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### IN THE SUPREME COURT OF THE STATE OF WASHINGTON
DOTFOODS, INC., Respondent/Cross Appellant,


### v. STATE OF WASHINGTON, DEPARTMENT OF REVENUE, Appellant/Cross Respondent. ) ) ) ) ) ) ) ) ) ) 

### )



# ________________________ ) No. 92398-1

EnBanc

Filed 

### MAR 11 2016



### ----------------
YU, J.-We are asked to decide whether retroactive application ofthe legislature's amendment to a business and occupation (B&O) tax exemption violates a taxpayer's rights under the due process clause ofthe Fourteenth Amendment, U.S. CoNST. amend. XIV,§ 1, collateral estoppel, or separation of powers principles. Taxpayer DotFoods contends that it shouldremain eligible for

a B&O tax exemption pursuantto our decision inDotFoods, Inc. v. Department of Revenue, 

### 166 Wn.2d 912, 215 P.3d 185 (2009) (DotFoods 

### I), despite an intervening, contrary amendment to the applicable law. BecauseDotFoods 

### I does not encompass the tax periods before us now, we hold thatretroactive applicationDotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 ofthe legislative amendment to DotFoods does not violate due process, collateral estoppel, or separation ofpowers principles. We affirm inpart and reverse in part. FACTUAL & PROCEDURAL HISTORY The B&O tax is imposed for "the act orprivilege ofengaging inbusiness activities" within the state. RCW 82.04.220(1). The tax applies unless a specific exemption exists. See RCW 82.04.310-.427; see also TracFone Wireless, Inc. v. Dep 't of Revenue, 170 Wn.2d 273, 296-97, 242 P.3d 810 (2010). Former RCW 82.04.423(1)(d) (1983) exempted certain out-of-state sellers from the B&O tax ifthey made "sales in this state exclusively to orthrough a direct seller's representative," as defined in former RCW 82.04.423(2). DotFoods is an Illinois-based food reseller that sells products to service companies in Washington through its wholly owned subsidiary DTI. DotFoods qualified for the direct seller's exemptionunder former RCW 82.04.423 from 1997 unti12000, when the Department ofRevenue (Department) narrowed its interpretation ofthe statute. This new interpretation gave rise to DotFoods I, the previous tax appeal implicated in the current dispute. In 2009, we decidedDotFoods I, which held thatthe Department's revised interpretation ofRCW 82.04.423 was contrary to the statute's plain and unambiguous language. DotFoods I, 166 Wn.2d at 920-21. We concludedthat

2

### DotFoods, Inc. v. Dep't of Revenue, No. 92398-1 "Dot [Foods] remains qualified for the B&Otax exemptionto the extent its sales continue to qualify for the exemption." 

### Id. at 926. DotFoods continuedto paythe full B&Otax during the pendency ofits priortax appeal to avoid penalties and interest. Clerk's Papers (CP) at 360. In December 2009, pursuantto thejudgment in

### DotFoods I, DotFoods requested a refund for B&O taxes paid from January 2005 through August 2009, 

### id. at 83-84, a time period that extends beyond the tax periods directly at issue in

### DotFoods I. In April2010, the legislature amended former RCW 82.04.423 in direct response to our decision in

### DotFoods I. LAWS OF 2010, 1st Spec. Sess., ch. 23, §§ 401, 402. The amendment retroactively narrowed the scope of RCW 82.04.423(2) and prospectively repealed the direct seller's exemption. 

### Id. at § 401( 4). Itis undisputed that Dot Foods qualified for the exemption under former RCW 82.04.423 but is ineligible for the exemption under the 2010 amendment. In July 2010, based on the retroactive application ofthe 2010 amendment, the Department denied DotFoods' refund request for the periods outside the litigation in 

### Dot'Foods I, "[s]pecifically, the refund request for Wholesaling B&O tax for the periods from May 2006 through August 2009." CP at 309. However, the Department explained that "retroactive application ofthe bill does not affect the periods included in the DotFoods Supreme Court decision. Specifically, it will not apply to the periods from January 2000 through April2006." 

