author: PARKER, Justice.

text:
    JIM PARKER BUILDING COMPANY, INC. v. G & S GLASS & SUPPLY COMPANY, INC.
    1090784.
    Supreme Court of Alabama.
    March 11, 2011.

      J. Lister Hubbard and R. Brooke Lawson III of Capell & Howard, P.C., Montgomery, for appellant.
    Charles A. Burkhart, Ed R. Haden, Christopher F. Heinss, and Neah L. Mitchell of Balch & Bingham LLP, Birmingham, for appellee.
   PARKER, Justice.

Jim Parker Building Company, Inc. (“Parker”), appeals from an order of the Jefferson Circuit Court denying its motion to intervene, to compel arbitration, and to stay the underlying litigation. We affirm in part, reverse in part, and remand.

I. Facts and Procedural History

On September 24, 2009, G & S Glass & Supply Company, Inc. (“G & S”), filed a complaint against Western Surety Company (“Western”) pursuant to § 39-1-1 et seq., Ala.Code 1975, commonly referred to as Alabama’s little Miller Act. In the complaint, G & S asserted, among other things, that it had served as a subcontractor to Parker on a construction project at the University of Alabama in Huntsville (“the project”); that Western had provided “the payment bond to Parker for the [project”; that G & S completed its work on the project on April 10, 2009, including “additional work necessitated by alterations in the plans and drawings by the project architect Chapman-Sisson Architects” (“CSA”); that CSA had “accepted and approved G & S’[s] work” and had issued a “Certificate of Substantial Completion” on April 24, 2009; that G & S had made demands for payment on both Parker and Western; and that G & S “ha[d] not been fully paid for its work.” G & S alleged that Western had violated Alabama’s little Miller Act and sought recovery under a theory of quantum meruit.

On November 5, 2009, Parker filed a motion seeking an order allowing it to intervene in G & S’s action against Western; compelling arbitration of all claims between Parker and G & S; and staying G & S’s action against Western pending resolution of the arbitration proceeding. In its motion, Parker asserted, in relevant part:

“Pursuant to the terms of the payment bond, Parker ..., as principal, and Western ..., as surety, are ‘jointly and severally’ responsible for paying for labor and materials provided in the performance of work on the Project. Thus, should G & S ultimately prevail on its claim against Western ..., Parker ... would potentially be jointly and severally liable for satisfying such judgment. Parker ... seeks to intervene in this action to protect its interests under the payment bond and in the determination of the issue of legal liability. See Olive v. State Farm Mut. Auto. Ins. Co., 456 So.2d 310 (Ala.Civ.App.1984). Par-kerf’s] ... interests would be seriously prejudiced if it were not allowed to intervene and participate in this action.”

Parker attached to its motion certain exhibits, including, among others, a copy of a contract entitled “Alabama Subcontract Agreement” entered into by Parker and G & S (“the contract”). Parker also attached to its motion a counterclaim Parker sought to file against G & S if its motion to intervene was granted, seeking damages allegedly incurred “as a result of delays caused by G & S’[s] inadequate and incomplete work and G & S’[s] failure to timely complete its work in the Project.”

On November 24, 2009, the trial court entered an order granting in its entirety Parker’s motion to intervene, to compel arbitration, and to stay the litigation. On the same day, G & S filed a document styled “motion to reconsider order,” arguing that “the effect of the Court’s November 24, 2009 Order compelling arbitration is to strip G & S of its rights under the Little Miller Act to litigate its claims against Western ... in Circuit Court and forces it to arbitrate its claims against Parker — an option G & S declined to pursue when filing the Little Miller Act claim solely against Western.” Parker filed a response to G & S’s motion to reconsider, arguing, among other things, that “G & S’[s] claim that the Court’s Order compelling arbitration and staying this litigation somehow strips G & S of its rights under the Little Miller Act is ... absurd” because, it said, the trial court’s order “merely stays this litigation until such time as the dispute between G & S and Parker ... is resolved in arbitration.” After a hearing, the trial court entered an order on January 29, 2010, granting G & S’s motion to reconsider; vacating its November 24, 2009, order; and denying Parker’s motion to intervene, to compel arbitration, and to stay the litigation. Parker appealed.

II. Standards of Review

“The standard of review for a denial of a motion for permissive intervention[] is whether the trial court abused its discretion. Universal [Underwriters Ins. Co. v. East Central Alabama Ford-Mercury, Inc.,] 574 So.2d [716,] 728 [ (Ala.1990) ]. See also, New Orleans Public Service, Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 470-71 (5th Cir.1984) (‘when we are asked to review a denial of permissive intervention, the question on appeal is not whether “the factors which render permissive intervention appropriate under Federal Rule of Civil Procedure 24(b) where present,” but is rather “whether the trial court committed a clear abuse of discretion in denying the motion” ’). Again, we see no reason to depart from the Federal courts’ interpretation of the corresponding Federal rule.”

Universal Underwriters Ins. Co. v. Anglen, 630 So.2d 441, 443 (Ala.1993).

“ ‘ “[T]he standard of review of a trial court’s ruling on a motion to compel arbitration at the instance of either party is a de novo determination of whether the trial judge erred on a factual or legal issue to the substantial prejudice of the party seeking review.” ’ Vann v. First Cmty. Credit Corp., 834 So.2d 751, 752-53 (Ala.2002) (quoting Ex parte Roberson, 749 So.2d 441, 446 (Ala.1999) (emphasis omitted)). ‘The party seeking to compel arbitration has the initial burden of proving the existence of a written contract calling for arbitration and proving that that contract evidences a transaction involving interstate commerce.’ Polaris Sales, Inc. v. Heritage Imports, Inc., 879 So.2d 1129, 1132 (Ala.2003). ‘ “ ‘[A]fter a motion to compel arbitration has been made and supported, the burden is on the non-movant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question.’ ” ’ Kenworth of Birmingham, Inc. v. Langley, 828 So.2d 288, 290 (Ala.2002) (quoting Fleetwood Enters., Inc. v. Bruno, 784 So.2d 277, 280 (Ala.2000), quoting in turn Jim Burke Auto., Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (Ala.1995)).”

I.C.E. Contractors, Inc. v. Martin & Cobey Constr. Co., 58 So.3d 723, 725 (Ala.2010).

III. Discussion

The issues presented in this appeal are whether the trial court exceeded its discretion in denying Parker’s motion to intervene and whether the trial court erred in denying Parker’s motion to compel arbitration.

A. The Motion to Intervene

“[A] denial of a motion to intervene is always an appealable order.” Farmers Ins. Exch. v. Raine, 905 So.2d 832, 833 (Ala.Civ.App.2004) (citing Kids’ Klub II, Inc. v. State Dep’t of Human Res., 763 So.2d 259, 260 (Ala.Civ.App.2000); Alabama Fed. Sav. & Loan Ass’n v. Howard, 534 So.2d 609 (Ala.1988)).

Initially, we note that Parker’s motion to intervene did not state whether it sought intervention as of right under Rule 24(a), Ala. R. Civ. P., or permissive intervention under Rule 24(b), Ala. R. Civ. P.; the motion simply seeks an order allowing Parker to intervene “pursuant to Rule 24 of the Alabama Rules of Civil Procedure.” This Court has previously treated such motions as a request for intervention under both rules. See GEICO Ins. Co. v. Lyons, 658 So.2d 445, 446 (Ala.1995) (“Because GEICO’s motion to intervene ... did not specify whether it sought intervention as of right under Rule 24(a), Ala. R. Civ. P., or permissive intervention under Rule 24(b), we treat it as a request for intervention under both procedures.”), overruled on other grounds, Ex parte State Farm Fire & Cas. Co., 764 So.2d 543 (Ala.2000). However, on appeal, Parker argues only that it should be allowed to intervene permissively in G & S’s action under Rule 24(b). See Parker’s brief, at 12-20. Because Parker has not presented any argument regarding intervention as of right under Rule 24(a), we will review the propriety of the trial court’s denial of Parker’s motion to intervene only insofar as the motion seeks permission to intervene under Rule 24(b). See Tucker v. Cull-man-Jefferson Counties Gas Dist., 864 So.2d 317, 319 (Ala.2003) (‘“An appeals court will consider only those issues properly delineated as such, and no matter will be considered on appeal unless presented and argued in brief.’ ” (quoting Braxton v. Stewart, 539 So.2d 284, 286 (Ala.Civ.App. 1988), citing Ex parte Riley, 464 So.2d 92 (Ala.1985))).

In QBE Insurance Corp. v. Austin Co., 23 So.3d 1127 (Ala.2009), this Court explained the field of operation for Rule 24(b):

“Rule 24(b), Ala. R. Civ. P., provides that on a timely motion the court may permit anyone to intervene when a statute confers a conditional right to intervene or when an applicant’s claim or defense and the main action share a common question of law or fact. Rule 24(b) goes on to provide that ‘[i]n exercising its discretion the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.’ ”

23 So.3d at 1131.

The first requirement of Rule 24(b) is that a motion for permissive intervention be timely filed; that determination is within the sound discretion of the trial court. See QBE Ins. Corp., 23 So.3d at 1131; Farmers Ins. Exch., 905 So.2d at 834 (citing Mutual Assurance, Inc. v. Chancey, 781 So.2d 172 (Ala.2000), citing in turn Universal Underwriters Ins. Co. v. Anglen, 630 So.2d 441 (Ala.1993)). This Court has applied the following factors in assessing the timeliness of a motion to intervene:

“ ‘(1) [T]he length of time during which the would-be intervenor knew or reasonably should have known of his interest in the case before he petitioned for leave to intervene; (2) the extent of prejudice to the existing parties as a result of the would-be intervenor’s failure to apply as soon as he knew or reasonably should have known of his interest; (3) the extent of prejudice to the would-be inter-venor if his petition is denied; and (4) the existence of unusual circumstances militating either for or against a determination that the application is timely.’ ”

QBE Ins. Corp., 23 So.3d at 1132 (quoting United States v. Jefferson County, 720 F.2d 1511, 1516 (11th Cir.1983)).

