Opinion ID: 1229700
Heading Depth: 1
Heading Rank: 2

Heading: right to refund

Text: The State next argues that the district court erred as a matter of law in ordering it to refund $102,300.58 in discriminatory taxes for the period from July 1985 through December 1987, or to collect back taxes from taxpayers favored by the discriminatory tax scheme. In ATA, supra, and McKesson, supra, the Supreme Court identified two distinct issues involved in this analysis. In ATA, the Court considered the threshold issue of whether a judicial decision applies retroactively or prospectively. In McKesson, the court considered the issue of the appropriate relief once a judicial decision is determined to apply retroactively.
Within the analytical framework of ATA, we initially consider the threshold issue of retroactive or prospective application of New Energy and the district court's decision. In ATA, the Court considered whether its decision in American Trucking Associations, Inc. v. Scheiner, 483 U.S. 266, 107 S.Ct. 2829, 97 L.Ed.2d 226 (1987), applied retroactively or prospectively to Arkansas' taxation of highway use. In Scheiner the Court had held that Pennsylvania's unapportioned highway flat use tax violated the Commerce Clause. In ATA, a sharply divided Court held that Scheiner applied prospectively and not retroactively. The plurality, written by Justice O'Connor and followed by three other justices, analyzed the retroactivity issue under the three-pronged analysis of Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107, 92 S.Ct. 349, 355, 30 L.Ed.2d 296, 306 (1971): 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 operations.'... Finally, we have weighed the inequity imposed by retroactive application, for `[w]here a decision of this Court 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.' [Citations omitted.] The plurality initially concluded that Scheiner applied prospectively because it clearly established a new principle of law by expressly overruling prior case law which Arkansas had relied upon in enacting its highway use tax. Second, the plurality concluded that the purpose of the Commerce Clause did not dictate retroactive application of the new rule of law announced in Scheiner because retroactive application would not deter future free trade violations. Third, the plurality concluded that applying Scheiner retroactively would produce substantial inequitable results because Arkansas had relied upon valid existing precedent in enacting and implementing its highway use tax. Justice Scalia concurred in the result of the plurality, concluding that, in the interest of protecting litigants' settled expectations, Scheiner applied prospectively because it overruled clear past precedent. The dissent, written by Justice Stevens and followed by three other justices, essentially concluded that fundamental notions of fairness dictated that Scheiner be retroactively applied to claims not barred by the statute of limitations and to cases where the parties' rights had not been finally determined by a court of law. Under any of the approaches taken in ATA, we conclude that New Energy applies retroactively. Under the Chevron analysis, New Energy applies retroactively because it did not announce a new principle of law or overrule prior case law. Instead, it followed clear precedent. See, e.g., Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984); Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941, 102 S.Ct. 3456, 73 L.Ed.2d 1254 (1982); Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980); Dean Milk Co. v. Madison, 340 U.S. 349, 71 S.Ct. 295, 95 L.Ed. 329 (1951). Although the cases relied upon by the unanimous Supreme Court in New Energy did not specifically deal with the issue of tax benefits for motor vehicle fuels with qualifying alcohol, the principles of law from those decisions clearly foreshadowed the well-established contours for Commerce Clause challenges to discriminatory laws involving economic protectionism. Bacchus, supra, typifies those cases. It was decided in 1984, before Section 57-43.1-02(3), N.D.C.C., was enacted and involved the interrelationship of a discriminatory tax on alcohol and the twenty-first amendment to the United States Constitution. [5] Despite the limitations of the twenty-first amendment, a majority held that under well-established Commerce Clause principles, the discriminatory tax on alcohol was unconstitutional. The dissent concluded that the twenty-first amendment foreclosed the Commerce Clause claim. The application of established Commerce Clause principles to this discriminatory tax is clearer than Bacchus because the interrelationship with the twenty-first amendment is not involved in this case. We agree with the district court's conclusion that the present case deals with the application of the well-established Commerce Clause principle. Like New Energy, the decision regarding the constitutionality of Section 57-43.1-02(3) does not establish a new legal principle. Under the second prong of the Chevron analysis, the purpose of the Commerce Clause is to prevent discrimination against interstate commerce by regulations designed to benefit in-state economic interests and to burden out-of-state competitors. New Energy, supra ; see State v. Quill Corp., 470 N.W.2d 203 (N.D.), cert. granted, ___ U.S. ____, 112 S.Ct. 49, 116 L.Ed.2d 27 (1991). A cardinal rule of Commerce Clause jurisprudence is that `[n]o State, consistent with the Commerce Clause, may impose a tax which discriminates against interstate commerce ... by providing a direct commercial advantage to local business.' Bacchus, supra, 468 U.S. at 268, 104 S.Ct. at 3053, 82 L.Ed.2d at 207, quoting Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 329, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977) and Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959). For purposes of the Commerce Clause, it is irrelevant that a state intended to aid local interests rather than to