Opinion ID: 475230
Heading Depth: 1
Heading Rank: 5

Heading: Constitutionality of Retroactive Tax

Text: 46 Under Welch v. Henry, 305 U.S. 134, 147, 59 S.Ct. 121, 125, 83 L.Ed. 87 (1938), a retroactive tax is constitutional unless its application is so harsh and oppressive as to violate due process. This harsh and oppressive test does not differ from the test of constitutionality applicable to economic legislation generally, namely, that such legislation is constitutional unless Congress has acted in an arbitrary and irrational way. Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 733, 104 S.Ct. 2709, 2720, 81 L.Ed.2d 601 (1984); see Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (1976). However, the retroactive application of the statute must be justified by a rational purpose. Pension Benefit Guaranty Corp., 467 U.S. at 730, 104 S.Ct. at 730; Long Island Oil Products Co. v. Local 553 Pension Fund, 775 F.2d 24, 27 (2d Cir.1985) (retroactive statute is constitutional if retroactive application is justified by legitimate legislative purpose furthered by rational means). 47 Among the factors to be considered in an assessment of whether a retroactive statute is harsh and oppressive in application is whether it abrogates vested rights. See Hochman, The Supreme Court and the Constitutionality of Retroactive Legislation, 73 Harv.L.Rev. 692, 696 (1960) (traditional principle used in assessing constitutionality of retroactive law is that statute may not abrogate vested rights, but term vested rights is conclusory--a right is vested when so far perfected that it cannot be taken away by statute); Patlex Corp. v. Mossinghoff, 758 F.2d 594, 602 (Fed.Cir.) (early Supreme Court cases concluded that retroactive statutes could not abolish property rights; later cases placed greater weight on policy considerations and established multifactor inquiry), modified on other grounds, 771 F.2d 480 (Fed.Cir.1985). However, retroactive legislation is not unconstitutional merely because it upsets settled expectations or because it effectively imposes a new liability on a past act. See Pension Benefit Guaranty Corp., 467 U.S. at 729-30, 104 S.Ct. at 2717-18; Usery, 428 U.S. at 16, 96 S.Ct. at 2892. 48 No vested right of Canisius was impaired by retroactive application of the 1984 provision. Forbes Pioneer Boat Line v. Board of Commissioners, 258 U.S. 338, 42 S.Ct. 325, 66 L.Ed. 647 (1922), relied upon by Canisius, is not to the contrary. In Forbes, the plaintiff steamboat company had received a favorable final judgment in an action brought to recover tolls that had been unlawfully collected on passages through the lock of a canal. The state legislature enacted a law the day the judgment was issued purporting to retroactively validate the collection of tolls; the Forbes Court found the law unconstitutional. Canisius contends that the 1984 provision is similarly unconstitutional because it deprives Canisius of its right to a refund of FICA taxes. But Canisius, unlike the Forbes plaintiff, has no final judgment establishing such a right, nor does it have any other basis for claiming a vested right to such a refund. See United States v. Heinszen & Co., 206 U.S. 370, 390-91, 27 S.Ct. 742, 748, 51 L.Ed. 1098 (1907) (Congress could ratify admittedly unlawful collections of duties even after plaintiff had brought action to recover the duties paid); Western Union Telegraph Co. v. Louisville & Nashville Railroad Co., 258 U.S. 13, 20, 42 S.Ct. 258, 260, 66 L.Ed. 437 (1922) (where telegraph company had brought suit alleging right to easement under eminent domain statute, company did not have right so far vested under state law as to preclude change in statute that destroyed any such right of easement); Taxpayers For The Animas-La Plata Referendum v. Animas-La Plata Water Conservancy District, 739 F.2d 1472, 1477 (10th Cir.1984) (Supreme Court has not hesitated to uphold legislation which has mooted pending lawsuits and nullified accrued causes of action). 11 49 Another factor to be considered in assessing the constitutionality of a retroactive statute is whether the taxpayer relied on prior law so that, had he been able to foresee enactment of the legislation, he would have acted to avoid the tax. See Usery, 428 U.S. at 17 n. 16, 96 S.Ct. at 2893 n. 16; Blodgett v. Holden, 275 U.S. 142, 147, 48 S.Ct. 105, 106, 72 L.Ed. 206 (1927) (it is wholly unreasonable that one who in good faith and without slightest premonition of such consequence made absolute disposition of property by gift should thereafter be required to pay charge for so doing), modified on other grounds, 276 U.S. 594, 48 S.Ct. 105, 72 L.Ed. 206 (1928); Daughters of Miriam Center for the Aged v. Mathews, 590 F.2d 1250, 1262 (3d Cir.1978) (where retroactivity is challenged a critical question often is how conduct would have differed if rule in issue had been applied from the start). 