Title: Ex parte HealthSouth Corporation. PETITION FOR WRIT OF CERTIORARI TO THE COURT OF CIVIL APPEALS (In re: HealthSouth Corporation v. Jefferson County Tax Assessor, Dan Weinrib, and Jefferson County Tax Collector, J.T. Smallwood)
Citation: N/A
Docket Number: 1060296
State: Alabama
Issuer: Alabama Supreme Court
Date: August 24, 2007

REL: 08/24/2007
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334)
229-0649), of any typographical or other errors, in order that corrections may be made
before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2007
_________________________
1060296
_________________________
Ex parte HealthSouth Corporation
PETITION FOR WRIT OF CERTIORARI
TO THE COURT OF CIVIL APPEALS
(In re:  HealthSouth Corporation
v.
Jefferson County Tax Assessor, Dan Weinrib, and Jefferson
County Tax Collector, J.T. Smallwood)
(Jefferson Probate Court, 187686;
Court of Civil Appeals, 2050538)
On Application for Rehearing
LYONS, Justice.
1060296
As the Court of Civil Appeals noted, before 2002 several
1
officials of HealthSouth were involved in a scheme to
artificially inflate the company's reported earnings and, in
furtherance of that scheme, overstated the corporation's fixed
2
The opinion of May 4, 2007, is withdrawn, and the
following is substituted therefor.  
HealthSouth Corporation appealed to the Court of Civil
Appeals from a judgment of the Jefferson Probate Court in
favor of Dan Weinrib, the Jefferson County tax assessor, and
J.T. Smallwood, the Jefferson County tax collector ("the
taxing authorities").  The Court of Civil Appeals affirmed the
judgment of the probate court.  HealthSouth Corp. v. Jefferson
County Tax Assessor, [Ms. 2050538, October 27, 2006] ___ So.
2d ___ (Ala. Civ. App. 2006).  HealthSouth then petitioned
this Court for a writ of certiorari, and we granted
HealthSouth's petition to review two issues presented by this
case.  We affirm the judgment of the Court of Civil Appeals.
I. Factual Background and Procedural History
For the tax years 2001, 2002, and 2003, HealthSouth
submitted personal-property tax returns to the Jefferson
County tax assessor on which it intentionally listed numerous
fictitious items of personal property and assigned fabricated
values to those items.   HealthSouth paid taxes for the years
1
1060296
assets.  The inflated personal-property tax returns reflected
the overstated assets.  
3
2001 and 2002 based on the submitted returns.  Before paying
the amount due for 2003, however, HealthSouth amended its tax
return for that year to remove the fictitious assets.  The
Jefferson County tax assessor allowed the adjustment as to
2003.  HealthSouth then amended its 2001 and 2002 returns and
filed petitions for a refund of the portion of ad valorem
personal-property taxes it claims it overpaid as a result of
listing the fictitious items of personal property on its tax
returns for 2001 and 2002.  The Jefferson County tax collector
requested an opinion from the attorney general, who determined
that no refund was due.  The tax collector then denied the
petitions for a refund of the taxes HealthSouth had paid for
2001 and 2002 on the fictitious property.  
HealthSouth filed an action in the Jefferson Probate
Court challenging the tax collector's refusal to grant its
petitions for the refund of ad valorem taxes paid on personal
property for the years 2001 and 2002.  When the probate court
denied the petitions for refund, HealthSouth appealed to the
Court of Civil Appeals.  That court affirmed the judgment of
the probate court.  The Court of Civil Appeals held that § 40-
1060296
4
10-160, Ala. Code 1975, providing for tax refunds based upon
a mistake or an error, did not permit a refund when the
taxpayer's 
overpayment 
resulted 
from 
the 
taxpayer's
intentionally false statements as to the value of nonexistent
assets.  The Court of Civil Appeals further held that
"HealthSouth's violation of its duty to provide correct and
truthful information on its tax returns did not abrogate the
tax assessor's authority to affix values for assessment
purposes to the property listed on HealthSouth's tax returns."
___ So. 2d at ___.  This Court granted certiorari to consider
two questions of first impression:  whether the term "error"
has a meaning different from the term "mistake," specifically
whether the former term is broad enough to encompass
intentional dishonest conduct; and whether an intentional
misrepresentation by a taxpayer in reporting property on a tax
return can create a right in the taxing authorities to collect
and retain taxes on nonexistent property so that no refund of
taxes collected because of such an error can be had under §
40-10-160, Ala. Code 1975.  
II. Standard of Review
"In reviewing a decision of the Court of Civil
Appeals on a petition for a writ of certiorari, this
1060296
5
Court 'accords no presumption of correctness to the
legal conclusions of the intermediate appellate
court.  Therefore, we must apply de novo the
standard of review that was applicable in the Court
of Civil Appeals.'  Ex parte Toyota Motor Corp., 684
So. 2d 132, 135 (Ala. 1996).  Because the material
facts before the Court of Civil Appeals were
undisputed, that court's review of the trial court's
ruling would be de novo as well.  State Dep't of
Revenue v. Robertson, 733 So. 2d 397, 399 (Ala. Civ.
App. 1998).  This is particularly true where the
intermediate appellate court is construing statutory
provisions.  Robertson, supra; Pilgrim v. Gregory,
594 So. 2d 114, 120 (Ala. Civ. App. 1991)."
Ex parte Exxon Mobil Corp., 926 So. 2d 303, 308 (Ala. 2005).