harm out-of-state interests. Bacchus, supra . Section 57-43.1-02(3), N.D.C.C., discriminates against interstate commerce in a manner inconsistent with the purpose of the Commerce Clause. Unlike ATA, the district court's decision and New Energy are entirely consistent with clearly established Commerce Clause precedent and retroactive application will therefore further the purpose of the Commerce Clause by deterring states from committing future free trade violations. Under the third prong of the Chevron analysis, we are not convinced that applying New Energy and the district court's decision retroactively will produce substantial inequitable results. Unlike ATA, where Arkansas followed prior precedent and had reason to believe that its highway use tax was constitutional, the invalidation of this discriminatory tax was clearly foreshadowed when it was adopted in 1985. In view of the established Commerce Clause precedents, the State's reliance interest in this relatively short-lived taxing scheme merits little concern. Applying New Energy retroactively to these taxes would not produce substantial inequitable results. Under the approach taken by Justice Scalia in ATA, New Energy applies retroactively because it did not overrule clear past precedent and therefore the interests in protecting litigants' settled expectations are not present. Under the approach taken by Justice Stevens and the dissent in ATA, fundamental notions of fairness dictates that New Energy be retroactively applied to the taxes at issue in this case. The Supreme Court's recent decision in James B. Beam Distilling Co. v. Georgia, ___ U.S. ____, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991), does not require a different result. Although there was no majority opinion in Beam, six justices ultimately concluded that the Court's prior decision in Bacchus, supra, applied retroactively. Justice Souter, joined by Justice Stevens, concluded that because Bacchus applied retroactively to the litigants in that case, it would be unfair not to retroactively apply it to other litigants not barred by procedural requirements or res judicata. Justice White concurred in the judgment and agreed that, under several suppositions, Bacchus applied retroactively to litigants whose cases were not final at the time of that decision. Justices Blackmun, Scalia, and Marshall also concurred in the judgment and essentially concluded that prospective application of judicial decisions breached the Court's obligation to discharge [its] constitutional function [ Beam, supra, 111 S.Ct. at 2450 (Justice Blackmun, concurring)] and was beyond [the Court's] power. [ Id., 111 S.Ct. at 2451 (Justice Scalia, concurring)]. Justice O'Connor, joined by Chief Justice Rehnquist and Justice Kennedy, dissented and concluded that Bacchus applied prospectively under the Chevron analysis. Because we have concluded that New Energy applies retroactively under the Chevron analysis, Beam does not require a different result. We therefore hold that the district court's decision and New Energy apply retroactively to the taxes at issue in this case.
Having reached that conclusion, we next turn to the remedy issue. In McKesson, the Court observed that because exaction of an unlawful tax is a deprivation of property under the Due Process Clause, a state must provide a taxpayer with either predeprivation or post-deprivation procedural safeguards. The Court recognized that predeprivation procedural safeguards may include authorizing taxpayers to sue to enjoin the imposition of the tax prior to its payment, or to withhold payments and interpose objections as a defense in a tax enforcement proceeding initiated by the state. The Court held that if a state places a taxpayer under duress to promptly pay a tax prior to resolving any dispute over the validity of the tax, the Due Process Clause obligates the state to provide post-deprivation procedural safeguards in the form of meaningful retroactive relief to rectify any unconstitutional deprivation. In determining whether or not a state places the taxpayer under duress to promptly pay a tax, the Court said: [W]hen a tax is paid in order to avoid financial sanctions or a seizure of real or personal property, the tax is paid under `duress' in the sense that the State has not provided a fair and meaningful predeprivation procedure .... Justice Holmes suggested ... that a taxpayer pays `under duress' when he proffers a timely payment merely to avoid a `serious disadvantage in the assertion of his legal ... rights' should he withhold payment and await a state enforcement proceeding in which he could challenge the tax scheme's validity `by defence in the suit.' ... In contrast, if a State chooses not to secure payments under duress and instead offers a meaningful opportunity for taxpayers to withhold contested tax assessments and to challenge their validity in a predeprivation hearing, payments tendered may be deemed `voluntary.' The availability of a predeprivation hearing constitutes a procedural safeguard against unlawful deprivations sufficient by itself to satisfy the Due Process Clause, and taxpayers cannot complain if they fail to avail themselves of this procedure. McKesson, supra, 496 U.S. at ____ , 110 S.Ct. at 2251 n. 21, 110 L.Ed.2d at 37. McKesson held that because Florida employed financial sanctions and summary remedies compelling taxpayers to tender payments before their objections were entertained and resolved, the minimum federal requirements of the Due Process Clause required Florida to provide taxpayers with a post-deprivation opportunity to contest the validity of the tax and a clear and certain remedy designed to render that opportunity meaningful by preventing any permanent unlawful deprivation of property. The Court ordered Florida to refund the discriminatory taxes, or, consistent with other constitutional restrictions, to collect back taxes from favored competitors, or to implement a combination of those two