Opinion ID: 1622161
Heading Depth: 1
Heading Rank: 4

Heading: for what length of time are refunds available to taxpayers?

Text: The Revenue Cabinet concedes that Harper v. Virginia Dept. of Taxation, 509 U.S. 86, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993), requires that the decision in Fulton Corp., supra , be applied retroactively to this case. Both parties further agree that McKesson Corp. v. Florida Div. of Alcoholic Beverages and Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), mandates that a state meet fundamental due process requirements under the Fourteenth Amendment and federal law when the Commerce Clause has been violated. Discussing the minimum relief a taxpayer must receive, the McKesson Court stated: The question before us is whether prospective relief, by itself, exhausts the requirements of federal law. The answer is no: if a State places a taxpayer under duress promptly to pay a tax when due and relegates him to a postpayment refund action in which he can challenge the tax's legality, the [D]ue Process Clause of the Fourteenth Amendment obligates the State to provide meaningful backward-looking relief to rectify any unconstitutional deprivation. Id. at 31, 110 S.Ct. at 2247 (footnotes omitted). KRS 134.590 also requires some type of refund under these circumstances as a matter of state law, independent of due process requirements. KRS 134.590(1) provides that when it appears to the appropriate agency of state government that money has been paid into the State Treasury for ad valorem taxes, when no taxes were due, or for taxes of any kind under a statute held to be unconstitutional, that agency must refund the money or cause it to be refunded. See Revenue Cabinet v. Gossum, Ky., 887 S.W.2d 329, 333-34 (1994). Accordingly, appellants are entitled to a refund, and we must now determine for what length of time a refund is available. Appellants assert that under the doctrine of issue preclusion, this Court must reaffirm the applicable remedy for collection of an unconstitutional tax as set forth in our original opinion in St. Ledger, supra . Appellants cite to Inman v. Inman, Ky., 648 S.W.2d 847, 849 (1982), as support for their contention. Inman described the law of the case rule under which a court is bound on subsequent appeal by its prior decisions on a former appeal and applies to the determination of questions of law. Id. While in St. Ledger, we did agree with the trial court that the taxpayers were entitled to apply for refunds of taxes for the preceding two-year period pursuant to KRS 134.590, the law of the case doctrine is not applicable in the present procedural posture of this case, as this is not a subsequent appeal of the same case. Furthermore, nothing in the law of the case doctrine in any way prevents re-examination of the applicability of the legal principles applied on one constitutional challenge (Bank Deposits Tax) to a separate legal challenge to a different tax (the Corporate Shares Tax and the Exemption Statute). The material circumstances and issues presented by this different tax make the law of the case doctrine inapplicable and, thus, this Court is free to apply the law as required by the circumstances presented by the challenge to the tax. Moreover, appellants argue that, in general, KRS 134.590 speaks in terms of filing an application for a refund and that KRS 134.590(6), not KRS 134.590(2), is the appropriate section to apply in this case. Specifically, appellants contend that Griggs v. Dolan, Ky., 759 S.W.2d 593 (1988), is crystal clear that the filing of a lawsuit challenging the constitutionality of a taxing statute either constitutes the filing of an application or preserves the right of the taxpayer to file an application for a refund of taxes paid within two years prior to the filing date of that litigation. Id. at 596. Appellants assert Barrett v. Reynolds, Ky., 817 S.W.2d 439 (1991), which followed and relied upon our holding in Griggs , as upholding the concept that KRS 134.590(6) applies to the length of time for a refund and stands for the proposition that: [I]f a suit challenging the method of assessment is pending, the time for making the claim for refund, either against the Commonwealth or against other taxing agencies, does not expire until two years after the date the litigation has been finally determined by the courts. Id. at 441. In addition, appellants argue that neither Griggs nor Barrett made any distinction between the amount of refund due and the taxing authority involved. We disagree. Contrary to appellants' arguments, Barrett and Griggs did not hold that the time for filing a claim for refund against the Commonwealth is two years from the date of the final determination of the litigation for taxes challenged as unconstitutional. First, appellants' contention concerning Barrett is pure dictum insofar as it relates to the Commonwealth, given that no question as to refunds by the Commonwealth was presented in that case. Barrett, 817 S.W.2d at 439. Additionally, both Barrett and Griggs are distinguishable from the present case in that those cases involved situations in which a suit attacking the constitutionality of assessments [was] pending. Id. (emphasis added). The present case, however, does not involve a challenge to the constitutionality of an assessment; it challenges the constitutionality of an exemption statute, an ad valorem statute, and involves the Revenue Cabinet. There is no statement in either Barrett or Griggs that a suit against only the Revenue Cabinet for a declaration of the unconstitutionality of an ad valorem tax statute, rather than an assessment, would come under KRS 134.590(6). Thus, the present case clearly falls within KRS 134.590(1)-(2), which require the filing of a refund application within two years of payment, not two years from the date of the filing of the lawsuit. Likewise, Griggs, supra , merely quoted and relied on Board of Educ. of Fayette County v. Taulbee, Ky., 706 S.W.2d 827 (1986), which supports the proposition that the controlling statute in cases such as these is KRS 134.590(2). In Taulbee , this Court clearly recognized that KRS 134.590(6) applies only to local taxing