III. Analysis
A. Whether "Error" Has a Meaning Different from "Mistake"
Section 40-10-160 provides:
"Any taxpayer who through any mistake, or by
reason of any double assessment, or by any error in
the assessment or collection of taxes, or other
error, has paid taxes that were not due upon the
property of such taxpayer shall be entitled, upon
making proof of such payment to the satisfaction of
the Comptroller, to have such taxes refunded to him
if 
application 
shall 
be 
made 
therefor, 
as
hereinafter provided, within two years from the date
of such payment."
(Emphasis added.) 
This Court's decision to grant HealthSouth's petition for
the writ of certiorari was triggered by the pivotal issue of
the significance, if any, of the legislature's choice of two
1060296
The State of Alabama has intervened as an amicus curiae
2
in support of the taxing authorities.   
6
words--"error" and "mistake"--in its refund statute and its
linking those words with the disjunctive conjunction "or."
The parties have wrestled mightily with parsed definitions
from various sources that might afford a separate field of
operation for each term.  Of course, HealthSouth contends that
"error" can embrace an intentional act and therefore that its
fraudulent inclusion on its personal-property tax returns of
assets that did not exist constitutes the type of activity for
which it is entitled to relief pursuant to § 40-10-160 in the
form of a refund of taxes paid.  HealthSouth does not contend
that 
"mistake" 
embraces 
its 
activities. 
 
The 
taxing
authorities,  on the other hand, argue that neither "error"
2
nor "mistake" includes deliberate, intentional acts of the
character committed by HealthSouth.
The Court of Civil Appeals, after citing definitions for
each word, concluded:
"Although HealthSouth may be correct that the plain
meaning of the word 'mistake' is slightly different
from the plain meaning of the word 'error,' we are
clear 
to 
the 
conclusion 
that 
an 
intentional
misrepresentation is not included in the plain
meaning of either word."
1060296
7
___ So. 2d at ___.  
We conclude that the Court of Civil Appeals was correct.
While nuanced definitions of the two words could considerably
lengthen this opinion, there is ample authority for the
proposition that neither "error" nor "mistake" contemplates
dishonest activity.  This Court considered the significance of
a legislative choice of "clerical error" and "other mistake of
the clerk" in Ford v. Tinchant & Brother, 49 Ala. 567, 571
(1873).  Although the Ford Court concluded that each of the
terms had a separate field of operation, a limitation in its
holding is significant to the issue in this case.  This Court
in Ford stated:
"The legislature cannot be held to have been so
careless 
of 
language, 
as 
to 
have 
used 
the
expressions 'clerical error,' and 'other mistake of
the clerk,' in exactly synonymous sense, in view of
the liability to mistake in the entries and record
of causes; or to have excluded from amendment the
manifest oversights and inaccuracies of the counsel,
not calculated to mislead, in permitting the
correction of 'any error in fact in the process.'"
(Emphasis added.)  Thus, in Ford this Court qualified the
field of operation of "clerical error" and "other mistake of
the clerk" by embracing only conduct that was "not calculated
to mislead."  
1060296
8
In Alabama & Georgia Lumber Co. v. Tisdale, 139 Ala. 250,
36 So. 618 (1903), the amount of the judgment enforcing a
mechanic's lien was less than the amount that had previously
been claimed in the statement of lien filed in the office of
judge of probate.  The validity of the lien was challenged on
the basis of the discrepancy.  The applicable statute
provided:  "[N]o error in the amount of the demand or in the
name of the owner or proprietor shall affect the lien ...."
139 Ala. at 255, 36 So. at 619.  The Court observed: 
"Fraud is never presumed.  On the facts found, the
discrepancy can and should be accounted for on the
ground of a mistake or error ....  
"... Whether the present statute was intended to
prevent a destruction of the lien when the amount in
the statement was intentionally made excessive in
order 
to 
secure 
to 
the 
lienor 
a 
fraudulent
advantage, we will not decide.  But where, as here,
no fraudulent purpose or intent is found to exist,
we are clearly of [the] opinion that the lien is not
impaired or destroyed by the error as to the
amount."  
139 Ala. at 256-57, 36 So. at 620.  Later, in Fleming v.
McDade, 207 Ala. 650, 651, 93 So. 618, 619 (1922), this Court
was required to resolve the question left unanswered in
Alabama & Georgia Lumber Co.  This Court stated:
"In Ala. & Ga. Lbr. Co. v. Tisdale, 139 Ala.
250, 257, 36 South. 618 [(1903)], there is to be
1060296
9
found a query whether the present statute [providing
for protection from destruction of the lien for
error in the amount of the demand] was intended to
prevent the destruction of the lien, as held in Lane
& Bodley Co. v. Jones, [79 Ala. 156 (1885), holding
that a fraudulent statement vitiated the lien] under
the statute then in force, as to which no opinion
was expressed. We are clearly of the opinion,
however, that the principle announced in the older
case has been in no wise affected by the provision
of the present statute that 'no error in the amount
of the demand, ... shall affect the lien'; for this
means merely an inadvertent or honest mistake, and
not a willfully false claim." 
In Scheuer v. Berringer, 102 Ala. 216, 14 So. 640 (1894),
dealing with error or mistake, on the one hand, or fraud, on
the other, in settlements of accounts between partners, this
Court recognized differing relief available attending each
circumstance.  This Court quoted with approval the trial
court's order, which in turn quoted Cowan v. Jones, 27 Ala.
