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    James E. PRINCE, Jr. v. STATE DEPARTMENT OF REVENUE.
    2080634.
    Court of Civil Appeals of Alabama.
    May 7, 2010.

      Jeff Patterson, Montgomery; and Richard C. Litwin of The Litwin Law Firm, P.C., Atlanta, Georgia, for appellant.
    Ron Bowden, chief counsel, and Gwendolyn B. Garner, asst, counsel, Alabama Department of Revenue, for appellee.
   On Application for Rehearing

THOMPSON, Presiding Judge.

The opinion of January 22, 2010, is withdrawn, and the following is substituted therefor.

James E. Prince, Jr., appeals from the summary judgment of the Montgomery Circuit Court affirming the State Department of Revenue’s final income-tax assessment against him. For the reasons stated herein, we affirm.

In 1996, two Alabama residents formed a corporation called Zebra.Net, Inc. (“Zebra.net”), an Alabama corporation. The Alabama residents elected to have Zebra.net treated as an “S corporation” for federal income-tax purposes. This court recently described such a corporation as follows:

“[A]n S corporation is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. ... [A]n S corporation generally pays no corporate income taxes on its profits. Instead, the shareholders in the S corporation pay income taxes on their proportionate shares of the profits of the S corporation. See Coggin Auto. Corp. v. Commissioner, 292 F.3d 1326 (11th Cir.2002), in which the United States Court of Appeals for the Eleventh Circuit discussed the difference between a C corporation and an S corporation:
“ ‘Simply speaking, under Subchapter C of the Internal Revenue Code, the income of a C corporation is subject to corporate tax and any distributions it makes to its shareholders will be subject to a second, individual tax. Under Subchapter S, certain C corporations are permitted to elect to be S corporations. While the S corporation determines taxable income at the corporate level, this corporate income is passed through to the S shareholders and taxed to them at their individual rates.’
292 F.3d at 1327 n. 3 (internal citations omitted).”

Giardina v. Giardina, 987 So.2d 606, 612 (Ala.Civ.App.2008). Alabama law recognizes S corporations and, like federal law, treats them for taxing purposes as pass-through entities. See § 40-18-160 et seq., Ala.Code 1975.

After the two Alabama residents formed Zebra.net, they approached Prince, a Mississippi resident, about investing in it. Prince agreed to do so, and, after making an investment, he became a shareholder in Zebra.net, owning one-third of the shares of Zebra.net. The two Alabama residents managed Zebramet’s day-to-day operations; Prince did not engage in the operation or management of the company.

In 1999, the three shareholders of Zebra.net entered into a “Merger Agreement and Plan of Reorganization” (“the merger agreement”) for the purpose of merging Zebra.net with another company (“the merger transaction”). As part of the merger agreement, the stock in Zebra.net was converted into a right to receive payment from the company acquiring Zebra.net. The form of the payment, which was to total approximately $6.6 million, less certain of Zebramet’s liabilities, was based on whether Zebramet’s shareholders would agree to have the acquisition of Zebra.net treated, under 26 U.S.C. § 338(h)(10), as an acquisition of all Ze-bramet’s assets. If they did not do so, the shareholders would receive 80% of their payment as stock in the parent corporation of the company acquiring Zebra.net and the remaining 20% as cash. If they agreed to make such an election, however, they would receive the entire payment as cash. With regard to the election under 26 U.S.C. § S38(h)(10), the merger agreement provided:

“In the event that an election is made pursuant to Section 1.2(d) hereof, as soon as practicable after the Closing, Parent and Stockholders shall make a joint election under Section 338(h)(10) of the Code and Treasury Regulation Section 1.338(h)(10)-l (and any comparable election under state or local law) with respect to the purchase (an ‘Election’). At the Closing, the parties will execute and deliver a Form 8023 in form and substance agreed to by the parties. Parent and Stockholders will cooperate with each other to take all actions necessary and appropriate (including filing such additional forms, returns, elections, schedules and other documents as may be required) to effect and preserve a timely Election in accordance with the provision of Treasury Regulation Section 1.338(h)(10)-l (or any comparable provisions of state or local law) or any successor provisions. Parent and Stockholders shall report the transactions contemplated by this Agreement in a manner consistent with the Election and shall take no position inconsistent therewith in any tax return or any proceeding before any taxing authority or otherwise.”

The merger agreement was dated September 15,1999, and was signed by all three of Zebra.net’s shareholders, including Prince, as well as by representatives of the company acquiring Zebra.net and that company’s parent corporation. The merger transaction was consummated at a law firm located in Georgia.

Although, as noted above, an S corporation does not pay income tax but, instead, passes that liability through to its shareholders, an S corporation must still file an informational tax return with the Alabama Department of Revenue (“the Department”), as well as with the Internal Revenue Service. Zebra.net filed such a return with the Department on June 29, 2000, for the 1999 tax year, the year of the merger transaction. Zebra.net’s return indicated that it had income of $5,133,333. Attached to Zebra.net’s return was a “Shareholder’s Statement of Income & Deductions” (known as a “Schedule K-l”) for Prince. That form indicated that Prince’s distributive share of Zebra.net’s income was $1,711,109 in 1999, or approximately one-third of Zebra.net’s total income.

Prince paid income tax on his distribution from Zebra.net in Mississippi, his state of residence. He did not pay income tax to the State of Alabama. The Department, having received a Schedule K-l for Prince indicating that Zebra.net had distributed $1,711,109 to him from the sale of its assets and from other income, assessed income tax, with penalties and interest, against Prince in the amount of $141,245.87. Prince appealed that assessment to the Department’s administrative law division, which upheld the fact of the assessment but lowered the amount of the assessment, with penalties and interest, to $108,822.92 to take into account certain net operating losses sustained by Zebra.net in the years preceding 1999. Prince paid the assessment under protest and filed a timely appeal to the Montgomery Circuit Court (“the trial court”).

As part of his appeal to the trial court, Prince filed a three-count complaint against the Department, which he subsequently amended. First, he asserted that the income he received from the merger transaction could not be taxed under Alabama law because the merger involved only the sale of his shares of stock in Zebra.net, which he owned in Mississippi, and the sale of which occurred in Georgia. According to Prince, the only basis for the imposition of income tax under Alabama law on a nonresident individual is for income derived from “property owned or business transacted in Alabama.” In his second count, Prince asserted that Alabama’s taxation of his income from the merger transaction violated his right to due process under the United States Constitution. In his third count, Prince asserted that Alabama’s taxation of the income he derived from the merger transaction violated the Commerce Clause of the United States Constitution.

Subsequent to the Department’s filing an answer denying the assertions in Prince’s complaint, the parties filed cross-motions for a summary judgment. In his motion, Prince contended that, under Alabama law, nonresidents could be taxed only on income from property owned or business transacted in Alabama. He argued that, because he owned his stock in Zebra.net in Mississippi and did not transact any business in Alabama, he was not subject to Alabama income tax. He next argued that the Due Process Clause of the Fourteenth Amendment to the United States Constitution requires that an individual have minimum contacts with a state before that state can exercise jurisdiction to levy a tax on that individual. He argued that he had no such minimum contacts with the State of Alabama. Finally, he contended that the Commerce Clause of the United States Constitution, art. I, § 8, cl. 3, prohibits a state from imposing a tax on an activity that has little or no nexus with that state. In this case, Prince argued, there was no substantial nexus between the sale of his stock in Zebra.net and Alabama because he owned his Zebra.net stock in Mississippi and sold it in Georgia.

In its summary-judgment motion, ■ the Department argued that Zebramet’s shareholders, including Prince, exercised the option to treat, under 26 U.S.C. § 338, the merger transaction as the sale of all Zebra.net’s assets rather than the sale of their stock in Zebra.net. Thus, argued the Department, the fact that Prince owned his Zebra.net shares in Mississippi was of no consequence; the income he received was not based on a sale of his stock but, rather, on the distributive share of income that he received from the sale of Ze-bramet’s assets, assets that were located in Alabama. As a result, the Department asserted, the minimum contacts and nexus requirements of the federal constitution had been satisfied, and Alabama was not barred from imposing income tax on Prince’s distributive share of Zebra.net’s income. Prince responded to the Department’s motion by arguing, among other things, that the parties had not validly elected to treat the merger transaction as a sale of Zebra.net’s assets, rather than as a sale of the shareholders’ stock in Zebra.net, and that, as a result, the Department’s legal argument was without merit.

