Case Title: Stone v. Errecart

Citation: 165 Vt 1, 675 A.2d 1322

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1996-02-09T00:00:00Z

Document:
Stone v. Errecart  (94-295); 165 Vt 1; 675 A.2d 1322

[Opinion Filed 09-Feb-1996]

[Motion for Reargument Denied 6-Mar-1996]

  NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 No. 94-295


Justine & Richard Stone and                       Supreme Court
Beatrice Guyett
                                                  On Appeal from
    v.                                            Washington Superior Court

Joyce Errecart, Commissioner,                     October Term, 1995
Vermont Department of Taxes
and the State of Vermont


Alan W. Cheever, J.

       David H. Mullett of Cheney, Brock, Saudek & Mullett, P.C., Montpelier,
  for plaintiff-appellants

       Jeffrey L. Amestoy, Attorney General, and Mary L. Bachman, Special
  Assistant Attorney General, Montpelier, for defendants-appellees


PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


       DOOLEY, J.   This is a companion opinion to Hirsch v. Vermont Dep't of
  Taxes, 6 Vt. L.W. 227 (August 11, 1995), in which we held that where a
  taxpayer earned income from federal obligations, the method of calculating
  taxable income mandated by 32 V.S.A. § 5822 violated 31 U.S.C. § 3124. 
  Unlike the taxpayers in Hirsch, the taxpayers involved in this decision,
  Justine and Richard Stone and Beatrice Guyett, did not seek a refund from
  the Commissioner of Taxes pursuant to 32 V.S.A. § 5884(a), but instead went
  directly to Washington Superior Court and brought a class action.  The
  superior court dismissed plaintiffs' claim, and those of the class, for
  failure to exhaust administrative remedies.  We affirm.

       Taxpayers challenge the validity of 32 V.S.A. § 5822 as it existed for
  tax years 1989 through 1992.  During those years, the statute required the
  use of the adjustment method of calculation in determining Vermont income
  tax liability of those with federal obligation income. Taxpayers contended
  that the adjustment method illegally taxed them on interest earned on

 

  federal obligations, in violation of 31 U.S.C. § 3124 and the Supremacy
  Clause of the United States Constitution, and filed suit in Washington
  Superior Court, seeking a refund of the amount they assert was illegally
  collected.  They also moved to certify a class of all taxpayers with
  federal obligation income in the years involved.  See V.R.C.P. 23.  The
  Commissioner of Taxes filed a timely motion to dismiss, arguing that the
  superior court lacked jurisdiction because taxpayers had failed to first
  seek a refund from her as required by 32 V.S.A. § 5884. Taxpayers argued
  that it was futile to exhaust the administrative remedy because the
  Commissioner did not have the power to strike down the statute.

       On April 25, 1994, the court granted the Commissioner's motion to
  dismiss, holding that taxpayers had failed to exhaust their administrative
  remedies.  The request for class certification was denied.  Taxpayers filed
  a notice of appeal with this Court on May 11, 1994.

       This case was one of three that were appealed to this Court which
  raised the same substantive attack on 32 V.S.A. § 5822.  We consolidated
  the three cases and addressed the substantive claims in Hirsch.  We decided
  that the adjustment method of income calculation, as mandated by 32 V.S.A.
  § 5822, violated 31 U.S.C. § 3124.  In two of the cases, plaintiffs had
  exhausted all administrative remedies, and we remanded to determine the
  proper refund.  In this third case, we must decide whether plaintiffs'
  failure to exhaust administrative remedies bars retroactive relief as the
  superior court held.

       Three statutes are relevant to our decision.  The first, 32 V.S.A. §
  5884(a), provides that within three years after the date a return must be
  filed, or six months after a federal refund was received, whichever is
  later, a taxpayer may petition the Commissioner for a refund.  The
  Commissioner must hold a hearing on the request and render a decision.  See
  id.  The second, 32 V.S.A. § 5885(b), authorizes a taxpayer who is
  aggrieved by a decision of the Commissioner on a refund request to appeal
  to the superior court.

       The third statute, 32 V.S.A. § 5887(a), is central to this decision. 
  It reads, in pertinent part:

 

       § 5887.  Remedy exclusive; determination final

       (a) The exclusive remedy of a taxpayer with respect to the
       refund of monies paid in connection with a return filed under this
       chapter shall be the petition for refund provided under section
       5884 of this title, and the appeal from an adverse determination of
       the petition for refund provided under section 5885.

  We applied § 5887 in Riley v. State of Vermont, 133 Vt. 116, 329 A.2d 631
  (1974), holding that a land gains taxpayer must follow the administrative
  appeal route as a prerequisite to judicial review:

       [T]he Legislature has made its purpose abundantly clear by
       defining this statutory route as the "exclusive remedy" in 32
       V.S.A. § 5887.  This is a binding legislative limitation on the
       course of review of the action of the Commissioner of Taxes
       available to the taxpayer.

  Id. at 117, 329 A.2d  at 632.  We have applied the Riley rationale to other
  tax appeal statutes. See City of Winooski v. Matte, 125 Vt. 463, 465,