317, 325 (1855), in which this Court stated, "'"The rule is
settled that, where errors or mistakes only are shown, the
account will not be opened, as where fraud is shown; but the
party alleging error or mistake in the account, will be
permitted to surcharge and falsify it."'"  102 Ala. at 220, 14
So. at 642.  The trial court's order continued: 
"'In Moses [Bros.] v. Noble['s Adm'r], 86 Ala. 407,
[410, 5 So. 181, 182 (1888),] Justice Clopton
remarks:  "In the absence of allegation and proof of
1060296
10
fraud or undue influence, which taints the entire
account, the court will not open and unravel as if
no account had been made.  ...  When only errors or
mistakes are made, alleged, and proved, wrong
charges which should be deducted, or omission of
credit which should be allowed, the court will give
the party complaining permission to surcharge and
falsify the account, and limits its authority to a
correction of the errors or mistakes."'" 
102 Ala. at 220, 14 So. at 642.  Scheuer was followed in Burks
v. Parker, 192 Ala. 250, 68 So. 271 (1915).
In the context of acts of a municipality, this Court has
limited error or mistake to honest activity:  
"Bad faith is synonymous with fraud.  6 C.J. pp.
880, 881; Morton & Bliss v. [New Orleans & Selma]
Railway Co., 79 Ala. 590, 617 [(1885)].  Error or
mistake 
of 
judgment, 
in 
the 
exercise 
of 
a
discretionary power, is not the equivalent of bad
faith or fraud.  In such circumstances, error or
mistake of judgment consists with honest intention,
or freedom from unworthy or unlawful motive or
design."  
Pilcher v. City of Dothan, 207 Ala. 421, 424, 93 So. 16, 19
(1922) (emphasis added).  
HealthSouth accuses the Court of Civil Appeals of
rewriting § 40-10-160 by refusing to permit the modifier
"any," used in the statute to modify both error and mistake,
to have a field of operation.  But adopting HealthSouth's view
requires us to expand the commonly understood and long-settled
1060296
HealthSouth relies upon an unpublished opinion rendered
3
by the Superior Court of Clayton County, Georgia, a copy of
which HealthSouth provided to this Court.  HealthSouth
Holdings, Inc. v. Clayton County, Georgia, No. 2005-CV-2056-7
(Clayton Superior Court, October 19, 2006).  
11
scope of the terms "error" or "mistake," contrary to this
Court's treatment of those terms over the years.  Indeed, in
Fleming v. McDade, the statute in question used an equally
broad adjective in providing that "no error in the amount of
the demand, ... shall affect the lien."  207 Ala. at 651, 93
So. at 619 (emphasis added).  As previously noted, this Court
did not permit such language, contrary to common usage, to
sweep so broadly as to protect a party from the destruction of
its lien by reason of its fraudulent statement of amount.
We are not led to a different conclusion by reason of a
recent 
opinion 
of 
a 
Georgia 
trial 
court 
recognizing
HealthSouth's right to a refund pursuant to a Georgia
statute.   Section 48-5-380(a), Ga. Code Ann., provides:
3
"Each 
county 
and 
municipality 
may 
refund 
to
taxpayers any and all taxes and license fees which
are determined to have been erroneously or illegally
assessed and collected from the taxpayers under the
laws of this state or under the resolutions or
ordinances of any county or municipality or which
are 
determined 
to 
have 
been 
voluntarily 
or
involuntarily overpaid by the taxpayers."
1060296
12
(Emphasis added.)  In Marconi Avionics, Inc. v. DeKalb County,
165 Ga. App. 628, 630, 302 S.E.2d 384, 385-86 (1983), relied
upon by the Georgia trial court, the Georgia Court of Appeals
stated:  "We interpret the refund statute according to its
literal and logical meaning: it applies to all property
'erroneously or illegally assessed' and taxes 'voluntarily or
involuntarily overpaid,' for whatever reason."  Section 40-10-
160 is materially different from the Georgia statute.
Finally, we note that HealthSouth contends that the Court
of Civil Appeals has disregarded the rule of construction of
statutes that presumes every word has some purpose and that no
superfluous provisions are used.  See Ex parte Panell, 756 So.
2d 862, 867 (Ala. 1999).  Our determination that the words
"error" and "mistake" are not consistent with dishonest acts,
regardless of whatever else they might mean, obviates the
necessity 
for 
determining 
the 
applicability 
of 
this
presumption.  Nevertheless, we note that this Court, as well
as other jurisdictions, has recognized that that presumption
can be overcome by a determination that the legislature has
used synonyms.  See Anderson v. Hooks, 9 Ala. 704, 709-10
1060296
13
(1846), discussing the significance of a phrase in the Statute
of Frauds referring to "the intent or purpose" and concluding:
"The introduction of the term 'purpose' into the
act, does not impart to it any additional potency.
It is only the synonym for design, intention,
aim--is but a mere expletive, intended to convey the
idea which the legislature had in view more
strikingly, and might be stricken from the act
without affecting its interpretation in any manner."
Likewise, in Caldwell v. State, 32 Ala. App. 228, 230, 23 So.
2d 876, 878 (1945), the Court of Appeals held that "[t]he
words 'oppose' and 'resist' as they appear in the [Code]
section are synonymous."  