### Id. at 308. Later

3

### DotFoods, Inc. v. Dep'tofRevenue, No. 92398-1 that year, DotFoods negotiated a settlement with the Department for over 97 percent ofthe B&O taxes paid from January 2000 through April2006, the refund period directly at issue in

### DotFoods I. DotFoods' Resp. Br. & Br. on CrossAppeal (DotFoods' Resp. Br.) at 7. DotFoods now seeks a refund for the B&Otaxes itpaid from May 2006 through December 2007, the interim period beginning immediately after the tax periods at issue in

### DotFoods I and ending when DotFoods' business practices changed in 2008. Afterthe Department denied its refund request, DotFoods brought a refund action against the Department in Thurston County Superior Court, challenging retroactive application ofthe amendment under theories of collateral estoppel, separation ofpowers, and due process. In a letter opinion, the trial court granted summaryjudgmentto the Department onthe collateral estoppel and separation ofpowers issues but found in favor ofDotFoods on the due process claim. CP at 468-74. The Department appealed, and DotFoods cross appealed on the separation ofpowers and collateral estoppel issues. The Court ofAppeals certified the case to this courtpursuantto RAP 4.4.

4

### DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1
ANALYSIS The history oflitigation around Washington's B&Otax and its subsequent amendments has been a long and winding road. 1 While the constitutional validity ofthe ability to impose a B&O tax is not at issue, this case requires us to examine whether due process and collateral estoppel should disallow retroactive application ofan amended statute to a particularperiod oftime. The dispute before us is resolved by our ownprecedent, traditional legal principles, and cases from the United States Supreme Court and federal district courts. A. DUEPROCESS CLAIM The Supreme Court set forth the due process standard for retroactive tax legislation in 

### UnitedStates v. Carlton, 512 U.S. 26, 114 S. Ct. 2018, 129 L. Ed. 2d 22 (1994). 

### Carlton established that "[t]he due process standard to be appliedto tax statutes with retroactive effect

... is the same as that generally applicable to retroactive economic legislation," id. at 30; that is, the statute must be '"supported

1See Tyler Pipe Indus., Inc. v. Dep'tofRevenue, 105 Wn.2d 318,715 P.2d 123 (1986), vacated, 483 U.S. 232, 107 S. Ct. 2810, 97 L. Ed. 2d 199 (1987) (invalidating Washington's B&O tax scheme); Nat'! Can Corp. v. Dep 't of Revenue, 109 Wn.2d 878, 749 P.2d 1286 (1988) (Nat'! Can II) (Tyler Pipe applies prospectively only), overruledbyDigitalEquip. Corp. v. Dep't a/Revenue, 129 Wn.2d 177, 196P.2d 933 (1996);Am. Nat'! Can Corp. v. Dep'tofRevenue, 114 Wn.2d 236, 787 P.2d 545 (1990) (applying the remedial amendmentthat cured the constitutional defects ofthe B&O scheme to the interim period between Tyler Pipe and the effective date ofthe amendment), overruledbyDigital Equip., 129 Wn.2d 177; DigitalEquip. Corp., 129 Wn.2d 177 (Tyler Pipe applies retroactively, overrulingNational Can II; limiting reliefto retroactive credit not a violation ofdue process); WR. Grace & Co. v. Dep'tof Revenue, 137 Wn.2d 580, 973 P.2d 1011 (1999) (affirming retroactive application ofTyler Pipe and upholding the exclusive remedy feature ofthe remedial legislation that cured the B&O tax). 

