UNITED STATES v. CLINTWOOD ELKHORN MINING
In 2000, the IRS announced it was admitting the unconstitutionality of a 1978 coal export tax. In response, Clintwood Elkhorn Mining brought suit to recover funds paid, plus interest, under the unconstitutional tax scheme between the years 1994 and 1999. Clintwood sought recovery under the Export Clause of the Tucker Act, 28 U.S.C Section 1491, which applies a six-year statute of limitations to claims and makes no mention of interest payments. The government argued that such claims must be brought under the Tax Code, which allows interest but applies a three-year statute of limitations.
Both the Court of Federal Claims and the U.S. Court of Appeals for the Federal Circuit allowed the Tucker Act claims, but the circuit court overruled the federal claims court's decision denying interest payments. In urging the Court to review both conclusions, the government contended that the Federal Circuit's ruling was at odds with other circuit decisions prohibiting Tucker Act claims under similar circumstances.
Whether the claims of taxpayers seeking refunds for unconstitutionally levied taxes under the Export Clause of the Tucker Act, which applies a six-year statute of limitations, are preempted by the United States Tax Code's three- year statute of limitations for such claims?
Legal provision: Internal Revenue Code
In a unanimous opinion written by Chief Justice John G. Roberts, Jr., the Court refused to pay Clintwood refunds for the unconstitutionally levied taxes. The Court stated that the remedy for taxes imposed in violation of the Export Clause is the same as for any other unlawful tax: filing a timely administrative refund claim. Until taxpayers exhaust this avenue, they are prohibited from bringing a direct suit against the government.
Argument of William M. Jay
Chief Justice Roberts: We'll hear argument next in Case 07-308, United States versus Clintwood Elkhorn Mining Company.
Mr. Jay: Mr. Chief Justice, and may it please the Court: Respondent sought and received a full refund of the tax they paid on exported coal for the full three-year period permitted them by the tax-refund statute.
What the court of appeals' decision permitted them to do was to bring an additional action for indistinguishable relief, but for a three-year period beyond what the tax-refund statute permits.
We submit that that decision was erroneous for two principal reasons: First, the plaintiff--
Justice Ginsburg: It might help if you raise that lectern a bit.
Mr. Jay: --Hang on.
Is that better, Your Honor.
Justice Ginsburg: Yes, thank you.
Mr. Jay: Thank you.
The plain and unabiguous terms of the tax-refund statute, section 7422(a), expressly provide that any claimant who alleges that a tax has been illegally assessed, no matter the reason, must before proceeding to court file a refund claim with the Internal Revenue Service within three years after filing the tax return on which the illegal tax was paid.
Justice Scalia: Mr. Jay, is the government running with the fox and chasing with the hounds?
You want us to apply the provisions governing the Internal Revenue Code with regard to whether the statute has expired, but when it comes to interest you say oh, no, no, no, that doesn't apply.
Why shouldn't the two go pari passu, as we say?
Mr. Jay: Well, we think, Your Honor, that the interest provision is in fact a key part of the tax-refund statute and so Respondent's attempt to invoke the tax-refund judgment interest provision is inconsistent with their theory, that they're proceeding outside the scope of the tax--
Justice Scalia: Oh, yes, they make the same mistake, but that doesn't justify your making the same, the same mistake.
Mr. Jay: --Well, we think, Your Honor--
Justice Scalia: I mean, it's either, you know, they're both in one pot or they're both in the other pot.
And both sides want to... want to split them up, but why don't they go together?
Mr. Jay: --Well, we think the whole case is in the Title 26 pot, Your Honor, that the whole case should proceed under the provisions of Title 26, meaning that Respondents have already received the full tax refund to which they are entitled.
And to be sure, they received interest on that refund.
And had they to sue for it, they would have received interest under section 2411.
But because they are... because they are no longer able to proceed under the exclusive tax-refund procedure, of course we think that they... that they can't plead around that by claiming constitutional damages instead.
But if the Court were to agree with them and agree that they could pursue damages for a violation of the Export Clause, section 2411 does not apply to such a claim because it's not a claim for an overpayment of tax.
The term 6402, which is the linchpin of the tax-refund statute.
And the... when a taxpayer has made an overpayment, that triggers the obligation of the IRS to provide a tax refund if one is timely sought, and if one isn't timely sought, as this Court recognized in the Brockamp case, the Congress has provided an unusually emphatic limitation on the Commissioner's ability to refund.
