Opinion ID: 1190812
Heading Depth: 2
Heading Rank: 2

Heading: DOES PRINCIPAL HAVE A RIGHT TO A REFUND OF TAXES PAID UNDER AS 21.09.210(b)?

Text: Alaska Statute 43.15.010 governs whether a party may obtain a refund of taxes paid to the state. [16] This statute allows for the recovery of both inadvertent overpayments, and taxes paid under protest: (a) The Department of Administration shall, with the approval of the attorney general and the Department of Revenue, refund to a taxpayer the amount of a tax paid to the Department of Revenue under protest and deposited in the treasury if (1) the taxpayer recovers judgment against the Department of Revenue for the return of the tax, or (2) in the absence of a judgment, it is obvious to the Department of Revenue that the taxpayer would obtain judgment if legal proceedings were prosecuted by the taxpayer. (b) The Department of Administration shall refund the amount of an overpayment to a taxpayer if the Department of Revenue, on audit of the account in question, determines that a remittance by the taxpayer exceeds the amount due. Principal argues that it is [e]ntitled to a [r]efund of [e]xcess [t]axes [p]aid ... under AS 21.09.210(b) for the 1980-1985 tax years. These taxes were not paid under protest. Alaska Statute 43.15.010 [17] has been interpreted in a manner that would preclude relief to Principal (1) because Principal did not pay the premium taxes under protest, as required by subsection (a), and, (2) because implicit in subsection (b) is the concept that the tax imposed was valid, and that the taxpayer, by the terms of the tax statute at the time of payment, erroneously remitted too much. We hold that Principal will be entitled to a refund only under subsection (a), and only if it is determined that the state waived the protest requirement in Principal's case. Examination of the record shows the following in regard to the history of this litigation. On November 14, 1986, Jed Fisk, Assistant Director of Principal's corporate tax division wrote to the Director of the Division of Insurance. This letter reads in part: A review of your state's administrative provisions fails to provide guidance on a prescribed format for filing claims for refunds of premium taxes. The format of the enclosed Claims for Refunds [for tax years 1983, 1984, and 1985 in the amount of $62,739] provides the necessary information to determine the amount and propriety of the Claim. We hereby request that you indicate on the enclosed page if the format is NOT acceptable or will NOT constitute a valid Claim for Refund. (Emphasis furnished.) On November 25, 1986, the Director of the Division of Insurance sent to Jed Fisk Order No. 86-19 which reads as follows: We have reviewed your claim for a premium tax refund for the calendar years of 1983, 1984, and 1985. These premium taxes were properly paid under the provisions of Alaska Insurance Laws (AS 21). Therefore your claim is denied. Subsequent to the receipt of Order No. 86-19, Principal wrote the Director of Insurance demanding a hearing pursuant to AS 21.06.180 of the Alaska Insurance Code regarding our request for a refund of premium taxes paid for the years ending December 31, 1983, December 31, 1984, and December 31, 1985. The state responded to Principal's request in the following manner: ... Please be advised that you may consider Order No. 86-19, dated November 25, 1986, as a final order for appeal purposes. Because the issues in this case appear to be purely of a legal nature, there would be little purpose in holding any hearing. A similar approach has been taken in other cases challenging Alaska's premium tax laws as they existed prior to 1986. ... . There is a long line of case law holding that when a court declares a tax or license fee invalid, that ruling is given prospective effect only, in order to avoid imposing undue administrative or financial burdens on the public and the taxpayers. (Citations omitted.) ... . A few cases, however, have recognized an exception to the general rule of no retroactive relief. In these cases, the rule has been that the court will utilize its equitable powers to give its ruling a limited retroactive effect, only as to the parties in the litigation, and only back to the time that suit was brought. Rio Algom Corp. v. San Juan County, 681 P.2d 184, 196 (Utah 1984). Since your company paid the premium taxes without any formal refund requests until November 1986, we would contend it has no legitimate claim for any refund. [18] (Emphasis furnished.) Given the record in this appeal we have concluded that the most appropriate disposition of the refund issue is to remand the matter to the superior court in order to permit the court to conduct such further proceedings as it deems necessary to resolve the following issues: (1). Did the state waive the requirement of AS 43.15.010(a) that Principal protest the payments of premium taxes at the times payments were made for the tax years 1980, 1981, 1982, 1983, 1984, and 1985? (2). In the event it is held that the state waived the requirement of payments of the taxes under protest, and that Principal is entitled to a judgment for a refund of the questioned taxes, then the applicable limitations period governing Principal's claims for refunds should be determined. [19] Concerning the question of whether the state waived the provision of AS 43.15.010(a) which requires that taxes must be paid under protest in order to obtain a refund, we consider it appropriate to make the following observations. The general rule at common law is that if an illegal tax is voluntarily paid by the taxpayer without compulsion it cannot be recovered back in an action at law. [20] There is case authority holding that the protest by itself, renders the payment involuntary. [21] Accordingly, there is also authority which holds that taxes voluntarily paid cannot be recovered where there was no protest made at the time of payment. [22] Some jurisdictions have by statute provided for the recovery of illegal taxes in actions at law where payment of the taxes was made under protest. [23] The Alaska legislature has provided for such a remedy by enacting AS 43.15.010(a). It is clear that AS 43.15.010(a) is a valid enactment in derogation of the common law rule regarding voluntary payment of taxes. The purpose of AS 43.15.010(a) is to liberalize recoveries by creating rights where formerly none existed. Pacific Am. Fisheries, Inc. v. Mullaney, 13 Alaska 729, 734, 105 F. Supp. 907, 909 (D.Alaska 1952), and to provide an expeditious method by which state government can obtain necessary revenues. The protest requirement called for by AS 43.15.010(a) serves several purposes. It serves as proof that the payment of the tax in question was involuntarily made and it provides notice to the taxing authority that the tax is claimed to be illegal as well as the basis of the taxpayer's assertion. One additional point remains to be made. In State v. Wakefield Fisheries, Inc., 495 P.2d 166 (Alaska 1972), this court held: [T]he taxpayer is [not] limited to recovery of overpayments according to AS 43.15.010. The common law has long recognized a cause of action in assumpsit to recover overpayments of taxes. Because the statutory remedies do not explicitly supersede the common-law remedies, they are intended as a supplement, and the earlier remedy in assumpsit is still available. Although we now question whether the common law remedy of a cause of action in assumpsit survived the enactment of AS 43.15.010, we take this occasion to overrule that portion of Wakefield which holds that there is no requirement that a taxpayer formally protest the payment of the tax at the time of payment in order to subsequently maintain a common law action in assumpsit for a tax refund. The burden of requiring a taxpayer to file a protest at the time of payment of the tax is at most minimal. On the otherhand the requirement of a protest serves the important function of providing state government with notice of the claimed tax illegality, the grounds advanced in support of the claimed illegality, and affords the state the opportunity to fashion budget appropriations, or expenditures, taking into account the magnitude of the claimed tax illegality. We think these are significant considerations which warrant the retention of the requirement of a protest. AFFIRMED in part, REVERSED in part, and REMANDED for further proceedings consistent with this opinion. COMPTON, J., dissents.