Alabama v. United States

Background

The State of Alabama sued the United States in the Court of Claims to recover a state tax on the privilege of manufacturing and selling hydroelectric power. The tax related to surplus power sold by the United States from its Muscle Shoals dam under the Act of June 3, 1916. Alabama sought the tax, interest, and a penalty. The Court of Claims dismissed the petition after sustaining the Government’s demurrer, and the case came to this Court on review.

Reasoning

The key question was whether the Court of Claims had power under the Judicial Code to decide Alabama’s claim. That court’s jurisdiction extends to claims founded on the Constitution or a federal law, on executive regulations, or on actual contracts with the United States, and to certain damages claims. The Court explained there was no actual contract here. Levying a tax is a unilateral act and does not create a promise by the United States to pay. The United States did not admit it owed the tax, and the claim rests on Alabama’s state power rather than on federal law or an express contract. For those reasons, the Court found the claim fell outside the Court of Claims’ statutory powers.

Real world impact

The petition was dismissed for lack of jurisdiction rather than decided on the merits, so the Court did not rule on whether the tax itself was valid. As a practical matter, Alabama cannot recover this tax in the Court of Claims; similar disputes over state taxation of federal activities will not lie in that court unless grounded in an actual contract or federal law.