### 5DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 by a legitimate legislative purpose furthered by rational means."' I

### d. at 30-31 (quoting Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729, 104 S. Ct. 2709, 81 L. Ed. 2d 601 (1984)). Retroactive legislation must meet an additional burden not faced by statutes with only prospective effect, but '"that burden is met simply by showing that the retroactive application ofthe legislation is itself justifiedby a rational legislative purpose."' I

### d. at 31 (quoting Pension Benefit, 467 U.S. at 730). We affirmed a retroactive tax amendment underthe Carlton rational basis standard mostrecently inIn re Estate of Hambleton, 181 Wn.2d 802, 335 P.3d 398 (2014), cert. denied, 136 S. Ct. 318 (2015). The legislature retroactively amended the Estate and Transfer TaxAct, chapter 83.100 RCW, in direct response to our decision inIn re Estate of Bracken, 175 Wn.2d 549, 290 P.3d 99 (2012). In Hambleton, we upheld the retroactive application ofthe amendment against a due process challenge under the Carlton rational basis standard. Although the present case involves a differenttax scheme, the underlying facts are analogous to those in Hambleton, which is controlling precedenthere.2 Under the rational basis standard set forth in Carlton, as applied inHambleton,

2 The trial court did not have the benefit ofour decision inHambleton when it issued its letter opinion. 

### 6

### DotFoods, Inc. v. Dep'tofRevenue, No. 92398-1 retroactive application ofthe 2010 amendment at issue here does not violate due process protections. 

### i. The 2010 amendmentserves a legitimate legislativepurpose As with other economic legislation, a tax statute must serve a legitimate legislative purpose. 

### Carlton, 512 U.S. at 30. The legislature identified the prevention of"large and devastating revenue losses" as the primary purpose for narrowing the scope ofRCW 82.04.423. LAWS OF 2010, 1st Spec. Sess., ch. 23, 

### §401(3). This is the same legislative intentthat the Supreme Courtrecognized as
a legitimate purpose in 

### Carlton, 512 U.S. at 32, and that we upheld in

### Hambleton, 181 Wn.2d at 827. Additionally, the legislature concluded that former RCW 82.04.423 provided "preferential tax treatment for out-of-state businesses

over their in-state competitors and now creates a strong incentive for in-state businesses to move their operations outside Washington." LAws OF 2010, 1st Spec. Sess., ch. 23, 

### §401(3). This is analogous to the legislature's goal of restoring parity between different classes oftaxpayers, which we also accepted as a legitimate legislative purpose in

### Hambleton, 181 Wn.2d at 826. 

### See alsoAm. Nat 'l Can Corp. v. Dep 't 

### of Revenue, 114 Wn.2d 236, 247-48, 787 P.2d 545 (1990). Itis clearthatthe amendment to RCW 82.04.423 serves a legitimate legislative purpose under our case law.

7

### DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 DotFoods alleges that the 2010 amendment is not supported by a legitimate legislative purpose because the legislature was attempting to reinstate the "'original intent'" ofthe direct seller's exemption. DotFoods' Resp. Br. at 19. Dot Foods contends, and the trial court agreed, that because "the [l]egislature cannotknowthe intentions ofa prior, distant legislature," the asserted purpose of the amendment is both arbitrary and unreasonable. 

### Id.; see also CP at 473. However, our duty is to review the statute for its rational basis, notto analyze the strength ofits epistemological underpinnings. The rational basis test is the "mostrelaxed form of judicial scrutiny." 

### Amunrudv. Ed. of Appeals, 158 Wn.2d 208, 223, 143 P.3d 571 (2006). Our review is highly deferential, especially in light ofthe fact that the legislature '"possesses a plenary power in matters of taxation except as limited bythe [c]onstitution,"' 

### State ex rel. Heavy v. Murphy, 138 Wn.2d 800, 809, 982 P.2d 611 (1999) (quoting 

### Belas v. Kiga, 135 Wn.2d 913, 919, 959 P.2d 1037 (1998)), and "'aparticularly heavypresumption of constitutionality applies when the statute concerns economic matters,"' 

