REICH v. COLLINS, REVENUE COMMISSIONER OF GEORGIA
Legal provision: Due Process
Argument of Carlton M. Henson
Chief Justice Rehnquist: We'll hear argument now in Number 93-908, Charles Reich v. Marcus E. Collins.
Mr. Henson: Thank you, Mr. Chief Justice, and may it please the Court--
This is yet another, and hopefully the last, in a series of cases involving the State's unconstitutional taxation of Federal retirement benefits.
Since at least 1985, when Federal retirees first filed suit in Georgia.
Federal retirees across this country have been trying to collect refunds of taxes that were illegally and unconstitutionally collected from them by the States.
In 1989 in Davis, this Court confirmed that a State may not impose an income tax on Federal retirement benefits if it simultaneously provides an exemption from State retirement benefits.
Two years later in Barker, the Court confirmed that the holding in Davis applied to military retirement benefits, and in 1993, in Harper, this Court confirmed that its decision in Davis must be applied retroactively.
Harper, however, stopped short of awarding refunds.
Thus, after almost a decade of effort by Federal retirees, this case ultimately presents the question of whether the Constitution requires refunds to Federal retirees under the circumstances here presented.
This question has already been answered in the affirmative by this Court.
As the Court held in McKesson, our precedents establish that if a State penalizes taxpayers for failure to remit their taxes in timely fashion, the Due Process Clause requires the State to afford taxpayers a meaningful opportunity to secure post payment relief.
Further, the Court held that if a State avails itself of this approach, establishing various sanctions and summary remedies designed so that taxpayers tender tax payments before the objections are entertained and resolved, the State does not provide a meaningful predeprivation hearing.
Georgia does not dispute that it has established summary sanctions, summary remedies and sanctions here, nor does it dispute that the purpose of these sanctions and remedies is designed to ensure payment.
On page 30 of the brief of the respondents, they write,
"Georgia's statutory provisions concerning the nonpayment of taxes are all reasonable measures designed to see that taxes are paid if they are legally owed. "
Unknown Speaker: Well, Mr. Henson, in your view, what can a State do to ensure that taxes are paid without running afoul of this coercion, or whatever you want to call it?
Mr. Henson: Without triggering the requirement to provide meaningful--
Unknown Speaker: Yes.
Mr. Henson: --backwardlooking relief?
O'Connor talks about reasonably equal terms, and Harper references constitutionally significant duress, so by implication there's some level where there is constitutionally insignificant duress, or the terms might be unequal but not reasonably unequal.
I don't have a specific formula to present to the Court.
If the States are looking for a bright line rule, then I think parity is one that's fairly read from the cases, but this case is far beyond anything that the Court--
Unknown Speaker: Well, can a State require payment under protest?
Mr. Henson: --I don't think there's any question that McKesson clearly holds that.
Unknown Speaker: And payment, rather than just protest.
Mr. Henson: I think that's clear from McKesson, Your Honor.
The sanctions that the State has here, though, are much more severe than just some minimal requirement that the taxpayer pay under protest.
Unknown Speaker: Would you agree that if the State's insurance consisted of a lien and interest running on any unpaid balance at something substantially equivalent to market rate, that that would create no problem?
Mr. Henson: I think that's a closer case, Your Honor.
I think that probably would satisfy the McKesson standard.
Unknown Speaker: What about the posting of a bond?
Mr. Henson: By itself, no financial sanctions, no penalty, in that case, Your Honor, I think that's very much like the Chief Justice's payunderprotest hypothetical, basically.
Unknown Speaker: Well, when you say no penalty, does that assume that if the taxpayer prevails, he's entitled to reimbursement for the bond premium?
Mr. Henson: Well--
Unknown Speaker: Suppose he's out the bond premium?
Mr. Henson: --I'm sorry, I didn't hear the question.
Unknown Speaker: Suppose the taxpayer has to pay for the cost of the bond premium, and there's no reimbursement in the event he prevails.
Mr. Henson: That, to my ear that sounds like he runs afoul of McKesson.
That... that is more than just the... more than just insignificant duress.
Unknown Speaker: What if--
Mr. Henson: That's a real cost that the taxpayer begins to bear there.
Unknown Speaker: --Yes.
He could pay under protest--
Mr. Henson: That's right.
Unknown Speaker: --instead of doing that, and that would be okay.
He has the option of either paying under protest, or posting a bond.
Mr. Henson: All right.
Unknown Speaker: That would be okay, wouldn't it?
Mr. Henson: I think you're right, Your Honor.
Of course, what we have here is far more severe than either of those hypotheticals.
Unknown Speaker: Let me just ask a little bit about what we have here.
Suppose you have, hypothetically, a State with an adequate predeprivation remedy, and it also has a refund statute.
The taxpayer elects the refund route, and the refund statute's repealed.
Mr. Henson: Ex post facto?
Unknown Speaker: Yes.
Mr. Henson: I think that would be unconstitutional, Your Honor.
Unknown Speaker: Is that what happened here?
Mr. Henson: Well, it was rep... effectively, yes.
There was absolutely no doubt that the refund statute applied to these Federal retirees, and the respondents repeatedly wrote in briefs before the Georgia supreme court and in other courts of Georgia that... there were Georgia supreme court cases on point.
Unknown Speaker: Isn't the problem that Georgia supreme court said, no, it doesn't apply to a constitutionally invalid tax, that's what our law is now, that's what our law was then, and we have the same right to take the position, in fact obligation, that everything we say about what the law is, was, is fully retroactive, the same right and obligation that the U.S. courts do?
Mr. Henson: If... if that was the case, I would agree with Your Honor, except here, both the... the legislative history of the statute clearly established that the purpose of the statute was to provide for refunds of taxes that were later declared unconstitutional.
The Georgia supreme court had issued a decision in the Parke, Davis case that expressly held that the refund statute was the appropriate procedure for challenging an unconstitutional tax under the Federal Constitution, in that case a Commerce Clause challenge.
