C. § 81(a).