Present: Carrico, C.J., Compton, Stephenson, Whiting2

, Lacy, 

Hassell, and Keenan, JJ. 

HENRY HARPER, ET AL. 

v. Record No. 940326 

VIRGINIA DEPARTMENT OF TAXATION 

 OPINION BY 

CHIEF JUSTICE HARRY L. CARRICO 

 September 15, 1995 

LAWRENCE E. LEWY, ET AL. 

v. Record No. 940411 

VIRGINIA DEPARTMENT OF TAXATION 

 FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA 

Donald H. Kent, Judge 

 This appeal involves the interpretation of a tax-refund 

statute, Code § 58.1-1826, which provides in pertinent part as 

follows: 

 If the court is satisfied that the applicant is 

erroneously or improperly assessed with any taxes, the 

court may order that the assessment be corrected. If 

the assessment exceeds the proper amount, the court may 

order that the applicant be exonerated from the payment 

of so much as is erroneously or improperly charged, if 

not already paid and, if paid, that it be refunded to 

him. If the assessment is less than the proper amount, 

the court shall order that the applicant pay the proper 

taxes . . . . 

The question for decision is whether the trial court erred in 

denying refunds for taxes erroneously or improperly collected for 

pension income received by federal retirees. The question is 

presented against the following factual and legal background. 

 On March 28, 1989, in Davis v. Michigan Dept. of Treasury, 

 

 2Justice Whiting participated in the hearing and 

decision of this case prior to the effective date of his 

retirement on August 12, 1995. 
489 U.S. 803, the Supreme Court of the United States held that a 

Michigan statute which defined taxable income in a manner 

exempting from taxation the pension income of retired state 

employees, but not the pension income of retired federal 

employees, violated the doctrine of intergovernmental tax immunity 

embodied in the supremacy clause of the United States 

Constitution. Id. at 817. The Court stated that Michigan "having 

conceded that a refund is appropriate in these circumstances," the 

appellant "is entitled to a refund" to the extent he "has paid 

taxes pursuant to this invalid tax scheme." Id. 

 Virginia similarly exempted the pension income of retired 

state and local government employees, but not the pension income 

of retired federal employees. Following Davis, the Virginia 

General Assembly repealed the exemption for state and local 

employees, Acts 1989, Spec. Sess. II, c. 3, but made no provision 

at the time for the relief of federal retirees for the taxes they 

had paid prior to Davis.3 

 Also in 1989, Henry Harper and Lawrence and Miriam Lewy, 

 

 3In 1994, the General Assembly enacted the Federal 

Retirees Settlement Program. Acts 1994, Spec. Sess. I, c. 

5. This legislation authorized the Tax Commissioner "to 

make settlement payments to taxpayers to resolve disputed 

claims for refunds of taxes paid with respect to retirement 

or pension benefits received from a federal retirmenet 

system . . . for any taxable year beginning on or after 

January 1, 1985, and ending on or before December 31, 1988." 

 The legislation provided that "[t]he taxpayers shall be 

given the option of whether they want to participate in the 

settlement" and "[t]hose who do not want to participate will 

have the option of having their entitlement to refunds 

determined by existing litigation or filing suit 

themselves." The Harper taxpayers have exercised the latter 

option and seek to have their entitlement to refunds 

determined in the present litigation. 
along with numerous other federal pensioners, brought proceedings 

in several Virginia circuit courts seeking refunds of taxes paid 

since 1985 on income from civil service annuities or pensions for 

federal employment or military duty. The several proceedings were 

consolidated into one action in the Circuit Court of the City of 

Alexandria, where the matter has been litigated, and the case is 

before this Court for the third time. The Circuit Court of the 

City of Alexandria will be referred to hereinafter as the trial 

court; the plaintiffs in the consolidated action will be referred 

to collectively as Harper or the Harper taxpayers; and the 

Virginia Department of Taxation will be referred to as the 

Department. 

 In the initial proceeding below, the trial court ruled that 

Davis should be applied only prospectively and denied the refunds 

sought by Harper. We awarded Harper an appeal and affirmed the 

judgment of the trial court, holding that Davis should not "be 

applied retroactively" and that "state law does not require tax 

refunds, but to the contrary, grants prospective-only application 

to decisions that invalidate a taxing scheme." Harper v. Virginia 

Dept. of Taxation, 241 Va. 232, 243, 401 S.E.2d 868, 874 (1991). 