Justice Breyer: Can you explain one thing to me?
I take it that they... everybody says they went through all the right IRS hoops to get back three years' worth of damages, i.e., they get their payments back and they get interest.
Mr. Jay: That's right.
Justice Breyer: Now, what they want is they want three years before that.
Mr. Jay: That's right.
Justice Breyer: And they're too late under Title 26.
So what you're saying is, one, you can't get any interest and, two, you can't get your money back at all.
Mr. Jay: Well, on the interest, Your Honor, we're saying that they were entitled to the interest on the three years.
Justice Breyer: I'm saying for three years they're home-free.
They get their payment back and they get their interest.
Now let's go to the three preceding years.
I'm a little confused about that because I can't work out... I suppose that the government is saying: You get nothing, you don't get your money back, and you don't get your interest.
Or is the government saying: You get your money back; you just don't get the interest?
Which is it?
And I don't see how it could be the latter.
Mr. Jay: It is the former, Your Honor--
Justice Breyer: Okay.
Mr. Jay: --because we're saying that because Respondents waited for 21 years while paying the tax without... without filing a refund claim, that they're limited to the three years immediately preceding the refund claim--
Justice Scalia: Right.
I thought you were making a second argument, that even if they were entitled to it despite the statute, they wouldn't be entitled to interest.
You don't make that claim?
Mr. Jay: --No.
If they were entitled to sue, not under the tax... under the tax code at all, but on the theory countenanced by the court of appeals, that this is not a suit for a tax refund at all, but a suit for damages arising directly under the Constitution--
Justice Scalia: I see.
Mr. Jay: --then there is no provision in Title 28 or anywhere else that provides the required express provision--
Justice Scalia: Right.
Mr. Jay: --of interest that's necessary to award interest against the government.
Justice Scalia: Right.
Justice Ginsburg: But why shouldn't it be a suit contesting the constitutionality?
I mean, in the usual case where you seek a refund, there are adjustments that have to be made.
But here, if the only question is the constitutionality of the tax, then what is the point of going through any kind of administrative process of the refund route?
Mr. Jay: In the context of the coal tax, Your Honor, and the Export Clause claim, the purpose of requiring exhaustion, requiring Respondents to proceed before the IRS, is that the coal tax is exempt from taxation under the Constitution only if the coal at the moment the tax is imposed, which in this case is when it's first sold by the manufacturer, the mining company, if at that moment, the coal was in the stream of export.
And in the context of the coal industry that can be a fairly fact-specific question, and the IRS technical advice memorandum that we've cited on page 11 of our reply brief explains that to some degree.
So it's possible for a timely refund claim to allow the IRS to examine the facts and circumstances of the transaction and determine whether in fact the coal was in the stream of export at all.
Further, the IRS... if it has only an excise tax return from the taxpayer, IRS has no idea what percentage of that coal was exported.
Well over 90 percent of the coal mined in the United States remains in the United States and there's nothing on Form 720, the excite tax return, that specifies how much of that coal is exported.
So effectively by filing the two-page refund claim the taxpayer puts the IRS on notice of what percentage of coal in the given years was in fact in the stream of export when it was sold, whether in fact the broker or whoever purchased it actually purchased it, actually exported it from the country, and also how... what the dollar amount of tax refund is being sought.
So all of those, we think, are perfectly valid purposes for requiring a short but reasonable time to proceed before the IRS.
And if the IRS denies the claim, then of course Respondents could have proceeded directly to court.
The IRS did not in fact deny their claim, and the IRS has issued a notice of acquiescence specifying that the coal tax... coal taxpayers who paid this coal tax and filed timely refund claims will receive a refund to the full extent that Congress has permitted the IRS to grant refunds.
Justice Scalia: Plus interest.
Mr. Jay: Plus interest, that's right, Your Honor.
Under section 6611, interest is fully available on refunds.
And again, if the... if the IRS had denied the claims and Respondents had been forced to go to court, they would have received interest accounting for that time delay as well.
So we think that Section 7422 is the exclusive means of bringing a claim that a tax was illegally or erroneously assessed or collected.
The terms of the statute are clear; they're unambiguous; and they're exclusive.
7422(a) simply is the only way of bringing this claim.
And we think that whether Respondents denominate their claim as a statutory-refund claim or a constitutional claim, the terms of section 7244(a) plainly cover it.