The trial court conducted a hearing subsequent to which it entered a judgment in favor of the Department, upholding the assessment against Prince. In its judgment, the trial court found that Zebra.net’s shareholders had made a valid election under 26 U.S.C. § 338 to treat the merger agreement as a sale of all Zebra.net’s assets. The trial court concluded that “[i]t would be illogical to allow [Prince] to treat the sale as an asset sale for federal tax purposes, yet claim it was a stock sale on a state return in order to obtain tax benefits where they suit him in either system.” Thus, the trial court entered a summary judgment in favor of the Department. Prince filed a timely appeal to this court.

Prince contends that the only thing he owned with regard to Zebra.net was stock in the company and that, as a result, the only thing he could have sold in the merger transaction was that stock. Because he owned that stock in Mississippi, he argues, the income he derived from its sale was not taxable by Alabama. Prince argues that the parties did not make a valid election under 26 U.S.C. § 338 to treat the merger transaction, for tax purposes, as a sale to the acquiring company of all Zebra.net’s assets. To make such an election, he argues, the parties to the transaction were required to have filed a federal Form 8023 with the Internal Revenue Service, and, he contends, there is no evidence of any such filing. Prince asserts that the Department stipulated in the trial court that it had on file a complete copy of Zebramet’s federal income-tax return for 1999, and he points out that there is no Form 8023 attached to that return.

The Department contends, in effect, that the parties to the merger transaction made a valid election under § 338 and that, as a result, the merger transaction involved, for tax purposes, the sale of Zebramet’s assets, which generated income that passed through the corporation to Prince, rather than the sale of Zebramet’s shareholders’ stock. In support of its contention, the Department points out that Zebramet’s three shareholders received the amount of cash called for under the “cash option” of the merger agreement, which option provided that an election under 26 U.S.C. § 338 was required to have been made. The Department also notes that, under the merger agreement, if the cash option was selected such that a 26 U.S.C. § 338 election was required to be made, the companies involved in the merger “shall report the transactions contemplated by this Agreement in a manner consistent with the election and shall take no position inconsistent therewith in any tax return or any proceeding before any taxing authority or otherwise.” The Department argues that Prince, by this language in the merger agreement, is estopped from arguing that a 26 U.S.C. § 338 election was not made. The Department also points out that all the necessary parties, including Prince, executed a Form 8023 making the 26 U.S.C. § 338 election. The Department points out that Zebra.net, itself, reported the sale of its assets in its 1999 informational tax return as part of the merger transaction and that it indicated, in the K-l forms attached to its return, that it had passed through that income to Prince and the other two shareholders.

In response to Prince’s argument that the Department stipulated, in effect, that a Form 8023 had not been filed with Zebra.net’s informational tax return, the Department argues that it was stipulating only to the fact that the documents presented were all that it had on file as to the referenced tax returns; it states that it “did not and cannot stipulate as to what was actually filed with the Internal Revenue Service.” Moreover, the Department argues, the instructions to Form 8023 indicate that the failure to file a copy of Form 8023 with the target company’s tax return does not invalidate the § 338 election.

26 U.S.C. § 338(g)(2) provides that an election under that section “shall be made in such manner as the Secretary [of the United States Treasury Department] shall by regulations prescribe.” Treasury Regulation 26 C.F.R. § 1.338(h)(10)-l(c)(3) provides that an election under § 338 is made “on Form 8023 in accordance with the instructions to the form.” At the time of the merger transaction, the instructions to Form 8023 provided, in relevant part:

“Persons making elections under section 338 must file Form 8023.
“Generally, a purchasing corporation must file Form 8023 for the target. If a section 338(h) (10) election is made for a target, Form 8023 must be filed jointly by the purchasing corporation and the common parent of the selling consolidated group (or the selling affiliate or S corporation shareholder(s)).
“File Form 8023 by the 15th day of the 9th month beginning after the acquisition date to make a section 338 election for the target corporation. File Form 8023 with the District Director (Attention: Chief of Examination) for the Internal Revenue district where the main corporate office (headquarters) of the purchasing corporation is located (or, if the purchasing corporation is a member of a consolidated group, with the District Director (as identified above) of the common parent of the consolidated group). If an affiliated group that does not file consolidated returns makes its QSP [ (qualified stock purchase) ] of the target through more than one member, a section 338 election for the target is made by filing Form 8023 with the District Director (as identified above) of the affiliate that acquired the largest percentage (by value) of the target stock in the QSP (or, if there is more than one such affiliate, file Form 8023 with the District Director of any one such affiliate).
“A copy of Form 8023 must be attached to the final income tax return of the old target, to the first income tax return of the new target, and to the income tax return of the purchasing corporation for its tax year that includes the acquisition date; but failure to do so will not invalidate a section 338 election. If a section 338(h)(10) election is made, a copy of Form 8023 is considered to be attached to the final income tax return of the old target if a copy of Form 8023 is attached to the income tax return of the selling consolidated group (or the selling affiliate) for the tax year of the seller that includes the acquisition date (or, in the case of a target that is an S corporation, attach Form 8023 to the final income tax return of the S corporation with the additional copies distributed to each electing S corporation shareholder with his or her Schedule K-l (Form 1120S)).”

(Emphasis added.)

There is no direct evidence indicating whether the parties to the merger transaction filed a Form 8023 with the appropriate district director of the Internal Revenue Service in order to effect an election under 26 U.S.C. § 338. However, circumstantial evidence disclosed by the record indicates that such an election was, in fact, made. Prince and the other Zebra.net shareholders received compensation under the merger agreement in an amount indicating that a 26 U.S.C. § 338 election was intended by the parties to the merger transaction; Prince admits that he and all the other relevant parties executed a Form 8028 for the purpose of making an election under 26 U.S.C. § 388; Zebra.net reported the receipt of income from the sale of its assets as though a valid 26 U.S.C. § 338 election had been made; and Zebra.net reported distributing that income to its shareholders, including Prince, which, again, was in keeping with a sale by Zebra.net of its assets rather than a sale by its shareholders of their Zebra.net stock. The fact that a copy of the Form 8023 was not attached to Zebramet’s informational tax return is not evidence indicating that form was not filed with the appropriate Internal Revenue Service district director because, as quoted above, the instructions to Form 8023 indicate that the failure to attach a copy of the form to the appropriate tax returns does not invalidate an election under 26 U.S.C. § 338.

The circumstantial evidence in the record, which is essentially undisputed by the parties, indicates that the parties to the merger transaction made an election under 26 U.S.C. § 338 to treat the transaction as a sale of all Zebra.net’s assets. In light of this evidence, and because there is no evidence, direct or circumstantial, tending to indicate that the parties did not make a 26 U.S.C. § 338 election, we conclude that evidence supports the trial court’s determination that such an election was made.

Prince contends that, even if a valid election under 26 U.S.C. § 338 was made, Alabama law does not provide that his gain from the merger transaction is subject to the imposition of an income tax by the State of Alabama. Prince argues that, although Alabama law acknowledges elections under 26 U.S.C. § 338, it does so only to the extent of determining the amount of gain received by the corporation being acquired, not to the extent of determining the source of that income. He argues that, because the income he received was from the sale of stock that he owned in Mississippi and not from the sale of Zebramet’s assets, that income is taxable in his state of residence, Mississippi, and not in Alabama. We disagree.

Alabama has adopted, for state income-tax purposes, the federal income-tax treatment of a company that elects, under 26 U.S.C. § 338, to treat a stock sale as an asset sale. Alabama law specifically provides that “[i]f a valid election under 26 U.S.C. § 338 is made, the amount of gain recognized by the target corporation shall be determined in accordance with 26 U.S.C. § 338.” § 40-18-8(j), Ala.Code 1975. The regulation promulgated based on § 40 — 18—8(j) provides that “[i]f an acquiring corporation makes a valid election under 26 U.S.C. § 338, the amount of gain recognized by the target corporation shall be determined in accordance with 26 U.S.C. § 338. For interpretation of federal statutes adopted by the Alabama Legislature see Rule 810-3-1.1-.01.” Rule 810-3-8-.13, Ala. Admin. Code (Department of Revenue). In Revenue Ruling No. 94-005 (Alabama Dep’t of Revenue, June 14, 1994), the Department addressed the question whether the state follows the federal treatment afforded to a target corporation, such as Zebra.net, as a result of an election under 26 U.S.C. § 338(h)(10). The Department wrote:

“Alabama tax will be paid by [the target corporation] on its gain from the deemed asset sale as provided in § 40-18-8( £j]). Like its federal counterpart, § 40-18-8( [j]) is designed to afford to a stock sale the same income tax treatment as would be produced by an asset sale followed by a complete liquidation of the [target corporation], but without forcing the parties to go through the intricacies of transferring assets piecemeal.”