Unknown Speaker: Well, you--
Mr. Henson: So--
Unknown Speaker: --Do we have to hold that Georgia changed its law?
I mean, I'm willing to accept what the Georgia supreme court said.
If Georgia supreme court says that was always Georgia law, it was always Georgia law.
But your argument would remain, well, if it was Georgia law, it certainly didn't seem to be Georgia law.
Mr. Henson: --Precisely, Your Honor.
Unknown Speaker: And... but isn't that the only point you have to make?
You don't really have to argue that Georgia changed its law.
You only have to argue that Georgia should have made its law clear so that a taxpayer would know how to get a refund and not be snookered by thinking he could proceed one way and then be told after the fact that he couldn't.
Mr. Henson: That's exactly right, Your Honor.
The rule this--
Unknown Speaker: Well, is Georgia now, as you understand it, asserting sovereign immunity and just saying, we do not waive our sovereign immunity for backwardlooking relief?
Is that what Georgia is saying today?
Mr. Henson: --That does seem to be their latest idea, Your Honor.
Unknown Speaker: What if this suit were in Federal court?
Would the Eleventh Amendment enable Georgia to take that position and defeat a remedy if the suit were in Federal court?
Mr. Henson: I think we would have a problem under the Eleventh Amendment with respect to the Department of Revenue as a defendant.
With respect to the individual claims against Marcus Collins as the Revenue Commissioner, my understanding of the Court's jurisprudence is that we would not.
I think that--
Unknown Speaker: But you say that if the suit is in the State's own court it can't assert sovereign immunity.
Mr. Henson: --Well, no, Your Honor, not under the circumstances of this case, and particularly here.
You know, they put this forward as a threshold issue regarding the State's interpretation of its own sovereign immunity.
Well, presumably the Georgia supreme court is part of the sovereign, and presumably it's a pretty good arbiter of what the sovereign immunity would be, but they stepped right over that threshold.
They didn't hesitate for a nanosecond to get to the merits of this issue.
They didn't have any problem with sovereign immunity.
Unknown Speaker: Well, this is a pretty Pyrrhic victory, then, for... maybe not for your clients, but certainly for future taxpayers who are treated similarly.
You're saying that all the State has to do is enact a statute closing its doors to claims for retroactive tax relief.
Mr. Henson: No, Your Honor.
Unknown Speaker: I thought you said that.
They can't come into Federal court, and so long as the State closes the State court, where do you expect them to sue, in another State?
Mr. Henson: I'm not suggesting for a moment, Your Honor, that the State can close the door.
I'm simply suggesting that this Court need not reach that issue here because the Georgia supreme court did not reach it.
However, I do believe that this Court's precedents establish that the Fourteenth Amendment prevails over sovereign immunity in cases such as this.
Carpenter v. Shaw is this case.
It was a case brought against the Oklahoma State auditor.
It was a case where the Court recognized that refunds were going to be paid out of the State Treasury.
The Court had no problem awarding refunds in this case.
In Ward v. Love, it was a case involving a county defendant, but the Court expressly distinguished the sovereign immunity issues raised in Ex Parte Young.
It said, this is not Ex Parte Young because this is a takings case under the Fourteenth Amendment.
Unknown Speaker: Well, Mr. Henson, what if we decide this point the way you want us to.
Is that going to open the States up, States if they don't have a tort claims act?
Are they going to be met with the argument, well, if we're injured, we've got a right to sue you for whatever damages we've got, even though you haven't waived sovereign immunity?
Mr. Henson: I'm not sure I under--
Unknown Speaker: Well, if sovereign immunity is not a defense on the part of the State, even though... which has not waived it for a claim for a tax refund, how about a constitutional claim, or asserted claim for other kinds of injuries, personal injuries, say, at the behest of a State vehicle, or something like that?
Why wouldn't that argument be equally available to them?
Mr. Henson: --Well, I believe the Court's jurisprudence in the Fourteenth Amendment area is what answers the question for this case.
I'm not familiar enough with the Court's decisions under the Tort Claims Act that would resolve that for other areas, but I think the Carpenter v. Shaw, Ward v. Love, the bank cases, I think they clearly answer that question, at least for unconstitutional deprivation through taxing and, indeed, I think the rule that the Court has enunciated in McKesson has been consistently applied, and I don't think the State really disputes, as I pointed out, that it has these sanctions, it has these remedies.
Indeed, much of the State's briefing is designed, or answers, deals with this issue of this critical need to have sanctions and summary remedies, but that issue's been decided.
That's not the issue here.
As the Court noted in McKesson, the Court has long held that the State may impose such sanctions and remedies in tax cases, but if a State establishes those sanctions and summary remedies, it does not provide a meaningful predeprivation hearing.
In McKesson, the Court described the meaningful predeprivation hearing again as the root requirement of due process, and when a State does not provide this root requirement, it must provide backwardlooking relief.
That's the tradeoff.
That's the price, and it's not a tremendous or high price.
Virtually every State has some sort of refund statute.
The United States Government has a refund statute.
Even Georgia has a refund statute.
It just doesn't apply here.
But that's not good enough for the States.
They want you to say that you really didn't mean it in McKesson.
They want to have it both ways.
They want you to overrule McKesson and Harper.
They want to have their cake and eat it, too.
In short, they want you to change the rules, and why, because they've changed the rules on the retirees over and over and over again.
Unknown Speaker: Are you saying that the system that Georgia now has in place... let's say there has been no appearance that there was a refund remedy available, and what Georgia now lists as its remedies is all there is, and it's clear that in this class of cases there's no refund remedy.
Would the list of remedies that Georgia sets out and says it now has for this category of cases, would that be constitutionally adequate?
Mr. Henson: No, Your Honor, because of the summary remedies and sanctions that the State has established, and they concede in their brief they've established these, and they concede that the purpose of these is to require taxpayers to make payment.