So we think that the Court need not necessarily answer the question of whether the Export Clause creates a self-enforcing cause of action at all.
Chief Justice Roberts: Could the IRS say that the statute... or Congress, I guess, say the statute of limitations is one month?
Mr. Jay: To file a timely refund claim, Your Honor?
Chief Justice Roberts: Yes, and anything after that, any constitutional violation after that, is just not remediable?
Mr. Jay: Well, the constitutional violation would have taken place before in Your Honor's hypothetical.
Chief Justice Roberts: Five weeks before.
Mr. Jay: In the McKesson case, Your Honor, the Court outlined a number of the options that taxing authorities have to respect their strong fiscal interest in the stability of their tax revenues while providing appropriate relief.
And the Court listed as one way in which States can... States and other taxing authorities can protect that by providing a short statute of limitations.
The Court also suggested that--
Chief Justice Roberts: We're talking about... we're talking about the Constitution here.
And in effect... I mean, I assume I could run through the usual routine.
I mean, you wouldn't say they could have a statute of limitations of two days, right?
Mr. Jay: --Well, Your Honor, in McKesson the Court pointed to another alternative, which is requiring that the tax be paid under protest.
And that effectively is a statute of limitations of zero days, in that when... you know, that when the tax is paid, the taxpayer has to identify the basis of the constitutional challenge and the amount being paid under protest.
And under... and before the Tucker Act, and indeed in the early years of the Tucker Act, taxes had to be paid under protest or the taxpayer was out, was out the remedy against the collector.
And Congress has since provided that in general taxpayers don't have to pay their taxes under protest.
Instead, they can bring a refund claim within three years afterwards.
But that three-year limitation period, while relatively generous, is absolute.
And the Court held in the Brockamp case that the three years can't be extended, not even for an individual taxpayer suffering from senile dementia for the entire time period.
Justice Alito: Do you think there are any circumstances in which a taxpayer can bring a claim under the Tucker Act for the refund of an unconstitutional tax?
Mr. Jay: Well, we think... I want to clarify, Your Honor, that any lawsuit, whether it's on Respondent's theory or on our theory, any lawsuit that's filed is in fact under the Tucker Act.
Justice Alito: Well, any situation in which such a suit can be brought without having filed a claim previously with the IRS?
Mr. Jay: If the only... if the only basis for the taxpayers' recovery is that the taxpayer has paid a tax and the tax was illegally or erroneously assessed because it was unconstitutional, we think that section 7422(a) and the associated time limits provide the procedure for recovering under the Tucker Act.
Section 2501, which is what Respondents contend is the only procedure that applies to the claims that they have brought, section 2501, as the Court recognized--
Justice Alito: Just to be clear, so your argument is not limited to the Export Clause.
It doesn't matter what provision of the Constitution the tax violates.
The same rule would apply?
Mr. Jay: --Well, the Congress has made no distinction in the statute between one type of constitutional claim and another, or indeed one type of illegality or another.
And we've cited some... some examples in our opening brief of numerous constitutional provisions that taxpayers may bring challenges under.
And there are at least five clauses in the original Constitution that regulate the Federal Government's taxing authority.
There are at least four more that regulate the States, and, you know, not to mention the Bill of Rights.
So constitutional claims are commonly brought by taxpayers against Federal taxes, and the tax-refund procedure provides a full... a fully effective, fully adequate way of vindicating that right.
The only requirement is that it be submitted in writing to the IRS within three years after filing the tax return in question.
Justice Kennedy: Do you know, what happened before the Tucker Act with inverse condemnation claims?
The government violates the Fifth Amendment Takings Clause or the Fourteenth Amendment Takings Clause applied to the Fifth by inverse condemnation, and there is no Tucker Act.
Was there a constitutional cause of action for damages?
Mr. Jay: Before there was the Tucker Act, Your Honor, when the government took property and was obliged to pay compensation, the claim was presented to Congress; and Congress could legislative relief by a private bill.
Eventually, Congress created the Court of Claims purely as an Article I tribunal.
There was no judicial review because the decisions were always subject to revision by Congress.
And eventually Congress, having tired of adjudicating all these claims in a legislative manner, gave the Court of Claims independent status with its decisions reviewable in Article III courts.
And so, by enacting the Tucker Act, takings claims became brought in the Court of Federal Claims.