"It seems clear that the terms 'oppose' and
'resist', as they are used in the statute under
consideration, 
convey a legislative intent to
protect 
the 
officer 
against 
obstruction 
and
interference and therefore contemplate the use of
either actual or constructive force against the
officer who is making an effort to serve or execute
the legal writ or process.  In other words, it is
not made a criminal offense to hinder or interrupt
or circumvent the service of the process with which
the officer is armed, unless in doing so actual or
constructive force is used against the officer
himself."
32 Ala. App. at 230-31, 23 So. 2d at 878.  
Such observations about a legislature's capacity to
employ synonyms were summarized in Hawaiian Airlines, Inc. v.
Norris, 512 U.S. 246, 253 (1994), in which the United States
1060296
14
Supreme Court noted the existence of cases recognizing the use
of synonyms in statutes, by referring to United States v.
Olano, 507 U.S. 725, 732 (1993), which it described as
"reading 'error or defect' to create one category of 'error.'"
The Court then noted that Olano cited McNally v. United
States, 483 U.S. 350, 358-59 (1987), which the Court described
as holding that the "second phrase in [the] disjunctive [was]
added simply to make the meaning of the first phrase
'unmistakable.'"  In McNally, the Court stated:  "As we see
it, adding the second phrase simply made it unmistakable that
the statute reached false promises and misrepresentations as
to the future as well as other frauds involving money or
property."  483 U.S. at 359.  See also Southwick v. State, 126
Ark. 188, 190, 189 S.W. 843, 844 (1916) ("'The use of the
disjunctive 
'or' 
between the words 
'intimidation' and
'threats' in the statute was not in the sense of indicating
that they are two different things, but was only used as an
alias to designate the same thing by different words."); and
Smith v. R.F. Brodegaard & Co., 77 Ga. App. 661, 663-64, 49
S.E.2d 500, 502 (1948):
"We do not think the words 'possession, custody, or
control,' as used in the statute providing for bail
1060296
15
in actions for personalty, mean three different
things; 
or 
that 
they 
state 
three 
different
situations or grounds on which a plaintiff in trover
can require a bond of the defendant.  They express
an alternative of terms, definitions or explanations
of the same thing in different words.  They mean
substantially the same thing, i.e. that the property
is within the power and dominion of the defendant.
...  'The word "or," when used not to connect two
distinct 
facts 
of 
different 
natures, 
but 
to
characterize and include two or more phases of the
same fact, attended with the same result, states but
a single ground, and not the alternative.'  46 C.J.,
1125(4).  This rule of construction has been
recognized and applied by our courts in criminal
cases and in civil cases."
See also Lewis v. Superior Court, 217 Cal. App. 3d 379, 397,
265 Cal. Rptr. 855, 865 (1990) ("Although we endeavor to give
effect to every word in a statute, sometimes terms used
together are simply synonymous.").  Finally, see United States
v. Patterson,  55 F. 605, 639 (C.C.D. Mass. 1893):
"The court is well aware of the general rule which
has been several times (twice certainly) laid down
by the supreme court of the United States, that in
construing a statute every word must have its
effect, and the consequent presumption that the
statute does not use two different words for the
same purpose; but this rule has its limitations, and
it is a constant practice for the legislature to use
synonyms. A word is used which it is thought does
not perhaps quite convey the idea which the
legislature intends, and it takes another word,
which perhaps has to some a little different
meaning, without intending to more than make strong
the purpose of the expression in the statute."
1060296
16
Even if the terms "error" or "mistake" are synonymous, resort
to synonyms for clarity or emphasis is clearly within the
prerogative of the legislature.  
B. Whether a Taxing Authority Has the Right to Assess and
Collect Taxes on the Basis of an Intentional
Misrepresentation by the Taxpayer
HealthSouth also argues that even though it intentionally
misrepresented assets on its personal-property tax returns,
because those assets did not actually exist, the taxing
authorities did not have the right to assess and collect
personal-property taxes on the assets listed on the tax
returns.  As to this issue, we affirm the judgment of the
Court of Civil Appeals for the reasons set forth in Part II of
its opinion of October 27, 2006.  The Court of Civil Appeals
stated:
"In essence, HealthSouth requested the probate
court to invoke its equity jurisdiction to grant the
refund petitions.  A party seeking equitable relief,
however, must have acted with equity and must come
into court with clean hands.  Levine v. Levine, 262
Ala. 491, 494, 80 So. 2d 235, 237 (1955).  In J&M
Bail Bonding Co. v. Hayes, 748 So. 2d 198 (Ala.
1999), the Alabama Supreme Court stated:
"'The purpose of the clean hands doctrine
is to prevent a party from asserting his,
her, or its rights under the law when that
party's own wrongful conduct renders the
assertion of such legal rights "contrary to
1060296
17
equity and good conscience."  Draughon v.
General Fin. Credit Corp., 362 So. 2d 880,
884 (Ala. 1978).  The application of the
clean hands doctrine is a matter within the
sound discretion of the trial court.  Lowe
v. Lowe, 466 So. 2d 969 (Ala. Civ. App.
1985).'
"748 So. 2d at 199.  HealthSouth cannot be permitted
to take advantage of its own wrong by receiving a
refund based on its own inequitable conduct.  There
is no equity in allowing HealthSouth to obtain
relief from its own fraudulent scheme." 