They are constitutionally permissible, but because the State chooses to have these remedies, it must provide meaningful backwardlooking relief.
I mean, that's the issue, is--
Unknown Speaker: Isn't the State saying that if you... if there's been an assessment and you appealed it successfully, you would lose nothing, you would not... there would be no penalty, and the only thing you would lose is the bond premium?
Mr. Henson: --That's correct, Your Honor.
That is their argument.
However, that does not comply with this Court's statements in O'Connor and McKesson.
All the while, while you're litigating your claim in Georgia, you're subject to criminal prosecution, you're subject to the possibility of a penalty, you're subject to 12 percent interest, you're subject to levy, execution, and garnishment.
They would have the taxpayer run the risk of all those sanctions in the hopes that in the end the taxpayer might win.
That is a far cry from what Justice Holmes talked about as reasonably equal terms in O'Connor.
Unknown Speaker: Incidentally, if that were to happen, what is the mechanism for the taxpayer to get redress.
Suppose his property is seized pending the assessment procedure, and then he wins in the assessment procedure.
What is the statutory mechanism for repayment?
Mr. Henson: There is none that I'm aware of, Your Honor.
He's just out of luck.
I mean, he's lost his property.
If they come and garnish his bank account--
Unknown Speaker: Has there been any administrative practice of paying the money back if it's been seized and the assessment procedure continues?
Mr. Henson: --There's none that I'm aware of, Your Honor, and there's none reflected in the record in this case.
Unknown Speaker: Do I understand you correctly that you're not seeking a refund back to 1980, that it's only 3 years back from the first time you made a protest noise, is that correct?
Mr. Henson: Well, that's correct, Your Honor.
That was my mistake.
I foolishly believed that the refund statute applied in this case, and that the limitation period in the refund statute would preclude us from going back, so when we appealed from the trial court, the trial court applied the refund statute to this petitioner and said, the limitation period precludes you.
I thought it was so clear that it applied, I did not appeal that part of the judgment, so those tax years are not properly before the Court.
Unknown Speaker: You don't really mean foolishly believed.
Mr. Henson: I'm... I'm--
Unknown Speaker: You're--
Mr. Henson: --That's correct, Your Honor.
Unknown Speaker: --You mean reasonably believed.
Mr. Henson: --In short, Georgia, what Georgia really wants here is the discretion to pick and choose when it wants to apply its refund statute.
If you're a Federal retiree with a constitutional claim, the refund statute doesn't apply to you.
If, on the other hand, you're a liquor distiller like the folks in Beam, and you've got a claim based on the U.S. Constitution there also, well, guess what, the refund statute applies to you, but we're sorry, folks, the limit... the procedural barriers there preclude you from having standing.
But if you happen to be a taxpayer who pays a sales tax on a private sale of used cars in Georgia, and you say that that tax violates State law, Georgia wants to be able to say, well, of course, your claim violates State law.
Of course our refund statute applies to you, and here's millions and millions of dollars in refund for you folks.
After almost 10 years, it's time to stop changing the rules.
What Georgia and the other States seem to have overlooked is that it's not the role of courts to change the rules, but to apply the rules, and a straightforward application of the rule in McKesson, O'Connor, and Harper, requires the entry of judgment in favor of petitioner in this case.
Unknown Speaker: Well, McKesson did not involve a case where the State had not waived its sovereign immunity, did it?
I mean, in Florida the State had waived it.
Mr. Henson: Well, that's an interesting point, Your Honor.
I'm not sure I agree with that proposition.
McKesson and Harper are very similar to the case here in that regard, because in both instances the whole predicate of the cases being here was that the State refund statute did not apply as a matter of State law, so if it doesn't apply in Harper and McKesson, yet the court sovereign immunity does not preclude the court reviewing it, then why should it preclude review here, and I think the answer is, it doesn't.
It's a Fourteenth Amendment claim.
That's the way the Court treated it in McKesson.
That's the way it treated it in Harper, and that's the way it is here, and that's consistent, as I suggested, with the Court's jurisprudence beginning with O'Connor, Carpenter v. Shaw, Ward v. Love, and those cases.
If there are no further questions--
Unknown Speaker: I have just one question.
Mr. Henson: --Yes, Your Honor.
Unknown Speaker: Is your argument equally strong if the basis of invalidity is addressed entirely on the statute, rather than the Constitution?
Mr. Henson: I'm not--
Unknown Speaker: Well, in Davis, the Court construed section 111, and arguably it may or may not have decided a constitutional question.
Does it make any difference to you?
Mr. Henson: --I'm not sure that it does.
I'm not aware of any authorities, and I don't think it does.
If it's illegal under Federal law, it's illegal.
Unknown Speaker: Very well, Mr. Henson.
Mr. Calvert, we'll hear from you.
Argument of Warren R. Calvert
Mr. Calvert: Mr. Chief Justice, and may it please the Court--
As recognized in Harper, a State which has provided predeprivation due process to a taxpayer is under no obligation to return amounts which the taxpayer chooses instead to pay, even if it is subsequently determined that the tax in question was unconstitutional.
Now, the petitioner in this case had available to him under Georgia law numerous predeprivation remedies by which he could have contested Georgia's income tax treatment of his Federal retirement benefits.
Unknown Speaker: But subject to 12 percent a year and the 25 percent penalty, isn't that correct?
Mr. Calvert: Georgia does provide for 12 percent annual interest in the event the taxpayer loses, that's correct, Your Honor.
Unknown Speaker: And a penalty up to 25 percent?
Mr. Calvert: There's the possibility of an assertion of a penalty.
Unknown Speaker: But nobody can tell in advance whether it will be asserted or not, so I mean, it has to be considered.
There's no way... in other words, there's no way to guard against its imposition, I take it?
Mr. Calvert: The way one guards against its imposition, Your Honor, is to assert reasonable arguments only.