Prince argues that, although § 40-18-8(j) sets forth the measure of gain to be recognized by a target corporation upon an election under 26 U.S.C. § 388, it does not provide for the characterization of that gain as either a stock sale or an asset sale. Prince’s argument ignores, however, the fact that an election under 26 U.S.C. § 338 deals with treating a stock sale, in which a corporation would not recognize any gain, as an asset sale, in which the corporation would recognize gain. By indicating the amount of the gain recognized by the target corporation, § 40 — 18—8(j) presupposes that the target corporation would, in fact, be receiving a gain as a result of the sale. Furthermore, because the corporation does not own the shareholders’ shares of stock, its gain in the transaction can be recognized only from the sale of that which it does own, i.e., its assets.

Under Alabama law, an S corporation is not subject to Alabama corporate income tax. § 40-18-160(a), Ala.Code 1975. Instead, the individual shareholders of the S corporation are liable for paying taxes on the S corporation’s income. § 40-18-162(a). Section 40-18-162(a) provides:

“(a) In determining the tax of a shareholder for the shareholder’s taxable year in which the taxable year of the Alabama S corporation ends, 'or for the final taxable year of a shareholder who dies or of a trust or estate that terminates before the end of the corporation’s taxable year, there shall be taken into account the shareholder’s pro rata share of the corporation’s:
“(1) Items of income, including tax-exempt income, loss, deduction, or credit the separate treatment of which could affect the liability for tax of any shareholder, including charitable contributions, and
“(2) Nonseparately computed income or loss. The term ‘nonseparately computed income or loss’ means gross income minus the deductions allowed to the corporation under this article, determined by excluding all items described in subdivision (1) of this subsection.”

The character of the items attributed to the shareholders of an S corporation for income-tax purposes is set forth in § 40-18 — 162(b), which provides:

“(b) The character of any item included in a shareholder’s pro rata share under subsection (a) of this section shall be determined as if the item were realized directly from the source from which realized by the corporation, or incurred in the same manner as incurred by the corporation.”

Because Alabama recognizes an election under § 338 and treats the sale occurring under such an election as a sale of assets, and because the characterization of an S corporation’s income occurs at the corporate level rather than at the shareholder level, the sale at issue was of Zebra.net’s assets, the income from which is attributable, for Alabama income-tax purposes, to the individual shareholders of Zebra.net; it was not, for Alabama income-tax purposes, a sale of the shareholders’ stock in Zebra.net.

Prince next contends that the Due Process Clause of the Fourteenth Amendment to the United States Constitution prohibits the Department’s imposition of tax on the income Prince derived from the merger transaction. The United States Supreme Court has indicated that, with regard to the imposition of a tax, a “fundamental requirement” of the Due Process Clause is “that there be ‘some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.’ ” Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 777, 112 S.Ct. 2251, 119 L.Ed.2d 583 (1992) (quoting Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45, 74 S.Ct. 535, 98 L.Ed. 744 (1954)). Thus, the question before this court with regard to due process is whether there is a minimum connection between Alabama and Prince, a nonresident shareholder of the resident S corporation that generated the income on which Alabama seeks to levy a tax.

Although the appellate courts of this state have never addressed the precise issue, courts from other jurisdictions that have addressed the issue have concluded that the imposition of a tax on the income received by a nonresident shareholder from a resident S corporation does not violate the Due Process Clause. For example, in Agley v. Tracy, 87 Ohio St.3d 265, 267, 719 N.E.2d 951, 953 (1999), the Ohio Supreme Court wrote:

“Appellants also argue that taxation of nonresident shareholders of an S corporation violates their due process rights.... The Due Process Clause ‘requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.’ Miller Bros. Co. v. Maryland (1954), 347 U.S. 340, 344-345.... In other words, a state must have minimum contacts with the entity in order to tax it. ...
“Appellants have admitted that their S corporations conducted business in Ohio. Thus, it is evident that the S corporations have utilized the protections and benefits of Ohio by carrying on business here. This income was then passed through to the appellants as personal income. Thus, the appellants, through their S corporations, have also availed themselves of Ohio’s benefits, protections, and opportunities by earning income in Ohio through their respective S corporations. We find that this provides Ohio the ‘minimum contacts’ with the appellants to justify taxing appellants on their distributive share of income.”

87 Ohio St.3d at 267, 719 N.E.2d at 953. In Mandell v. Auditing Division of the Utah State Tax Commission, 186 P.3d 335, 345 (Utah 2008), the Utah Supreme Court wrote:

“To withstand a due process challenge to the imposition of a tax, a ‘definite link’ or ‘minimum connection’ must exist between the state and the person, property, or transaction sought to be taxed.... A deemed asset sale of a Utah S corporation that does all of its business within Utah provides a sufficient link or connection for Utah to constitutionally assert taxing jurisdiction over a nonresident shareholder of that corporation. As previously discussed, courts have consistently affirmed the right of states to tax nonresident shareholders of S corporations for business transactions conducted within the taxing state.”

See also Valentino v. Franchise Tax Bd., 87 Cal.App.4th 1284, 1293 n. 11, 105 Cal.Rptr.2d 304, 311 n. 11 (2001) (“However, the law is settled that there is no constitutional bar to imposing the [income] tax [on nonresident shareholders of an S corporation].”); General Accessory Mfg. Co. v. Oklahoma Tax Comm’n, 122 P.3d 476, 480 (Okla.Civ.App.2005) (“The power to tax a non-resident’s income derived from sources within the state, or accruing from activity having a situs within the state, cannot be questioned.”); and Kulick v. Department of Revenue, 290 Or. 507, 518, 624 P.2d 93, 99 (1981) (“[I]n demanding that [nonresident] shareholders of a closely held corporation instead of the corporation contribute to this state a tax on financial gains derived from sources within the state, the state is not demanding the shareholders’ property without the due process of law commanded by the 14th amendment.”).

It is undisputed that, at the time of the merger transaction, Zebra.net was an Alabama S corporation that operated solely in Alabama. Moreover, as we have previously discussed, the merger transaction generated income to Zebra.net, a portion of which was passed through to Prince. We conclude that Prince’s receipt of income generated by Zebra.net, through the sale of its assets, constitutes a sufficient connection with the State of Alabama to allow the Department, consistent with principles of federal due process, to levy a tax specifically on that income.

Our conclusion that the tax at issue in this case does not violate the Due Process Clause is not altered by our consideration of the plurality opinion in Lanzi v. Alabama Department of Revenue, 968 So.2d 18 (Ala.Civ.App.2006), on which Prince relies. Lanzi was issued per curiam, with two judges concurring in the main opinion, one judge concurring in the result, and two judges dissenting. In Lanzi, a plurality of the court ruled that Alabama’s attempted levy of an income tax on a nonresident limited partner’s distributive share of partnership income from an Alabama limited partnership violated the Due Process Clause because the nonresident limited partner had no contacts with Alabama other than his ownership of a limited interest in the limited partnership. The plurality opinion relied on Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977), in which the United States Supreme Court held that a nonresident shareholder’s ownership of stock in a corporation, standing alone, does not constitute the sufficient contact necessary to subject the nonresident to the judicial jurisdiction of the state in which the corporation had its corporate residence. The plurality opinion also relied on opinions from other jurisdictions that held that a nonresident limited partner’s ownership interest in a partnership, standing alone, is not sufficient to subject that partner to the state’s in personam judicial jurisdiction.

The dissent in Lanzi reflected the view that when the basis for the exercise of the taxing jurisdiction of a state over a nonresident limited partner is, itself, the nonresident’s limited-partnership interest (as opposed to a basis unrelated to that interest), the limited-partnership interest constitutes a contact with the state sufficient for the state’s exercise of its taxing jurisdiction over the nonresident consistent with due process. In support, the dissent relied on, among other things, cases from other jurisdictions that held that a state, consistent with due process, could levy an income tax on a nonresident shareholder in a resident S corporation on the basis that an S corporation, like a partnership, is a “flow-through” entity.

We agree with Prince that the facts in Lanzi are not easily distinguishable from the facts in the present case with regard to due-process analysis. However, because Lanzi is a plurality opinion, it does not constitute binding authority. See Waddell v. Waddell, 904 So.2d 1275, 1285 (Ala.Civ.App.2004). To the extent that the plurality opinion in Lanzi suggests that the imposition of a tax on the income Prince derived from the sale of Zebra.net’s assets violates the Due Process Clause, we reject that view as inconsistent with our understanding of the Due Process Clause as requiring only “ ‘some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.’ ” Allied-Signal, 504 U.S. at 777, 112 S.Ct. 2251.

Prince next contends that the Department lacks a statutory basis on which to levy a tax on the income at issue in this case because he is not a resident of Alabama. Section 40-18-2(a)(6), Ala.Code 1975, imposes an income tax on “[ejvery nonresident individual receiving income from property owned or business transacted in Alabama.” Prince argues that this section does not apply to him because, he argues, the income he received was derived from his sale of Zebra.net stock rather than from Zebra.net’s receipt of the income generated by the sale of its assets. Specifically, he argues that he owned the stock in Mississippi, and the transaction involving the sale of the stock occurred in Georgia.