The first factor we must consider is the length of time the would-be inter-venor knew or reasonably should have known of its interest in the case before it sought intervention. “The would-be inter-venor must act promptly in protecting its interest.” QBE Ins. Corp., 23 So.3d at 1132. In this case, Parker acted promptly to protect its interest, filing its motion to intervene on November 5, 2009, only six weeks after G & S filed its complaint on September 24, 2009. This factor weighs in favor of finding that Parker’s motion to intervene was timely.

The second factor we must consider is “ ‘the extent of prejudice to the existing parties as a result of the would-be intervenor’s failure to apply as soon as [it] knew or reasonably should have known of [its] interest.’ ” QBE Ins. Corp., 23 So.3d at 1133 (quoting United States v. Jefferson County, 720 F.2d at 1516). “[Discovery considerations are important in determining whether a motion to intervene is timely.” QBE Ins. Corp., 23 So.3d at 1133 (citing Chiles v. Thornburgh, 865 F.2d 1197, 1213 (11th Cir.1989)). Parker asserts the following on appeal:

“[N]o substantial discovery has yet taken place between the parties. Although G & S has issued written discovery requests to Western ..., Western ... has not yet responded to such requests.... In fact, at the time Parker ... filed its Motion, Western[’s] ... responses to the discovery requests were not yet due.... Further, no depositions have taken place, nor have any been noticed. The entire record consists only of notices of intent to serve various subpoenas, objections to those notices, and the pleadings relating to the issue now before this Court. Thus, because no substantial discovery has yet taken place, Parker[’s] ... intervention in this action would not in any way prejudice the existing parties to this litigation.”

Parker’s brief, at 13-14. The record on appeal supports Parker’s assertion, and G & S does not dispute it. This factor also weighs in favor of finding that Parker’s motion to intervene was timely.

The third factor we must consider is “‘the extent of prejudice to the would-be intervenor if [its] petition is denied.’ With regard to this factor, ‘the thrust of the inquiry must be the extent to which a final judgment in the case may bind the movant even though he is not adequately represented by an existing party.’ ” QBE Ins. Corp., 23 So.3d at 1133 (quoting United States v. Jefferson County, 720 F.2d at 1517). Regarding this factor, Parker contends, among other things, that “[it] should not be denied its right to intervene and defend claims that ultimately would establish its own liability, if any; such would clearly be prejudicial.” Parker’s brief, at 15. Conversely, G & S contends that “Alabama law will not bind Parker to the final judgment in the lawsuit between G & S and Western to which Parker is not a party.” G & S’s brief, at 28.

In Ex parte Flexible Products Co., 915 So.2d 34 (Ala.2005), this Court noted the well established principle that “ ‘[collateral estoppel, also known as issue preclusion, is available as a defense to relitigation of an issue in a subsequent suit between the same parties which is not on the same cause of action.’ ” 915 So.2d at 45 (quoting Martin v. Reed, 480 So.2d 1180, 1182 (Ala.1985) (emphasis added)). The Court, however, also noted that “the doctrine of mutuality of estoppel[, i.e., the requirement that the parties be identical,] may be satisfied by less than a perfect identity of the parties in the first and second actions, as when particular parties are in privity.” Ex parte Flexible Products Co., 915 So.2d at 48. “The test for determining if two parties are in privity focuses on identity of interest.” Dairyland Ins. Co. v. Jackson, 566 So.2d 723, 726 (Ala.1990) (citing Alabama Farm Bureau Mut. Cas. Ins. Co. v. Moore, 349 So.2d 1113, 1116 (Ala.1977)). “ ‘Privity’ is a flexible legal term, comprising several different types of relationships and generally applying when a person, although not a party, has his interests adequately represented by someone with the same interests who is a party.” EEOC v. Perneo Aeroplex, Inc., 383 F.3d 1280, 1286 (11th Cir.2004) (citing Hansberry v. Lee, 311 U.S. 32, 41-43, 61 S.Ct. 115, 85 L.Ed. 22 (1940)).

Privity is present here because Western and Parker unquestionably share an identical interest in the underlying litigation. As noted, Western and Parker are jointly and severally liable under the payment bond to pay all persons and entities who supplied labor and materials for the project; thus, if G & S obtains a judgment against Western, then Western could seek indemnification from Parker. Hence, Western and Parker would benefit equally from a determination that G & S is not entitled to recover compensation under the payment bond for its work on the project.

In its action against Western, G & S claims that it properly completed its work on the project, and, thus, G & S says, it is entitled to receive payment under the payment bond for that work; Western, however, takes the opposite position. As noted, Parker seeks to file a counterclaim against G & S for damage incurred in repairing and completing G & S’s allegedly incomplete and inadequate work. In Parker’s counterclaim, the factual issue whether G & S properly completed its work on the project will be crucial in determining if any liability exists on the part of G & S. However, because Western and Parker are in privity, the determination of the same factual issue from G & S’s action against Western would be binding in Parker’s action against G & S; that being the case, Parker would be collaterally estopped from relitigating that issue in any action it may have against G & S. Thus, this factor weighs in favor of finding that Parker’s motion to intervene was timely.

The fourth factor we must consider is the existence of unusual circumstances militating either in favor of or against a determination that the motion to intervene is timely. QBE Ins. Corp., 23 So.3d at 1133-34. Neither Parker nor G & S has shown the existence of any unusual circumstances that would support their respective arguments regarding the trial court’s disposition of the motion to intervene. Based on the foregoing discussion of the four factors to be applied in assessing the timeliness of a motion to intervene, we conclude that Parker’s motion to intervene was timely.

Because Parker has not alleged that a statute confers a conditional right to intervene in this case, we must now consider whether any of Parker’s claims or defenses and the main action share a common question of law or fact. See QBE Ins. Corp., 23 So.3d at 1131; Rule 24(b). As previously stated, G & S’s action against Western and Parker’s counterclaim against G & S share at least one crucial common question of fact—whether G & S adequately and timely completed its work on the project.

Finally, we must consider whether Parker’s intervention in G & S’s action against Western will unduly delay or prejudice the adjudication of the rights of the original parties (G & S and Western); we conclude that Parker’s intervention in G & S’s action will do neither. As noted, G & S’s action was in the early stages of discovery when Parker moved to intervene in that action; thus, Parker’s intervention will likely cause only a relatively minor delay in the proceedings below. Furthermore, Parker’s intervention will not unduly prejudice G & S because, as previously stated, G & S’s action and Parker’s counterclaim involve at least one common question of fact.

Based on the foregoing, we conclude that the trial court erred in denying Parker’s motion insofar as it sought to intervene in G & S’s action against Western. Accordingly, the trial court’s order is due to be reversed as to this issue. See Stallworth v. Monsanto Co., 558 F.2d 257, 270 (5th Cir.1977) (“ With little strain on the court’s time and no prejudice to the litigants, the controversy can be stilled and justice completely done’ if the appellants are granted permission to intervene.” (quoting McDonald v. E.J. Lavino Co., 430 F.2d 1065, 1074 (5th Cir.1970))).

B. The Motion to Compel Arbitration

As noted, the party seeking to compel arbitration has the initial burden of proving the existence of a written contract calling for arbitration and proving that that contract evidences a transaction involving interstate commerce. See I.C.E. Contractors, Inc., supra. Parker’s entire argument in moving the trial court to compel arbitration is set forth below, verbatim:

“Upon granting Parkerfs] ... motion to intervene, the Court should compel G & S to arbitrate all disputes between G & S and Parker ..., including those claims included in Parker[’s] ... counterclaim. Section 17 of the Alabama Subcontract Agreement (hereinafter the ‘Subcontract’, a copy of which is attached as Exhibit ‘B’) provides that all disputes, controversies, and claims between Parker ... and G & S be settled by binding arbitration administered by the American Arbitration Association (‘AAA’).”

Parker correctly states that the contract contains a provision calling for arbitration; G & S does not dispute this. However, Parker wholly failed to allege that the contract evidences a transaction involving interstate commerce; in fact, Parker failed to even mention the phrase “interstate commerce” in its motion to compel arbitration. In its opposition to G & S’s motion to reconsider, Parker did state that “a provision requiring arbitration of disputes between the parties and which involves interstate commerce is specifically enforceable under the Federal Arbitration Act.” However, Parker’s statement regarding interstate commerce was merely a recitation of' the law applicable to a ruling on a motion to compel arbitration; it was not a specific allegation that the transaction in this case involves interstate commerce.

Also, the contract does not show on its face that the transaction involves interstate commerce. Notably, the contract fails to state that either Parker or G & S engages in business outside Alabama; instead, the contract merely states that both Parker and G & S have their principal offices in Alabama. See Bowen v. Security Pest Control, Inc., 879 So.2d 1139, 1142 (Ala.2003) (holding that a transaction involved interstate commerce, in part, because one of the parties to the transaction engaged in commerce in both Alabama and Georgia); Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 57, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003) (holding that Congress’s Commerce Clause power extended to the transaction in that case because, among other things, one of the parties to the transaction “engaged in business throughout the southeastern United States”).

Furthermore, Parker submitted no evidence showing that any materials, supplies, or equipment used in the project were purchased from businesses in other states. See Elizabeth Homes, L.L.C. v. Cato, 968 So.2d 1, 4 n. 1 (“Evidence that a builder obtained materials and components for a house from out-of-state suppliers is sufficient to establish that a transaction for the construction and sale of a house sufficiently involved interstate commerce for purposes of the [Federal Arbitration Act].” (citing Elizabeth Homes, L.L.C. v. Gantt, 882 So.2d 313, 315-17 (Ala.2003))). Moreover, because the hearing in this case was not transcribed, nothing presented at that hearing may form the basis for reversing the trial court’s denial of Parker’s motion to compel arbitration. See generally Gotlieb v. Collat, 567 So.2d 1302, 1304 (Ala. 1990) (“[T]his Court is limited to a review of the record alone, and the record cannot be changed, altered, or varied on appeal by statements in briefs of counsel.... The appellants bear the burden of ensuring that the record on appeal contains sufficient evidence to warrant reversal.”).