The statute by its terms provides that the penalty--
Unknown Speaker: On the theory that a State official will not act unreasonably to penalize a taxpayer?
Mr. Calvert: --Well, the question, Your Honor, is whether the taxpayer's position was reasonable.
The code section provides the penalty may not properly be imposed if the failure to pay was due to reasonable cause.
Now, of course, initially, the State Revenue Department, when it issues its assessment, makes its own evaluation of the reasonableness of a taxpayer's position, but ultimately that's a question for the courts to decide.
Unknown Speaker: Has it been determined that a misperception of the law is ever reasonable cause?
I mean, if I read that phrase, I would think reasonable cause means, you know, I had an emergency.
I had to save my child's life, or something.
You're saying it's reasonable cause if the taxpayer is wrong about the law?
Reasonably wrong about it, but wrong about it.
Mr. Calvert: Yes, Your Honor.
Unknown Speaker: That's Georgia law.
Mr. Calvert: I believe it is, Your Honor, and I say that... there are no--
Unknown Speaker: You believe it, or there are cases to that effect?
Mr. Calvert: --There are no cases that have interpreted that section, Your Honor, and I submit the reason that's the case is because there simply have been no instances where the Revenue Department has tried to assert that penalty in situations where it was arguable that the taxpayer had a reasonable basis for his argument.
Unknown Speaker: So where is it established that that determination one way or another by the Georgia Commissioner would be reviewable in court?
You said it would be reviewable in court, the reasonableness of the taxpayer's erroneous action.
Mr. Calvert: Well, Your Honor, the particular penalty would have to be assessed by the Revenue Department, and the issuance of the assessment triggers the right to go into court.
That's how you'd get a judicial determination of that.
Unknown Speaker: And one of the... a reviewable item would be the Commissioner's discretion about whether this was a reasonable action on the taxpayer's part?
Mr. Calvert: Yes, Your Honor.
Unknown Speaker: And you're saying there are cases which the taxpayer has lost on the merits before the Commissioner, but which... in which he did not attempt to impose any penalty?
Mr. Calvert: I'm not aware of any instance, Your Honor, where the Revenue Department has, in fact, attempted to impose this penalty on someone who has contested their liability.
Unknown Speaker: Is there also a potential criminal penalty in Georgia for nonpayment of taxes when due?
Mr. Calvert: There are two criminal statutes to which the petitioner in this case refers.
One of the two statutes was held unconstitutional by the Georgia supreme court prior to the time when the return for the first tax period that's at issue in this case would have been due.
The second statute has a willfulness requirement in it, and it's... we submit that a taxpayer who has pursued a reasonable argument pursuant to an accepted predeprivation procedure in Georgia has not acted wilfully within the meaning of those criminal statutes.
Unknown Speaker: Again, there are no cases, I suppose.
Mr. Calvert: No, Your Honor.
The particular... of the two criminal statutes in question, the one that is still valid in Georgia is pattered after a similar provision of the Internal Revenue Code.
Unknown Speaker: Would a reasonable taxpayer in Georgia in the 1980's have assumed that a post deprivation remedy was available by way of refund for an unconstitutional tax?
Mr. Calvert: We cannot assert, Your Honor, that it would have been unreasonable to have read the refund statute in that way.
We do assert, however, that in the absence of any prior construction of that statute by the Georgia supreme court, in the absence of any reported decisions that we're aware of where refunds of unconstitutional taxes have in fact been provided under that statute, that the taxpayers... taxpayers assume the risk that the ultimate interpretation may turn out to be other than they believe, and we believe that... we submit that's what happened in this case.
Unknown Speaker: Was one of the bases for the supreme court of Georgia's opinion that an injunctive action could have been brought?
Mr. Calvert: It's last opinion in this case, Your Honor?
Unknown Speaker: Yes.
Mr. Calvert: The Georgia supreme court concluded that one of the predeprivation remedies that could have been brought by these taxpayers was an action for declaratory or injunctive relief prior to the time when the taxes were due.
Unknown Speaker: And the statute on page 20 of the blue brief, Georgia 48-7-84, on its face says no action for the purpose of restraining the assessment shall be maintained in any court.
It's hard for me to square that with our requirement that there be a clear avenue of predeprivation relief for the taxpayer.
Mr. Calvert: Your Honor, one thing we would like to note is, until the filing of the brief in this Court, the petitioner had never mentioned that particular code section, had never pointed it out to the parties or to the Georgia supreme court as representing a bar to that particular type of action.
Unknown Speaker: Well, then, the Georgia supreme court might be wrong in saying there's an injunctive possibility here?
Mr. Calvert: Oh, no, Your Honor.
I think it's correct.
Unknown Speaker: Well, what about the statute?
Mr. Calvert: --That particular code section, again, it's a statute that has never been applied or interpreted.
However, we think, based on the Georgia supreme court's interpretation of 48-3-26, which provides generally that there can be no judicial interference with the collection or levy of taxes in general, that that... that 48-7-84 would be interpreted as no bar to an action for injunction where the tax was alleged to be unconstitutional.
Unknown Speaker: Well, the question is whether or not this was clear to the taxpayer at the time, and the Georgia supreme court cites, as I recall, a sales tax case, Beam, and this is a statute that applies to income tax.
Mr. Calvert: Well, I believe, Your Honor, that the question in this case, we take... we initially take... we dispute the taxpayer's statement of the standard of clarity that a predeprivation remedy has to provide before it can satisfy a State's due process obligations.
What the Court has indicated in McKesson and Harper is that a State must provide a fair opportunity to litigate your liabilities, and a clear and certain remedy in the event that you prevail.
In the McKesson case, for example, the State of Florida attempted to argue that McKesson could be put back in a hypothetical position of parity visavis other distributors.
Unknown Speaker: Well, injunctive action is a remedy, isn't it?
Mr. Calvert: We say it's a predeprivation procedure that the--
Unknown Speaker: Are you saying that the injunctive action that the supreme court of Georgia suggests was available to the plaintiff was clear and certain before that opinion?