As discussed above, for tax purposes, the income Prince received is appropriately characterized as having been generated by Zebra.net’s sale of its assets, rather than by the sale of Prince’s Zebra.net stock. Prince does not argue, and, thus, he has failed to demonstrate, that, when so characterized, the income he received was not derived “from property owned or business transacted in Alabama.” Thus, he has failed to demonstrate that § 40-18-2(a)(6) does not provide a statutory basis for the Department’s levy of a tax on the income at issue in this case.

Finally, Prince contends that the Department’s imposition of a tax on the income he received as a result of the merger transaction violates the Commerce Clause of the United States Constitution, art. I, § 8, cl. 3. As Prince notes, the United States Supreme Court stated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), that for a tax on an interstate activity to pass muster under the Commerce Clause, among other things, the activity must have a “substantial nexus” with that state. 430 U.S. at 279, 97 S.Ct. 1076. Prince repeats his earlier assertion that the merger transaction occurred in Georgia and involved only the sale of his Zebra.net stock, which he owned in Mississippi. Thus, he concludes, the transaction did not have a substantial nexus with Alabama.

The Department responds by arguing that, for purposes of determining whether the income a nonresident shareholder receives from a resident S corporation is subject to an income tax by the S corporation’s state, the activity of the S corporation is attributable to the corporate shareholders, such that a nexus between the state of the S corporation and its nonresident shareholders exists. It cites numerous cases in which the courts of other jurisdictions have concluded that the imposition of a tax on a nonresident shareholder does not violate the federal constitution.

Prince’s sole citation to legal authority in his argument, Complete Auto Transit, supra, stands for the general proposition that a “substantial nexus” must exist between the taxing state and the transaction to be taxed. He cites no legal authority applying the general rule in a manner that would demonstrate the appropriate outcome in the present case. As such, his argument is not sufficient to justify reversal of the trial court’s determination. See Beachcroft Props., LLP v. City of Alabaster, 901 So.2d 703, 708 (Ala.2004) (“Authority supporting only ‘general propositions of law1 does not constitute a sufficient argument for reversal.”). Moreover, Prince’s contention is predicated on his argument that the merger transaction involved only the sale of his Zebra.net shares rather than Zebramet’s sale of all of its assets. Because, at least for taxing purposes, we have rejected such a characterization of the merger transaction, Prince has failed to demonstrate that the Department’s imposition of a tax on the income Prince derived from the merger transaction violated the Commerce Clause of the United States Constitution.

Based on the foregoing, we conclude that Prince has failed to demonstrate error with regard to the trial court’s affirmance of the Department’s income-tax assessment against him. As a result, we affirm the trial court’s summary judgment in favor of the Department.

APPLICATION OVERRULED; OPINION OF JANUARY 22, 2010, WITHDRAWN; OPINION SUBSTITUTED; AFFIRMED.

PITTMAN, THOMAS, and MOORE, JJ., concur.

BRYAN, J., dissents, with writing.

BRYAN, Judge,

dissenting.

The main opinion explains the procedure for making an election pursuant to 26 U.S.C. § 338:

26 U.S.C. § 338(g)(2) provides that an election under that section ‘shall be made in such manner as the Secretary [of the United States Treasury Department] shall by regulations prescribe.’ Treasury Regulation 26 C.F.R. § 1.338(h)(10)-l(c)(3) provides that an election under § 338 is made ‘on Form 8023 in accordance with the instructions to the form.’ At the time of the merger transaction, the instructions to Forra 8023 provided, in relevant part:
“ ‘Persons making elections under section 338 must file Form 8023.
“ ‘Generally, a purchasing corporation must file Form 8023 for the target. If a section 338(h)(10) election is made for a target, Form 8023 must be filed jointly by the purchasing corporation and the common parent of the selling consolidated group (or the selling affiliate or S corporation shareholder(s)).
‘File Form, 8023 by the 15th day of the 9th month beginning after the acquisition date to make a section 338 election for the target corporation. File Form 8023 with the District Director (Attention: Chief of Examination) for the Internal Revenue district where the main corporate office (headquarters) of the purchasing corporation is located....’”

55 So.3d at 279 (some emphasis omitted).

The record on appeal contains evidence indicating that the parties to the transaction in this case intended to make an election under 26 U.S.C. § 338. However, there is no direct evidence indicating that a Form 8023 was filed pursuant to the applicable regulation. A Form 8023 must be properly filed in order to make a valid election under § 338. Therefore, I believe that the trial court erred in concluding that the parties to the transaction made a valid election under § 338 to treat the transaction as a sale of the assets of Zebra.Net, Inc. (“Zebra.net”). Because such an election was not made, the transaction in this case should be treated as the sale of stock owned by Zebramet’s shareholders. Section 40-18-2(a)(6), Ala.Code 1975, imposes an income tax on “[ejvery nonresident individual receiving income from property owned or business transacted in Alabama.” James E. Prince, Jr., owned his Zebra.net stock in Mississippi, his state of residence, and the sale of that stock occurred in Georgia. Because Prince, a nonresident of Alabama, did not own his stock in Alabama and did not transact any business in Alabama, he was not subject to Alabama income tax. Accordingly, I would reverse the trial court’s summary judgment affirming the income-tax assessment made by the State Department of Revenue (“the Department”) against Prince.

Moreover, even if the parties to the transaction made a valid election under § 338, I believe that the facts of this case are materially indistinguishable from the facts in Lanzi v. Alabama Department of Revenue, 968 So.2d 18 (Ala.Civ.App.2006). In Lanzi, a plurality of this court concluded that Alabama lacked jurisdiction to impose income tax on a nonresident whose only connection with Alabama was his limited-partnership interest in an Alabama limited partnership. Like the nonresident in Lanzi, Prince lacks the minimum contacts with Alabama needed to subject him to Alabama jurisdiction under the Due Process Clause of the Fourteenth Amendment to the United States Constitution. I recognize that a court is obligated to avoid addressing constitutional questions unless doing so is essential to the proper disposition of a case. See Lowe v. Fulford, 442 So.2d 29, 33 (Ala.1983). However I cite Lanzi as only an alternative basis for reversing the judgment of the trial court if a valid election was not actually made under § 338.

      . The purpose and effect of an election under 26 U.S.C. § 338 has been described as follows:
      "Sometimes, the parties to an acquisition may wish to structure it as a stock sale rather than an asset sale for non-tax reasons (e.g., a stock sale is generally easier to structure mechanically), but may wish to have the transaction treated as an asset sale for tax purposes (e.g., so that the buyer will receive a stepped-up basis in the purchased assets). In order to achieve this goal, the parties may consider making an election under I.R.C. § 338(h)(10).
      "Generally, an I.R.C. § 338(h)(10) election is permitted where (i) there is a taxable purchase of at least 80% of the target’s stock, (ii) either the seller is a corporation owning at least 80% of the target's stock or the target is an S corporation, (iii) the buyer is a corporation unrelated to the seller, (iv) the target is a U.S. corporation, and (v) the election is made by both the buyer and seller. Under I.R.C. § 338(h)(10), the stock sale is treated as if the target had sold its assets in a taxable transaction and liquidated tax-free into its parent under I.R.C. § 332 (or to its Subchapter S shareholders). The sale of the target’s stock is disregarded for federal income tax purposes. Thus, the only tax that is imposed is on a deemed sale by the target subsidiary of its assets.”

        Michael T. Petrik and Ethan D. Millar, State & Local Tax Aspects of Corporate Acquisitions, Practising Law Institute, Tax Law and Estate Planning Course Handbook Series, PLI Order No. 14322 (October-December 2008) (footnotes omitted).

      . Prince argues that the Department did not properly authenticate the copy of the Form 8023 that it submitted to the trial court. He candidly admits in his appellate briefs, however, that the parties to the merger transaction, including himself, signed the Form 8023 and that, during the course of discovery in this action, he provided the copy of the Form 8023 to the Department that the Department then submitted to the trial court.