### Ford Motor Co. v. Barrett, 115 Wn.2d 556, 563, 800 P.2d 367 (1990) (quoting 

### Am. Network, Inc. v. Utils. & 

### Transp. Comm 'n, 113 Wn.2d 59, 79, 776 P.2d 950

(1989)). We have previously observed that where the legislature holds plenary power, "'the courts will not question the wisdom or desirability ofsuch legislative requirements, so long as there is 

### any reasonable basis upon which the legislative



### 8DotFoods, Inc. v. Dep'tofRevenue, No. 92398-1 determination can rest.'" BangD. Nguyen v. Dep 't of Health, Med. QualityAs sur. Comm 'n, 144 Wn.2d 516, 549,29 P.3d 689 (2001) (emphasis added) (quoting Ellestadv. Swayze, 15 Wn.2d 281,291, 130 P.2d 349 (1942)). DotFoods further claims that Carlton requires revenue losses be "'unanticipated"' to meet the rational basis standard. DotFoods' Resp. Br. at 28 (quotingHambleton, 181 Wn.2d at 825 (citing Carlton, 512 U.S. at 32)). There is

no holding in Carlton to that effect, and Dot Foods provides no case law supporting this contention. The fact thatthe revenue losses in Carlton were, in fact, "unanticipated" is dictum. Carlton, 512 U.S. at 32. Carlton should notbeand has not been-interpreted as requiring thatrevenue losses be "unanticipated" in order to satisfy the rational basis standard. Similarly, the allegation that the amendment fails to serve a legitimate purpose because the legislature had an "impropermotive" oftargeting DotFoods is unsubstantiated. The fact that the legislature was acting in direct response to our decision in DotFoods I does not constitute targeting a specific taxpayer, andthe statement ofintent does not single outDotFoods beyondpointing to the negative impact thatthe decision would have on revenue generally. 3 The "improper

3 The Department estimated a projected revenue loss ofmore than $150 million over the 2010-2011 biennium as a result ofDotFoods I. CP at 80. Dot Foods' refund request was for justover $500,000, Dot Foods' Resp. Br. at 9, indicating that other taxpayers would be affected by the 2010 amendment-notjustDot Foods. At oral argument, the Department specifically identified Stroh Brewery Company as another taxpayer that, like DotFoods, qualified for the
9DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 motive" that the Court refers to in Carlton was targeting taxpayers after deliberately inducing them to engage in certain transactions. Carlton, 512 U.S. at 32. We see no evidence ofany impropermotive here, only the normal interplay betweenthe legislature and thejudiciary. Furthermore, as long as it is acting within its lawful power, "the motives ofthe [l]egislature are irrelevant to questions ofstate taxation under the due process clause." Am. Nat 'l Can Corp., 114 Wn.2d at 247 (citingA. Magnano Co. v. Hamilton, 292 U.S. 40, 44, 54 S. Ct. 599, 78 L. Ed. 1109 (1934)). We do not find support for DotFoods' assertions and hold that the 2010 amendment serves a legitimate legislative purpose. ii. The 2010amendment is rationally related to the legitimate legislative purpose A retroactivity period meets the Carlton standard ifit is rationally relatedto the amendment's legitimate purpose. Hambleton, 181 Wn.2d at 823. Relying on Tesoro Refining &Marketing Co. v. Department of Revenue, 159 Wn. App. 104, 246 P.3d 211 (2010), rev'don othergrounds, 173 Wn.2d 551,269 P.3d 1013

