Opinion ID: 550912
Heading Depth: 2
Heading Rank: 2

Heading: The City Must Disgorge the Taxes It Collected

Text: 25 The City asserts that even if the tax is invalid, it should not be required to reimburse the INC for the taxes which have already been collected. Discussion of that claim requires analysis of two sub-issues. Should the decision here be given retroactive effect, and, if so, what remedy is proper? 26 While the issues sometimes seem to be entangled, the Supreme Court has recently been at some pains to untangle them. See American Trucking Ass'ns, Inc. v. Smith, --- U.S. ----, 110 S.Ct. 2323, 110 L.Ed.2d 148 (1990). In American Trucking, the Court pointed out that retroactivity must be decided by use of the analysis outlined in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971). That does not, however, answer the remedy question, a question usually left to the states themselves to work out. American Trucking, 110 S.Ct. at 2330. See also Probe v. State Teachers' Retirement Sys., 780 F.2d 776, 782-84 (9th Cir.), cert. denied, 476 U.S. 1170, 106 S.Ct. 2891, 90 L.Ed.2d 978 (1986), where we, in effect, recognized and applied the distinctions. 27 Because we need not consider the question of remedy if the effect of our decision is not retroactive, we will first consider retroactivity. 4 28 Our retroactivity analysis must apply the three-part Chevron Oil test: 29 First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied ... or by deciding an issue of first impression whose resolution was not clearly foreshadowed.... Second, it has been stressed that we must ... weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation. ... Finally, we have weighed the inequity imposed by retroactive application, for [w]here a decision ... could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the 'injustice or hardship' by a holding of nonretroactivity. 30 404 U.S. at 106-07, 92 S.Ct. at 355 (citations omitted). 31 Our decision striking down this tax does not meet the tests of nonretroactivity. We overrule no precedent here and we do not decide an issue of first impression. As we have shown, our determination regarding the status of the Red Cross does not proceed from some obscure and half-formed idea only now wrested into the light of day. Rather, it proceeds from a long, if sometimes wavy, line of Supreme Court authority. This alone indicates that retroactivity is required. See Ashland Oil, Inc. v. Caryl, --- U.S. ----, 110 S.Ct. 3202, 3205, 111 L.Ed.2d 734 (1990) (per curiam). However, we will also look to the other elements. We are dealing with a fundamental principle that precludes the taxation of United States governmental functions. Retroactive operation of our decision will surely foster a proper respect for that principle by encouraging local entities to tread carefully when they impose taxes on entities like the Red Cross. Finally, no inequity results from retroactive application. It is true that the City may already have used the tax money, but at the very least it should have entertained the gravest doubts about its right to collect the tax in the first place. Against that is the inequity to the INC which would be wrought were it forced to forego its claim to recover. 5 Therefore, this decision will apply retroactively. 32 We turn then to the question of relief. That the INC is entitled to relief can hardly be questioned. It is true that the exact form of relief is often left to the local governmental entity when a tax is struck down as unconstitutional. However, that is typically done in cases where there is a commerce clause violation which can be remedied in any one of a number of ways. See, e.g., Ashland Oil, 110 S.Ct. at 3205; American Trucking, 110 S.Ct. at 2330; McKesson Corp., 110 S.Ct. at 2252. That approach has no application here, for here, purely and simply, a tax has been exacted from a federal instrumentality. The only logical relief, aside from precluding further taxation, is to order the improperly taken monies refunded. That was the course adopted in Department of Employment, 385 U.S. at 357, 87 S.Ct. at 466. It is the course the district court adopted; it is the course we adopt today.CONCLUSION 33 The Red Cross is a United States Government instrumentality which is immune from state and local taxation when it is lawfully pursuing its mandated purposes. Here, the INC was engaged in fundraising by lawfully conducting certain gambling activities. The City erred when it levied a tax on those activities. 34 Thus, the City must cease making that levy and must refund back taxes paid by the INC since November 21, 1982, together with interest from February 28, 1986, the date that the INC made its demand. 35 AFFIRMED.