 The Supreme Court granted certiorari, vacated our judgment, 

and remanded the case "for further consideration in light of James 

B. Beam Distilling Co. v. Georgia, [501 U.S. 529, 540 (1991) 

(error to refuse to apply rule of federal law retroactively after 

case announcing rule has already done so)]." Harper v. Virginia 

Dept. of Taxation, 501 U.S. 1247 (1991) (Harper I). Upon remand, 

we reaffirmed "our prior decision in all respects," stating that 
"having reconsidered our . . . decision in light of Beam, we 

conclude that nothing articulated in Beam requires a result 

different from that reached in our prior decision." Harper v. 

Virginia Dept. of Taxation, 242 Va. 322, 327, 410 S.E.2d 629, 632 

(1991). 

 The Supreme Court again granted certiorari. Harper v. 

Virginia Dept. of Taxation, 504 U.S. 954 (1992). Disagreeing with 

this Court's treatment of the retroactivity issue, the Court 

stated that its response in Davis to Michigan's concession that a 

refund was appropriate "constituted a retroactive application of 

the rule announced in Davis to the parties before the Court." 

Harper v. Virginia Dept. of Taxation, 509 U.S. ___, 113 S.Ct. 

2510, 2518 (1993) (Harper II). Therefore, the Court held, "the 

Supreme Court of Virginia must apply Davis in [Harper's] refund 

action." Id. 

 The Court reversed our judgment, but did not enter judgment 

for the Harper taxpayers because, it said, "federal law does not 

necessarily entitle them to a refund." 509 U.S. at ___, 113 S.Ct. 

at 2519. Rather, the Court stated, "the Constitution requires 

Virginia 'to provide relief consistent with federal due process 

principles.'" Id. (quoting American Trucking Assns., Inc. v. 

Smith, 496 U.S. 167, 181 (1990)). But, the Court explained, "'a 

State found to have imposed an impermissibly discriminatory tax 

retains flexibility in responding to this determination.'" Harper 

II, 509 U.S. at ___, 113 S.Ct. at 2519 (quoting McKesson Corp. v. 

Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 39-40 

(1990)). 
 The Court stated further that "[i]f Virginia 'offers a 

meaningful opportunity for taxpayers to withhold contested tax 

assessments and to challenge their validity in a predeprivation 

hearing,' the 'availability of a predeprivation hearing 

constitutes a procedural safeguard . . . sufficient by itself to 

satisfy the Due Process Clause.'" Harper II, 509 U.S. at ___, 113 

S.Ct. at 2519 (quoting McKesson, 496 U.S. at 38 n.21). "On the 

other hand," the Court continued, "if no such predeprivation 

remedy exists, 'the Due Process Clause . . . obligates the State 

to provide meaningful backward-looking relief to rectify any 

unconstitutional deprivation.'" Harper II, 509 U.S. at ___, 113 

S.Ct. at 2519 (quoting McKesson, 496 U.S. at 31). Finally, the 

Court said that "[i]n providing such relief, a State may either 

award full refunds to those burdened by an unlawful tax or issue 

some other order that 'create[s] in hindsight a nondiscriminatory 

scheme.'" Harper II, 509 U.S. at ___, 113 S.Ct. at 2519-20 

(quoting McKesson, 496 U.S. at 40). 

 The Court remanded the case to this Court "for further 

proceedings not inconsistent with [its] opinion." Harper II, 509 

U.S. at ___, 113 S.Ct. at 2520; Lewy v. Virginia Dept. of 

Taxation, ___ U.S. ___, 113 S.Ct. 3024 (1993). In turn, we 

remanded the matter to the trial court "for further proceedings 

not inconsistent with the views expressed in the written opinion 

of the Supreme Court of the United States [in Harper II]." 