In short, Parker has failed to show on the record that it met its burden of supporting its motion to compel arbitration. Therefore, insofar as it denied the motion to compel arbitration, the trial court’s order is due to be affirmed. In Jim Burke Automotive, Inc. v. Beavers, 674 So.2d 1260, 1265-66 (Ala.1995), this Court affirmed the trial court’s denial of a motion to compel arbitration, stating:

“Jim Burke’s motion to compel arbitration fails even to allege that the transaction involves interstate commerce; the closest it comes is to say that ‘when an agreement substantially affects interstate commerce and contains specific provisions requiring arbitration of disputes between the parties, that agreement is specifically enforceable under the Federal Arbitration Act.’ This is a general statement of the law, not an allegation that the transaction in question involves interstate commerce. Attached to the motion is a copy of the contract, but it does not show on its face that the transaction involves interstate commerce, certainly not so plainly as to require a reversal of the denial of the motion. Codefendant American Bankers Life Assurance Company of Florida asserted in its answer that it was ‘a foreign corporation licensed to do business in the State of Alabama,’ but this fact is not cited in the record as a ground for granting Jim Burke’s motion. A hearing was held, but it was not transcribed; thus, nothing presented at that hearing can be cited as a basis for reversing the denial of arbitration.”

IV. Conclusion

Based on the foregoing, we affirin the trial court’s order insofar as it denied Parker’s motion to compel arbitration and to stay the litigation. We reverse the trial court’s order insofar as it denied Parker’s motion for permission to intervene. We remand the cause for proceedings consistent with this opinion.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

COBB, C.J., and STUART, SHAW, and WISE, JJ., concur.

      . In Safeco Insurance Co. of America v. Gray-bar Electric Co., 59 So.3d 649 (Ala.2010), this Court explained:
      " ‘[T]he purpose of a payment bond required under the little Miller Act is to "shift the ultimate risk of nonpayment from workmen and suppliers to the surety.” ' [Federal Ins. Co. v.] Kruger, 829 So.2d [732,] 736 [ (Ala.2002) ] (quoting American Sur. Co. v. Hinds, 260 F.2d 366, 368 (10th Cir.1958)). ‘The purpose of the [little Miller] act is to provide security for those who furnish labor and material in performance of government contracts as a substitute for unavailable lien rights, and is liberally construed to accomplish this purpose.’ Headley v. Housing Auth. of Prattville, 347 So.2d 532, 535 (Ala. Civ.App.1977).”
      59 So.3d at 655-56.

      . The Alabama Rules of Civil Procedure do not specifically provide for a "motion to reconsider.” It is clear from the substance of G & S’s motion, however, that the motion is a Rule 59(e), Ala. R. Civ. P., motion to alter, amend, or vacate the trial court's order. Thus, we will consider G & S’s motion as a timely filed Rule 59(e) motion. See Ex parte

        Alfa Mut. Gen. Ins. Co., 684 So.2d 1281, 1282 (Ala. 1996) ("[T]his Court looks to the essence of a motion, rather than its title, to determine how that motion is to be considered under [the Alabama Rules of Civil Procedure].”).

      . Parker’s motion to intervene did not state whether it sought permissive intervention or intervention as of right. For the reasons discussed in Part III.A., infra, we treat the motion as one seeking permissive intervention under Rule 24(b), Ala. R. Civ. P.

      . G & S contends that Parker "waived any argument that the trial court erred in denying it permissive intervention by not arguing permissive intervention before the trial court.” G & S’s brief, at 14. However, as noted, Parker’s motion to intervene did not specify whether it sought to intervene under Rule 24(a) or Rule 24(b), Ala. R. Civ. P. Furthermore, accepting G & S’s hypertechnical argument would contravene " 'the liberal atmosphere of the Rules of Civil Procedure, which are to be construed "to secure the just, speedy, and inexpensive determination of every action.” ’ " Ex parte Caremark RX, Inc., 956 So.2d 1117, 1129 (Ala.2006) (quoting Randolph County v. Thompson, 502 So.2d 357, 365 (Ala.1987), quoting in turn Rule 1, Fed.R.Civ.P.); see also Rule 1(c), Ala. R. Civ. P. ("These rules shall be construed and administered to secure the just, speedy and inexpensive determination of every action.”).

      . G & S contends that Parker "waived its argument regarding the timeliness of its motion to intervene” because, G & S says, "Parker for the first time argues in its brief to this Court that it should be allowed to intervene under Rule 24(b).” G & S’ brief, at 18. For the reasons stated above, we reject this contention. See supra note 4.

      . Because we conclude that the trial court correctly denied Parker’s motion insofar as it sought to compel arbitration of all claims between Parker and G & S, we need not reach the issue whether the trial court erred in denying Parker's motion insofar as it sought to stay G & S’s action against Western pending resolution of the arbitration proceeding.


source: Caselaw Access Project

author: PITTMAN, Judge.

license: Public Domain

text:
    KIMBERLY-CLARK CORPORATION and Kimberly-Clark Worldwide, Inc. v. ALABAMA DEPARTMENT OF REVENUE.
    2061117.
    Court of Civil Appeals of Alabama.
    March 21, 2008.

      Joseph B. Mays, Jr., Bruce P. Ely, Christopher R. Grissom, and Marc James Ayers of Bradley Arant Rose & White LLP, Birmingham, for appellants.
    Troy King, atty. gen., and Jeff Patterson, deputy atty. gen., Montgomery, for appellee.
   PITTMAN, Judge.

Kimberly-Clark Corporation (“KC”) and Kimberly-Clark Worldwide, Inc. (“KCW”), appeal from a judgment of the Montgomery Circuit Court classifying derived income from the sale of an Alabama-based pulp- and paper-manufacturing facility known as the Coosa Mill and its adjacent timberlands known as the Coosa Timber-lands as “nonbusiness” income.

During the pertinent tax years at issue (1996-1998), KC was primarily engaged in the manufacture and sale paper-related consumer products. However, KC has, over the years, founded, acquired, and sold numerous other subsidiary businesses engaged in activities other than manufacturing and selling paper-related consumer products. During 1996-98, KC and its subsidiaries operated in 42 countries, employed approximately 60,000 employees, and generated annual sales of approximately $12 billion to $13 billion.

In 1962, KC purchased both the Coosa Mill and the Coosa Timberlands. The Coosa Timberlands consisted of 875,000 acres of timber. The Coosa Mill processed the raw material, or timber, taken from the Coosa Timberlands into a pulping slurry, which was then fed through spraying apparatus into a machine in order to make paper.

KC changed its corporate “strategy” in the early 1990s and decided to adopt one that was centered on its consumer-products business lines. KC started divesting itself of some businesses that did not, in its view, fit that strategy and would not help KC achieve its strategic goals; KC then started acquiring businesses that it believed would further its goals. KC determined that it would reduce its dependence on pulp produced in the United States from 80% to 30% but that it would not eliminate its use of United States-produced pulp entirely.

KC acquired Scott Paper Company, Inc. (“Scott Paper”), which became a wholly owned subsidiary of KC, in December 1995. Scott Paper’s name was subsequently changed to Kimberly-Clark Tissue Company (“KCTC”). In that transaction, KC similarly acquired Scott Worldwide, Inc. (“SWI”), a wholly owned subsidiary of Scott Paper. At that time, SWI controlled 995,000 acres of timberland in the Canadian province of Nova Scotia.

In November 1996, KC formed KCW as a subsidiary of KCTC. KCWs functions were 1) to manage and hold various intangible properties for KC such as patents, trademarks, and foreign-corporation equity investments; 2) to manufacture and sell paper-related products to KC for packaging and resale; and 3) to hold title for the benefit of KC to real property that contained timber. KCW similarly fulfilled such functions for several of KC’s affiliated entities: for instance, it managed the manufacturing of paper-related products at KC’s Utah and California mills and it held and managed substantially all the domestic and foreign timberlands owned by KC or its affiliated entities. KCW then merged with SWI and, as a result of that merger, KCW acquired the title to the 995,000 acres of Canadian timberland and to the Coosa Timberlands. The SWI employees who previously had overseen the Canadian timberland continued to oversee that timberland for KCW, and KCW contracted for KC employees to oversee the Coosa Timberlands.

During the pertinent tax years of 1996-98, KCW engaged in a total of 30 like-kind exchanges and cash sales of timber. The exchanges and sales each involved from 800 to 1,500 acres of timberland. KCW similarly acquired approximately 520,000 acres of timberland in South Alabama (“the Mobile timberland”) in 1998. It sold the Mobile timberland to an unrelated party in 1999.

As part of its long-term strategy, KC determined that the Coosa Mill and the Coosa Timberlands did not build on KC’s strengths. The Coosa Mill and the Coosa Timberlands were subsequently sold to an unrelated party in March 1997 for approximately $600 million. KCW received $350 million for the Coosa Timberlands, and KC received the balance of $250 million for the Coosa Mill. KC used its gross receipts from the sale either to acquire other businesses or to repurchase its own stock. KCW engaged in seven like-kind exchanges of timberland in 1996, three in 1997, and seven in 1998.

In addition, KC acquired and disposed of various other businesses or business segments during the 1990s in furtherance of its corporate strategy. KC acquired five non-pulp/paper-related businesses and sold nine such businesses during the pertinent years. Moreover, KC sold two pulp and paper mills in the early 1990s and sold a second mill, in addition to the Coosa Mill, during the 1996-1998 tax years. However, KC retained and operated seven pulp and paper mills during those years, and it acquired five more paper mills after those years.

KCW similarly entered into a number of transactions between 1996 and 1998. Other than the sale of the Coosa Timberlands, KCW sold 2 parcels of timberlands in 1996, 10 in 1997, and 1 in 1998, for a total of 13 sales of different timberland tracts.

KC and KCW reported the gross receipts from the sale of the Coosa Mill and the Coosa Timberlands, as apportionable business income on their respective 1997 Alabama corporate income-tax returns. They similarly excluded the gross receipts from their respective apportionment sales factors pursuant to a “special rule” promulgated by the Alabama Department of Revenue (“the Department”), which states that if “substantial amounts of gross receipts arise from an incidental or occasional sale of a fixed asset used in the regular course of the taxpayer’s trade or business, those gross receipts shall be excluded from the sales factor.” See Ala. Admin. Code (Dept. Of Revenue), r. 810-27-l-4-.18(c)(l) (emphasis added). The Department initially accepted KC’s and KCWs classification of the gross receipts as apportionable business income; however, the Department disallowed the exclusion of the gross receipts from the sales factors pursuant to the special rule. It similarly made other adjustments that have not been contested. The Department notified KC that KC was due a reduced tax refund of $147,649 for the subject years and billed KCW for additional taxes and interest in the amount of $3,372,129.