Mr. Calvert: --I submit that it was, Your Honor, for several reasons.
The Georgia supreme court's decision regarding declaratory and injunctive relief was based on numerous prior Georgia decisions that had talked about the availability of that type of relief where you were talking about unconstitutional taxes.
There had also been other cases involving income taxes where those types of actions had been entertained by the Georgia courts notwithstanding 48-7-84... for example, the case of Parrish v. Employees' Retirement System, which was an action brought by State retirees immediately after the Davis case, when the Georgia supreme court, when the Georgia legislature had amended its statutes to provide for equal treatment of Federal and State retirement benefits.
State retirees filed an action for declaratory and injunctive relief against Georgia, contesting the constitutionality of Georgia's new income tax statutes, and the Georgia courts entertained that case and decided it on its merits.
Unknown Speaker: But didn't this petitioner try a declaratory judgment action, and wasn't he thrown out?
Mr. Calvert: In the Salter case, Your Honor, that was an action that was filed, eventually went to Fulton County Superior Court.
That was an action that was filed subsequent to the Davis decision, and after this taxpayer had already paid the taxes that he now wants returned.
What happened in that case is, after the Georgia General Assembly amended the income tax statutes and provided for equal treatment for Federal, State, and private pensions, the trial court in that case dismissed the action.
We submit it was moot.
Unknown Speaker: You say there's no remedy if you overpay, is that--
Mr. Calvert: Well, Your Honor, the Georgia supreme court has found that the income tax refund statute does not apply to taxes paid under a statute later found unconstitutional.
We submit that what... that these taxpayers should have pursued the predeprivation remedies which were available to them under Georgia law.
If it please the Court, I'd like to talk specifically about those aspects of the Georgia tax system which this petitioner contends subjected it to constitutionally significant duress.
Now, it's important to note that the petitioner is arguing only that he was subject to implied duress.
It's undisputed that in this case he was never so much as threatened with a levy, attachment, any criminal prosecution, garnishment, or any other sanctions if he did not pay the taxes that he now seeks to have refunded.
Unknown Speaker: --But didn't the latest bill that he got include a penalty assessment?
Didn't it have the interest and penalty on it?
Mr. Calvert: He received an assessment notice with respect to the 1988 taxes--
Unknown Speaker: Right.
Mr. Calvert: --which he showed as due on his return as filed, and which he did not pay.
He got a computergenerated assessment notice which basically said, you've reported this as due on your return, therefore we're assessing it, and here's the interest and penalty.
Unknown Speaker: So it's an automatic assessment of a penalty?
Mr. Calvert: The computer essentially spit it out that way.
That's correct, Your Honor.
But as far as the taxes that he wants returned in this case--
Unknown Speaker: Well, does your computer follow Georgia law?
Mr. Calvert: --It's... certainly we hope so, Your Honor, and the point the court is making is this.
The computer, if you will, made the initial determination that if one has reported a liability as due on your return, and you do not pay it, that that penalty is appropriate.
If the taxpayer in this case had filed his return, and removed from the tax base the Federal retirement benefits, the Revenue Department would have been obligated to issue an assessment to him which would have triggered the right to go into court.
Unknown Speaker: Well, would that have subjected him to criminal penalties, if he omits it from the return?
Mr. Calvert: Your Honor, if a taxpayer has made full disclosure on his return that he's taking an item out based on a constitutional objection, I don't see how he can be subject to criminal prosecution.
Unknown Speaker: Well, isn't that exactly what... I thought that's exactly what he did here.
He said it's owing under the Georgia statute, but the Georgia statute is unconstitutional.
Isn't... that's just the substance of what you've just described, isn't it?
Mr. Calvert: But he... but he's not been criminally prosecuted, Your Honor.
Now, he's asserted in this case--
Unknown Speaker: But I thought you were suggesting that he should have done something other than he did in his return.
Mr. Calvert: --Oh, no.
No, Your Honor.
I'm saying that if... clearly when one reports... reflects on your return the constitutional objection that you're making, that... I submit that whether that objection is reasonable or unreasonable, that you have not acted wilfully within the meaning of the criminal statutes.
That's what I--
Unknown Speaker: Are you serious about that?
Supposing... you know, there are a lot of tax protesters out there who think all income taxes are unconstitutional, and they would never be subject to this penalty, you say, if they put an appropriate recital in about how bad taxes are, and so forth.
Mr. Calvert: --Your Honor, this Court dealt with that question in Cheek v. United States, and my reading of Cheek is that the taxpayer in that case, because of his constitutional objections, which were constitutional objections that had been repeatedly rejected by the courts, simply withdrew himself from the tax system.
He filed excess withholding allowances so that he had no withholding on his wages, and he simply didn't file returns, and the Court found in that case that it was inappropriate to have a jury instruction that a sincerely held constitutional belief that wages were not income could subject him from criminal penalties under the Internal Revenue Code under those circumstances.
But at the same time, the Court's opinion suggested that if he had filed his return, made full disclosure on his return, and utilized the predeprivation procedures before the United States Tax Court, that that would have been a much different story.
And that's what we're suggesting here, that this taxpayer had predeprivation remedies available.
If he makes full disclosure on his return and pursues one of those procedures, he's not... he's not properly subject to prosecution in Georgia.
Unknown Speaker: Mr. Calvert, can I ask you about the refund statute which you say he should have known, or at least shouldn't have been sure provided for refund?
It's Appendix G to the petition for certiorari.
Mr. Calvert: Yes, Your Honor.
Unknown Speaker: It says,
"A taxpayer shall be refunded any and all taxes or fees which are determined to have been erroneously or illegally assessed and collected from him under the laws of this State, whether paid voluntarily or involuntarily. "
These taxpayers thought that that would enable them to obtain a refund of taxes that were determined to have been illegally assessed and collected under the laws of Georgia.