direct seller's exemption under former RCW 82.04.423 but would not be eligible for the exemption under the 2010 amendment. Wash. Supreme Court oral argument, DotFoods, Inc. v. Dep'tofRevenue, No. 92398-1 (Jan. 28, 2016), at 40 min., 12 sec., audio recording by TVW, Washington State's Public Affairs Network, http://www.tvw.org; see also Stroh Brewery Co. v. Dep 't of Revenue, 104 Wn. App. 235, 243-44, 15 P.3d 692 (2001). This supports the conclusion that the legislature was not improperly targeting Dot Foods but was enacting a statute ofgeneral application. 10DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 (2012) (Tesoro I), DotFoods asserts thatthe purported 27-yearretroactivity period is "irrational on its face." Dot Foods' Resp. Br. at 24. Tesoro I is not controlling authority on this court, and to the extent thatthe trial court relied on this case, it was operating in the absence ofour decision in Hambleton. Further, Dot Foods' contention that a 27-yearretroactivity period is per se unconstitutional is belied by the fact that we upheld a retroactive amendment that occurred 37 years after the statute was originally enacted in W.R. Grace & Co. v. DepartmentofRevenue, 137 Wn.2d 580,973 P.2d 1011 (1999). Thus, the length oftime that has elapsed since a statute's original enactment is not dispositive. While it is true thatthe 2010 amendment theoretically dates backto enactment under the plain language ofsection 402 and section 1704, 

### LAws OF 2010, 1st Spec. Sess., ch. 23, §§ 402, 1704, the actual retroactive application ofthe amendment is necessarily limited bythe particularities ofthis case as well as the applicable statute oflimitations. At issue here is whether the amendment, which went into effect on May 1, 2010, applies retroactively to the May 2006 through December 2007 interim tax periods. Thus, the retroactivity period as appliedto Dot Foods is only four years. In practical terms, the 2010 amendment cannot reach back 27 years, as Dot Foods alleges. The statute oflimitations prescribed by RCW 82.32.060(1)

11DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 functionally limits retroactive application ofthe amendment to four years. A fouryear retroactivity period, both as applied to DotFoods in this particular case or as generally applicable to any othertaxpayer under the statute oflimitations, is well within the range ofretroactivity periods that we have previously upheld. See Hambleton, 181 Wn.2d at 827 (eight-year retroactivity period); DigitalEquip. Corp. v. Dep 't of Revenue, 129 Wn.2d 177, 194-95, 916 P.2d 933 (1996) (fouryear retroactivity period); W.R. Grace, 137 Wn.2d at 586-87 (eight-year retroactivity period). Furthermore, there is no "absolute temporal limitation on retroactivity." W.R. Grace, 137 Wn.2d at 602. The standard set forth in Carlton, whichhas been followed by this court, states only thatthe retroactive period mustbe "rationally related" to a legitimate legislative purpose. Hambleton, 181 Wn.2d at 823 (citing Carlton, 512 U.S. at 30-31). While there are certainly constitutional limits on how far back laws may reach, see State v. Pac. Tel. & Tel. Co., 9 Wn.2d 11, 117 P.2d 542 (1941),4 whether the length ofa retroactivity periodbreaches that limit should be determined by a qualitative analysis ofthe law, not solelyby a quantitative measurement oftime, see Welch v. flenry, 305 U.S. 134, 147, 59 S. Ct. 121,

4We invalidated a four-year retroactivity period in Pac{fic Telephone based solely on a reference to '"priorbutrecent transactions.'" Pac. Tel. & Tel. Co., 9 Wn.2d at 17 (quoting Welch v. Henry, 223 Wis. 319,271 N.W. 68,72 (1937)). Pacific Telephone did not specify or cite to an absolute constitutional limit on retroactivity and provides no insight into why a hardline rule should apply. 12

### DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 83 L. Ed. 87 (1938) ("In each case it is necessary to considerthe nature ofthe tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppressive as to transgress the constitutional limitation."). In

### Hambleton, for example, we found that the retroactivity period was "rationally related to preventing the fiscal shortfall." 

### Hambleton, 181 Wn.2d at 827. Noting thatthe eight-yearretroactivity period at issue was "not far outside other retroactive periods that courts have accepted," we upheld the retroactive application ofthe amendment against a due process challenge because it was "directly linked with the purpose ofthe amendment, which [was] to remedy the effects of

### Bracken." 

### !d. Furthermore, we observed that any shorterretroactivity period wouldhave been arbitrary because "[i]twould allow some estates to escape the tax while similarly situated estates wouldbe subjectto it." 