 The trial court ruled that Virginia does provide a taxpayer a 

meaningful predeprivation opportunity to challenge a tax, 

sufficient to satisfy due process, in the form of a declaratory 
judgment proceeding brought under Code § 8.01-184. The trial 

court ruled further that, assuming there had been no due process 

violation, Virginia's refund statute, Code § 58.1-1826, did not 

mandate refunds to the taxpayers in the present case because the 

statute vests courts with discretion in determining whether 

refunds should be ordered. Accordingly, the trial court denied 

Harper's request for refunds. 

 We awarded Harper an appeal. Harper argues that because a 

court exercises discretion in determining whether to entertain 

requests for declaratory judgments, Haughton v. Lankford, 189 Va. 

183, 198, 52 S.E.2d 111, 117 (1949), Virginia's declaratory 

judgment proceeding does not provide a meaningful opportunity for 

taxpayers to withhold contested tax assessments and to challenge 

their validity in a predeprivation hearing. 

 Hence, Harper asserts, under McKesson and Harper II, due 

process obligates Virginia to provide meaningful backward-looking 

relief, in the form of a clear and certain remedy, to rectify an 

unconstitutional assessment of taxes. Harper says that we have 

interpreted language in the statutory ancestor of Code § 58.1-1826 

as mandating the refund of taxes illegally collected and, 

therefore, that § 58.1-1826 provides the backward-looking relief 

due process requires. Accordingly, Harper concludes, it was error 

for the trial court to refuse to apply § 58.1-1826 and order 

refunds in this case. 

 The Department argues on the other hand that Virginia's 

declaratory judgment proceeding provided the Harper taxpayers an 

adequate and meaningful predeprivation opportunity to challenge 
the validity of the taxes in dispute, yet they failed to avail 

themselves of the opportunity. Hence, the Department concludes, 

the requirements of due process are satisfied, and Virginia is not 

required to provide any backward-looking relief in the form of 

refunds. 

 With respect to Code § 58.1-1826, the Department contends 

that use of the word "may" in the statute denotes the exercise of 

discretion in the ordering of refunds. The Department makes this 

argument: 

 If the assessment is below the proper amount, the court 

"shall" order the payment of the taxes. The court has 

no discretion. If the assessment is above the proper 

amount, the court "may" order the refunds of the taxes. 

 The court is clothed with discretion in regard to 

refunds. There is no other explanation for the 

legislature's choice of "shall" and "may" within § 58.1-

1826. 

Hence, the Department concludes, § 58.1-1826 "simply cannot be 

read as a legislatively mandated 'entitlement' to refunds," and 

the trial court did not err in refusing to order refunds. 

 Finally, the parties debate the effect of a decision of the 

Supreme Court announced after the trial court decided the present 

case. In Reich v. Collins, 513 U.S. ___, 115 S.Ct. 547 (1994), 

Reich, a retired military officer, filed suit following the 

Supreme Court's decision in Davis seeking a refund from the State 

of Georgia of income taxes paid on his military pension. 

Georgia's refund statute provided that "[a] taxpayer shall be 

refunded any and all taxes or fees which are determined to have 

been erroneously or illegally assessed and collected from him." 

513 U.S. at ___, 115 S.Ct. at 549. 
 The Georgia trial court denied Reich's request for a refund, 

and the Supreme Court of Georgia affirmed, holding that the refund 

statute did not "apply to 'the situation where the law under which 

the taxes are assessed and collected is itself subsequently 

declared to be unconstitutional or otherwise invalid.'" Id.

(quoting Reich v. Collins, 422 S.E.2d 846, 849 (Ga. 1992)). Reich 

petitioned for certiorari, but while his petition was pending, the 

United States Supreme Court decided Harper II. The Court then 

remanded Reich's case to the Supreme Court of Georgia for further 

consideration in light of Harper II. 513 U.S. at ___, 115 S.Ct. 

at 550. 

 On remand, the Supreme Court of Georgia again denied Reich's 

request for a refund, this time holding that Georgia's 

predeprivation remedies were ample to provide a "'meaningful 

opportunity[, sufficient for due process purposes,] for taxpayers 

to withhold contested tax assessments and to challenge their 

validity.'" Reich v. Collins, 437 S.E.2d 320, 321 (Ga. 1993) 

(quoting Harper II, 509 U.S. at ___, 113 S.Ct. at 2519). Reich 

again petitioned for certiorari, and the writ was granted. The 

Supreme Court reversed, saying that, under McKesson, a state has 

"the flexibility to maintain an exclusively predeprivation 

remedial scheme, so long as that scheme is 'clear and certain.'" 