Two Federal courts had held that that's what the statute meant, and that therefore the Federal Tax Injunction Act applied, since there was an adequate State remedy under this provision and... among others, and yet you tell me that it was reasonable to expect him to know that this would not apply to that one category of illegal taxes that consist of taxes unconstitutional under the Federal Constitution.
I mean, if the Georgia supreme court wants to make that up and read the statute that way, that's fine, that's State law.
But you tell me that a lawyer reading that should have known that he couldn't get a refund?
Mr. Calvert: Well, Your Honor, there... I submit that there... every day lawyers make their best decisions concerning the interpretation of procedures and the substantive law, and many times they turn out to be wrong.
Unknown Speaker: Illegally assessed and collected from him under the laws of this State, whether paid voluntarily or involuntary.
Mr. Calvert: Your Honor, I believe... I believe what the Georgia supreme court... the way the court arrived at its construction is this.
There had been no prior Georgia cases interpreting the refund statute.
Unknown Speaker: And there was a lot of money owing.
Mr. Calvert: Well, certainly, Your Honor.
But there were no reported instances in which taxes of unconstitutional... unconstitutional taxes had in fact been repaid under that statute.
At the same time--
Unknown Speaker: And the word illegally does not cover unconstitutionally.
Mr. Calvert: --Well, at the same time, Your Honor, there were--
Unknown Speaker: You should get less of a remedy for an unconstitutionally assessed tax.
Mr. Calvert: --Well, Your Honor, at the same time, there were many decisions, prior decisions of the Georgia appellate courts which had recognized that a refund statute is in the nature of an action for money had and received, and that the plaintiff coming in under a refund statute bore the burden of showing that the defendant held money which he was not in equity and good conscience entitled to hold.
There were also... and we've cited these cases in our brief in opposition to cert in this case.
There are also many cases where the Georgia courts have found that where statutes were invalidated, retroactive relief need not necessarily be provided if, because of the reliance interests of the parties and other similar considerations, unjust results would follow.
Unknown Speaker: We took care of that in our Federal constitutional decisions, I had thought.
Mr. Calvert: Well, I submit, Your Honor, that what the Georgia supreme court was doing in its interpretation of the refund statute was drawing upon these prior principles of Georgia law and extending them in construing the statute.
Unknown Speaker: It seems to me that if this is not a snare and a delusion to any taxpayer who had a valid claim, I don't know what would be.
This in effect announces, don't worry, you don't have to protest in advance, we have a refund statute that says you can be refunded all taxes that are illegally assessed and collected.
I could not imagine a more deceptively phrased statute if one had set out to do it.
Mr. Calvert: Well, Your Honor, I believe the Court's concern, though, has already been addressed and disposed of in the Brinkerhoff case.
That case recognizes, and other cases recognize generally, that... that a court's construction of its own laws, even if it's an unexpected construction, does not necessarily give rise to a due process problem.
In that particular case, in Brinkerhoff, the Court found that there was a due process problem.
The taxpayer in Brinkerhoff had pursued the only tax procedure which was then available to him under settled Missouri law.
He... the trial court found against him.
He took it on appeal to the Missouri supreme court.
The Missouri supreme court reversed its prior decisions and announced... and found a newly announced but timebarred procedure which it said the taxpayer should have used, and this Court said that under those circumstances, the taxpayer was effectively left without any remedy at law.
He didn't have... the court had found that the one he chose was not available, and by the time they found that out, the one they said he could have used was not available.
But the Court said that absent... in the absence of a prior construction of the statute by the State's highest court, the plaintiff would have to assume the risk that the ultimate interpretation of the statute might differ from his own.
Unknown Speaker: Any risk at all.
A statute can mean anything in the world, and there's no due process claim.
A statute says black, and the supreme court of a State interprets it as white, and that's no due process problem.
It reads out the word, not.
It reads it as saying yes, when it reads no.
No due process problem at all.
Mr. Calvert: Your Honor, I don't believe that the Georgia supreme court's reading of the refund statute is that extreme.
Unknown Speaker: I think it is, and is the argument that you're making that no matter how contrary to the words of a statute a supreme court's interpretation is, there is no due process problem so long as it's the first time the court has ever interpreted it?
Mr. Calvert: Your Honor, I believe... I believe that is the... that is the holding of the Court in the Brinkerhoff case.
Unknown Speaker: All right.
Mr. Calvert: Again, I submit that that's not... that does not comport with the facts in this case, but I believe Brinkerhoff settles that if a... that State courts interpret their State procedures and their substantive law, and except in extraordinary circumstances which we believe are not present in this case--
Unknown Speaker: So the answer's no.
You say there are circumstances where that will not comport with due process.
Mr. Calvert: --I'm not sure which question--
Unknown Speaker: I asked whether it is always the case that so long as it's the first time a supreme court of a State is interpreting a statute, it can interpret it to mean whatever it wants so long as it's the first time it's ever interpreted it.
Is that your position?
Mr. Calvert: --I believe that's what Brinkerhoff stands for.
Unknown Speaker: All right, but now, most recently you've said, except in extraordinary circumstances.
Mr. Calvert: Well, what I... what I intended to say, Your Honor, is that the Court in Brinkerhoff indicated that except in extraordinary circumstances an interpretation by a State court of particular procedures available to taxpayers is not going to give rise to due process problems.
Unknown Speaker: Maybe what it meant by extraordinary circumstances was an interpretation that is so flatly contrary to the language of the statute.
I consider that a pretty extraordinary circumstance to read this language to mean that you can't get a refund.
Mr. Calvert: Well, I think there is also one other factor, Your Honor, in Brinkerhoff, which I believe compelled the result in that case, and that is, by virtue of the timing of the Missouri supreme court decisions, this taxpayer was effectively left with never having had an opportunity to contest his liability, and in this particular case there were predeprivation procedures available to the petitioner which he chose not to use.
Unknown Speaker: He chose not to use them because this statute announced to him that he didn't have to use them, that he could always get a refund later.