      . Courts in other states that addressed this issue under their respective states’ laws have arrived at the same conclusion. See, e.g., General Accessory Mfg. Co. v. Oklahoma Tax Comm’n, 122 P.3d 476, 480 (Okla.Civ.App. 2005) ("For federal tax purposes, Taxpayers elected to treat the sale of stock in their Oklahoma corporation as a sale of corporate assets, and their federal election is binding for state tax purposes. As the business situs of the corporation with income derived from sources within the State, the sale of its assets constituted a state taxable event, and permissibly subjected the non-resident Taxpayers to liability for Oklahoma income tax.”); and Mandell v. Auditing Div. of the Utah State Tax

        Comm’n, 186 P.3d 335, 344 (Utah 2008) ("All of HAU's shareholders elected to characterize the sale as a deemed asset sale under I.R.C. § 338(h)(10). As a result, the gains realized through the sale were taxable as if the corporation had sold assets rather than stock. See id. § 338(h)(10). The gains from the sale passed through to the shareholders, who bore the responsibility of paying taxes on those gains in proportion to their ownership interests. See id. § 1366(b); see also Utah Code Ann. § 59-7-701. The gains recognized from this deemed asset sale constitute Utah source income under Utah Code sections 59-10-118(l)(a), which defines business income, and 59-7-114(4), which creates a rebuttable presumption that the gain on a deemed sale of assets under a section 338 election constitutes business income. They are therefore taxable under Utah Code section 59-10-117(2)(d).” (footnote omitted)). See, generally, James A. Amdur, Annotation, State Tax Consequences of Election Under § 338 of Internal Revenue Code (26 U.S.C.A. § 338) §§ 4-6, 26 A.L.R.6th 219 (2007).

      . See, generally, James A. Amdur, Annotation, State Income Tax Treatment of S Corporations & Their Shareholders § 24, 118 A.L.R.5th 597 (2004); Jerome R. Hellerstein, State Taxation V 20.08[2][a][iii] (2003) ("The cases have consistently sustained the states' efforts to tax nonresident S corporation shareholders on their share of S corporation income attributable to the state.”); James E. Maule, State Taxation of S Corporations, Tax Management, Multistate Tax Portfolios, § 1510.05D.2.b. (BNA 2006) (stating that “[a] state should have jurisdiction to tax S corporation income in the hands of the shareholders, even if they are nonresidents, if it has jurisdiction to tax the S corporation with respect to its income,” indicating that that proposition, however, was "not without doubt,” and discussing four separate arguments in support of the taxation of nonresident S corporation shareholders); Prentiss Willson and Mark Windfeld-Hansen, State Taxation of Pass-Through Entities: General Principles, Tax Management, Multistate Tax Portfolios, § 1500.11A.2. (BNA 2002) ("Nonresident S corporation shareholders have on several occasions sought to set aside such state taxes on the ground that the U.S. Constitution precludes a state from taxing nonresident shareholders based solely on the activities of their S corporations in the taxing state. As yet, however, no court has upheld such a challenge.”).

      . This case provides an example of why peo-pie may become easily frustrated by government action. In 2000, Prince paid income tax in Mississippi on the gain received from the transaction in this case. Zebra.net filed its informational tax return with the Department in June 2000. However, the Department did not initially assess income tax on Prince until November 2004. The Department contends that Prince may claim a credit in Mississippi for income tax paid to Alabama. However, Mississippi law provides a three-year limitations period for income-tax refund claims, Miss.Code Ann. § 27-73-5 (2009); that limitations period has long since expired. Consequently, it now appears that Prince will have to pay state income tax in both Mississippi and Alabama, arguably through no fault of his own.


source: Caselaw Access Project

author: LYONS, Justice.

license: Public Domain

text:
    Ex parte James E. PRINCE, Jr. (In re James E. Prince, Jr. v. State Department of Revenue).
    1091146.
    Supreme Court of Alabama.
    Aug. 6, 2010.
    Jeff Patterson, Montgomery; and Richard C. Litwin of The Litwin Law Firm, P.C., Atlanta, Georgia, for petitioner.
    Submitted on petitioner’s brief only.
   LYONS, Justice.

The petition for the writ of certiorari is denied.

In denying the petition for the writ of certiorari, this Court does not wish to be understood as approving all the language, reasons, or statements of law in the Court of Civil Appeals’ opinion. Horsley v. Horsley, 291 Ala. 782, 280 So.2d 155 (1973).

WRIT DENIED.

COBB, C.J., and STUART, BOLIN, and MURDOCK, JJ., concur.


author: MOORE, Judge.

text:
    Beverly CHANCY v. CHANCY LAKE HOMEOWNERS ASSOCIATION, INC., et al.
    2081154.
    Court of Civil Appeals of Alabama.
    May 28, 2010.
    Rehearing Denied Aug. 27, 2010.

      Regina B. Edwards and Brandon C. Stone, Wetumpka, for appellant.
    Alex L. Holtsford, Jr., and S. Mark Dukes of Holtsford Gilliland Higgins Hit-son & Howard, P.C., Montgomery, for ap-pellees Roger P. Traywick, Andrea Tray-wick, Scott Post, Christy C. Post, Brent Post, Buffi Post, and Chancy Lake Homeowners’ Association, Inc.
    W.H. Brittain II of Ball, Ball, Matthews & Novak, P.A., Montgomery, for appellees Joseph A. Wolf and Cathee W. Wolf.
    D. Jason Britt and Robert J. Morris of Morris & McAnnally, LLC, Millbrook, for appellees Cedric Butler and Bridgette Butler.
   MOORE, Judge.

Beverly Chancy appeals from summary judgments entered by the Autauga Circuit Court (“the trial court”). We affirm in part and reverse in part.

Facts and Procedural History

On February 25, 2008, Chancy filed a complaint in the trial court against Johnson Properties, L.L.C., Wayne M. Johnson, Chancy Lakes Homeowners Association, Inc., Brad Wiggins, Kathleen Wiggins, Cedric Butler, Bridgette Butler, Joseph A. Wolf, Cathee W. Wolf, Roger P. Traywick, Andrea Traywick, Scott Post, Brent Post, Christy C. Post, and Buffi Post; Chancy also sued a number of fictitiously named defendants. Chancy asserted in her complaint that, in September 2003, Johnson had approached Chancy with a proposal to purchase from Chancy approximately 40 acres of property in Autauga County (“the subject property”) in order to develop a subdivision and that Chancy and Johnson had negotiated the terms of an agreement for the sale of that property.

According to Chancy, the terms of the agreement for the sale of the subject property included the reservation of an access easement (“the easement”) allowing Chancy to access approximately 197 acres of property that she owned that lay adjacent to the subject property. Chancy further asserted that she and Johnson had agreed that the easement would be shown on any proposed subdivision plat, that it would be addressed in the restrictive covenants that would bind the lots within the subdivision, and that it would be designed and maintained to meet the City of Prattville’s requirements for a public road. Chancy asserted that she and Johnson had also agreed that any proposed subdivision plat involving the subject property would first be submitted to Chancy for her approval. Chancy further asserted that the terms of the agreement were memorialized in a written document labeled “Agreement.” Chancy attached the Agreement, signed by both Chancy and Johnson, to her complaint.

Chancy asserted that, pursuant to the Agreement, Johnson recorded restrictive covenants for the subdivision, which was named Chancy Lake, in the Autauga Probate Office in a document entitled “Declaration of Protective Covenants for Chancy Lake” (“the Declaration”). Chancy attached a copy of the Declaration, signed by Johnson as manager of Johnson Properties and notarized on April 2, 2004, to the complaint. Attached to the Declaration was a survey/plat that depicted the properties bound by the covenants and the location of the easement. The Declaration stated, in pertinent part:

“WHEREAS, [Johnson Properties] desires to impose and subject the described property and each lot to mutual and beneficial restrictions, covenants, terms, conditions and limitations (hereinafter for convenience sometimes referred to collectively as ‘Covenants’) for the benefit of all the lots in said Subdivision, the owners of said lots, and any other party as may be specified herein;
“NOW, THEREFORE, [Johnson Properties], does hereby adopt and impose the following covenants on the real property described on Exhibit ‘A’. The covenants contained herein shall apply only to Chancy Lake as described on Exhibit ‘A’ and shall not apply to any other land owned by [Johnson Properties], unless specifically imposed upon such other land by a document or plat executed by [Johnson Properties] and recorded in the Office of the Judge of Probate of Autauga County, Alabama.
“These covenants are to run with the land and shall be binding for a period of twenty-five (25) years from the date of the recording of these covenants, after which time said covenants shall be automatically extended for successive periods of ten (10) years unless an instrument signed by a majority of the then owners of the lots has been recorded agreeing to change said covenants in whole or in part.
“ARTICLE I
“HOMEOWNER’S ASSOCIATION
“Section 1.1. These covenants are to run with the land and shall be binding for a period of twenty-five (25) years from the date of the recording of these covenants, after which time said covenants shall be automatically extended for successive periods of ten (10) years unless an instrument signed by a majority of the then owners of the lots has been recorded agreeing to change said covenants in whole or in part.
“ARTICLE V.
“EASEMENTS
“Section 5.1. [Johnson Properties] (1) reserves for itself, its successors and assigns and its other real property located adjacent to the subdivision, the right to use dedicate and/or convey to the State of Alabama, to Autauga County to an appropriate utility company or other company and (2) hereby dedicates for the use of all the lots in the subdivision, rights of way or easements on, over or under the ground to locate and maintain utilities, electric and telephone lines; wires, cables, cable television, conduits, storm sewers, sanitary sewers, water mains, drainage swales and ways and other utilities over the interior ten (10) feet in width along each Lot line.
“ARTICLE X
“ADJOINING PROPERTY
“Section 10.1. The real property adjoining Chancy Lake to the east will have a easement for ingress/egress as recorded on the Chancy Lake Plat.
“ARTICLE XI
“TERM AND MODIFICATION
“Section 11.1. These covenants shall run with the land and can be changed, modified, amended, altered or terminated only by a duly recorded written instrument, executed by [Johnson Properties], its successors and assigns, until December 31, 2006, and thereafter by the then owners of eighty-five percent (85%) of the number of lots of this Subdivision.
“ARTICLE XII
“SEVERABILITY
“Section 12.1 Each covenant is hereby declared to be independent of and sever-able from, the rest of the covenants and from every other one of the covenants and of and from every combination of the restrictions. Invalidation by any court of any covenant in this instrument shall in no way affect any of the other covenants which shall remain in full force and effect.”