Reich, 513 U.S. at ___, 115 S.Ct. at 550. Due process, the Court 

continued, also allows a state "to maintain an exclusively 

postdeprivation regime . . . or a hybrid regime." Id. And, the 

Court declared, a state "is free as well to reconfigure its 

remedial scheme over time, to fit its changing needs." Id. 
 But, the Court said, 

 what a State may not do, and what Georgia did here, is 

to reconfigure its scheme, unfairly, in midcourse -- to 

"bait and switch," as some have described it. 

Specifically, in the mid-1980's, Georgia held out what 

plainly appeared to be a "clear and certain" 

postdeprivation remedy, in the form of its tax refund 

statute, and then declared, only after Reich and others 

had paid the disputed taxes, that no such remedy exists. 

Id. 

 The Department argues that Reich is inapplicable here. The 

Department points out the mandate in the Georgia statute that "[a] 

taxpayer shall be refunded any and all taxes . . . which are 

determined to have been erroneously or illegally assessed and 

collected." (Emphasis added.) The Department then says that 

"[d]espite this mandatory language, . . . the Georgia Supreme 

Court ruled, apparently for the first time and in conflict with 

its own precedent, that its statute would not apply to cases 

'where the law under which the taxes are assessed and collected is 

itself subsequently declared to be unconstitutional.'" It was 

this ruling, the Department states, that prompted the United 

States Supreme Court in Reich to use the "bait and switch" 

terminology and to note that "no reasonable taxpayer would have 

read the 'illegally collected' statutory language to exclude 

constitutional decisions." 

 "Unlike the Georgia law," the Department maintains, "the 

Virginia statute provides in plain language that 'the court may

order that any amount which has been improperly collected' be 

refunded to the taxpayer." The Department asserts that "[n]o 

reasonable taxpayer can claim he was misled by the clear and 
unequivocal language of this discretionary statute." Furthermore, 

the Department says, "unlike the Georgia Court, this Court has not 

'reconfigured' Virginia law by adding a judicial gloss to the 

clear language of § 58.1-1826, or by failing to follow its own 

precedent." Hence, the Department concludes, "[i]t is clear that 

Reich has no application and, in fact, is completely 

distinguishable from the litigation in Virginia." 

 We disagree with the Department. We think Reich is 

applicable and cannot be distinguished. If, as Harper contends, 

we have previously interpreted the statutory ancestor of Code 

§ 58.1-1826 as mandating a refund of taxes illegally collected but 

we now adopt, for the first time, the Department's view that a 

refund is discretionary, we certainly will have done what the 

Supreme Court said in Reich a state may not do, that is "to 

reconfigure its scheme, unfairly, in midcourse -- to 'bait and 

switch.'" 513 U.S. at ___, 115 S.Ct at 550. 

 Harper is correct in saying that we have interpreted the 

statutory ancestor of Code § 58.1-1826 as mandating the refund of 

taxes illegally collected. Hotel Richmond Corp. v. Commonwealth, 

118 Va. 607, 88 S.E. 173 (1916), involved an interpretation of 

§ 568 of the Code of 1904. The earlier statute provided as 

follows: 

 If the court be satisfied that the applicant is 

erroneously assessed with any taxes, and that the 

erroneous assessment was not caused by the failure or 

refusal of the applicant to furnish a list of his 

property, real and personal, to the commissioner, on 

oath, as the law requires; or that the applicant is 

erroneously charged with a license tax, and that the 

erroneous assessment was not caused by the failure or 

refusal of the applicant to furnish the commissioner, on 

oath, with the necessary information, as required by 
law, in either case the court may order that the 

assessment be corrected. If the assessment exceeds the 

proper amount, the court may order that the applicant be 

exonerated from the payment of so much as is erroneously 

charged, if not already paid, and if paid, that it be 

refunded to him. If the assessment be less than the 

proper amount, the court shall order that the applicant 

pay the proper taxes. 