___ So. 2d at ___.
Justice Parker's dissent states: "Such refunds [for
overpayment of taxes] are appropriate regardless of the
malfeasance of the person seeking the refund.  This was noted
by Craig M. Boise in Playing with 'Monopoly Money': Phony
Profits, Fraud Penalties and Equity, 90 Minn. L. Rev. 144,
147-48 (2005), which examines recent incidents of falsely
inflated income of major U.S. corporations."  ___ So. 2d at
___.  
The law review article cited by Justice Parker in fact
supports the completely opposite view that equitable defenses
should be available in actions seeking a tax refund after the
taxpayer's fraud in overstating its tax liability has been
exposed.  The article states:  
1060296
18
"Recognizing that companies that inflate their
taxable income make the IRS 'an unwitting accomplice
to ... fraud,' the Senate, in May 2003, approved a
measure that would have increased the penalty for
tax fraud to an amount equal to the overpayment of
tax attributable to the fraud.  The effect of this
provision would have been to disallow any refunds of
taxes 
paid 
on 
fraudulently 
inflated 
income.
Unfortunately, the measure was dropped in the
conference committee and did not become part of the
American Jobs Creation Act of 2004 ultimately signed
by President George W. Bush in October 2004.
However, this Article suggests that the IRS may be
able to achieve the results intended by the omitted
Senate provision through the rules of equity.
Moreover, equity may well furnish a more sound
approach to penalizing offenders in such cases than
would a legislative enactment.  
"Central to the thesis of this Article is the
fact that tax-refund suits are in essence claims in
equity, a proposition that has two important
implications. 
 
First, 
the 
taxpayer 
filing 
a
tax-refund suit is asking the court to impose a
fair, just, and equitable 'remedy'--namely, the
refund of taxes paid in excess of what was due.  As
an equity claimant, the taxpayer is not in a
position to demand that the refund be granted.
Second, the fact that refund suits are actions in
equity 
means 
that 
claimants 
are 
subject 
to
well-established 
equitable 
defenses 
like 
the
doctrine of unclean hands.  Based on these twin
propositions, this Article asserts that the IRS not
only may, but should, assert equitable defenses to
deny refunds of taxes paid on fraudulently inflated
earnings."  
90 Minn. L. Rev. at 150-51 (emphasis added) (footnotes
omitted).
1060296
19
The dissenting opinion also relies on the views of three
staff reporters of The Wall Street Journal.  The dissent
states:  
"A Wall Street Journal article noted the same
principle: '[f]raud or not, the current tax code
makes no distinctions.  It is a basic tenet of tax
law –- both for individuals and corporations –- that
those who overpay are entitled to a refund.'
Rebecca Blumenstein, Dennis K. Berman, and Evan
Perez, After Inflating Their Income, Companies Want
IRS Refunds, The Wall Street Journal, May 3, 2003,
at A1." 
___ So. 2d at ___.
  
We are more impressed with the holding in Stone v. White,
301 U.S. 532, 535 (1937):
"The statutes authorizing tax refunds and suits for
their 
recovery 
are 
predicated 
upon 
the 
same
equitable principles that underlie an action in
assumpsit for money had and received.  United States
v. Jefferson Electric [Mfg.] Co., 291 U.S. 386, 402
[(1934)].  Since, in this type of action, the
plaintiff must recover by virtue of a right measured
by equitable standards, it follows that it is open
to the defendant to show any state of facts which,
according to those standards, would deny the right,
Moses v. Macferlan, supra, [2 Burr. 1005] at 1010
[(K.B. 1750)]; Myers v. Hurley Motor Co., 273 U.S.
18, 24, 50 A.L.R. 1181 [(1927)]; cf. Winchester v.
Hackley, 2 Cranch 342 [(1805)], even without resort
to the modern statutory authority for pleading
equitable defenses in actions which are more
strictly legal, Jud. Code, § 274b, 28 U.S.C. § 398."
IV. Conclusion
1060296
20
The settled meaning of the terms "error" and "mistake" is
not consistent with intentional dishonest acts.  Furthermore,
HealthSouth's intentional misrepresentation of its assets did
not abrogate the right of the taxing authorities to assess and
collect personal-property taxes from HealthSouth based upon
the information HealthSouth provided on its personal-property
tax return.  We therefore affirm the judgment of the Court of
Civil Appeals.
APPLICATION OVERRULED; OPINION OF MAY 4, 2007, WITHDRAWN;
OPINION SUBSTITUTED; AFFIRMED.
Cobb, C.J., and Woodall, Stuart, and Smith, JJ., concur.
See, J., concurs in the rationale in part and concurs in
the result.
Parker, J., concurs in part and dissents in part.
Murdock, J., recuses himself.
1060296
21
SEE, Justice (concurring in the rationale in part and
concurring in the result).
I fully join in the holding of the main opinion.  I agree
that neither "mistake" nor "error" in this statute encompasses
HealthSouth's 
deliberate 
misrepresentations 
on 
its 
tax
returns.  I write specially only to note that I do not
consider it necessary to determine whether the legislature
could have intended to use the terms "error" and "mistake" as
synonyms.  Therefore, I do not join in that discussion.
1060296
22
PARKER, Justice (concurring in part and dissenting in part).
I concur with the conclusion of the main opinion on the
first issue –- whether the term "error" differs from the term
"mistake," specifically, whether "error" is broad enough to
encompass intentional conduct.  However, I dissent from the
adoption by the majority of the rationale of the Court of
Civil Appeals' opinion on the second issue -- whether an
intentional misrepresentation by a taxpayer in reporting
property can create a right to collect and retain taxes on
nonexistent property so that no refund of taxes collected due
to such an error can be had under § 40-10-160, Ala. Code 1975.