So, because we think Section 7422(a) is a completely adequate remedy for any constitutional claim that Respondents might bring, we submit that this Court's Bivens cases and this Court's unlawful-tax cases show that there is no warrant to create a new cause of action directly under the Constitution in circumstances like this where the taxpayer has a fully effective remedy, allows that remedy to become time-barred, but instead brings a claim, purportedly under the Constitution, against the identical defendant, in the identical forum seeking the identical relief.
Under those circumstances, this Court has never fashioned a Bivens-type implied cause of action for a violation of the Constitution.
Indeed, in Bush versus Lucas, Schweiker versus Chilicky, and other cases, the Court has recognized that when Congress has legislated a remedial scheme, it doesn't... this Court will still stay its hand before creating a new Bivens action, even if that remedial scheme has very short time limits, such as the 30-day time limit, the civil service remedies that were at issue in Bush, or the exhaustion requirement of Title VII which substitutes for an equal-protection claim for Federal employees.
Even in those circumstances, and even if the remedies that are available are equitable and not money damages, even in those circumstances this Court will not create a new cause of action for money damages.
And in this case, if Respondents had filed in a timely way in this... referring to the relief that they're seeking in this case, they're seeking relief for 1994, 1995 and 1996.
If they had filed by April 30th, 1997, by which point Cyprus Amex Coal Company was already vigorously litigating the constitutionality of the coal excise tax in the Court of Federal Claims, if they had filed by that time, they could have received full relief.
So their failure to assert their rights in a timely way certainly didn't give the court of appeals warrant to create a new Bivens-type implied right of action.
If the Court has no further questions at this time, I'll reserve.
Chief Justice Roberts: Thank you, counsel.
Mr. Jay: Thank you, Mr. Chief Justice.
Argument of Patricia A. Millett
Chief Justice Roberts: Ms. Millett.
Ms Millett: Mr. Chief Justice, and may it please the Court: This is a question of statutory construction and the problem, as this Court's precedent has made clear in Enochs versus Williams Packing, is that if government... if the government wants to enjoy the special, extraordinary protections of the tax-refund scheme, it has to assert a plausible basis for tax liability.
It hasn't done that here.
There was never any claim that they have any legitimate right to this revenue as a source, as a basis, for taxes; that they have any legitimate tax regulatory power over this export process; or that they have any legitimate basis for defending the statute as constitutional under any circumstances of the law--
Justice Stevens: Ms. Millett, if it was... if it was that obvious, why did it take so long for the coal companies to realize that the government owed them money?
Ms Millett: --Justice Stevens, that's because my clients are not Fortune 100 companies, and I don't think the Constitution or the Congress imposes a tax or tax code that require that sort of level of scrutiny.
I've got... we've clients here that are small.
They have no in-house lawyers and they had accountants who paid the taxes.
And so the short answer is they didn't notice.
It's not that they looked at it and thought it was constitutional.
One thing that is clear is that as soon as anybody looked at this statute, as soon as anybody... the courts, the government that collected the tax for 20 years and did have a constitutional duty to look at the Constitution, as soon as anyone looked at it, there was no defense offered.
This is an extraordinary case, where the government made no effort to defend this tax whatsoever in district court.
Justice Kennedy: Were there any other cases where they said, well, it's not in the stream of commerce yet, and there was an intermediate broker, or anything like that?
Are there any complexities like that?
Ms Millett: Justice Kennedy, there is a statutory definition, 26 U.S.C. 4221, that deals with stream of commerce and it mirrors this Court's decision in the A.G. Spalding case, which says that either the direct sales or if your manufacturer doesn't sell directly to the exporter or it has the broker, so one or two steps, is stream of commerce, and after that it's not going to be.
That's the same thing this Court did in A.G. Spaulding.
If someone wanted to fight about that statutory application, they wouldn't be raising a constitutional claim like we are here.
Justice Kennedy: But in none of these cases did they have those sorts of problems?
Ms Millett: --Not in these cases.
My clients... I think almost in all of the claims they directly exported it themselves.
There was no dispute whatsoever.
If there's a debate, factually or legally, about whether this is the stream... if it's not in the export stream.
If it's not in the export stream, it's not an export or a violation.
If there is a factual debate, it wouldn't fall within the Enochs versus Williams Packing exception.
There was no factual debate.
There is a stipulated judgment in this case.
What Enochs tells us, again, is that the government can't have a tax be a tax solely for the purpose of curtailing constitutional recovery.
That's the only way that this was a legitimate tax in their view, not to collect revenue.