Mr. Calvert: Well, that was his reading of the refund statute--
Unknown Speaker: Ah... and he shouldn't have read it the way it was written.
Mr. Calvert: --And Brinkerhoff--
And Your Honor, and Brinkerhoff stands for the proposition that in the absence of a prior controlling decision by that statute, that's the risk that all litigants run.
Unknown Speaker: Isn't there... aren't there two prior controlling decisions?
As I read the brief, there was a case called Wright, and a case called Henderson.
I looked at those Georgia cases, and it seemed as... my first reaction was both of those cases held that the reason a person couldn't enjoin an unconstitutional tax in Georgia is because there's a perfectly good remedy for him to get a refund later.
And just to be sort of absolutely definite about it, one of them quoted the Governor, who sent a message when he passed this refund statute, and the Governor said, I'm sending you over this statute to pass because certain taxes have been paid into the State Treasury under laws that have been declared unconstitutional, and so I'm passing this statute so that you'll have a remedy.
So it wasn't as if they came into court with an open question.
I mean, don't we have here this extreme case?
If we do have the extreme case, what do we do next?
That is, suppose that we decided this... so I really have two questions.
Do you want to deal with the first and then ask the second?
Mr. Calvert: Yes, Your Honor.
I believe that the first question concerned the Henderson and the Wright v. Forrester cases, and also the legislative history, or the statement of the Governors that is quoted in the Wright case.
What is clear, Your Honor, is that notwithstanding what the Governor had hoped to achieve by way of enacting the refund statute, the language that was... what the General Assembly did in enacting the refund statute did not have fully that effect.
He had certain specific taxes in mind, and in a subsequent case... I believe it was Eibel v. Forrester... the Georgia supreme court said that the legislature had not made the statute retroactive to the tax periods in question, so the particular taxpayers he had hoped to benefit were not benefited.
We submit that there's nothing, other than the mere statement from the Governor that's cited in that case, to suggest that the language that the General Assembly actually used was intended to have scope broad enough to encompass unconstitutional taxes.
The Court's second question--
Unknown Speaker: I haven't asked.
Mr. Calvert: --If you could repeat it, please.
Unknown Speaker: Well, suppose that we think they've been getting what you might call colloquially the runaround.
I gather that if the State has money that belongs to them under the substantive constitutional law, they would like to get it back.
Assuming that's so, they say here they've tried this route.
The refund statute suddenly is interpreted against them.
All right, suppose you lose on that.
From your brief, it appears you're going to assert sovereign immunity next.
I don't quite know how you do that, since it's a State court, not a federal court.
The Eleventh Amendment doesn't apply.
And then I take it you have several other things that you're not telling us about, but... or you might.
What should we do as a remedy if we think what the State is done is awfully unfair, unfair to the point where it falls within McKesson?
What should this Court do?
Should this Court say, for example, just pay them, enough is enough?
Do we have authority to do that?
What do we do about other people?
I mean, since you have no refund statute which happened to limit refunds to 3 years, is there now no limitation?
And since you've interpreted that away, anyone who ever has paid this tax can bring a lawsuit?
What are we supposed to do next, in your view, assuming you lose on the merits?
I'm not saying you will, but I'm just saying, assuming that.
Mr. Calvert: I think, Your Honor, the argument that the tax... that the petitioner in this case has made is that if we lose on the adequacy of our predeprivation procedures, that we are obligated to refund these amounts, and that all other taxpayers, regardless of any statute of limitations, are open.
Now, the Georgia... the basic Georgia tax scheme was in effect since the 1940's.
Assumedly under that argument someone would try to assert refunds back to the 1940's, assuming they're still here to make those claims.
Unknown Speaker: I thought it was conceded in this case that you could go back only to 1985.
Mr. Calvert: It is in this case, Your Honor, but there are other cases pending in Georgia where that limitation is not being applied, where the petitioners are seeking to collect taxes back beyond 3 years.
But I think the question, Your Honor, concerning sovereign immunity, we've asserted that even if... even if Georgia's predeprivation remedies are found to be constitutionally insufficient, that that raises the question regarding whether a State can be sued in its own courts for monetary... retroactive monetary relief notwithstanding sovereign immunity, and I submit that that's a question that is very much left open by the McKesson case.
In McKesson, the taxpayer had filed an action under Florida's repayment of funds statute, and the Court was careful to note in its opinion that, under the particular facts of that case, there was a Federal due process obligation for the payment of relief, or backwardlooking relief pursuant to that particular State's post deprivation procedure.
So the Court was very careful to note that there was the waiver of sovereign immunity.
The Court has indicated in numerous cases that absent a waiver of its sovereign immunity the States generally can't be sued in any court by any person on any cause of action, and we submit that that--
Unknown Speaker: What would be left of the essential holding of McKesson, then, that the State must provide an adequate remedy, if we can say, well, we'll elect to rely on our sovereign immunity?
Wouldn't the whole point of the whole doctrine be gone?
Mr. Calvert: --Well, I think, Your Honor, that what... if I understand the question, or what the concern is, is that you could have a constitutional violation with no effective remedy.
We submit that the various immunities and similar doctrines that have been recognized by this Court generally demonstrate that there can be many circumstances where, because of qualified immunity, or absolute immunity, or the bar of the Eleventh Amendment, that retroactive monetary relief may be unavailable, and we submit that this is just such a situation.
Unknown Speaker: Are you suggesting that in a whole line of cases, including the Brandeis decision in IowaDes Moines National Bank v. Bennett, that there was an initial step that was just skipped over?
Didn't Brandeis say in that case taxpayer complaints about unequal treatment, the State can remedy it in one of two ways, either give him a refund or tax his neighbor, but the State's got to do one or the other?
Or not because he was... did he just overlook the threshold question of sovereign immunity?