KC and KCW filed a petition for an administrative review by the Department, arguing that the gross receipts from the sale of the Coosa Mill and the Coosa Tim-berlands were business income then those receipts should be excluded from their sales factors pursuant to the special rule. In the alternative, KC and KCW argued, that the gross receipts constituted non-business income and thus should be wholly allocated to Texas, their “state of commercial domicile.” In ruling on that petition, the Department accepted KC’s and KCW’s alternative argument that the gross receipts were nonbusiness income. However, instead of allocating the income to Texas, the Department allocated that income to Alabama pursuant to Ala.Code 1975, § 40-27-1, art. IV, ¶ 6(a). The Department consequently assessed KC and KCW taxes in the amount of $7,382,559 and $13,593,834, respectively.

KC and KCW appealed from the assessment to the Department’s Administrative Law Division. KC and KCW argued that their argument that the gross receipts from the sale were nonbusiness income was based on incomplete information and was incorrect. Before the administrative law judge (“ALJ”), KC and KCW asserted that the gross receipts were actually business income because the sale had been made in the regular course of business. In support of their position, KC and KCW emphasized that (1) the gross receipts had been reinvested in business-related activities; (2) they had filed state income-tax returns classifying the gross receipts as business income in states in which they did business other than Alabama; and (3) the sale did not liquidate either company. KCW claimed that it had actively managed the Coosa Timberlands. KC and KCW also continued to assert that the gross receipts should be excluded from their apportionment sales factors pursuant to the special rule.

The Department, before the ALJ, argued that the Coosa Mill and the Coosa Timberlands sale had produced nonbusiness income because, it said, the sale had involved noncore divisions of KC, the sale had been extraordinary in nature, and the sale was not made in the regular course of business. The Department pointed out that KC had reported the sale as an “extraordinary item” for financial accounting purposes. The ALJ rejected the Department’s argument, citing Exxon Corp. v. Department of Revenue of Wisconsin, 447 U.S. 207, 100 S.Ct. 2109, 65 L.Ed.2d 66 (1980), for the proposition that a company’s internal accounting techniques are not binding on a state for tax purposes. After considering the evidence, the ALJ entered an order agreeing with the classification by KC and KCW of the gross receipts from the sale of the Coosa Mill and the Coosa Timberlands as business income, but it rejected the application of the exception in the Department’s special rule to that income.

The Department appealed from the ALJ’s order to the Montgomery Circuit Court, contending that the gross receipts from the sale of the Coosa Mill and the Coosa Timberlands were not business income. KC and KCW cross-appealed from the order, contending that the special rule exception applied. The two appeals were consolidated in the circuit court. The parties stipulated to the admission into evidence of the record and the transcript made before the ALJ.

The circuit court held a hearing at which only counsel’s arguments were presented. The circuit court reversed the ALJ’s order, classifying the gross receipts from the sale of the Coosa Mill and the Coosa Tim-berlands as nonbusiness income (as contended by the Department), thereby upholding the Department’s final assessment. The circuit court did not reach the issue of the potential application of the special rule because its determination that the gross receipts from the sale of the Coosa Mill and the Coosa Timberlands were nonbusiness income rendered the potential applicability of the special rule immaterial.

KC and KCW timely appealed. The issue presented in this appeal is whether the gross receipts from the sale of the Coosa Mill and the Coosa Timberlands amounted to business income.

In Bean Dredging, L.L.C. v. Alabama Department of Revenue, 855 So.2d 513 (Ala.2003), the Alabama Supreme Court thoroughly set out an appellate court’s standard of review in appeals from administrative proceedings before the Department:

“The circuit court reviews de novo an order of an administrative law judge in the State Department of Revenue; however, the order is presumed prima facie correct and the burden is on the appealing party to show otherwise. § 40-2A-9(g)(2), Ala.Code 1975.
“[The appellate court’s] standard of review is different from that applied by the circuit court in reviewing an administrative law judge’s order. When reviewing a case in which the trial court sat without a jury and heard evidence in the form of stipulations, briefs, and the writings of the parties, [an appellate] court sits in judgment of the evidence; there is no presumption of correctness. Old Southern Life Ins. Co. v. Williams, 544 So.2d 941, 942 (Ala.1989); Craig Constr. Co. v. Hendrix, 568 So.2d 752, 756 (Ala.1990). When [an appellate] court must determine if the trial court misapplied the law to the undisputed facts, the standard of review is de novo, and no presumption of correctness is given the decision of the trial court. State Dep’t of Revenue v. Gamer, 812 So.2d 380, 382 (Ala.Civ.App.2001); see also Ex parte Graham, 702 So.2d 1215 (Ala.1997).”

855 So.2d at 516-17. In this case, the circuit court received no testimonial evidence, basing its decision upon the briefs and arguments of the parties’ attorneys and the record of the hearing in front of the ALJ. Thus, we must sit in judgment of the evidence, and the circuit court’s ruling carries no presumption of correctness.

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 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.

During the tax years in issue, “business income” was defined in Ala.Code 1975, § 40-27-1, Art. IV, ¶ 1(a), as follows:

“ ‘[Ijncome 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 parts of the taxpayer’s regular trade or business operations.”

The uniformity sought by the MTC has been compromised by the judicial disagreement of different states over the definition of “business income.” Two tests, the “transactional test” and the “functional test,” have developed as a result. The Alabama Supreme Court addressed this issue thoroughly in Ex parte Uniroyal, supra.

In Ex parte Uniroyal, the record revealed that Uniroyal Tire Company had entered into a partnership with the B.F. Goodrich Company. Both corporations transferred all of their assets to the partnership, each receiving a 50% partnership interest in return. Thus, Uniroyal Tire Company’s only asset was its partnership interest, and between the 1986 and 1989 tax years, Uniroyal Tire Company treated the income received from the partnership as business income. Ultimately, Uniroyal Tire Company’s partnership interest was liquidated; Uniroyal Tire Company sold its entire partnership interest for approximately $260,600,000 and realized a capital gain of $99.7 million. On its 1990 Alabama tax return, Uniroyal Tire Company treated the $99.7 million as nonbusiness income. The Department rejected that treatment, maintaining that the $99.7 million was business income, and it assessed corporate income tax accordingly. Uniroyal Tire Company sought review of that assessment, and the contest ultimately reached the Alabama Supreme Court.

The Alabama Supreme Court took the opportunity to discuss the concept of “business income” and the two developing tests, the transactional test and the functional test, in depth, stating:

“Proponents of the transactional test find it ‘rooted in the statutory phrase, “earnings arising from transactions and activity in the regular course of the taxpayer’s trade or business.” ’ General Care [Corp. v. Olsen ], 705 S.W.2d [642], 644 [ (Tenn.1986) ] (emphasis added in General Care). ‘Thus, under the transactional test, the “controlling factor by which business income [is defined] is the nature of the particular transaction giving rise to the income.” ... The frequency and regularity of similar transactions and the former practices of the business are pertinent considerations.’ Id. (quoting [Western Natural Gas Co. v.] McDonald, [202 Kan. 98, 446 P.2d 781, 788 (1968) ]).
“Other courts construing the same language have concluded that their statute also contains an alternative test, which is popularly known as the ‘functional’ test. See, e.g., Pledger v. Getty Oil Exploration Co., 309 Ark. 257, 881 S.W.2d 121 (1992); Texaco-Cities Serv. Pipeline Co. v. McGaw, 182 Ill.2d 262, 230 Ill.Dec. 991, 695 N.E.2d 481 (1998); and Laurel Pipe Line Co. v. Commonwealth, 537 Pa. 205, 642 A.2d 472 (1994); cf. Simpson Timber Co. v. Department of Revenue, 326 Ore. 370, 953 P.2d 366 (1998) (Durham, J., concurring). Proponents of the functional test find it rooted in that second clause of the statute, which reads: ‘and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations.’ ‘More broadly [than under the transactional test], under the functional test, all gain from the disposition of a capital asset is considered business income if the asset disposed of was “used by the taxpayer in its regular trade or business operations.” ’ Texaco-Cities Serv., 182 Ill.2d at 269, 230 Ill.Dec. 991, 695 N.E.2d at 484 (emphasis added). ‘Under the functional test ..., the extraordinary nature or infrequency of the sale is irrelevant.’ Id., 182 Ill.2d at 269, 230 Ill.Dec. 991, 696 N.E.2d at 484. Proponents of this view hold that ‘income constitutes business income if either one of the above tests is met.’ Id. (emphasis added).”

779 So.2d at 230-31. The Alabama Supreme Court held that the broader functional test would authorize taxation that Ala.Code 1975, § 40-27-1, art. IV, 111(a), does not; therefore, the Court held, to the extent that it did so, it conflicted with the statute. The Alabama Supreme Court, therefore, rejected the functional test and held that the definition of “business income” envisioned the application of the transactional test.

Moreover, in expounding on the language of the statute supporting the use of the transactional test, the Alabama Supreme Court in Ex parte Uniroyal defined the word “regular” as used in that statute, stating:

“ ‘Regular’ has been defined as ‘steady or uniform in course, practice, or occurrence: not subject to unexplained or irrational variation: steadily pursued; orderly, methodical’; even as ‘returning, recurring, or received at stated, fixed or uniform intervals ...; functioning at proper intervals.’ Webster’s Third New International Dictionary of the English Language Unabridged 1913 (1971) (emphasis added). Clearly, the word, ‘regular’ in the phrase ‘regular course of the taxpayer’s trade or business’ refers to an ongoing business concern.”

779 So.2d at 236.

After thoroughly explaining the differences between the transactional test and the functional test, Ex parte Uniroyal concluded:

“We express no opinion as to how an amendment of the statute to substitute the disjunctive ‘or’ for the conjunctive ‘and’ might affect cases involving true liquidations. However, we are clear to the conclusion that under our statute as it is currently constituted, true liquidations do not generate ‘business income’ within the meaning of § 40-27-1, Art. IV, l.(a).”