(Emphasis added.) The taxpayer, Hotel Richmond, sought refund of 

a license tax it claimed had been erroneously assessed. The 

Commonwealth defended on the ground that the tax had been paid 

voluntarily. Responding to the Commonwealth's defense, this Court 

made the following statements: 

 [W]e [do not] question the well-settled doctrine that a 

voluntary payment of money, under a mistake of law, lays 

no foundation for an action to recover back the money so 

paid. This principle, however, has, in our opinion, no 

application to a proceeding, like the present, under a 

statute which expressly provides that, when certain 

conditions are complied with, the citizen shall be 

refunded a tax paid by him which was erroneously 

assessed against him. 

118 Va. at 610, 88 S.E. at 174. (Emphasis added.) 

 The statute in plain terms prescribes the conditions 

upon which the erroneous assessment shall be refunded, 

and it nowhere intimates that if the applicant for 

relief has paid the tax voluntarily he cannot have the 

same refunded. . . . The plaintiffs in error have 

complied with every requirement of the statute, and are, 

therefore, entitled to have the erroneous license tax 

paid by them . . . refunded. 

Id. at 610-11, 88 S.E. at 174. (Emphasis added.) 

 The cases . . . cited in support of the contention that 

a tax voluntarily paid cannot be recovered back . . . 

are, in our opinion, not in conflict with the conclusion 

reached in the present case, where the erroneous tax 

which has been paid is restored to the aggrieved citizen 

by virtue of a plain statute, which provides that it 

shall be refunded. 

Id. at 611, 88 S.E. at 174. (Emphasis added.) 
 The Department dismisses Hotel Richmond as "not on point" 

because the issue in the case was whether voluntary payment of the 

license tax defeated the right to a refund, not whether a refund 

was mandatory. However, the language in the opinion explaining 

the mandatory nature of the refund statute was part of the 

rationale employed to reach the conclusion that voluntary payment 

does not defeat the right to a refund. In other words, had the 

Court considered refunds discretionary and not mandatory, the 

clear implication is that voluntary payment would have defeated 

the right to a refund. Hence, the language dealing with the 

mandatory nature of the refund statute was necessary to the 

Court's decision, and the case is "on point." 

 It is obvious that the Court in Hotel Richmond treated the 

word "may" in the refund statute as "shall." This treatment was 

in accordance with the rule that "'[t]he word "may" is prima facie

permissive, importing discretion, but the courts construe it to be 

mandatory when it is necessary to accomplish the manifest purpose 

of the Legislature.'" Caputo v. Holt, 217 Va. 302, 305 n.*, 228 

S.E.2d 134, 137 n.* (1976) (quoting Chesapeake & O. Ry. Co. v. 

Pulliam, 185 Va. 908, 916, 41 S.E.2d 54, 58 (1947)). See also

Pearson v. Board of Supervisors, 91 Va. 322, 333-34, 21 S.E. 483, 

485 (1895). 

 The Department says that "[t]he manifest purpose of § 58.1-

1826 is to grant the courts the authority to deny refunds in the 

appropriate case." We disagree. We think § 58.1-1826 was enacted 

for a different purpose: 

 It must be remembered . . . that the [refund] statute is 

remedial, and that its avowed purpose is to provide an 
expeditious and inexpensive remedy for relief against 

taxes which have been erroneously assessed or collected, 

and that remedial statutes are not strictly construed, 

but are given a liberal construction with the view of 

advancing the remedy sought to be applied in accordance 

with the true intent and purpose of the legislature. 

Commonwealth v. Smallwood Memorial Inst., 124 Va. 142, 144, 97 

S.E. 805, 806 (1919). It was to accomplish the manifest purpose 

of the legislature that this Court found it necessary in Richmond 

Hotel to give mandatory effect to the word "may" in § 568 of the 

Code of 1904. 

 In practical and legal effect, the language of § 568 is 

identical to the wording of present § 58.1-1826, even to the 

extent that the two enactments employ both "may" and "shall." 