Mr. Calvert: As far as I can tell from the reading of those cases, Your Honor, sovereign immunity did not come up as a direct issue, and again, I believe that the Court has indicated in the McKesson case, in my reading of the oral arguments in that case, a concern that sovereign immunity is very much an issue in the context of a situation like this.
Unknown Speaker: Thank you, Mr. Calvert.
Mr. Henson, you have 12 minutes remaining.
Rebuttal of Carlton M. Henson
Mr. Henson: Thank you, Your Honor.
Unknown Speaker: Mr. Henson, would you address the question of how far back a taxpayer could go?
Mr. Henson: Yes, Your Honor.
The limitation period that's applicable to taxpayers, for taxpayers besides the particular petitioner, is unresolved.
In briefs both parties have argued at different points in time in this case that the money had and received statute would be the most analogous limitation period, which would be 4 years, and would either... depending on when you started it would either be tax years '85 through '89, or tax years '84 through '89, and there is an issue with regard to tolling, because some 40,00 retirees relied on Georgia's refund statute, which makes you wait a year before you file suit.
So, for example, this suit did not arise until April of 1990, rather than in the weeks right after Davis was decided, so that... you know, in this case the State has not disputed, as far as I read their briefs, that the tax years '85 through '89 are properly before the Court.
I'd like to address briefly Justice Breyer's question, and that is the issue of remand.
The Court did remand in McKesson, and the Court remanded in Harper, and the State's response in both of those cases has been to continue to deny relief to the taxpayers.
In the record... there's no evidence in this record that Georgia will do any better if those questions are left open.
Iowa Bank and the Montana National Bank cases are both instances where the Court said, refunds are appropriate.
The States have had a chance to look at it.
The State didn't do... didn't choose an appropriate remedy.
The Georgia legislature has met in special session to address Davis.
It provide only prospective relief.
The Georgia supreme court has had this case twice since Davis was decided and McKesson was decided, and still has denied relief.
In short, in response to Justice Breyer's question, enough is enough.
These people are entitled to refunds.
Unknown Speaker: Do you think the State really has waived it's sovereign immunity?
A State can consent to be sued.
It went right to the question, engaged the due process question.
Mr. Henson: Your Honor, I don't think the State can come in at this date and talk about sovereign immunity.
As I responded to the Chief's question earlier, I believe this Court's Fourteenth Amendment's jurisprudence covers that, but also, in Georgia, Georgia allows under... as a matter of State law, allows takings claims brought directly against the State, and there's no State sovereign immunity, and if they were going to say, well... I mean, it's the same thing all over again.
They want to say, well, you can have a direct takings claim against the State of Georgia based on State law and based on the State constitution, and we won't assert sovereign immunity, but if you want to assert it based on the Federal Constitution, we're going to raise State sovereign immunity, and the authorities for that are CFI Construction v. Board of Regents, it's 145 Georgia Appeals 471, a 1978 case, and State Board of Education v. Drewery, Drewery, 263 Georgia 429.
They just want to change the rules over and over again.
It's time to stop.
These people are entitled to refunds.
Unknown Speaker: Mr. Henson, these people are all retirees, I suppose.
Mr. Henson: And perhaps--
Unknown Speaker: As this drags on, many of them are never going to see what they're entitled to, I suppose.
Mr. Henson: --Many of them already won't, Your Honor.
I estimate that at least 15 or 20 percent have already died since Davis.
Chief Justice Rehnquist: Thank you, Mr. Henson.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten [= 10] o'clock.
Argument of Speaker
Mr. Speaker: The opinion of the court in Reich against Collins will be announced by Justice O'Connor.
Argument of Justice O'Connor
Mr. O'Connor: This case comes to the court on writ of certiorari to the Supreme Court of Georgia.
For many years federal retirees such as the petitioner Charles Reich paid Georgia income tax, on their federal retirement benefits.
Even now, Georgia exempted state retirees from paying income tax on their state retirement benefits.
In 1989, we held in a case called Davis versus Michigan Department of the Treasury, that such a state tax scheme violates the constitutions intergovernmental tax immunity doctrine.
Relying on a Georgia statute that requires refunds for illegally assessed taxes, right and other Georgia federal retirees for suit in Georgia State Court, seeking refunds of the unconstitutional taxes they had paid in the years before the 1989 decision of this court.
The trial court denied the refund claims and the Georgia Supreme Court affirmed holding for the first time that the state's refund statute does not apply where as here taxes are paid under a state scheme that is subsequently declared to be unconstitutional.
Right eventually petition this court for review of that decision on the ground that even if a Georgia statute did not require refunds.
Federal due process does as established in our line of this court's decisions most recently our 1990 McKesson decision.
We granted the writ of certiorari and remanded the case back to the Georgia Supreme Court to reconsider it's decision in light of the McKesson line of cases.
On remand the Georgia Supreme Court again denied refunds to the plaintiffs.
This time on the grounds that on the Georgia High Court's reading of the McKesson's cases, the Georgia federal retiree should have challenged the disputed taxes before paying them under procedures that Georgia says, it provides for that purpose.
We now hold that the Georgia Supreme Court erred in relying on Georgia's predeprivation procedures to deny relief.
The court was no doubt right, that under the McKesson cases a state may require taxpayers to challenge unconstitutional taxes before paying them rather than after but what a state may not do and what Georgia did here is to reconfigure its remedial scheme unfairly in midcourse.
Specificaly throughout the 1980s, Georgia held out what plainly appeared to be a clear and certain postdeprivation remedy.
Its tax refund statute and then it declared only after right and others like him had paid the disputed taxes that no such remedy existed.
In this regard the Georgia Supreme Court's reliance on Georgia's predeprivation procedures was beside the point because even assuming a constitutional adequacy of these procedures; no reasonable taxpayer would have thought they represented the exclusive remedy for unconstitutional taxes.
Accordingly the judgment has reversed and the cases remanded for the provision of meaningful backward looking relief consistent with due process.
The opinion of the court is unanimous.