Justice Ginsburg: If 7422(a) had said any... any Internal Revenue tax, including a tax imposed in alleged violation of the Export Clause, that would cut... cut out the six-year statute of limitations, right?
If it said the refund procedure applies to any Internal Revenue tax including one imposed in alleged violation of the Export Clause?
Ms Millett: I think it would clear up an awful lot.
If I could just clarify, though.
What this court held in Enochs versus William Packing is that the phrase "any tax" only applies if the government is at least willing to assert a plausible defense for the tax.
And so it would depend on whether any tax would still include that limitation in your scenario, if they are willing to assert a plausible Export Clause.
Justice Ginsburg: Nothing different from what it is now, but just Congress makes clear that a tax and alleged violation of the Export Clause falls within the term "any Internal Revenue tax"?
Ms Millett: Then I think my position would be that it does not, because this Court has held for half a century without Congress changing it that any tax means a tax that the government asserts is valid.
It doesn't have to be correct.
It has to assert that it's valid.
Otherwise it's in the guise of a tax and it doesn't fall--
Justice Scalia: I'm not certain it was valid if this coal was not shipped overseas.
You're putting an awful burden on the government to know when the coal is severed and shipped.
You're saying if they mistake a shipment as being only for domestic use rather than for shipment abroad, they don't have any basis whatever for the tax claim.
I'm not sure I agree with.
Ms Millett: --The problem in this case, Justice Scalia, is that there were two statutes.
There was a statute imposing the coal tax, 26 U.S.C. 4121... this is all on the first page of our brief... and then there was an amendment to the exemption for exports in 26 U.S.C. 4221 that specifically said the general tax exemption for exports does not apply to this coal tax, and that provision captured nothing but exports of coal.
Justice Breyer: Your point is that you don't have to go through the refund requirements of 7422 if the government was... although it did ask for the money as a tax, they are really out to lunch?
I mean, the trouble... is there any authority for an argument like that?
I mean, the trouble I guess that I would have that argument is, one is linguistic, because it goes on to say
"or of any sum alleged to have been excessive or in any manner wrongfully collected. "
And then the other thing is just common sense: Suppose you have an insane tax collector.
You know, I mean, that could happen.
And the insane tax collector they discover some years later has been assessing all these penalties for no reason and people have been paying some of them because, terrible tragedy, terrible thing.
But I guess they'd be stuck, I'd always thought, with the three-year statute of limitations, so even those it's really nuts.
Now, is there... is there any authority for us making a distinction between an insane... to get an extreme, an insane assessment of a tax and just a wrongful assessment of a tax?
Ms Millett: The authority is this Court's unanimous opinion in Enochs versus Williams--
Justice Breyer: Okay.
Ms Millett: --which said that if... we are dealing with the same language... no suit shall be maintained for any tax in any court.
And it said in that, that statutory language, "any tax" means something that the government can plausibly defend as a tax.
Justice Breyer: What about the "any sum", "in any manner"?
You know, what about that language?
Ms Millett: Again, the key language--
Justice Breyer: "Any sum in any manner wrongfully collected. "
Ms Millett: --Right.
This Court dealt with that, I think it's in... I think in Dalm, and sometimes it has its own rules in the taxing, but this is... the question is any tax, and any tax doesn't mean something that's just in the guise of tax, whether the guy is insane or Congress just forgot to read the Export Clause.
But as soon as we look, everyone knows this is unconstitutional, then understand what the impact of that is.
That means the only way this is a legitimate tax under the government's rule, the only legitimate tax function that this serves is to cut off constitutional remedies.
That's its only role.
Justice Breyer: No.
Their argument is, I'm terribly sorry, that if the way you're hurt is you paid a tax you shouldn't pay and you want to get a refund, go through the administrative procedure.
Ms Millett: This Court said in Enochs that you don't... that tax... the whole point of the Tax Exemption Act is to funnel everybody in for tax refund procedure.
And this court said you don't have to go if it is not a tax.
And what they mean by not a tax, is that it can't plausibly be defended by the government as a tax.
This doesn't happen often.
This is an extraordinary exception.
But this is the case where it did.
And if the government--
Chief Justice Roberts: So why do you... I take it, though, that you concede the six-year statute of limitations under the Tucker Act, right?
I mean, your brief says this is an unbending and unqualified prohibition on the use of exports except up to... if it's before six years and one day.
You are taking an adamant position with respect to three years but you give up six years.