779 So.2d at 238.

Other jurisdictions have offered further guidance in determining what constitutes “business income.” In Atlantic Richfield Co. v. State of Colorado, 198 Colo. 413, 601 P.2d 628 (1979), the Colorado Supreme Court, in applying the transactional test, ruled that even though Atlantic Richfield’s primary business was the exploration for and production of oil and natural gas, the capital gains and interest derived from selling various assets was business income. The court held that such income was business income resulting from transactions in the regular course of Atlantic Richfield’s business because Atlantic Richfield, as part of its business operations, had regularly engaged in major acquisitions and dispositions; those acquisitions and dispositions of assets were systematic business practices that generated business income even though they were not part of its primary business.

In Welded Tube Co. Of America v. Commonwealth of Pennsylvania, 101 Pa. Commw. 32, 515 A.2d 988 (1986), the court concluded that the capital gains realized from the buying and selling of manufacturing plants were business income under both the transactional test and the functional test. The taxpayer had purchased property in 1957 in Philadelphia as a site for a manufacturing facility. It then purchased 13 additional contiguous parcels of land between 1958 to 1963 for the expansion of that plant. In addition, in 1974 the taxpayer acquired 35 acres of land in Alabama, which was to be the site of a new manufacturing facility; that facility was never constructed. The taxpayer ultimately sold the Philadelphia facility in 1977, after it had become unprofitable, and it sold the Alabama property in 1982.

Even though Pennsylvania’s revenue authority argued that the taxpayer was not regularly engaged in the buying and selling of manufacturing plants and that the taxpayer’s disposition of real property only twice in its 30-year corporate history could not be a “systematic and recurrent” business practice so as to satisfy the test set forth in Atlantic Richfield, swpra, and to allow the income generated from those transactions to be considered business income, the court stated that “it makes no difference whether income derives from the main business, the occasional business or the subordinate business so long as the income arises in the regular course of business.” Welded Tube, 101 Pa. Commw. at 44, 515 A.2d at 994. The court concluded that it was a regular practice of the taxpayer to acquire property in the expansion of its business of manufacturing welded tubing and that such purchases and sales of property constituted an integral part of its business operations. In short, moneys derived from those transactions, according to Welded Tube, generated business income.

In PPG Industries, Inc. v. Department of Revenue, 328 Ill.App.3d 16, 765 N.E.2d 34, 262 Ill.Dec. 208 (2002), the court addressed whether “buying and selling of other businesses”- was part of a taxpayer’s “regular business activity.” Id. at 28-29, 765 N.E.2d at 45, 262 Ill.Dec. at 219. PPG Industries, Inc. (“PPG”), excluded the gain on the sale of a Michigan-based oil and gas subsidiary on its corporate income-tax return as having been nonbusiness income. The Illinois court held that the proceeds of the sale of the subsidiary, under either the transactional test or the functional test, constituted business income. Id. at 28, 765 N.E.2d at 44-45, 262 Ill.Dec. at 218-19. The court held that, under the transactional test, the proceeds of the sale were business income because PPG was in the business of buying and selling other businesses. PPG had acquired several businesses in 1987; PPG’s strategic performance objectives included selling several businesses. The Illinois court concluded that PPG had engaged in the acquisition and divestiture of other companies in the regular course of PPG’s business.

In this case, KC is, among other things, in the business of selling paper products whose manufacture requires raw material processed in mills and taken from timber-lands. As timberlands are depleted, pulp-manufacturing facilities may become unprofitable. In addition, costs associated with paper mills and timberlands may cause a change in corporate strategy, taking the corporation in a new direction. It is not hard to imagine that the selling and acquisition of paper mills and timberlands, especially by a corporation that, among other things, sells paper products, would generate earnings arising from transactions and activities in the regular course of the corporation’s trade or business and would be an ongoing business concern. See Ex parte Uniroyal, 779 So.2d at 230-31, 236.

Moreover, KC bought and sold major businesses and business components in the regular course of business during the 1990s pursuant to its long-term corporate strategy. Before that decade, KC had been widely diversified and had owned not only companies involved in the manufacture and sale of forest products, but also other companies, such as an airline. KC’s long-term strategy required KC to focus on its basic strengths, prompting it to acquire businesses that fit into that strategy and to sell businesses that did not. Although the sale of the Coosa Mill and the Coosa Timberlands may have been a large sale of a plant and of timberland, KC, acting through KCW, regularly bought and sold paper plants and timberlands, businesses, and business components. In addition, the sale of the Coosa Mill did not end KC’s active involvement in the pulp/paper business; it owned and operated 7 pulp/paper mills throughout the period between 1996 and 1998, and, at the time of the hearing before the ALJ, it owned and operated 12 mills. Income similarly generated from regularly buying and selling businesses was held in Atlantic Rich-field, supra, to be business income under the transactional test espoused by our Supreme Court in Ex parte Uniroyal, when, as in this case, the pertinent taxpayer regularly engaged in major acquisitions and dispositions. Thus, under the authorities that we have discussed, the sale of the Coosa Mill and the Coosa Timberlands is properly deemed a systematic and recurrent business practice that produced business income.

We note that the Department argues that KCW was not engaged in the management of the Coosa Mill and the Coosa Timberlands, i.e., that it was not involved in the clearing of land and maintenance of roads in the Coosa Timberlands, and, therefore, the Department asserts that the transactional test should not apply to characterize the income KCW received from the sale as business income. KCWs management function, however, was to hold title to timberlands and to oversee the sales and acquisitions of timberlands. KCW’s primary purpose was to acquire and to dispose of timberlands in the regular course of its business through like-kind exchanges and cash sales, which required it to hold title to those properties for those purposes. During the tax years at issue, KCW acquired or sold 30 small tracts of timberland in addition to the Coosa Tim-berlands; moreover, KCW similarly acquired title to 520,000 acres of Mobile timberland in 1998 and sold that land in 1999, and, for all that appears in the record, it still owns and manages 995,000 acres of timberland in Canada. Thus, the management of titles, purchases, and sales of tracts of timberland are part of KCW’s regular business. See Ex parte Uniroyal, 779 So.2d at 230-31, 236.

Additionally, even if KC or KCW had not frequently engaged in the transactions discussed herein, the income from those transactions would still be considered business income. See Welded Tube, supra. In Welded Tube, the court held that a pipe manufacturer’s sale of a manufacturing facility resulted in business income, even though the manufacturer had bought and sold real property only twice in 30 years. The record indicated that KC and KCW had engaged in a number of business transactions during the 1996-1998 tax years alone.

Like the sales transactions by the taxpayers in Atlantic Richfield, PPG, and Welded Tube, the sale of the .Coosa Mill and the Coosa Timberlands was performed in the regular course of KC’s and KCW’s business. The buying and selling of businesses and manufacturing facilities was in furtherance of their primary business of manufacturing and selling paper and paper-related products and their overall corporate strategy.

Based on the foregoing, we reverse the judgment of the circuit court and remand this case with instructions to determine whether the “special rule” is or is not applicable to the business income earned by KC and KCW.

REVERSED AND REMANDED.

BRYAN, THOMAS, and MOORE, JJ., concur.

THOMPSON, P.J., concurs in the result, without writing.

      . A "like-kind” exchange is an exchange of an asset for another similar asset. Cf. 26 U.S.C. § 1031 (defining that term for federal income-tax purposes).

      . Business income is apportioned among the states in which the corporation does business. See Ala.Code 1975, § 40-27-1 art. IV, ¶ 9.


author: MURDOCK, Justice. COBB, Chief Justice

text:
    Ex parte ALABAMA DEPARTMENT OF REVENUE. (In re Kimberly-Clark Corporation and Kimberly-Clark Worldwide, Inc. v. Alabama Department of Revenue).
    1070925.
    Supreme Court of Alabama.
    Feb. 26, 2010.
    As Modified on Denial of Rehearing Sept. 17, 2010.

      Troy King, atty. gen., and Jeff Patterson, deputy atty. gen., Montgomery, for petitioner.
    Joseph B. Mays, Jr., Bruce P. Ely, Christopher R. Grissom, James E. Long, Jr., and Marc James Ayers of Bradley Arant Boult Cummings LLP, Birmingham, for respondents.
    Matthew C. McDonald of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Mobile, for amicus curiae Council on State Taxation in support of the respondents’ application for rehearing.
   MURDOCK, Justice.

The Alabama Department of Revenue (“the Department”) petitioned this Court for a writ of certiorari to review the judgment of the Court of Civil Appeals in favor of Kimberly-Clark Corporation (“KC”) and Kimberly-Clark Worldwide, Inc. (“KCW”) (collectively referred to as “the companies”). See Kimberly-Clark Corp. v. Alabama Dep’t of Revenue, 69 So.Sd 135 (Ala.Civ.App.2008). The Court of Civil Appeals concluded that income derived from the companies’ sale of a “pulp/paper mill” (“the Coosa mill”) and approximately 375,000 acres of timberland (the Coosa mill and the Coosa timberland are sometimes referred to collectively as “the Coosa properties”) should be classified as “business income” under Art. IV, l.(a), of the Multi-state Tax Compact, codified at § 40-27-1 et seq., Ala.Code 1975, for purposes of taxation. We granted the petition, and we now reverse the judgment of the Court of Civil Appeals.

I. Facts and Procedural History

During the companies’ tax years at issue, 1996-1998 (“the audit years”), KC was primarily engaged in the manufacture and sale of tissue and paper-related consumer products. It also was engaged in other businesses and owned numerous subsidiaries involved in other businesses. During the audit years, KC and its subsidiaries operated in 42 countries, employed approximately 60,000 employees, and generated annual sales of $12 to $13 billion.

In 1962, KC purchased the Coosa properties. KC harvested the trees from the Coosa timberland to make pulp for use in the Coosa mill. KC owned and operated the Coosa properties for 34 years, until 1996; production from the Coosa properties constituted the majority of KC’s pulp production.

In the early 1990s, KC decided to implement a shift in corporate strategy that would emphasize its consumer products rather than its own manufacturing and processing of raw materials. As a 1996 corporate report explained:

“In 1992, [KC] was widely diversified. We were a consumer products company, to be sure, but we also owned paper and forest products operations and an airline. All these businesses were profitable, but in mapping our strategy for long-term sustainable growth, we concluded it lay in building on basic strengths: our core technologies, our well-known trademarks and our consumer product franchises. Businesses that did not — or could not — build on those strengths would be candidates for divestiture. Those that fit into our strategy would merit further investment and support. Outside businesses that fit into our strategy became acquisition candidates.”