districts, asserting: It appears that the legislators made a distinction between state and local taxing districts. Only the local taxing districts have authority to refund both overpayment of ad valorem and unconstitutional taxes. The state will only refund unconstitutional taxes or taxes paid when no tax is due. KRS 134.590(1) applies to taxes paid under a statute held unconstitutional. Obviously, the only way a statute can be held unconstitutional is when a court makes such a decision. The filing of a lawsuit does not automatically entitle a plaintiff to a refund without further action. KRS 134.590(6) covers this situation as to local tax districts when it permits an application for refund to be made within two years from the date the amount due if finally determined. Id. at 829. Similarly, in the more recent case of Revenue Cabinet v. Gossum, Ky., 887 S.W.2d 329 (1994), this Court recognized that by enacting a two-year statute of limitations, Kentucky quite properly has availed itself of a procedural protection minimizing the disruptive effect of a tax scheme's invalidation. Id. at 335. In fact, our opinion in Gossum , citing McKesson, supra , recognized both the purpose and the justification for the shorter statute of limitations in KRS 134.590(2) applicable to unconstitutional tax schemes. Specifically, we stated: We determine that Kentucky, by its refund statute, applicable to taxing statutes declared unconstitutional, has availed itself of a procedural protection minimizing the disruptive effect of a tax scheme's invalidation. Inclusively, the legislature has provided, by statute a relatively short period of limitations which is protective to a state's fiscal security when weighed against the state's obligation to provide meaningful relief for its unconstitutional taxation. A reasonable basis does exist for a distinction sufficient to create justification for the separate classification of a four or two year statute of limitations . . . This case stands as a clear example of the distinction that the state legislature has drawn between refunds of taxes paid under a constitutional statute which is rationally related to a legitimate state interest. Revenue Cabinet acknowledges that refunds under a constitutional statute should normally involve individual taxpayers and nominal payments, whereas refunds under an unconstitutional statute will involve multitudes of taxpayers and millions of dollars. McKesson, supra , authorizes the conclusion that the two-year statute of limitations (KRS 134.590) is not violative of constitutional standards. Refunds shall be made to those [taxpayers] whose application for same was made within two years from the time payment was made. Id. at 335 (citations omitted). We further noted that the history of KRS 134.590 establishes that KRS 134.590(2) is the subsection applicable to the question of when an application for a refund has been filed. Id. Furthermore, in Gossum , regarding an issue almost identical to the one in the present case, we reiterated our position in Taulbee : The retirees maintain that KRS 134.590(6) extends the statute of limitations to two years after final resolution of this case. We attach no merit to this argument as KRS 134.590, commencing with (3) through (6), applies to refunds of local ad valorem taxes only, and was the result of an amendment affected by SB 287 of the regular legislative session of 1980, wherein no change was made in the statutory requirements for refunds of taxes paid under a statute held unconstitutional. It appears, additionally, that the amount of taxes due is not an item of the litigation. It is an issue of all of the tax or none of the tax. Also see Board of Education of Fayette County v. Taulbee, Ky., 706 S.W.2d 827 (1986), which enumerates three taxing districts, namely the Department of Revenue, the Board of Education, and the Urban County Government as distinct governmental and taxing entities. The case distinguishes that the Department of Revenue shall refund under KRS 134.590(1) and that sections (3), (4), (5), and (6) apply to the refund of all other taxing districts. Gossum, 887 S.W.2d at 334-35. Thus, Gossum clearly held that KRS 134.590(6) applies only to refund claims against local taxing districts and not to refunds against the State. Also without foundation, appellants assert that the two-year statute of limitations in KRS 134.590(2) violates the due process principles enunciated in McKesson, supra , by depriving them of any meaningful backward-looking relief. As Gossum, supra , notes, application of the two-year statute of limitations is consistent with McKesson because the McKesson court explicitly approved enforcing relatively short statutes of limitations applicable to refund actions. Gossum, 887 S.W.2d at 331. Basically, in Gossum we adopted the rationale for such actions expressed in McKesson that, such procedural measures would sufficiently protect States' fiscal security when weighed against their obligation to provide meaningful relief for their unconstitutional taxation. Id. Thus, a short refund period is constitutionally sufficient, and, by adopting one, Kentucky quite properly has availed itself of a procedural protection minimizing the disruptive effect of a tax scheme's invalidation. Id. It should also be noted that a lawsuit is an application to a judicial body for some type of relief. Clearly, the filing of such an action does not constitute the filing of an application for a refund for the purposes of the refund statute. As we distinguished in Taulbee, supra , and Gossum, supra , the Department of Revenue must provide refunds for the state under KRS 134.590(2), while KRS 134.590(6) strictly applies to refunds from local tax districts. Accordingly, unlike the provisions for determining the final amount due where there is a dispute as to the calculation or assessment of local ad valorem taxes, there is no tolling provision in KRS 134.590(2) for refunds by the State of an unconstitutional tax. The plain meaning of KRS 134.590(2) makes the two-year period after the filing of an application for a tax refund, not the filing of a lawsuit, the appropriate period of limitations on appellants' recovery.