The majority opinion, by affirming the judgment of the
Court of Civil Appeals on this issue, effectually holds that
the State has the authority to tax nonexistent property.  The
Court of Civil Appeals distinguished the present case from
City of Birmingham v. Piggly Wiggly Alabama Distributing Co.,
638 So. 2d 759, 765 (Ala. 1994), in order to contradict
HealthSouth's contention that the tax assessor had no
authority 
to 
assess 
nonexistent 
personal 
property 
to
HealthSouth.  The Court of Civil Appeals' opinion notes that
Piggly Wiggly involved a mistake, whereas the present case
1060296
23
involves an intentional misrepresentation. That opinion holds
that in an instance of mistake, such as in Piggly Wiggly, the
assessor is without authority to assess the property.  But in
this case, the Court of Civil Appeals held:
"The tax assessor was authorized to assess the taxes
based 
on 
the 
lists 
provided 
by 
HealthSouth.
HealthSouth’s violation of its duty to provide
correct and truthful information on its tax returns
did not abrogate the tax assessor’s authority to
affix values for assessment purposes to the property
listed on HealthSouth’s tax returns."
___ So. 2d at ___ (citation omitted). Although this
mistake/intentional-misrepresentation 
distinction 
does
distinguish Piggly Wiggly from this case, it is irrelevant.
The forms an entity fills out may give the assessor authority
to assess the value of the property listed; however, this
presupposes there is property listed that has value to be
assessed.  Nonexistent property has no value, and without
property to assess, the assessor is without authority.
The Court of Civil Appeals also suggested that equity has
a place in tax matters. ___ So. 2d at ___ (citing Sims v.
White, 522 So. 2d 239, 240 (Ala. 1988)). However, equity may
not prevent HealthSouth from receiving a refund, because it is
1060296
The majority opinion quotes Stone v. White, 301 U.S. 532,
4
535 (1937), as recognizing that federal tax "'statutes
authorizing tax refunds and suits for their recovery are
predicated upon the same equitable principles that underlie an
action in assumpsit for money had and received.'"     So. 2d
at ___.  In Stone, where a trust had mistakenly paid the tax
on money disbursed to a beneficiary when the beneficiary
should have paid the tax, the trust sued to recoup the tax
payment after the point in time when the Internal Revenue
Service could have required the beneficiary to pay the tax.
The Supreme Court recognized that equitable principles would
apply to the government, as well as to the taxpayer:
"Equitable conceptions of justice compel the conclusion that
the retention of the tax money would not result in any unjust
enrichment of the government."  301 U.S. at 537.  The Court
found that although the tax-payment procedure had been
erroneous, it had "resulted in no unjust enrichment to the
government, and in no injury to petitioners or their
beneficiary."  301 U.S. at 539.  
Here, in contrast, the retention of the tax payment would
result in unjust enrichment to the government and injury to
the petitioner and its shareholders.  
Equity, however, has no place in our constitutional scheme
limiting the authority of the tax assessor, explained infra.
Moreover, court adoption of equity principles would empower
the judiciary to exact penalties against taxpayers that the
legislature has not enacted.
24
illegal for the tax assessor to assess nonexistent property.4
"'Illegal' is defined generally as '[a]gainst or not
authorized by law.'" Piggly Wiggly, 638 So. 2d at 765 (quoting
Black's Law Dictionary 747 (6th ed. 1990)).  Because the
assessor has no authority to assess nonexistent property, it
is illegal for the assessor to do so. There is no
1060296
25
constitutional or statutory support for the proposition that
the assessor is authorized to assess nonexistent property. 
Constitutional and Statutory Construction
The Alabama Constitution of 1901, § 211, explicitly
limits the State's taxing authority:
"All taxes levied on property in this state
shall be assessed in exact proportion to the value
of such property ...."
Nonexistent property has no value; therefore, nonexistent
property may not be taxed.
T h e  " v a l u e  o f  [ n o n e x i s t e n t ]
property" is zero.  Any "exact proportion" of zero is zero.
This Court has recognized the following three principles
regarding the government's power of taxation:
"(1) The power of taxation is an incident of
sovereignty and is possessed by the government
without being expressly conferred by the people.
"(2) The power is purely legislative. 
"(3) So long as no constitutional limitations
are 
exceeded, 
the 
Legislature 
is 
of 
supreme
authority, and the courts, as well as all others,
must obey." 
State v. Birmingham So. Ry., 182 Ala. 475, 479, 62 So. 77, 79
(1913).  This Court noted that "[t]he purpose and scope of
this constitutional limitation ... is that it was designed to
secure uniformity and equality by the enforcement of an ad
1060296
26
valorem system of taxation and to prohibit arbitrary or
capricious modes of taxation without regard to value." 182
Ala. at 480-81, 62 So. at 79 (emphasis added). This Court
further stated that "[i]f the legislative provision in
question is unconstitutional, it must be because it is
repugnant to one or more of the following sections of the
state constitution: Section 211 ...." 182 Ala. at 479, 62 So.
at 79. 
The authority of the tax assessor is derived from the
legislature through § 40-7-1, Ala. Code 1975, as shown below,
and if that authority is to extend to nonexistent property,
the statute would be unconstitutional because it would be
repugnant to § 211, Ala. Const. 1901.  It is a well-settled
principle of statutory construction that a statute should be
construed to avoid conflict with the constitution.  The
Constitution of Alabama establishes the extent of the
authority to tax property when it states: "All taxes levied on
property in this state shall be assessed in exact proportion
to the value of such property." Ala. Const. 1901, § 211.  This
section "prohibit[s] the Legislature from prescribing or
declaring an arbitrary or artificial value of the property of
1060296
27
individuals or corporations, and assessing taxes on such
valuation." Birmingham So. Ry., 182 Ala. at 481, 62 So. at 79
(citing Assessment Board v. A.C.R.R., 59 Ala. 551 (1877)).