### !d. This illustrates that it is the 

### function-rather thanthe length-ofa retroactivity periodthat should determine whether it comports with due process protections. In this case, the actual retroactive effect ofthe amendment as applied to DotFoods is rationally related to the legislature's legitimate, statedpurpose of "prevent[ing] the loss ofrevenues resulting from the expanded interpretation ofthe exemption." LAWS OF 2010, 1st Spec. Sess., ch. 23, § 401(4). Consequently, there is no due process violation.

13

### DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 B. COLLATERAL ESTOPPEL CLAIM DotFoods asserts thatthe May 2006 through December 2007 interim tax periods are encompassed bythejudgment in

### DotFoods I, whichprevents the Department from assessing B&Otaxes against it under the 2010 amendment pursuantto collateral estoppel. DotFoods also asserts that there is statutory support for its collateral estoppel claim in section 1706 ofthe amending statute, which explicitly preserves finaljudgments, LAWS OF 2010, 1st Spec. Sess., ch 23, 

### § 1706. We do not find support for these arguments in our case law and hold that collateral estoppel does not apply in this case. 

### i. DotFoodsfails to meet the requirementsfor collateral estoppel The collateral estoppel doctrine "may be applied to preclude only those issues thathave actually been litigated and necessarily and finally determined in the earlierproceeding." 

### Christensen v. Grant County Hasp. Dist. No. 1, 152 Wn.2d 299, 307, 96 P.3d 957 (2004). To invoke collateral estoppel, DotFoods must establishthat (1) the issue decided in 

### DotFoods I was identical to the issue that is presentedto us now, (2) the prior action ended in a finaljudgment onthe merits, (3) the Department was a party or in privity with a party in the prior action, and (4) application ofthe doctrine wouldnot work an injustice. 

### ld. "Failureto establish any one element is fatal" to a collateral estoppel claim. 

### Lopez-Vasquez v.

14DotFoodsJ Inc. v. DepJt ofRevenue, No. 92398-1 DepJt of Labor &Indus., 168 Wn. App. 341,345,276 P.3d 354 (2012). Because DotFoods cannot satisfy the first requirement, collateral estoppel does not apply. Boththe facts and the applicable law in this case are distinguishable from DotFoods I. The dispute inDotFoods I arose out ofDotFoods' refund request for the tax periods from January 2000 through April 2006, and the legal issue was whether DotFoods qualified for the direct seller's exemption under former RCW 82.04.423. DotFoods I, 166 Wn.2d at 919. DotFoods neither alleges nor establishes that the subsequentinterim tax periods from May 2006 through December 2007 were directly at issue or actually litigated in DotFoods 

### I. In fact, Dot Foods itselfacknowledges that "the periods directly at issue in the prior appeal" were January 2000 through April2006, CP at 359, and thatthe interim tax periods fall outside the scope ofDotFoods I, Dot Foods' Reply Br. at 8. DotFoods asserts that under collateral estoppel principles, the decision in DotFoods I should extend to the interim tax periods because the priortax appeal adjudicated Dot Foods' exempt status under former RCW 82.04.423. DotFoods' Resp. Br. at 44. Nothing in the statute or our case law supports this assertion. To the contrary, tax appeals are very limited causes ofaction. Under RCW 82.32.180, tax appeals are confined to the specific taxes and associated time periods identified by the aggrieved taxpayer. Thus, althoughDotFoods I and the present case
concern the same taxable activity, different tax periods are involved.

15DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 The United States Supreme Court and federal circuit courts have declined to apply collateral estoppel in federal tax cases involving identical taxable transactions that occur in subsequent taxing periods. See Harvie Branscomb, Jr., CollateralEstoppel in Tax Cases: Static andSeparable Facts, 37 TEX. L. REv. 584,587 (1959). In Commissioner v. Sunnen, 333 U.S. 591, 598, 68 S. Ct. 715, 92 L. Ed. 898 (1948), the Court determined that separate tax periods give rise to separate causes ofaction for collateral estoppel purposes. The Courtheldthat the United States Tax Court was not bound by a prior decision ofthe Unites States Board ofTax Appeals, reasoning that where a subsequentproceeding relates to a different taxing period, "thepriorjudgment acts as a collateral estoppel only as to those matters in the second proceeding which were actually presented and determined in the first suit." Id. DotFoods contends thatSunnen is inapplicable because it deals withthe federal income tax, which is assessed annually, as opposed to continuously on a monthlybasis like Washington's B&O tax. DotFoods' Resp. Br. at 42. However, the federal courts have extended Sunnen specifically to cases involving excise tax liability. In Smith v. UnitedStates, 242 F.2d 486, 488 (5th Cir. 1957), the Fifth Circuit Court ofAppeals concluded that "[e]ach month, then, is the origin ofa new liability and ofa separate cause ofaction." Applying Sunnen, the court stated that 

### "itis clear that the doctrine ofresjudicatadoes not apply since the instant suit does

16

### DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 not involve the same claim and the same taxable periods as were involved in the prior action." 

### Id. Regardless ofthe different taxes involved, the broader rationale of

### Sunnen is compelling: A taxpayer may secure ajudicial determination ofa particulartax matter, a matter which may recur without substantial variation for some years thereafter. But a subsequentmodification ofthe significant facts or a change or development in the controlling legal principles may make that determination obsolete or erroneous, at least for future purposes. Ifsuch a determination is then perpetuated each succeeding year as to the taxpayer involved in the original litigation, he is accorded a tax treatment different from that given to other taxpayers ofthe same class. As a result, there are inequalities in the administration ofthe revenue laws, discriminatory distinctions in tax liability, and a fertile basis for litigious confusion. 

### Sunnen, 333 U.S. at 599. The Court further observed that collateral estoppel is only meantto apply in situations that "haveremained substantially static, factually and legally." 

### ld. This reflects the well-establishedprinciple that an '"intervening change in the applicable legal context"'-such as the retroactive amendmentinthis case-prohibits the application ofcollateral estoppel. 

### Hambleton, 181 Wn.2d at 835 (quoting RESTATEMENT (SECOND) OF JUDGMENTS§ 28(2)(b) (AM. LAWINST. 1982)). The facts following 

### DotFoods I were not static, factually or legally. Factually a differenttaxperiod was at issue, and legally there was an intervening change in the law that narrowed the scope ofthe exemption in such a waythat excluded DotFoods. In fact, DotFoods concedes that ifthe amendment applies

17DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 retroactively, it would not be able to satisfy the requirements for invoking collateral estoppel. DotFoods' Resp. Br. at 37 ("Had the [l]egislature not changed the law retroactively, DotFoods wouldhave metthe 4-parttest for collateral estoppel."). Sunnen and earlier federal cases5 established that determinations about tax liability for one taxing periodunder then-applicable statutes do not control decisions regarding subsequenttaxing periods under amended statutes. We find the reasoning ofthese cases persuasive and holdthat collateral estoppel does not apply to subsequenttaxing periods that were notpreviously adjudicated. ii. Section 1706does not extendthejudgment in DotFoodsI to the subsequent interim taxperiods. The traditional application ofissue preclusionprinciples adequately addresses the collateral estoppel claim, but DotFoods also asserts a statutory basis for the preclusive effect ofthejudgmentin DotFoods I. The amending statute explicitly provides that the substantive amendment to RCW 82.04.423 "doesnot affect any finaljudgments, not subjectto appeal, enteredby a court ofcompetent jurisdiction before the effective date ofthis section." LAWS OF 2010, 1st Spec.