Chancy asserted that Johnson and Johnson Properties proceeded to sell parcels of property in the subdivision without first obtaining Chancy’s approval as agreed upon. She further asserted in the complaint that a gate had been erected by the Chaney Lake Homeowners Association (“the Association”) at the entrance of the subdivision, that the gate was always locked and could only be opened with a code, and that members of the Association had withheld the access code from Chancy, thereby denying her access to her adjoining property. Chancy asserted that the easement now functions as a drainage culvert for the subdivision and as an overflow ditch for the subdivision pond and that the easement is blocked by power poles and water-drainage infrastructure. Moreover, according to Chancy, the easement was never paved or improved and, thus, does not meet the City of Prattville’s requirements for a public road. According to Chancy, in October 2007, the members of the Association executed a document entitled “Declaration of Amendment to the Declaration of Protective Covenants of Chancy Lake” (“the Amendment”), which deleted Article X of the Declaration in its entirety; the Amendment also deleted Section 5.1, Article V, of the Declaration. A copy of the Amendment, which had been signed by each of the members of the Association, was attached to Chaney’s complaint.

Chancy asserted claims of breach of contract and fraudulent misrepresentation against Johnson and Johnson Properties; a claim of “interference with access easement/intentional violation of [Chancy’s] property rights” against the Association and each of the members of the Association; and claims of continuing trespass, nuisance, invasion of her right to privacy, and the tort of outrage against all the parties named in her complaint. Chancy also sought injunctive relief and a judgment declaring that Chancy had an easement by adverse possession, by prescription, by necessity, or by implication.

The members of the Association, Brad Wiggins, Kathleen Wiggins, Cedric Butler, Bridgette Butler, Joseph A. Wolf, Cathee W. Wolf, Roger P. Traywick, Andrea Tray-wick, Scott Post, Brent Post, Christy C. Post, and Buffi Post (hereinafter sometimes collectively referred to as “the Association members”), and the Association filed a number of separate and joint answers to Chancy’s complaint. On April 4, 2008, Johnson filed an answer to the complaint and a motion to dismiss; on June 5, 2008, the trial court entered an order granting Johnson’s motion to dismiss on Chancy’s claim of the tort of outrage.

The Association members and the Association filed a number of separate and joint summary-judgment motions. A number of the Association members filed affidavits in support of those motions.

Kathleen Wiggins stated in her affidavit that she and her husband, Brad, had purchased Lot 1 of the Chancy Lake subdivision from Olivia Post in April 2005. Bridgette Butler filed her affidavit, in which she stated that she and her husband, Cedric, had purchased Lot 2 of the Chancy Lake subdivision on August 8, 2007, from Keith Wheeler and Heather Wheeler and that the Butlers’ deed had contained an “erroneous legal description” because it included a “thirty (30) foot easement for ingress/egress.” She stated that Johnson and/or Johnson Properties had executed a “Corrective Deed” on November 1, 2007, which changed the type of easement that existed on their property from an easement for ingress/egress to a “thirty (30) foot drainage easement.”

Joseph A. Wolf filed an affidavit in which he stated that he and his wife, Ca-thee, had purchased Lot 3 of the Chancy Lake subdivision from Rick Church in October 2006 and that the deed to their property contains a 20-foot drainage easement, although, he stated, it is his “understanding that this is incorrect and has been corrected by Johnson Properties, LLC.” He further stated that the gate controlling access to the Chancy Lake subdivision had already been installed and was functional at the time they purchased their lot.

Roger Traywick and his wife, Andrea, stated in their respective affidavits that they had purchased Lot 5 of the Chancy Lake subdivision from Johnson Properties in April 2004. Scott Post and his wife, Christy, both stated in their respective affidavits that they had purchased Lot 6 of the Chancy Lake subdivision from the Traywicks in September 2005. Brent Post and his wife, Buffi, both stated in their affidavits that they had purchased Lot 7 of the Chancy Lake subdivision from Johnson Properties in May 2005.

Each of the Association members asserted that they had not made any contracts or agreements with Chancy regarding the purchase of their lots or any future use or restriction on the use of their properties or common areas in the subdivision and that, at the time they purchased their respective lots, the Declaration had already been prepared. Additionally, they asserted that their deeds did not contain an easement allowing Chancy to cross them property or other subdivision property and that they had not altered the drainage of Chancy Lake, which is located within the subdivision.

Johnson Properties filed an answer on September 22, 2008. Also on September 22, 2008, Johnson and Johnson Properties filed a joint motion for a summary judgment. On September 23, 2008, Johnson Properties filed an amended answer and a counterclaim against Chancy.

On October 15, 2008, Chancy filed a response to the summary-judgment motions filed by the Association members and the Association. In that response, Chancy conceded that those parties were entitled to a summary judgment on her claims of breach of contract, fraudulent misrepresentation, invasion of her right to privacy, and the tort of outrage. With regard to her claim of “interference with access easement/intentional violation of [Chancy’s] property rights,” Chancy asserted that an easement had been properly created by the Declaration, that the Amendment did not properly extinguish or revoke the easement, and, thus, that the movants’ assertions to the contrary were without merit. Chancy argued, therefore, that whether the movants’ revocation of the easement was a proper termination of the easement created a genuine issue of material fact. Chancy also asserted that there was a genuine issue of material fact regarding whether the blocking of the easement was proper. Chancy attached her affidavit, in which she stated that she had not approved the Declaration.

On September 30, 2008, Chancy filed an answer to the counterclaim filed by Johnson Properties. Also on September 30, 2008, Chancy filed a response to Johnson and Johnson Properties’ summary-judgment motion.

On February 24, 2009, the trial court entered a summary judgment in favor of the Association, the Traywicks, and all the Posts (sometimes hereinafter referred to collectively as “the Association appellees”) on all counts in Chancy’s complaint. On March 11, 2009, the Butlers filed a motion for a ruling on their summary-judgment motion. Chancy filed a motion to alter, amend, or vacate the trial court’s summary judgment in favor of the Association appel-lees on March 11, 2009. The Association appellees filed a response to Chancy’s motion to alter, amend, or vacate the summary judgment on March 16, 2009. The Wolfs filed a response to Chancy’s motion to alter, amend, or vacate on March 17, 2009.

Chancy filed an amended complaint on March 23, 2009. The Butlers filed an amended answer on March 24, 2009. The Association appellees filed a motion to dismiss Chancy’s amended complaint or, in the alternative, for a judgment on the pleadings on March 27, 2009. On that same date, the Association appellees filed an answer to Chancy’s amended complaint and a motion to dismiss the amended complaint. The Wolfs filed an answer to Chancy’s amended complaint on March 30, 2009.

On June 5, 2009, the trial court entered an order denying Chancy’s motion to alter, amend, or vacate the summary judgment entered in favor of the Association appel-lees; granting the summary-judgment motions filed by the Wolfs, the Wigginses, and the Butlers; denying Johnson and Johnson Properties’ summary-judgment motion; and granting the motions to dismiss Chancy’s amended complaint filed by the Wolfs and the Association appellees. On June 25, 2009, the Butlers filed a motion to dismiss Chancy’s amended complaint or, in the alternative, for a judgment on the pleadings. On June 25, 2009, Chancy filed a motion for certification of the summary judgments pursuant to Rule 54(b), Ala. R. Civ. P., and a motion to stay the proceedings at the trial-court level; those motions were granted by the trial court on July 13, 2009.