Section 211 prevents placing an "artificial value" on
nonexistent property. Such a valuation would disregard the
constitutional mandate that the tax is to be "in exact
proportion to the value of" the property.  Nonexistent
property has no value.  Therefore, if the authority of the
assessor, derived from § 40-7-1, is to be read to include
nonexistent property, the statute conferring that authority
would be repugnant to § 211 and, therefore, unconstitutional.
Taxation statutes are to be strictly construed against
the taxing authority: "[W]e are here concerned with a taxing
act, with regard to which the general rule requiring adherence
to the letter applies with peculiar strictness." Crooks v.
Harrelson, 282 U.S. 55, 61 (1930). In United States v.
Merriam, 263 U.S. 179, 187-88 (1923), the Supreme Court
stated: "[I]n statutes levying taxes the literal meaning of
the words employed is most important for such statutes are not
to be extended by implication beyond the clear import of the
language used."  "[I]f there is a serious doubt as to
1060296
28
taxability, the doubt should be resolved in favor of the
taxpayer." Western Elec. Co. v. United States, 564 F.2d 53,
66, 215 Ct. Cl. 100, 124 (1977)(citing Allstate Ins. Co. v.
United States, 530 F.2d 378, 209 Ct. Cl. 1 (1976); Ellis v.
United States, 416 F.2d 894, 897 (6th Cir. 1969); and McFeely
v. Commissioner, 296 U.S. 102, 111 (1935)). "A basic rule of
statutory construction is that ambiguous tax statutes are
construed against the taxing authority and in favor of the
taxpayer." Birmingham v. AmSouth Bank, N.A., 591 So. 2d 473,
477 (1991) (citing Alabama Farm Bureau Mut. Cas. Ins. Co. v.
City of Hartselle, 460 So. 2d 1219 (Ala. 1984); Owen v. West
Alabama Butane Co., 278 Ala. 406, 178 So. 2d 636 (1965); and
Miller v. Standard Nut Margarine Co., 284 U.S. 498 (1932)). 
The Court of Civil Appeals concluded that the tax
assessor was authorized to assess taxes on the assets
HealthSouth listed on its tax returns. ___ So. 2d at ___
(relying on § 40-7-1(a), § 40-7-27, and § 40-7-34).
"HealthSouth's violation of its duty to provide correct and
truthful information on its tax returns did not abrogate the
tax assessor's authority to affix values for assessment
purposes to the property listed on HealthSouth's tax returns."
1060296
29
___ So. 2d at ___.  Therefore, the Court of Civil Appeals
concluded, it was not illegal to assess value on the
nonexistent property, because the tax assessor had the
authority to do so and that authority was not abrogated. 
The Court of Civil Appeals misinterprets the statutes
that give the tax assessor his authority.  The only statute
relevant to the issue of authority, because it is the only
statute that addresses the issue of authority, is § 40-7-1,
which provides: "The tax assessor ... shall have the right and
authority to assess all ... personal property to the party
last assessing the same, or to the owner of record ...."  That
court concluded that because the statute gives authority to
the assessor to "assess all personal property ... to the owner
of record" and because HealthSouth included the nonexistent
property on its returns, the statute gives the assessor
authority over the nonexistent property.  However, § 40-7-1
nowhere grants authority to the tax assessor to assess
nonexistent property. The phrase "owner of record" allows the
assessor to assess the property listed on the return, but this
necessarily presumes that the property listed actually exists
and has value.  Even though it may be listed, nonexistent
1060296
30
property has no owner –- of record or otherwise -- and no
value capable of being assessed.  Even if somehow we were to
conclude that the assessor could assess fictitious property,
no verifiable valuation criteria would exist by which to do
so.       
If 
doubt 
exists 
as 
to 
whether 
the 
State 
has
constitutional or statutory authority to tax nonexistent
property, we must return to the basic axiom of statutory
interpretation set forth above: Taxation statutes are to be
construed strictly in favor of the taxpayer and against the
State.
Analogous Cases
Taxes are to be assessed in exact proportion to the value
of the property taxed. Although it has been stated that this
valuation may be a percentage of the actual value, see State
v. Birmingham So. Ry., supra, and the valuation process is not
always accurate, see Hamilton v. Adkins, 250 Ala. 557, 35 So.
2d 183 (1948), if that proportionate value is overstated, in
the case of nonexistent or exempt property, and the taxes
collected are beyond those owed, then refunds have been
allowed.  "In Pacific Coast Co. v. Wells, 134 Cal. 471, [66 P.
1060296
As noted in the majority opinion, the author of this
5
article argues "that equitable defenses should be available in
31
657 (1901)], the taxpayer inadvertently overstated the amount
of his solvent credits, and the assessor adopted the erroneous
figure as the basis of the assessment. The Supreme Court
treated the tax there as based pro tanto on nonexistent
property and held the taxpayer entitled to a refund." Lockheed
Aircraft Corp. v. County of Los Angeles, 207 Cal. App. 2d 119,
126-27, 24 Cal. Rptr. 316, 321 (1962). In Lockheed, the court
stated that the various refund decisions "reflect the view of
the courts that where it can be established that an assessment
is based upon property which is exempt, outside the
jurisdiction, or nonexistent, the taxpayer is entitled to
judicial relief." 207 Cal. App. 2d at 127, 24 Cal.  Rptr. at
321.  Therefore, an overpayment of tax should result in a tax
refund. 