As part of its long-term strategy, KC acquired Scott Paper Company, Inc. (“Scott Paper”), in late 1995. Scott Paper became a wholly owned subsidiary of KC in December 1995 and changed its name to Kimberly-Clark Tissue Company (“KCTC”) in February 1996. Scott Worldwide, Inc. (“SWI”), was a wholly owned subsidiary of Scott Paper when it merged with KC. SWI owned and managed approximately 995,000 acres of timberland in Nova Scotia, Canada.

In November 1996, KC formed KCW as a subsidiary of KCTC. In its opinion, the Court of Civil Appeals states that the primary purpose for forming KCW was to acquire, manage, and sell timberland. KCW also owned and operated manufacturing facilities in Utah and California. SWI merged into KCW in November 1996. KC also simultaneously transferred the Coosa timberland to KCTC, and then to KCW. KCW thus owned both the Coosa timberland and the 995,000 acres of Nova Scotia timberland previously owned by SWI. KCW employees that previously worked for SWI continued to oversee and manage the Nova Scotia timberland. KCW contracted for KC employees to manage the Coosa timberland.

Part of KC’s shift in corporate strategy involved reducing its dependency on internal pulp production from 80 percent to 30 percent. To that’ end, in October 1996, KC began negotiations to sell its Coosa properties to Alliance Forest Products, Inc. (“Alliance”). In March 1997, KC completed the sale of its Coosa mill and the adjacent Coosa timberland to Alliance for $600 million. KCW received $350 million for the Coosa timberland. KC received the balance of $250 million for the Coosa mill. KC and Alliance also agreed to a five-year supply contract. The contract called for KC to purchase pulp produced by Alliance at the Coosa mill for use in KC’s paper products.

Also in furtherance of its corporate strategy, KC acquired and disposed of various other businesses or business segments. It acquired five “non-pulp/paper” businesses and sold nine such businesses during the audit years. KC sold two pulp and paper mills in the early 1990s and sold a second mill, in addition to the Coosa mill, during the audit years. KC also retained and operated seven pulp/paper mills during those years, and-it acquired five more pulp/paper mills after those years. Consequently, as of 2002, it owned and operated 12 pulp/paper mills in the United States.

KCW likewise engaged in several timber-related transactions during and after the audit years. KCW acquired or disposed of 30 parcels of timberland during the audit years. These included like-kind exchanges and small cash sales of timberland. KCW engaged in 7 like-kind exchanges in 1996, 3 in 1997, and 7 in 1998, for a total of 17 like-kind exchanges during the audit years. It engaged in 2 small cash sales in 1996, 10 in 1997, and 1 in 1998, for a total of 13 small-cash sales during the audit years. In 1998, KCW acquired 520,000 acres of timberland in Mobile; it sold that property in 1999. As of 2002, KCW still owned and managed the 995,000 acres of timberland in Nova Scotia.

KC and KCW reported the gross receipts from the sale of the Coosa mill and the Coosa timberland, respectively, as ap-portionable “business income” on their 1997 Alabama corporate-income-tax returns. They did so under the auspices of the Multistate Tax Compact, codified at § 40-27-1 et seq., Ala.Code 1975, which provides for the apportionment or allocation of the income of corporations subject to tax in more than one state. “Business income,” as defined and discussed in Part III of this opinion, is apportioned among the various states in which the corporation does business, using a three-factor formula that considers the value or amount of the corporation’s property, payroll, and sales. “Nonbusiness income” from the sale of real property and other capital assets is allocated to the state in which the real property or capital assets are located.

The companies, however, excluded the gross receipts from the sale of the Coosa properties from their respective apportionment sales factors, purportedly under a “special rule” promulgated by the Department. This “special rule” in respect to the sales factor of the apportionment formula states that if “substantial amounts of gross receipts arise from an incidental or occasional sale of a fixed asset used in the regular course of the taxpayer’s trade or business, those gross receipts shall be excluded from the sales factor.” Ala. Admin. Code (Dep’t of Revenue), regulation 810-27 — 1—4—. 18 (3) (a).

The Department initially accepted KC’s and KCW’s classification of the gross receipts as apportionable business income, but it disallowed the exclusion of the gross receipts from the sales factors pursuant to the special rule. It similarly made other adjustments that have not been contested. The Department notified KC that KC was due a reduced tax refund of $147,649 for the audit years and billed KCW for additional taxes and interest for those years in the amount of $3,372,129.

KC and KCW filed petitions for review with the Department arguing that although the gross receipts for the sale of the Coosa properties were in the nature of business income, the receipts should be excluded from their sales factors pursuant to the special rule. KC and KCW argued, in the alternative, that the sale receipts constituted nonbusiness income and should be allocated 100 percent to Texas, KC and KCWs state of commercial domicile. The Department accepted KC and KCWs alternative argument that the income from the sale of the Coosa properties was non-business income. Instead of allocating the income to their state of commercial domicile, however, the Department allocated it entirely to Alabama pursuant to Ala.Code 1975, § 40-27-1, Art. IV, 6.(a). The Department consequently assessed taxes of $7,382,559 and $13,593,834 against KC and KCW, respectively.

The companies sought a hearing before an administrative law judge (“ALJ”). The ALJ entered an order agreeing with KC and KCW as to the characterization of the gross receipts in question as business income, but rejected the application of a special allocation rule that excluded the sales proceeds from the apportionment sales factor pursuant to Ala. Admin. Code (Dep’t of Revenue), regulation 810-27-1-4-.18(3)(a). The Department appealed to the Montgomery Circuit Court, arguing that the gross receipts should be treated as nonbusiness income allocable solely to Alabama; the companies cross-appealed, challenging the AJLJ’s determination that the special allocation rule did not apply.

By joint motion, the parties stipulated to the admission into evidence of the record and the transcript made before the ALJ. After a hearing at which only counsel’s arguments were presented, the circuit court reversed the ruling of the ALJ. The court classified the gross receipts from the sale of the Coosa properties as nonbusiness income allocable solely to Alabama and upheld the Department’s final assessments, including interest, of $7,882,559 against KC and $13,593,834 against KCW. The circuit court did not reach the question of the special allocation rule because the rule does not apply to the apportionment of nonbusiness income. The companies appealed the circuit court’s judgment to the Court of Civil Appeals.

The Court of Civil Appeals reversed the circuit court’s judgment. It held that the gain from the sale of the Coosa properties was business income, and it remanded the cause for the circuit court to determine whether the special allocation rule is applicable. The Department petitioned this Court for a writ of certiorari, primarily contending that the decision of the Court of Civil Appeals conflicts with this Court’s opinion in Ex parte Uniroyal Tire Co., 779 So.2d 227 (Ala.2000), in which we examined in detail the definition of “business income” provided in Ala.Code 1975, § 40-27-1, Art. IV, 1.(a). We granted the petition.

II. Standard of Review

In the present case, the Court of Civil Appeals afforded the circuit court’s ruling no presumption of correctness. The Department frames the issue in this case as whether the gain from the companies’ divestiture of the Coosa properties arose from a transaction that was in the companies’ regular course of business. Because the “controlling factor” in such a determination is “the nature of the particular transaction giving rise to the income,” Uniroyal, 779 So.2d at 230 (quoting other cases), the Department contends that this is a question of fact disputed by the parties and that, therefore, the de novo standard of review is inapplicable in this case.

This argument fails because the facts in this case are not actually disputed. The circuit court received no testimonial evidence but decided the case on briefs and arguments of counsel and the record of the hearing before the ALJ. There is no dispute between the parties concerning how the divestiture occurred or what other transactions the companies engaged in during the period in question. The Department does not identify any dispute as to the facts but discusses only disputes as to the application of the law to the facts and, accordingly, the conclusions to be drawn from the facts. In the present case, “the nature of the transaction at issue” is not a question of fact, but a question of the application of the law to the undisputed facts. Thus, the correct standard of review is, as the Court of Civil Appeals concluded, the de novo standard.

“When reviewing a case in which the trial court sat without a jury and heard evidence in the form of stipulations, briefs, and the writings of the parties, this Court sits in judgment of the evidence; there is no presumption of correctness. Old Southern Life Ins. Co. v. Williams, 544 So.2d 941, 942 (Ala.1989); Craig Constr. Co. v. Hendrix, 568 So.2d 752, 756 (Ala.1990). When this Court must determine if the trial court misapplied the law to the undisputed facts, the standard of review is de novo, and no presumption of correctness is given the decision of the trial court. State Dep’t of Revenue v. Garner, 812 So.2d 380, 382 (Ala.Civ.App.2001); see also Ex parte Graham, 702 So.2d 1215 (Ala.1997).”

Bean Dredging, L.L.C. v. Alabama Dep’t of Revenue, 855 So.2d 513, 516-17 (Ala. 2003).

III. Analysis

During the audit years, “business income” was defined in Ala.Code 1975, § 40-27-1, Art. IV, l.(a), as follows:

“[I]ncome 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 parts of the taxpayer’s regular trade or business operations.”
As the Court of Civil Appeals observed: “The uniformity sought by the [Multi-state Tax Compact] has been compromised by the judicial disagreement of different states over the definition of ‘business income.’ Two tests, the ‘transactional test’ and the ‘functional test,’ have developed as a result. The Alabama Supreme Court addressed this issue thoroughly in Ex parte Uniroyal [Tire Co., 779 So.2d 227 (Ala.2000) ].”

Kimberly Clark Corp., 69 So.3d at 139-40.