50 Here, the 1984 provision merely ratifies past action of the Treasury Department taken in conformity with longstanding department practice. Ruling 65-208 was promulgated in 1965, and nothing suggests that taxpayers, in planning employee benefit programs, relied on an assumption that amounts paid under salary reduction plans in 1980 would escape FICA taxation. See Swayne & Hoyt, Ltd. v. United States, 300 U.S. 297, 302, 57 S.Ct. 478, 480, 81 L.Ed. 659 (1937) (validating statute was constitutional where consequences of retroactive application were free of elements of novelty and surprise). Thus, there is no element of taxpayer reliance on prior law. 51 The length of the period affected is an additional factor to be considered in determining whether retroactive legislation is unduly harsh and oppressive in application. Retroactive tax law rarely concerns a time period longer than the year preceding passage of the legislation. See United States v. Darusmont, 449 U.S. 292, 296, 101 S.Ct. 549, 551, 66 L.Ed.2d 513 (1981) (per curiam) (the retroactive feature of a tax statute usually has application only to the portion of current calendar year preceding date of its enactment). In the present case, the 1984 provision retroactively affects approximately a four-year period, from the 1980 tax year in issue, to the year of the provision's enactment. Despite the lengthy period affected, retroactive application of the provision is not impermissible. There is nothing intrinsic in the harsh and oppressive test of Welch v. Henry, 305 U.S. at 147, 59 S.Ct. at 125, or in the arbitrary and irrational test of Usery, 428 U.S. at 15, 96 S.Ct. at 2892, that requires a one-year bench mark as the constitutional limit of retroactivity. To the contrary, the nature of those tests, requiring that the court [i]n each case ... consider the nature of the tax and the circumstances in which it is laid, Welch, 305 U.S. at 147, 59 S.Ct. at 125, suggests that the length of the period retroactively affected should be considered merely as a factor--albeit a significant factor--in the overall assessment of the constitutionality of the legislation. 52 In light of its curative purpose, we find the provision constitutional notwithstanding the long period of retroactivity. Congress may ratify acts it could originally have authorized, Swayne & Hoyt, Ltd. v. United States, supra, 300 U.S. at 301-02, 57 S.Ct. at 479-80, and curative legislation is typically entitled to be liberally construed, Temple University, supra, 796 F.2d at 134; 2 C. Sands, Sutherland Statutory Construction Sec. 41.11, at 289-90 (4th ed. 1973). Congress' concern was that a failure to make retroactively lawful the taxes in issue, which had for years been collected in conformity with 65-208, would require refunds of monies that had provided a portion of the tax base of the social security system and necessitate some reduction of benefits to and recoupment of past benefits from current recipients. See H.R.Rep. No. 432, 98th Cong., 2d Sess. 1658, reprinted in 1984 U.S.Code Cong. & Ad.News 697, 1280-81. Considering the absence of either vested interests or taxpayer reliance, Congress' decision to address its concern by making retroactively lawful the taxes already collected is neither irrational, nor a harsh and oppressive way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens, Welch v. Henry, 305 U.S. at 146, 59 S.Ct. at 125. Cf. Graham & Foster v. Goodcell, 282 U.S. 409, 417-18, 426-29, 51 S.Ct. 186, 192-93, 75 L.Ed. 415 (1931) (Court found constitutional retroactive statute designed to preclude necessity of refunding taxes that over three years earlier had been collected after limitations period had expired); Rafferty v. Smith, Bell & Co., 257 U.S. 226, 231-32, 42 S.Ct. 71, 66 L.Ed. 208 (1921) (retroactive validation by Congress of duties unlawfully collected some four years earlier held constitutional). 53 In sum, because the retroactive application of the 1984 provision is curative in nature, rational in purpose, and not harsh or oppressive in result, the provision passes constitutional muster.