Yet, this Court in Hotel Richmond had no difficulty in giving 

mandatory effect to both words in interpreting § 568. The case 

has remained unchanged as the law of this Commonwealth for almost 

eighty years. To avoid doing what Reich teaches a state may not 

do, that is, to "bait and switch" by reconfiguring its tax scheme 

midcourse, we reaffirm Hotel Richmond's treatment of the word 

"may" in the tax refund statute as mandatory. 

 This leaves for decision the question of Reich's effect upon 

the Department's argument that Virginia's declaratory judgment 

action provides taxpayers an adequate and meaningful opportunity 

to withhold contested tax assessments and to challenge their 

validity in a predeprivation hearing and that the Commonwealth is 

not required, therefore, to provide backward-looking relief in the 

form of refunds. The Department says that the Supreme Court in 

Reich "did not even address the issue of predeprivation remedies." 
 However, the Department overlooks this important passage from the 

Reich opinion: 

 [T]he Georgia Supreme Court's reliance on Georgia's 

predeprivation procedures was entirely beside the point 

(and thus error), because even assuming the 

constitutional adequacy of these procedures -- an issue 

on which we express no view -- no reasonable taxpayer 

would have thought that they represented, in light of 

the apparent applicability of the refund statute, the 

exclusive remedy for unlawful taxes. 

513 U.S. at ___, 115 S.Ct. at 550. 

 Given the clear applicability of Code § 58.1-1826, we are of 

opinion that no reasonable taxpayer would have thought that a 

declaratory judgment proceeding, even assuming its constitutional 

adequacy -- an issue upon which we express no view -- represented 

the exclusive remedy for relief from unlawful taxes in Virginia. 

Accordingly, it would be "entirely beside the point (and thus 

error)," Reich, 513 U.S. at ___, 115 S.Ct. at 550, for this Court 

to place any reliance in this case on the Commonwealth's 

declaratory judgment procedure as a means to avoid providing 

meaningful backward-looking relief in the form of refunds. 

 Alternatively, the Department argues that in addition to the 

predeprivation remedy of declaratory judgment, the Harper 

taxpayers had a second predeprivation remedy available to them in 

the form of an administrative procedure provided by Code §§ 58.1-

1821 and -1822. The Department prays that, if we do not affirm 

the judgment of the trial court, we remand the case for a 

resolution of the sufficiency of the administrative remedies. 

However, any reliance upon these remedies would be beside the 

point, and thus error, for the same reason that any reliance upon 
the declaratory judgment procedure would be beside the point, and 

thus error. In view of the clear applicability of Code § 58.1-

1826, no reasonable taxpayer would have thought that the 

administrative procedure represented the exclusive remedy for 

relief from unlawful taxes. Therefore, we deny the Department's 

prayer. 

 Finally, the Department argues that, by authorizing the 

refund of only so much of the amount paid as is erroneous or 

improper, Code § 58.1-1826 "commands that any refund ordered must 

be limited to the amount necessary to correct the error (here, the 

difference between the amount that plaintiffs actually paid in 

taxes and the amount they would have paid had the state also taxed 

state pensioners, to be determined in a subsequent evidentiary 

hearing)." The Department requests that we remand the case for 

such a hearing. 

 We decline the request. Harper II teaches that "[i]n 

providing [meaningful backward-looking] relief, a State may either 

award full refunds to those burdened by an unlawful tax or issue 

some other order that 'create[s] in hindsight a nondiscriminatory 

scheme.'" 509 U.S. at ___, 113 S.Ct. at 2519-20 (quoting 

McKesson, 496 U.S. at 40). The courts are powerless to impose a 

tax on the state employees whose pension income was exempt prior 

to Davis. To reduce the amount of the refunds due the Harper 

taxpayers and thus relieve them of only a portion of their 

unlawful tax burden, while leaving the state pensioners entirely 

untaxed for the pre-Davis period, would only create another 

discriminatory scheme. 
 Giving Reich its full effect, we reach the inevitable 

conclusion that the Harper taxpayers are entitled to full refunds. 

 Accordingly, we will reverse the judgment of the trial court and 

enter final judgment in favor of the Harper taxpayers directing 

that the amounts unlawfully collected from them be refunded, with 

interest as provided in Code § 58.1-1833. 

Reversed and final judgment.