Chancy filed her notice of appeal to the Alabama Supreme Court on August 13, 2009; that court transferred the appeal to this court, pursuant to § 12-2-7(6), Ala. Code 1975.

Standard of Review

“A party is entitled to a summary judgment when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Rule 56(c), Ala. R. Civ. P. ‘Our standard of review in cases involving summary judgments is de novo.’ Lee v. Burdette, 715 So.2d 804, 806 (Ala.Civ.App.1998). ‘In reviewing the disposition of a motion for [a] summary judgment, we utilize the same standard as that of the trial court in determining whether the evidence before the court made out a genuine issue of material fact’ and whether the movant ‘is entitled to a judgment as a matter of law.’ Bussey v. John Deere Co., 531 So.2d 860, 862 (Ala.1988); Rule 56(c)(3), Ala. R. Civ. P. ‘[I]f the moving party makes a prima facie showing that no genuine issue of material fact exists, then the burden ... shifts to the non-movant; ... the non-movant must show “substantial evidence” in support of his position.’ Bass v. SouthTrust Bank, 538 So.2d 794, 798 (Ala.1989). Evidence is ‘substantial’ if it is ‘of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.’ West v. Founders Life Assurance Co., 547 So.2d 870, 871 (Ala.1989). Our review is further subject to the caveat that this court must review the record in a light that is most favorable to the nonmovant and must resolve all reasonable doubts against the movant. Hanners v. Balfour Guthrie, Inc., 564 So.2d 412, 413 (Ala.1990).”

Prince v. Wal-Mart Stores, Inc., 804 So.2d 1102, 1103-04 (Ala.Civ.App.2001).

Discussion

Chancy argues on appeal that the trial court erred by entering a summary judgment in favor of the Association and the Association members, on her claims of interference with her access easement, intentional violation of her property rights, trespass, and nuisance and on her claims seeking a declaratory judgment and in-junctive relief. Because Chancy does not appeal the summary judgment in favor of the Association and the Association members (hereinafter sometimes collectively referred to as “the appellees”) on her claims of breach of contract, fraudulent misrepresentation, invasion of the right to privacy, and the tort of outrage, we affirm the trial court’s summary judgment as to those claims.

With regard to the remaining claims of interference with her access easement, intentional violation of her property rights, nuisance, and trespass and on her claims seeking a declaratory judgment and in-junctive relief, Chancy asserts on appeal that she had been expressly conveyed an easement via the Declaration and that that easement was never properly terminated. Thus, Chancy argues that there remains a genuine issue of material fact regarding whether the Association members’ attempt to revoke the easement by recording the Amendment was a proper termination of her easement and that, therefore, summary judgment was improper.

In Bruner v. Walker, 366 So.2d 695, 696-97 (Ala.1978), the Alabama Supreme Court stated:

“It has been long recognized that one who purchases land subject to, or with notice of, an easement, takes the estate subject to the easement. Brown v. Alabama Power Co., 275 Ala. 467, 156 So.2d 153 (1963); Scheuer v. Britt, 217 Ala. 196, 115 So. 237 (1928). This principle is intended to prevent the purchaser from escaping his obligation to honor an easement which, in good conscience, he is bound to respect. It is not intended to create an estate in land but rather to protect and enforce the rights of a party in an already existing estate. Therefore, to invoke this principle, it must be affirmatively shown that a valid easement actually existed and that the purchaser took the land either subject to, or with notice of, the easement.”

Alabama law has recognized that an easement may be created by contract. See Cleek v. Povia, 515 So.2d 1246 (Ala.1987) (holding that an oral agreement to create an easement was enforceable). In McCarthy v. Nicrosi, 72 Ala. 332 (1882), the Alabama Supreme Court determined that an easement had been created by a written contract between the parties that stipulated that a sewer should be constructed at the joint expense of the parties. An easement was created in favor of the owner of the upper lot to allow the water to drain across the lower lot. Id.

In the present case, Chancy and Johnson stipulated in the Agreement, a written contract signed by both Chancy and Johnson, that Johnson would ensure access to Chancy’s adjoining property through the subject property. Thus, Johnson purchased the subject property subject to an access easement. See Bruner, supra. In turn, Johnson recorded the Declaration, which referred in Article X to an “easement for ingress/ingress” in favor of Chancy’s adjoining property.

To the extent that the appellees assert that an easement was not created by the Declaration, we look to this court’s discussion of “the proper interpretation of agreements creating licenses or easements” in Blackburn v. Lefebvre, 976 So.2d 482, 489-91 (Ala.Civ.App.2007):

“First, ‘ “[t]he construction of a written document is a function of the court.” ’ Jehle-Slauson Constr. Co. v. Hood-Rich, Architects & Consulting Eng’rs, 435 So.2d 716, 720 (Ala.1988) (quoting Wheeler v. First Alabama Bank of Birmingham, 364 So.2d 1190, 1194 (Ala.1978)). ‘In the absence of fraud or mistake, it is only where the instrument is doubtful of meaning, or its language ambiguous, that the court may look beyond the “four corners” of the instrument to give clarity and specificity of meaning.’ Camp v. Milam, 291 Ala. 12, 16-17, 277 So.2d 95, 98 (1973); see also David Lee Boykin Family Trust v. Boykin, 661 So.2d 245, 251 (Ala.Civ.App.1995) (‘The substantive rules governing licenses are the same as those governing contracts.’).
“The critical factor in determining whether parties created an easement or a license is the parties’ intent. James v. Brewster, 954 So.2d 594, 600 (Ala.Civ.App.2006) (citing Boyce v. Cassese, 941 So.2d 932, 941 (Ala.2006)). In determining whether the parties created an easement or a license, we also look to the surrounding circumstances. See Drummond Co. v. Walter Indus., Inc., 962 So.2d 753 (Ala.2006) (citing Jon W. Bruce and James W. Ely, Jr., The Law of Easements & Licenses § 11:1 (West 2001)).
“Concerning the distinction between easements and licenses, we note that, on the one hand, ‘[n]onpossessory property rights such as covenants and easements are said to “run with the land,” becoming an incident of ownership, and they are generally not personal.’ Budget Inn of Daphne, Inc. v. City of Daphne, 789 So.2d 154, 159 (Ala.2000). In contrast, ‘[a] license denotes the “giving of one’s consent” to do or perform a specified activity; a license is a personal privilege and is generally revocable at the will of the licensor.’ Wehby v. Turpin, 710 So.2d 1243, 1251 (Ala.1998) (citing Camp v. Milam, 291 Ala. at 17, 277 So.2d at 99).
“Our supreme court has adopted the following language of Jon W. Bruce & James N. Ely, Jr., The Law of Easements & Licenses in Land § 11:1 (West 2001), to explain the distinction between easements and licenses and the factors to consider when determining the nature of the interest created by the parties:
“ ‘ “§ 1:4 — Fundamental difference
“ ‘ “A license is often defined as permission to do an act or a series of acts on another’s land that, absent authorization, would constitute trespass. Because permission is the voluntary grant of a personal privilege, the landowner may usually revoke consent at any time and thereby terminate the license. Given their revocable nature, licenses generally are not considered to reach the status of interests in land. In contrast, easements are irrevocable interests in land of potentially perpetual duration.
“ ‘ “Several distinctions flow from this fundamental difference. An express easement must be in writing to satisfy the Statute of Frauds; a license may be, and often is, given orally. Easement holders are entitled to protection from interference from third parties; licensees generally are not. Most easements are transierable; licenses are not transferable unless the parties intended otherwise.
“ ‘ “§ 1:5 — Intent of parties
“■‘“All of the legal distinctions between easements and licenses mentioned in the preceding section only hint at how one can decide which right was created. The critical factor is the parties’ intent. The following elements are important in ascertaining intent:
“1 “1. Manner of creation of right (oral or written). The mere granting of a right in writing does not automatically render it an easement. ... [M]ore is required to create an easement. The existence or absence of words that are ‘ordinarily used in the conveyances of real estate’ is an important factor. The label that the parties give the right, however, does not dictate its legal effect. For example, a right called a lease may in reality be an easement or a license.
“ ‘ “2. Nature of right created. The creation of a right to be used in a particular portion of the servient estate indicates that an easement was intended. Likewise, the existence of authority in the holder of the right to maintain or improve the burdened property suggests an easement.
“ ‘ “3. Duration of right. A set duration indicates an easement. A grant in perpetuity also indicates an easement. Further, an express provision that the right benefits its holders’ successors and assigns supports the conclusion that an easement was intended. Similarly, an easement is indicated if the right expressly binds the servient landowner's successors and assigns. Conversely, the deletion of words of succession may indicate a license. Finding an easement, however, does not depend upon the existence of ‘magic words such as “successors and assigns.” ’
“ ‘ “4. Amount of consideration, if any, given for right. Substantial consideration indicates an easement. In this regard, it is necessary to distinguish consideration given for the right from money expended in reliance upon the right. An ‘irrevocable license’ may result from expenditures made in reliance on an existing license.
“ ‘ “5. Reservation of power to revoke right. An express reservation of the power to cancel, revoke, or terminate the right may be considered to indicate a license. However, a power to terminate in the landowner does not necessarily mean that a license was created. Specifying a power to terminate for a particular reason or in limited circumstances may be seen as inconsistent with the unabridged right to revoke retained by one who grants a license. Moreover, an easement may be expressly subject to termination by the servient owner upon the occurrence of a specified event.” ’
“Boyce v. Cassese, 941 So.2d at 941-42 (emphasis added).”