remedies. In this case, the State argues that it provides taxpayers with adequate predeprivation relief in the form of injunctive relief through a declaratory judgment action under Ch. 32-23, N.D.C.C. Relying upon William Clairmont, Inc. v. State, 261 N.W.2d 780 (N.D.1977), the State also asserts that Service Oil voluntarily paid the taxes because it failed to seek alternatives to payment of the taxes, failed to pay the taxes under protest, failed to seek an injunction, or failed to pursue any other options, and instead waited until after New Energy was decided before seeking a refund. We disagree. North Dakota, like Florida, statutorily provides for injunctive relief under the general provisions for a declaratory judgment. Ch. 32-23, N.D.C.C.; Fla.Stat.Ann. Ch. 86. Section 57-43.1-21, N.D.C.C., also specifically provides:  Failure to file report  Penalty  Revocation of license  Excuse for delay. If the holder of a license to sell motor vehicle fuel fails to file the report required to be filed, or to pay the full amount of the tax as required by this chapter, there is imposed a penalty of five dollars, or a sum equal to five percent of the tax due, whichever is greater, together with interest at the rate of one percent per month on the tax due, for each calendar month or fraction of a month during which the failure continues, excepting the month within which the report was required to be filed or the tax became due. The commissioner may revoke the license and, if so, the commissioner shall notify the license holder promptly by a notice sent by registered or certified mail to the post-office address of the licenseholder as it appears in the commissioner's records. However, if the report is filed and the tax paid within ten days after the date it becomes due and if it is established under oath that the delay was due to accident or justifiable oversight, then the commissioner may continue the license in full force and effect. The commissioner, for good cause shown, may waive all or any part of the penalty or interest provided by this section. Florida had similar financial sanctions and summary remedies [6] which the Court in McKesson held did not provide taxpayers with a meaningful opportunity to withhold payment and to obtain a predeprivation determination of the validity of a tax. Those provisions were deemed insufficient in McKesson, and the similar North Dakota provisions do not, as a matter of federal constitutional law, provide North Dakota taxpayers with a meaningful opportunity to withhold payment and obtain a predeprivation determination of the validity of this discriminatory tax. Moreover, Clairmont did not involve a determination that a taxing scheme violated the federal constitution. In Clairmont we construed a statutory exemption to the special fuels tax and held that the Legislature intended to exempt certain special fuels from taxation. In Clairmont, supra, 261 N.W.2d at 786, we also considered a refund issue and recognized that it was anomalous, if not inequitable, that a State which makes laws requiring other persons to return ill-gotten gains may itself retain property it has received but to which it was not entitled. However, we held that the taxpayer was not entitled to a refund because it had not protested the assessment prior to bringing an action for a refund and that the mere presence of a statutory scheme imposing penalties, fines, and loss of license for failure to pay taxes did not constitute duress. Clairmont is not controlling because McKesson held that, as a matter of federal constitutional law, similar Florida laws failed to provide taxpayers with a meaningful opportunity to withhold payment and obtain a predeprivation determination of the tax assessment's validity. See Beam, supra, ___ U.S. at ____, 111 S.Ct. at 2443, 115 L.Ed.2d at 487-88 (Subject to possible constitutional thresholds... the remedial inquiry is one governed by state law, at least where the case originates in state court.). In McKesson the Court also considered equitable arguments raised by Florida and suggested that a state may protect its interest in sound fiscal planning by limiting refunds to those taxpayers paying under protest or providing some other timely notice of complaint; by establishing relatively short statutes of limitation for such actions; by refraining from collecting taxes pursuant to a scheme that has been declared invalid by a court pending further review on appeal; by placing challenged tax payments in escrow; or by providing refunds on a reasonable installment basis. In this case the State does not assert that it implemented any of those procedures for the refunds at issue. [7] As in McKesson the State's failure to avail itself of any methods of self-protection weakens any equitable justification under state law for avoiding its federal constitutional obligation to provide meaningful relief. The State's equitable arguments are further diminished because New Energy did not establish a new legal principle and instead involved a well-established Commerce Clause principle which was clearly foreshadowed. The State therefore cannot rely upon the presumption of the statute's constitutionality. Compare Metropolitan Life Insurance Co. v. Commissioner of Department of Insurance, 373 N.W.2d 399 (N.D.1985) [decision that gross insurance premium tax violates equal protection overruled prior caselaw and was equivalent of a new principle of law justifying purely prospective relief]. Moreover, contrary to the State's argument that the Legislature promptly revised the discriminatory tax immediately after New Energy was decided, we are not persuaded that the Legislature's action in 1989 is entitled to favorable equitable consideration for the time period involved in this case. We conclude that, as a matter of federal constitutional law, Service Oil's payment of the discriminatory taxes was not voluntary, and the district court did not err in ordering the same relief ordered in McKesson.