Opinion ID: 1309243
Heading Depth: 1
Heading Rank: 3

Heading: new principle of law

Text: The threshold factor necessary for prospective application is a finding that the Tyler decision established a new principle of law overruling past precedent on which litigants may have relied. Chevron Oil, 404 U.S. at 106. This court's unanimous decisions in National Can and Tyler Pipe, the long line of cases upholding the Washington B & O tax, the fact that Tyler overruled past precedent on which the states may have relied, and Justice Scalia's dissent in Tyler, all compel the conclusion that Tyler did establish new principles of law. In 1984 the United States Supreme Court invalidated West Virginia's wholesale gross receipts tax because it discriminated against interstate commerce. Armco Inc. v. Hardesty, 467 U.S. 638, 81 L.Ed.2d 540, 104 S.Ct. 2620 (1984). In National Can, this court distinguished Armco based on the belief that Washington's selling and manufacturing taxes were exacted to address the same state burdens and hence were compensatory and therefore substantially equivalent. This court distinguished West Virginia's tax (which imposed substantially different tax rates on manufacturing and on wholesaling) from Washington's tax (which imposed identical rates on each activity), and reasoned that this difference was one reason which had precluded the Supreme Court from finding the West Virginia taxes to be compensatory. We further held that the internal consistency rule is not applicable to a determination of discrimination in a gross receipts tax case. It was our belief that the Court in Armco had used the internal consistency concept only in the determination of whether Armco Inc. had to show actual harm once it had demonstrated the tax was facially discriminatory. For this reason we held the Washington tax was not facially discriminatory, and relied on previous holdings of the United States Supreme Court which had upheld Washington's B & O tax against commerce clause challenges and which were not expressly overruled in Armco. The Supreme Court held, however, that the multiple activities exemption was facially discriminatory, and that manufacturing and wholesaling are not substantially equivalent activities. Tyler, 107 S.Ct. at 2818. The Court also held that the internal consistency rule was indeed to be applied in a gross receipts case where the allegation is that a tax on its face discriminates against interstate commerce. Tyler, 107 S.Ct. at 2820. The Tyler Court concluded the B & O tax exposes out-of-state manufacturing or selling activity to a multiple burden from which only manufacturing in-state and selling in-state are exempt. The Court stated that to the extent its conclusion was inconsistent with its ruling in General Motors Corp. v. Washington, 377 U.S. 436, 12 L.Ed.2d 430, 84 S.Ct. 1564 (1964) that case was overruled. Our unanimous decision in National Can indicates we did not read Armco as foreshadowing the result in Tyler. Taxpayers argue, however, that Armco 's reliance on Justice Goldberg's dissent in General Motors clearly informed this court that Washington's tax was unconstitutional. The Supreme Court in Tyler, discussing its Armco decision, said: In explaining why the tax was discriminatory on its face, we expressly endorsed the reasoning of Justice Goldberg's dissenting opinion in General Motors Corp. v Washington, 377 U.S., at 459. We explained: The tax provides that two companies selling tangible property at wholesale in West Virginia will be treated differently depending on whether the taxpayer conducts manufacturing in the State or out of it. Thus, if the property was manufactured in the State, no tax on the sale is imposed. If the property was manufactured out of the State and imported for sale, a tax of 0.27% is imposed on the sale price. See General Motors Corp. v Washington, 377 U.S. 436, 459 (1964) (Goldberg, J., dissenting) ( similar provision in Washington, `on its face, discriminated against interstate wholesale sales to Washington purchasers for it exempted the intrastate sales of locally made products while taxing the competing sales of interstate sellers' ); Columbia Steel Co. v. State, 30 Wash.2d 658, 664, 192 P.2d 976, 979 (1948) (invalidating Washington tax). 