Based on the discussion in Blackburn, we conclude that the Declaration created an easement in favor of Chancy. The Declaration is a written document that indicates that the covenants therein will run with the land and be binding. The Declaration also references an “easement for ingress/egress” as recorded on the plat for the Chancy Lake subdivision, which indicates that it is an interest in land, rather than permission to perform certain acts thereon. Moreover, to the extent that the conditions for modification or termination of any of the provisions in the Declaration outlined in Article XI conflict with the intent to create a binding easement expressed in Article X and thereby create an ambiguity, reference to the Agreement indicates that Johnson’s intent was to create a binding easement.

The appellees assert that, to the extent the Declaration created an easement in favor of Chancy, that easement was subject to Article XI of the Declaration and, thus, the Amendment properly terminated that easement. Chancy argues, however, that the easement could not be terminated by the Amendment. We agree with Chancy-

“ ‘An easement, although an incorporeal right, ... is yet properly denominated an interest in land, ... and the expression “estate or interest in lands” is broad enough to include such rights; for an easement must be an interest in or over the soil.’ ” West Town Plaza Assocs., Ltd. v. Wal-Mart Stores, Inc., 619 So.2d 1290, 1295 (Ala.1993) (quoting Oates v. Town of Headland, 154 Ala. 503, 505, 45 So. 910, 911 (1908)). A landowner cannot convey a greater interest in property than he possesses. See Benefield v. Benefield, 953 So.2d 418, 425 (Ala.Civ.App.2006) (where widow possessed a life estate, her purported conveyance of the property in fee simple to her son was ineffective; she conveyed only her life estate); Bonner v. Pugh, 376 So.2d 1354, 1357 (Ala.1979) (when a person who has only a life estate purports to transfer an estate greater than the life estate, his or her conveyee acquires, as against the owner of a future interest in such land, no right, privilege, power, or immunity greater than those possessed by the conveyer).

By virtue of the Agreement, Johnson owned an interest in the subject property that was subject to the easement in favor of Chancy. The Agreement did not assign any limitations to the easement, and, thus, Johnson did not possess a right to limit the easement without Chancy’s consent. See Romar Dev. Co. v. Gulf View Mgmt. Corp., 644 So.2d 462, 465 (Ala.1994) (“[BJeeause [the] contract created the easement, that contract also defines the extent of the easement.”). Because Johnson could not convey a greater interest in the subject property than he possessed, he could not convey the subject property with the limitation imposed by Article XI of the Declaration, which provided a manner of modifying or terminating the easement without Chancy’s consent. See Ex parte Folsom, 42 So.3d 732 (Ala.2009) (where easement was not ambiguous and granted rights over an area of real property, owner of servient estate was not entitled to unilaterally modify the terms of the easement), and West Town Plaza, 619 So.2d at 1296 (“‘The owner of the servient estate must abstain from acts interfering with the proper enjoyment of the easement by the owner of the dominant estate....’” (quoting Brown v. Alabama Power Co., 275 Ala. 467, 470, 156 So.2d 153, 154 (1963))). We conclude, therefore, that to the extent Article XI of the Declaration attempted to limit the easement, that provision of the Declaration is void. We conclude also that the Amendment did not terminate the easement and that Chancy maintains an easement across the subject property.

Although we conclude that Article XI of the Declaration did not act to limit the easement, we note that the conveyance of the easement without limitation in the Declaration remains valid. “As this Court has held before, ‘an ineffectual attempt to convey a greater estate or interest would not invalidate the conveyance of that property conveyable.’ Francis v. Sandlin, 150 Ala. 588, 587, 48 So. 829, 830 (1907).” Ex parte Powell, 763 So.2d 230, 233 (Ala.1999).

Because we conclude that Chancy possesses an express easement across the subject property, we reverse the trial court’s summary judgments in favor of the appellees on Chancy’s claims of interference with her access easement and intentional violation of her property rights and her claim seeking injunctive relief, each of which are dependent on her possession of an express easement. Additionally, our determination that Chancy possesses an express easement obviates the need to address her argument that the trial court erred by entering summary judgments in favor of the appellees on her claim seeking a declaratory judgment, which requested only a declaration that Chancy possessed an easement by adverse possession, by prescription, by necessity, or by implication and a judicial determination as to the rights and responsibilities of the parties concerning the easement.

Chancy last argues on appeal that the trial court erred in entering summary judgments in favor of the appellees on her claims of nuisance and trespass. Those claims both rely on Chancy’s assertion that a lake exists in the middle of the Chancy Lake subdivision and that the appellees have intentionally altered or interfered with the natural drainage of that lake, causing it to drain through the easement reserved in favor of Chancy and onto Chancy’s adjacent property. The appel-lees argue that Chancy has presented no substantial evidence indicating that the ap-pellees have caused drainage onto her property or that damage has resulted therefrom; the appellees submitted affidavits stating that they had not taken any actions to interfere with the natural drainage of Chancy Lake onto Chancy’s property-

Chancy cites Johnson’s affidavit, which states that Johnson Properties began construction of a surface-water retention pond after purchasing the subject property, and she concedes that Johnson is the party that altered the natural flow of drainage from Chancy Lake. She asserts, however, that each current lot owner, i.e., the Association members, owns a portion of the lake and that they have made no effort to halt or correct the artificial flow of water toward Chancy’s adjacent property.

Chancy cites Carlton v. Hollon, 4 So.3d 439 (Ala.2008), for the proposition that the lot owners may be held liable for failing to correct the drainage when they have had reasonable time to correct the condition. In Carlton, Carlton and Hutchinson owned real property adjacent to property owned by the Hollons. 4 So.3d at 440. Carlton and Hutchinson sued the Hollons and the previous owner of the Hollons’ property, the Webbs, alleging that, when the Webbs owned the property, the Webbs had removed timber and made changes to the surface of their property, which had altered the natural water drainage onto Carlton’s and Hutchinson’s property. Id. at 440-41. Although the Hollons testified that they had not cut any timber or otherwise altered the surface of their property, the Alabama Supreme Court determined that “a landowner may be held liable for failing to correct a condition on the landowner’s property that was created by the previous landowner when that condition causes injury to an adjacent landowner’s property, and the current landowner has had a reasonable time to correct the condition.” Id. at 443. See also Sloss Sheffield Steel & Iron Co. v. Nance, 216 Ala. 237, 113 So. 50 (1927).

In her affidavit, Chancy stated that she had never observed anyone attempting to make any improvements to limit or remedy the damage to her property caused by the drainage of the lake. Based on Carlton, we conclude that a genuine issue of material fact exists regarding Chancy’s claims of trespass and nuisance such that summary judgment was improper. We therefore reverse the trial court’s judgments with regard to those claims.

Conclusion

We affirm the trial court’s summary judgments with regard to Chancy’s claims of breach of contract, fraudulent misrepresentation, invasion of the right to privacy, and the tort of outrage and her claim seeking a declaratory judgment against the appellees. We reverse the trial court’s judgments with regard to Chancy’s claims of interference with her access easement, intentional violation of her property rights, nuisance, and trespass and her claim seeking injunctive relief, and we remand the cause for further proceedings.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

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

      . Chancy had filed a response to the summary-judgment motions of some of the Association members and the Association on September 29, 2008. On October 15, 2008, she filed an amended response that addressed the summary-judgment motions of each of the Association members and the Association.

      . The trial court had not entered a ruling on the Wolf's summary-judgment motion at the time they filed their response to Chancy's postjudgment motion.

      . We note that the Wigginses have not filed an appellees' brief.

      . We note that Article XII of the Declaration applies and this court’s decision does not invalidate any other provision of the Declaration, that Article XI remains in full force and effect with regard to the remaining articles of the Declaration, and that the Amendment remains in full force and effect with regard to any remaining changes to the Declaration made therein.