Opinion ID: 4658989
Heading Depth: 1
Heading Rank: 7

Heading: Analysis of Parties' Arguments: F. Split of Authority in States Recognizing Interest on a State Tax Refund

Text: ¶46 When the U. S. Supreme Court was deciding the lack of interest on a state tax refund could not be used as a sufficient reason for avoiding application of the Tax Injunction Act in federal courts, various state courts were deciding whether interest should be awarded on a state tax refund. For example, in Ball v. County of Los Angles (1978) 82 Cal.App.3d 312, 147 Cal.Rptr. 252, the court noted the split between states holding there is an implied contract between the state and the taxpayer that the state will be liable for interest for the period of time it has the use of the taxpayer's money, and other states rejecting the implied contract theory and holding there is no liability for interest on a refund in the absence of a statute that specifically creates a liability for such interest. 96 ¶47 One of the reasons used in support of not paying interest on a tax refund was based upon a court not imputing delay to the government: the theory that a contract for interest is implied only when there is either delay or default on the part of the debtor and such delay or default will not be attributed to the government since it is presumed that the government always stands ready to pay what it owes promptly. 97 This principle was stated by the United States Supreme Court in 1879: whenever interest is allowed either by statute or by common law, except in cases where there has been a contract to pay interest, it is allowed for delay or default of the debtor. But delay or default cannot be attributed to the government. It is presumed to be always ready to pay what it owes. 98 ¶48 Not imputing delay to the government was a public policy at odds with the public policy expressed by Judge Hand in Proctor & Gamble Distributing Co. , supra , which expressed the equitable and substantive inadequacy of a tax refund remedy denying interest during the time a government entity possessed a protested tax payment. The determination which of two conflicting public policies should be given prominence is ordinarily a matter within the domain of a legislative body. 99 ¶49 Related issues being litigated at this time involved payment of interest on a tax refund when no statute created authority for the government official to invest the protested taxes while the protest was being adjudicated. 100 Another issue being litigated in state courts was whether interest could be awarded in the presence of state constitutional provisions prohibiting payments from the state treasury in the absence of a legislative act or resolution authorizing interest as part of the award. 101 ¶50 During this period and prior to 1987, the two primary ad valorem tax protest statutes 68 O.S.1971 § 2467 (appeal when the assessment is alleged to be too high) and § 2469 (alleged illegality when no appeal is provided) both required protested tax payments to be held separate and apart by the officer collecting the taxes. These two statutes did not expressly state the protested payment must be invested and obtain interest, and they did not provide for payment of interest on the refund to the taxpayer. The language in the 1971 versions continued to appear through 68 O.S.1981 §§ 2467, 2469.