467 U.S., at 642. (Italics ours.) Tyler, 107 S.Ct. at 2816. The italicized material is a description of Washington's pre-1950 statute which exempted intrastate sales on locally manufactured goods. Even though the Armco Court did quote Justice Goldberg's General Motors dissent, the parenthetical material following that citation referred not to the B & O tax statute at issue in Tyler, but to the tax which this court struck down in 1948 in Columbia Steel Co. v. State, 30 Wn.2d 658, 192 P.2d 976 (1948). Tracing the Tyler Court's quote back to Justice Goldberg's dissent in General Motors, it appeared that Justice Goldberg was discussing Washington's old B & O tax in the sentence which the Armco Court quoted. See General Motors, at 459. This was appropriate in Armco inasmuch as the West Virginia statute was similar to Washington's pre-1950 act. The Armco Court's reference to Justice Goldberg's dissent in General Motors, without overruling the other cases on which we relied, did not clearly indicate to us the unconstitutionality of Washington's present tax statute. Not until the Tyler decision was it clear the Court was agreeing with Justice Goldberg's conclusion regarding Washington's newer B & O tax exemption and that earlier applicable commerce clause cases were being overruled. Commerce clause challenges to the multiple activities exemption alleging discrimination against interstate commerce have many times been rejected by this court. See B.F. Goodrich Co. v. State, 38 Wn.2d 663, 231 P.2d 325, cert. denied, 342 U.S. 876 (1951); Crown Zellerbach Corp. v. State, 45 Wn.2d 749, 278 P.2d 305 (1954); General Motors Corp. v. State, 60 Wn.2d 862, 376 P.2d 843 (1962), aff'd, 377 U.S. 436 (1964); Chicago Bridge & Iron Co. v. Department of Rev., 98 Wn.2d 814, 659 P.2d 463, appeal dismissed, 464 U.S. 1013 (1983). This court was clear in our National Can decision that because the West Virginia and Washington taxes differed significantly, we were relying on the long history of the United States Supreme Court's treatment of this state's gross receipts tax as having withstood commerce clause challenges, see Department of Rev. v. Association of Wash. Stevedoring Cos., 435 U.S. 734, 55 L.Ed.2d 682, 98 S.Ct. 1388 (1978); Standard Pressed Steel Co. v. Department of Rev., 419 U.S. 560, 42 L.Ed.2d 719, 95 S.Ct. 706 (1975); General Motors Corp. v. Washington, 377 U.S. 436, 12 L.Ed.2d 430, 84 S.Ct. 1564 (1964) ... National Can, at 339-40. We believe Washington's rationale prior to the United States Supreme Court decision in National Can was a reasonable assessment of existing case law. In 1983 we held that Washington's B & O tax was not discriminatory under the commerce clause. Chicago Bridge & Iron Co., 98 Wn.2d at 832. The United States Supreme Court dismissed the appeal for want of substantial federal question, Chicago Bridge & Iron Co. v. Department of Rev., 464 U.S. 1013, 78 L.Ed.2d 718, 104 S.Ct. 542 (1983). This court in National Can said it understood that dismissal to be a decision on the merits. National Can Corp. v. Department of Rev., 105 Wn.2d 327, 331, 715 P.2d 128 (1986) (citing Washington v. Confederated Bands & Tribes of Yakima Indian Nation, 439 U.S. 463, 476 n. 19, 58 L.Ed.2d 740, 99 S.Ct. 740 (1979)). Since this decision issued only the year before Armco and addressed the very question at issue in National Can, we believed it to conclude that Armco did not clearly foreshadow Tyler. This court relied on the difference in the Washington and West Virginia statutes and, more importantly, directly on past Supreme Court precedent to uphold the B & O tax in National Can. Also supporting the view that Tyler announced new law is Justice Scalia's dissent, which states that the Tyler decision has no basis in the Constitution, and is not required by our past decisions and that to apply the internal consistency rule, the Court is compelled to overrule a rather lengthy list of prior decisions. Tyler, 107 S.Ct. at 2824 (Scalia, J., dissenting). The dissent notes that in Williams v. Vermont, 472 U.S. 14, 21-22, 86 L.Ed.2d 11, 105 S.Ct. 2465 (1985), decided the term after Armco, the Court failed to apply the internal consistency rule. Justice Scalia wrote: The holding of Armco thus establishes only that a facially discriminatory taxing scheme that is not internally consistent will not be saved by the claim that in fact no adverse impact on interstate commerce has occurred. To expand that brief discussion into a holding that