Such 
refunds 
are 
appropriate 
regardless 
of 
the
malfeasance of the person seeking the refund. This was noted
by Craig M. Boise in Playing with "Monopoly Money": Phony
Profits, Fraud Penalties and Equity, 90 Minn. L. Rev. 144,
147-48 (2005), which examines recent incidents of falsely
inflated income of major U.S. corporations.   A Wall Street
5
1060296
actions seeking a tax refund after the taxpayer's fraud in
overstating its tax liability has been exposed." ___ So. 2d at
___ (emphasis added).  The author states that the position he
argues "would establish a new precedent."  90 Minn. L. Rev. at
201 ("The use of equitable defenses in denying a fraud-related
refund claim in a case like WorldCom's, for example, would
establish a new precedent.").  In that portion of the article
quoted in the majority opinion, the author argues that the
Internal Revenue Service should use principles of equity to
accomplish what Congress refused to do in 2004 -- to authorize
the Internal Revenue Service to retain the full amount of the
overpayment in cases of fraudulent overpayments.  
As noted in note 4, supra, equity cannot be employed to
expand the constitutionally limited authority of our tax
assessors.  
32
Journal article noted the same principle: "[f]raud or not, the
current tax code makes no distinctions. It is a basic tenet of
tax law -– both for individuals and corporations -– that those
who overpay are entitled to a refund." Rebecca Blumenstein,
Dennis K. Berman, and Evan Perez, After Inflating Their
Income, Companies Want IRS Refunds, The Wall Street Journal,
May 3, 2003, at A1.  Additionally, many articles have reported
that HealthSouth, Enron Corporation, and WorldCom are seeking
tax refunds from the Internal Revenue Service ("the IRS").
See, e.g., Associated Press, Judge orders Scrushy to pay back
millions in HealthSouth bonuses, Bradenton Herald, Jan. 5,
2006, which stated: "Combined with as much as $265 million in
refunds the company is seeking from the federal government for
1060296
33
taxes it paid on overstated income during the fraud, the
court-ordered repayment could help shore up the finances of
HealthSouth."
Although taxpayers who fraudulently increase their income
are entitled to a refund, we may have difficulty determining
whether these taxpayers actually get a refund.  The IRS
requires confidentiality of federal income-tax returns. 26
U.S.C. § 6103. Nonetheless, some reports may come from the
corporations themselves, as was the case for MCI, formerly
WorldCom.  "MCI, formerly known as WorldCom Inc., has already
collected nearly $300 million in overpayments from the I.R.S.,
a company spokeswoman said. The telecommunications giant’s
accounting irregularities total $11 billion." Anitha Reddy and
Christopher Stern, Firms Want Refunds of Tax on Fake Profit;
MCI Collects Almost $300 Million, The Washington Post, final
ed. May 3, 2003, at E1.  The State of Alabama should not deny
refunds on nonexistent property when the IRS provides refunds
of taxes paid on nonexistent income.
Punitive Aspect Is Misdirected
The 
Court 
of 
Civil 
Appeals' 
opinion 
concludes:
"HealthSouth cannot be permitted to take advantage of its own
1060296
34
wrong by receiving a refund based on its own inequitable
conduct." ___ So. 2d at ___.  HealthSouth is not seeking to
"take advantage of its own wrong"; rather, HealthSouth is
asking to be placed in the position it would be in if the
property had been reported and assessed properly.  In so
doing, HealthSouth is attempting to right the wrong done to
its shareholders by its former officers or agents.  
Any effort to hold HealthSouth accountable for the fraud
of its former officers should not overlook the fact that those
who have suffered most as a result of HealthSouth's wrongdoing
are its innocent stockholders.  HealthSouth's former officers
who were involved in the fraud have already, for the most
part, borne the consequences of their actions.  Penalizing
HealthSouth further by retaining this tax would not be an act
of reprimand, but a misplaced chastisement of the innocent
shareholders, because withholding the tax refund would prevent
the shareholders and creditors from using the tax refund to
mitigate damages. As Boise says, "After all, the direct cost
of any penalty generally will be borne by shareholders in
addition to the potential indirect costs associated with the
penalty." Playing with "Monopoly Money," 90 Minn. L. Rev. at
1060296
35
201.  Retaining the excess tax does not deter future tax
fraud, because those who perpetrated the fraud are not the
persons who will suffer from the denial of the refund.
It is true that shareholders assume the risks of their
investments.  However, the State should not magnify the
shareholders' losses by refusing to refund illegal taxes on
nonexistent property, especially when, as in this case, the
fraud 
and 
misrepresentations 
were 
concealed 
from 
the
shareholders.
Conclusion
I therefore dissent –- not because I tolerate corporate
fraud, but because I see the need to carefully limit the power
of the State in the area of taxation.  In McCulloch v.
Maryland, 17 U.S. (4 Wheat.) 316, 391 (1819), Chief Justice
John Marshall declared:  "A right to tax, without limit or
control, is essentially a power to destroy."  The power to tax
nonexistent property adds to the power to destroy the power to
redefine reality.  This is a power that must not be ceded,
even in the most egregious of circumstances.