In Uniroyal, this Court defined the “transactional test” and the “functional test” and explained the differences between the two. Concerning the transactional test, the Court explained:

“Proponents of the transactional test find it ‘rooted in the statutory phrase, “earnings arising from transactions and activity in the regular course of the taxpayer’s trade or business.” ’ ‘Thus, under the transactional test, the “controlling factor by which business income [is defined] is the nature of the particular transaction giving rise to the income.” ... The frequency and regularity of similar transactions and the former practices of the business are pertinent considerations.’ ”

Uniroyal, 779 So.2d at 230 (quoting General Care Corp. v. Olsen, 705 S.W.2d 642, 644 (Tenn.1986), quoting in turn Western Natural Gas Co. v. McDonald, 202 Kan. 98, 101, 446 P.2d 781, 783 (1968) (citations and emphasis omitted)). Concerning the functional test, the Court explained:

“Other courts construing the same language have concluded that their statute also contains an alternative test, which is popularly known as the ‘functional’ test.... Proponents of the functional test find it rooted in that second clause of the statute, which reads: ‘and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations.’ ‘More broadly [than under the transactional test], under the functional test, all gain from the disposition of a capital asset is considered business income if the asset disposed of was “used by the taxpayer in its regular trade or business operations.” ’ ”

779 So.2d at 230-31 (quoting Texaco-Cities Serv. Pipeline Co. v. McGaw, 182 Ill.2d 262, 269, 695 N.E.2d 481, 484, 230 Ill.Dec. 991, 994 (1998) (citations and emphasis omitted)).

The Uniroyal Court observed that ‘“[t]he functional test may seem reasonable as a matter of tax policy, but it is hard to extract it from the language of the statute,’ ” and thus concluded that Alabama’s statute embodies the transactional test for determining what constitutes “business income.” 779 So.2d at 234 (quoting P. Faber, When Does the Sale of Corporate Assets Produce Business Income for State Corporate Franchise Tax Purposes? The Tax Executive 179, 187 (May-June 1995)). In the course of so concluding, the Court noted that the term “regular” in the phrase “regular course of business” is defined as “ ‘steady or uniform in course, practice, or occurrence: not subject to unexplained or irrational variation: steadily pursued; orderly, methodical’; even as ‘returning, recurring, or received at stated, fixed or uniform intervals ...; functioning at proper intervals.’ Webster’s Third New International Dictionary of the English Language Unabridged 1913 (1971).” 779 So.2d at 236. In short, “the word, ‘regular’ in the phrase ‘regular course of the taxpayer’s trade or business’ refers to an ongoing business concern.” 779 So.2d at 236.

In concluding that the sale of the Coosa properties yielded “business income” for KC and KCW, the Court of Civil Appeals reasoned as follows:

“In this case, KC is, among other things, in the business of selling paper products whose manufacture requires raw material processed in mills and taken from timberlands. As timberlands are depleted, pulp-manufacturing facilities may become unprofitable. In addition, costs associated with paper mills and timberlands may cause a change in corporate strategy, taking the corporation in a new direction. It is not hard to imagine that the selling and acquisition of paper mills and timberlands, especially by a corporation that, among other things, sells paper products, would generate earnings arising from transactions and activities in the regular course of the corporation’s trade or business and would be an ongoing business concern. See Ex parte Uniroyal, 779 So.2d at 230-31, 236.
“Moreover, KC bought and sold major businesses and business components in the regular course of business during the 1990s pursuant to its long-term corporate strategy. Before that decade, KC had been widely diversified and had owned not only companies involved in the manufacture and sale of forest products, but also other companies, such as an airline. KC’s long-term strategy required KC to focus on its basic strengths, prompting it to acquire businesses that fit into that strategy and to sell businesses that did not. Although the sale of the Coosa Mill and the Coosa Timberlands may have been a large sale of a plant and of timberland, KC, acting through KCW, regularly bought and sold paper plants and timberlands, businesses, and business components. In addition, the sale of the Coosa Mill did not end KC’s active involvement in the pulp/paper business; it owned and operated 7 pulp/paper mills throughout the period between 1996 and 1998, and, at the time of the hearing before the ALJ, it owned and operated 12 mills. Income similarly generated from regularly buying and selling businesses was held in Atlantic Richfield [Co. v. State of Colorado, 198 Colo. 413, 601 P.2d 628 (1979) ], to be business income under the transactional test espoused by our Supreme Court in Ex parte Uniroyal [Tire Co., 779 So.2d 227 (Ala.2000) ], when, as in this case, the pertinent taxpayer regularly engaged in major acquisitions and dispositions. Thus, under the authorities that we have discussed, the sale of the Coosa Mill and the Coosa Timber-lands is properly deemed a systematic and recurrent business practice that produced business income.
“We note that the Department argues that KCW was not engaged in the management of the Coosa Mill and the Coosa Timberlands, i.e., that it was not involved in the clearing of land and maintenance of roads in the Coosa Tim-berlands, and, therefore, the Department asserts that the transactional test should not apply to characterize the income KCW received from the sale as business income. KCW’s management function, however, was to hold title to timberlands and to oversee the sales and acquisitions of timberlands. KCW’s primary purpose was to acquire and to dispose of timberlands in the regular course of its business through like-kind exchanges and cash sales, which required it to hold title to those properties for those purposes. During the tax years at issue, KCW acquired or sold 30 small tracts of timberland in addition to the Coosa Timberlands; moreover, KCW similarly acquired title to 520,000 acres of Mobile timberland in 1998 and sold that land in 1999, and, for all that appears in the record, it still owns and manages 995,000 acres of timberland in Canada. Thus, the management of titles, purchases, and sales of tracts of timberland are part of KCW’s regular business. See Ex parte Uniroyal, 779 So.2d at 230-31, 236.
“Additionally, even if KC or KCW had not frequently engaged in the transactions discussed herein, the income from those transactions would still be considered business income. See Welded Tube [Co. of America v. Commonwealth of Pennsylvania, 101 Pa. Commw. 32, 515 A.2d 988 (1986) ]. In Welded Tube, the court held that a pipe manufacturer’s sale of a manufacturing facility resulted in business income, even though the manufacturer had bought and sold real property only twice in 30 years. The record indicated that KC and KCW had engaged in a number of business transactions during the 1996-1998 tax years alone.
“Like the sales transactions by the taxpayers in Atlantic Richfield, PPG [Industries, Inc. v. Department of Revenue, 328 Ill.App.3d 16, 765 N.E.2d 34, 262 Ill.Dec. 208 (2002)], and Welded Tube, the sale of the Coosa Mill and the Coosa Timberlands was performed in the regular course of KC’s and KCW’s business. The buying and selling of businesses and manufacturing facilities was in furtherance of their primary business of manufacturing and selling paper and paper-related products and their overall corporate strategy.”

Kimberly-Clark Corp., 69 So.3d at 142-43.

In reasoning as it did, the Court of Civil Appeals placed too much emphasis on the number of transactions other than the sale of the Coosa properties that occurred during and around the audit years and too little emphasis on “the nature of the particular transaction giving rise to the income.” Uniroyal, 779 So.2d at 230. The fact is that KC determined that the Coosa properties were “non-core” businesses that, under the standard recognized in Uniroyal, were not “essential to [its] business operations.” Uniroyal, 779 So.2d at 237. The sale of the Coosa properties was part of KC’s corporate strategy to shed entities that did not concentrate on its consumer-products businesses. At the time, KC was shifting its focus from being primarily a manufacturer and seller of consumer-paper products to becoming a global consumer-products company. More specifically, KC sought to reduce its dependence on internally produced pulp from 80 percent of its requirements to 30 percent, and it sold the Coosa properties in furtherance of this goal.

It is difficult to conceive how the sale of properties that had been operated by the company as part of its business for 34 years and were sold because of a new corporate strategy could be said to be in the “regular course of business” for KC. As the Uniroyal Court observed, “ ‘ “[i]f the transaction is an extraordinary one, it is hard to see how the disposition can constitute an integral part of the taxpayer’s regular trade or business.” ’ ” 779 So.2d at 234 (quoting brief of amicus curiae Committee on State Taxation, quoting in turn J. Hellerstein & W. Hellerstein, State Taxation ¶ 9.05[2][c] (3d ed. 1998)). In short, an alteration in the nature of a business is not something that occurs within “the regular course of [that] business.”

The Court of Civil Appeals noted that the sale of the Coosa properties “was in furtherance of [the companies’] primary business of manufacturing and selling paper and paper-related products and their overall corporate strategy” and thus concluded that the sale produced “business income.” Kimberly-Clark Corp., 69 So.3d at 143. Under such criteria, however, any business transaction would produce business income, because corporations by definition engage in transactions that are intended to further their primary business and overall corporate strategy. Part of the reason the Uniroyal Court rejected the functional test for determining what constitutes business income was that the test “is so broad that it essentially renders nugatory the transactional test.” Uniroyal, 779 So.2d at 235. The aforesaid reasoning of the Court of Civil Appeals does the same.

KC sold the Coosa properties for $600 million, easily its largest sale during the audit years. Not surprisingly, in their annual reports and SEC filings, the companies listed the sale as an “extraordinary gain.” It is true, as the ALJ noted, that “a company’s internal accounting techniques are not binding on a state for tax purposes,” Exxon Corp. v. Department of Revenue of Wisconsin, 447 U.S. 207, 221, 100 S.Ct. 2109, 65 L.Ed.2d 66 (1980), but in this case the companies’ designation represents their acknowledgment of the unusual nature of the transaction at issue. The companies correctly note that the statute does not state that a transaction producing a substantial income gain automatically falls outside the “regular course of business,” but this particular transaction liquidated major assets that KC had used for production purposes for 34 years. This, combined with the size of the transaction, is an indicator that the transaction was not part of the regular course of business for the companies.

The Uniroyal Court also stated that “ ‘[t]he frequency and regularity of similar transactions and the former practices of the business are pertinent considerations’ ” for determining whether a particular transaction yields business income. Uniroyal, 779 So.2d at 230 (other citations omitted). Substantial differences exist between the sale of the Coosa properties and the kind and number of other transactions cited by the companies as proof that this transaction occurred in the companies’ regular course of business. KC and KCW were not regularly engaged in buying and selling pulp-industry properties. KC purchased only one paper mill during the audit years. Although it bought five “non-pulp/paper ” businesses and sold nine such businesses or business components during the audit years, most of those transactions occurred during its acquisition of Scott Paper. KCW’s sale of the Coosa timberland was one of only two substantial sales of timberland ever made by KCW. KCW’s other sales and exchanges of timberland at the time concerned tracts of between 800 and 1,500 acres of timber, whereas the Coosa timberland sale consisted of 375,000 acres of timber. These facts explain why the companies admit in their brief to this Court that their business transactions included “the occasional acquisition and disposition of pulp/paper mills, timberlands, and other business segments.” KC & KCW’s brief, at 25 (emphasis added).