internal consistency is always required, and thereby to revolutionize the law of state taxation, is remarkable. (Italics ours.) Tyler, 107 S.Ct. at 2825 (Scalia, J., dissenting). Justice O'Connor concurred in Tyler, but did not read it to impose a requirement that the internal consistency rule be applied absent facial discrimination. Kalama Chemical, representing in-state manufacturers, argues that as to that group Tyler did not enunciate a new principle of law. However, this argument ignores this court's reliance on the concept that selling and manufacturing were believed, until Tyler, to be substantially equivalent and therefore compensatory. Taxpayers argue that a letter from the Department of Revenue to the Governor shows that the Department of Revenue believed just after the Armco decision that Washington's multiple activities exemption was unconstitutional. The letter from Donald Burrows, Director of Department of Revenue, to Governor John Spellman dated June 14, 1984, expresses the belief that the State faced substantial loss of tax revenue as a result of the Armco decision, and also expressed the likelihood of refunds. This argument is directed to the issue of whether the State justifiably relied on past federal and Washington cases to continue to act under the existing Washington statute. [4] Such a memorandum discussing an agency director's opinion of law is, of course, not binding on this court. Even had this opinion been stated in an official agency statutory construction or written in an attorney general opinion, it would not be binding on either the State or this court. Walthew, Warner, Keefe, Arron, Costello & Thompson v. Department of Rev., 103 Wn.2d 183, 186, 691 P.2d 559 (1984); Prante v. Kent Sch. Dist. 415, 27 Wn. App. 375, 385, 618 P.2d 521 (1980). The court is the proper body to determine the construction and interpretation of statutes. Thus, even when the court's interpretation is contrary to that of an agency charged with carrying out the law, it is ultimately for the courts to declare the law and the effect of the statute. Nucleonics Alliance, Local 1-369 v. WPPSS, 101 Wn.2d 24, 29, 677 P.2d 108 (1984). Even if the director's opinion was that Armco placed in question the constitutionality of the B & O tax, it was not within his power to stop collecting taxes under a statute which had been properly enacted by the Legislature. The Department of Revenue was collecting taxes under a statute that had been repeatedly upheld and also enjoyed the presumption of constitutionality. The party challenging the statute would have to prove its invalidity beyond a reasonable doubt. High Tide Seafoods v. State, 106 Wn.2d 695, 725 P.2d 411 (1986). The State is not estopped from arguing for prospective application of Tyler because it continued to collect taxes under a statute upheld by the trial court and this court because the Armco decision raised questions of constitutionality. A similar argument was discussed by the Supreme Court in Lemon v. Kurtzman, 411 U.S. 192, 36 L.Ed.2d 151, 93 S.Ct. 1463 (1973). In Lemon state officials continued to act under a statute when they knew that it was obvious there would be a constitutional attack on the statute. The Supreme Court held that state officials are entitled to rely on a presumptively valid state statute, enacted in good faith and not plainly unlawful, and that until judges say otherwise, state officers have the power to carry forward the directives of the state legislature. Lemon, at 208-09. The Department of Revenue may well have relied on the decisions of this court upholding the multiple activities exemption against commerce clause challenges, and there was nothing in the Supreme Court's decisions which clearly overruled this court's analysis until Tyler was decided last year. In St. Francis College v. Al-Khazraji, ___ U.S. ___, 95 L.Ed.2d 582, 107 S.Ct. 2022 (1987), the Court applied its decision prospectively because it had required a Court of Appeals to overrule its prior cases. St. Francis, 95 L.Ed.2d at 589. As Justice Traynor has pointed out, [r]eliance plays its heaviest role in such areas as property, contracts, and taxation, where lawyers advise clients extensively in their planning on the basis of existing precedents. Traynor, Quo Vadis, Prospective Overruling: A Question of Judicial Responsibility, 28 Hastings L.J. 533, 543 (1977).