Opinion ID: 1141147
Heading Depth: 4
Heading Rank: 1

Heading: Remedy Options

Text: There can be no real dispute concerning the range of options available to the Director to remedy the constitutional defect in HRS § 237-24(18)(C). In McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Department of Business Regulation of Florida, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), the United States Supreme Court considered the types of relief available to a taxpayer who pays taxes under an unconstitutional statute. In McKesson, wholesale liquor distributors challenged a Florida liquor tax that gave special rate reductions to certain products commonly grown in Florida and used in alcoholic beverages produced there. The Florida Supreme Court agreed with McKesson that the tax scheme unconstitutionally discriminated against interstate commerce. It ruled, however, that equitable considerations mandated that any relief be prospective only. A unanimous Supreme Court reversed. The Court held that because exaction of taxes constitutes a deprivation of property, the due process clause of the fourteenth amendment to the United States Constitution mandates that a state provide procedural safeguards against the imposition of unlawful taxes. Id. at 36, 110 S.Ct. at 2250. In general, a state could satisfy due process requirements by providing either predeprivation process ( e.g., authorizing taxpayers to bring suit to enjoin imposition of a tax before its payment) or postdeprivation process. Id. Because Florida employed a system of financial sanctions and summary remedies designed to encourage taxpayers to tender tax payments before challenging a tax, Florida had to provide adequate postdeprivation process: To satisfy the requirements of the Due Process Clause, therefore, in this refund action the State must provide taxpayers with, not only a fair opportunity to challenge the accuracy and legal validity of their tax obligation, but also a clear and certain remedy, [ Atchison, T. & S.F.R. Co. v. O'Conner, 223 U.S. 280 [32 S.Ct. 216, 56 L.Ed. 436] (1912)], for any erroneous or unlawful tax collection to ensure that the opportunity to contest the tax is a meaningful one. Id., 496 U.S. at 39, 110 S.Ct. at 2251 (footnote omitted). The Court held that a state retains flexibility in providing meaningful backward-looking relief, id. at 31, 110 S.Ct. at 2247, as long as it treats [the taxpayer] and its competitors in a manner consistent with the dictates of the Commerce Clause. Id. at 39-40, 110 S.Ct. at 2252. Thus, the Court held that retroactive relief could be accorded in one of three general ways. A state could: (1) refund the difference between the tax a taxpayer paid and the tax that it would have paid had it been assessed at the preferential rate; (2) retroactively assess the taxpayer's favored competitors at the non-preferential rate; or (3) use a combination of the two methods. Id. at 40, 110 S.Ct. at 2252. In the present case, the remedial options outlined in the tax appeal court's order were consistent with the methods set forth in McKesson. Under McKesson, then, HFM clearly would receive the process it is due if the Director retroactively assesses those taxpayers who benefited from HRS § 237-24(18)(C)'s exemption. [2] A retroactive assessment would eliminate any discriminatory preference, at least in hindsight, and therefore effectively extinguish any Commerce Clause violation. Thus, any inquiry into whether HFM's imported processed food products were in competition with fresh Hawai'i-produced foods would be unnecessary: all GET taxpayers who competed for AHC's business, whether they were local or foreign or whether they sold fresh or processed foods, would be on an equal tax footing. [3] The real battle lines are drawn around the refund remedy. As noted, HFM argues that it is entitled to a full refund of the GET it paid on the sales of all of its food products, processed and fresh. The Director argues that if he chooses refund as a remedy, it should be limited to the GET that HFM paid on sales of (i) fresh foods (ii) that were actually consumed outside the territorial waters of Hawai'i.