Though the frequency and regularity of similar transactions are not the sole determining factors in whether a gain should be classified as business income, they are helpful indicators for making such an assessment. The extraordinary nature of the transaction itself along with the lack of transactions similar in scope and kind demonstrates that the sale of the Coosa properties was not in the nature of a “steady or uniform” practice for the companies that recurred at “fixed or uniform intervals.” Uniroyal, 779 So.2d at 286. Instead, the sale was the premier example of KC’s shift in corporate strategy that entailed the liquidation of long-held major corporate assets. Similar to the complete liquidation at issue in Uniroyal, the companies’ sale of the Coosa properties was “most extraordinary [and did] not occur in the ‘regular course of the taxpayer’s trade or business.’ ” 779 So.2d at 236.

Ultimately, to label the gain from the sale of the Coosa properties as “business income,” this Court would have to look past the undisputed facts that the sale of the Coosa properties was the companies’ largest during the audit years and that KCW acquired or sold timberland of comparable size on only two other occasions throughout the 1990s. We would also have to ignore the reason for this sale, which was to drastically reduce KC’s internal pulp production in order to focus on other aspects of its business. There was a major shift in corporate strategy followed by a major transaction — different quantitatively and qualitatively from its other business transactions — to help achieve this goal. The sale of the Coosa properties was an extraordinary transaction that represented a divestiture by KC of a part of its business rather than a transaction conducted in the regular course of that business. Thus, the income gain from the sale of the Coosa properties cannot be categorized as “business income” under Ala.Code 1975, § 40-27-1, Art. IV, l.(a).

Based on the foregoing, the judgment of the Court of Civil Appeals is reversed, and the cause is remanded for the reinstatement of the order of the circuit court upholding the Department’s final assessments against KC and KCW in this matter.

REVERSED AND REMANDED.

LYONS, WOODALL, STUART, SMITH, BOLIN, PARKER, and SHAW, JJ., concur.

COBB, C.J., dissents.

COBB, Chief Justice

(dissenting).

I respectfully dissent. I believe that the majority opinion fails to place proper emphasis on the number and type of transactions other than the sale of the Coosa properties and fails to properly characterize the nature of the transaction giving rise to the income that the Alabama Department of Revenue seeks to tax. Rather, I believe that the opinion by the Court of Civil Appeals correctly analyzed this transaction.

I recognize that the majority opinion will probably result in more revenue for the State of Alabama because, for corporate-tax purposes, a corporation’s “business income” is apportioned among all the states in which the corporation does business, but a corporation’s “nonbusiness income” from the sale of real property and other capital assets is allocated only to the state in which the property is located. It appears that Kimberly-Clark Corporation (“KC”) and Kimberly-Clark Worldwide, Inc. (“KCW”) (collectively “the companies”), have already paid the corporate tax attributable to the income from the sale of these assets to the other states in which they do business, and this decision will thus result in a double payment.

During the tax years in question, “business income” was defined 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 parts of the taxpayer’s regular trade or business operations.”

Ala.Code 1975, § 40-27-1, Art. IV, 1.(a). In Ex parte Uniroyal Tire Co., 779 So.2d 227 (Ala.2000), this Court approved a “transactional” rather than a “functional” test for determining whether income is “business income” for tax purposes. The Court stated:

“ ‘[Ujnder the transactional test, the “controlling factor by which business income [is defined] is the nature of the particular transaction giving rise to the income.” ... The frequency and regularity of similar transactions and the former practices of the business are pertinent considerations.’ ”

Uniroyal, 779 So.2d at 230 (quoting General Care Corp. v. Olsen, 705 S.W.2d 642, 644 (Tenn.1986), quoting in turn Western Natural Gas Co. v. McDonald, 202 Kan. 98, 101, 446 P.2d 781, 783 (1968)). In light of the transactional test adopted in Uniroyal, it is entirely appropriate to look at the companies’ sale of the Coosa properties as part of their ongoing business practice of acquiring and disposing of pulp mills and timber property. KC’s newly adopted corporate strategy was to reduce its internal pulp production from 80% to 30%, not to eliminate it altogether. Obviously, then, the companies would have to retain some timberland and some mills; one could assume that the companies were frequently buying and selling in order to obtain the most productive timber acreage and the most efficient mills — -in any ease, the turnovers were frequent enough that they should all be deemed “transactions and activity in the regular course of the taxpayer’s trade or business.” Ala.Code 1975, § 40-27-1, Art. IV, 1.(a). In 2002, the companies owned 12 pulp mills; 5 mills were acquired between 1999 and 2002, and 4 mills had been sold before 1999. The Court of Civil Appeals in its opinion noted that, “[i]n November 1996, KC formed KCW as a subsidiary of KCTC [Kimberly-Clark Tissue Company].” 69 So.3d at 136; among KCW’s functions, the Court of Civil Appeals noted, was “to hold title to timber-lands and to oversee the sales and acquisitions of timberlands.” 69 So.3d at 143. The fact that KCW was formed primarily to acquire, manage, and sell timberlands indicates that transactions like the one at issue in this case were in the regular course of the taxpayer’s business.

The majority opinion focuses on the size and scope of the Coosa properties sale (including 375,000 acres of timberland) and the $600 million income generated from that sale, characterizing the sale as “extraordinary” because of those factors, likening the sale to a partial liquidation, as in Uniroyal; it ignores the fact that in 1998 the companies acquired 520,000 acres of timberland in Mobile, which they then sold in 1999. Nothing in Uniroyal indicates that in determining whether a transaction is “extraordinary,” one is to look at the size, scope, and price tag of the transaction; instead, it is the nature of the transaction that should be analyzed. See Uniroyal 779 So.2d at 231 (noting that under the functional test, which this Court disapproved, “ ‘the extraordinary nature or infrequency of the sale is irrelevant’ ” (quoting Texaco-Cities Serv. Pipeline Co. v. McGaw, 182 I11.2d 262, 269, 695 N.E.2d 481, 484, 230 Ill.Dec. 991, 994 (1998))). In contrast, under the transactional test, the nature and frequency of the companies’ acquiring and then selling timberland and pulp mills is highly relevant. The evidence was undisputed that the companies engaged in numerous transactions of the same nature, albeit smaller in size, scope, and price tag. The majority opinion states that KC listed the sale in its annual report as an “extraordinary gain.” Although the majority opinion acknowledges that “‘a company’s internal accounting techniques are not binding on a state for tax purposes’ ” (quoting the order of the administrative law judge), it goes on to use that characterization to support the conclusion that the sale was “extraordinary” and that it thus fell outside the “regular course of business.” That seems insupportable in the face of common practice. A company’s annual report is designed to give its creditors and shareholders a true picture of its financial position. A state’s corporate tax structure, on the other hand, is designed to allocate income equitably.

The majority opinion turns KC’s corporate strategy of reducing its internal pulp production from 80% to 30% on its head. Rather than analyzing the sale in this case as one in furtherance of the business of KC because it was in line with its new business strategy, the majority opinion analyzes the sale as incident to “a major shift in corporate strategy,” and thus “extraordinary.” 69 So.3d at 153. I conclude that such an approach is inconsistent with State law as expressed in Uniroyal, and I respectfully dissent.

      . Specifically, § 40-27-1.1 defines "business income.”

      . But see infra note 6.

      . The proper application of the special allocation rule is not at issue in the present petition.

      . The Department contends for the first time in its reply brief that the companies did not, in fact, appeal the ALJ’s determination concerning the special allocation rule. We find this contention to be without merit. In any event, as we already have noted, the issue concerning the special allocation rule is not properly before us. See supra note 3.

      . The Alabama Legislature adopted a new definition of "business income” in 2001, effective for tax years beginning after December 31, 2001. See § 40-27-1.1, Ala.Code 1975.

      . The dissent notes, and the companies argue that the facts demonstrate, that KCW’s primary purpose was to acquire, manage, and dispose of timberland for KC. At least insofar as the Coosa timberland is concerned, however, the facts actually show that KCW was merely a titie-holding company for the property: KC employees, not KCW employees, managed the Coosa timberland. Under the circumstances presented here, we cannot conclude that the transfer of the Coosa timberland to a wholly owned subsidiary, the purpose of which was merely to hold title and/or sell the property, if and when it is ever sold, automatically circumvents altogether the general difference recognized in the statute and in Uniroyal between income from a transaction conducted in the regular course of business and income from a transaction that is a sale of one’s business.

      . The dissent states that “[n]othing in Uniroyal indicates that in determining whether a transaction is ‘extraordinary,’ one is to look at the size, scope, and price tag of the transaction; instead, it is the nature of the transaction that should be analyzed.” 69 So.3d at 155 (Cobb, C.J., dissenting). The size and scope of the transaction at issue here, especially when considered in conjunction with KC’s announced shift in corporate strategy, is indeed indicative of the "nature” of the transaction, i.e., as a sale of part of its business rather than a transaction in the normal course of its business.


text:
    KIMBERLY-CLARK CORPORATION and Kimberly-Clark Worldwide, Inc. v. ALABAMA DEPARTMENT OF REVENUE.
    2061117.
    Court of Civil Appeals of Alabama.
    March 18, 2011.

      Joseph B. Mays, Jr., Bruce P. Ely, Christopher R. Grissom, and Marc James Ayers of Bradley Arant Rose & White LLP, Birmingham, for appellants.
    Troy King, atty. gen., and Jeff Patterson, deputy atty. gen., Montgomery, for appellee.
   After Remand from the Alabama Supreme Court and On Rehearing Ex Mero Motu

PITTMAN, Judge.

This court’s opinion of February 25, 2011, is withdrawn, and the following is substituted therefor.

The prior judgment of this court has been reversed and the cause remanded. Ex parte Alabama Dep’t of Revenue, 69 So.3d 144 (Ala.2010) (opinion modified on denial of rehearing on September 17, 2010). On remand to this court, and in compliance with Ex parte Alabama Department of Revenue, we now affirm the judgment of the Montgomery Circuit Court reversing the decision of the administrative law judge and upholding the Department of Revenue’s final assessments.

ON REHEARING EX MERO MOTU: OPINION OF FEBRUARY 25, 2011, WITHDRAWN; OPINION SUBSTITUTED; AFFIRMED.

THOMPSON, P.J., and BRYAN, THOMAS, and MOORE, JJ., concur.