5See Monteith Bros. Co. v. UnitedStates, 142 F.2d 139, 140 (7th Cir. 1944) ("[A]lthough the transactions involved in different years were similar, they were not identical, and must therefore be studied in the light ofthe law and facts ofthe year involved."); Henricksen v. Seward, 135 F.2d 986, 987 (9th Cir. 1943) ("While the mechanical processes and the business practices ofthe taxpayer were found to be substantially identical in the several periods, nevertheless the transactions held not subject to tax in the earlier suit were not the transactions subjected to tax in this, nor were the periods involved the same."). 18DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 Sess., ch. 23, § 1706. This section has the effect ofpreserving thejudgmentin Dot Foods I only as to the taxperiods actually litigated inthat case. Perhaps anticipating that it could not satisfy the requirements for collateral estoppel, DotFoods asserts that collateral estoppel is "built into the 201 0 legislative amendment" under section 1706. CP at 469. The trial courtproperly rejected this argument, observing that "the 2006 to 2007 refund request was not a 'finaljudgment' whenthe amendment went into effect. Indeed, that matter is currently 'subjectto appeal' in this very case." 

### !d. at 470. As discussed above, DotFoods cannot show-andin fact admits-thatthe interim period was not directly at issue or actually litigated in DotFoods I. Because a refund for the interim period was notreduced to a finaljudgmentprior to the date that the 2010 amendment went into effect, section 1706 is not implicated. C. SEPARATION OF POWERS CLAIM "The legislature violates separation ofpowers principles when it infringes on
ajudicial function." Hambleton, 181 Wn.2d at 817-18 (citingHaberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d 107, 143, 744 P.2d 1032, 750 P.2d 254 (1987)). We have recognized "that a retroactive legislative amendmentthatrejects

ajudicial interpretation would give rise to separation ofpowers concerns" buthave been willing to uphold such amendments where "the legislature was careful notto

19

### DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1

reverse our decision." 

### Hale v. Wellpinit Sch. Dist. No. 49, 165 Wn.2d 494, 508, 510, 198 P.3d 1021 (2009). DotFoods cannotpointto any evidence that the legislature intended to affect

or curtail thejudgmentin

### DotFoods I. In fact, as discussed above, the legislature explicitly preservedpriorjudgments in section 1706 and we upheld a retroactive amendment with language identical to section 1706 against a separation ofpowers challenge in 

### Hambleton, 181 Wn.2d at 817. Furthermore, as also discussed above, thejudgment in

### DotFoods I does not encompass the interim period at issue now; therefore, retroactive application ofthe amendment to this period does notrun afoul ofthe separation ofpowers doctrine. CONCLUSION We have previously observed that "[o]ccasionally, try as the court may, the legislature is disappointed with the court's interpretation." 

### Hale, 165 Wn.2d at 509. Itis entirely within the proper function ofthe legislature to amend laws in response to our decisions. This is how the lawmaking process is meant to work. In amending RCW 82.04.423(2), the legislature was careful to avoid trespassing on thejudicial function by explicitly preserving any finaljudgments priorto the effective date ofthe amendment. Ourjurisprudence requires us to show the legislature equal respect in this case by upholding the retroactive

20

### DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1 application ofthis amendment as to DotFoods for the tax periods not encompassed by our prior decision in

### DotFoods I. We affirm the trial court's decision to grant the Department's motion for summaryjudgment on the collateral estoppel and separation ofpowers arguments, but we reverse the trial court's decision to grant Dot Foods' motion for summary judgment on the due process claim. In doing so, we hold thatthe retroactive application ofthe amendment to RCW 82.04.423 applies to the May 2006 through December 2007 interim tax periods, and that DotFoods is liable for the B&Otax for this time period.

21DotFoods, Inc. v. Dep 't of Revenue, No. 92398-1

WE CONCUR:

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