Ms Millett: --No.
It's unbending and wrong whether it's within six years or ten years.
But we agree that a constitutional right can have a statute of limitation... if there is a constitutional right that doesn't have any statute of limitations, I don't know what it is and it's not this one.
The question is--
Justice Souter: Why aren't three years enough?
Ms Millett: --I'm sorry?
Justice Souter: Why aren't three years enough?
Ms Millett: Because it's a question of statutory construction.
And Congress determined what the right statute of limitation is for a constitutional claim, and that's six years.
If Congress had a three-year statute of limitations under the Tucker Act for all constitutional claims, we wouldn't be here.
Chief Justice Roberts: So... so, the rhetoric in your brief how this is a constitutionally based prohibition is not pertinent?
You're saying if the statute was clear and it said three years, that would be fine, even though it's a claim under the Export Clause?
Ms Millett: We don't... to the Export Clause, right, distinguishes between three years and six years in its own right.
What the Export Clause does, though, there is the statutory construction argument and we have the Enochs argument, but we also think there are substantial constitutional concerns here.
And the Export Clause makes it most imperative for this Court to continue to adhere to its definition of any tax, and that's because--
Justice Scalia: Why is the Export Clause so, so significant?
The only other self-executing constitutional clause that provides for damages automatically that comes to mind is the Takings Clause.
And we have allowed the states to require claimants to jump through innumerable hoops.
They have to exhaust all their administrative remedies before they can bring a suit here.
Why... why is the Export Clause any... any more sacrosanct?
Ms Millett: --Because we don't... under the Constitution the government hasn't done anything wrong unless... until... unless and until it actually effects a taking and doesn't pay for it through process.
Those processes are how we determine... get to the point where there has been an actual constitutional violation here.
No administrative process is necessary to have... to know that tax has been posed on exports.
And what's distinct about the Export Clause, to get back to Chief Justice Roberts' question, is that it is... this Court said unanimously in U.S. Shoe, a simple, direct, unqualified prohibition on congressional tax power in terms, and it disallows any effort to raise revenue through the Tax Power Act.
Justice Scalia: Volenti non fit injuria.
If indeed the taxpayer pays out the money for an unconstitutional export tax, it seems to me that person has no claim until he complies with the administrative procedures that render that tax unconstitutional.
But up until the point where he is paying it voluntarily, it seems to me there is no constitutional violation.
Ms Millett: Congress eliminated in the early 1920s any prepayment protest requirement under the tax law.
And the tax law... the Internal Revenue Code applies sweepingly to Americans across this country, vast majority of whom are not equipped with tax lawyers at their side to make protests at the moment they pay their taxes.
That's never been required.
Justice Scalia: I'm not saying it has to be made at the moment they pay their taxes.
I'm just saying until it's made there is no unconstitutional, unconstitutional export tax.
Ms Millett: That's right.
Until the tax... well, it would be an unconstitutional statute on the books.
No one has been injured by it or affected by it until somebody actually pays it or is required by the government to pay it.
I don't dispute that, but keep in mind we're dealing with a tax refund scheme.
The tax refund scheme is an extraordinary creature in the law for many good reasons but that... that reverses the order of everything.
It makes you pay before any entitlement has been shown to that money by the government.
Justice Ginsburg: I thought you didn't have to pay--
Justice Kennedy: Here there was a payment.
Here there was a payment.
Ms Millett: Yes.
Justice Kennedy: It's different than if you try to enjoin the collection at the outset.
Ms Millett: It's only--
Justice Kennedy: So that argument doesn't work.
Ms Millett: --It's only different in the sense that government's interests are less, and the government's interests are most acute in having people pointed to the tax-refund scheme, this Court has said time and again, before... to pay first and fight later.
And as a result... I mean, if it's most acute--
Justice Ginsburg: --Well, what about the deficiency procedure?
And I don't know if that applies with excise taxes, but suppose they didn't pay this tax and they get a notice of deficiency.
Where would they go?
Ms Millett: --There... there's nowhere for them to go for this particular tax.
You can't go to tax court.
Justice Ginsburg: Why not?
Ms Millett: Because tax court doesn't apply to excise taxes for the most part.
There may be a few exceptions.
It essentially applies to income gift and estate taxes, and it certainly didn't apply to this provision here.
They could have... they could have gotten the assessment and gotten on the phone with an IRS.
Otherwise they'd have to wait for a lien or levy.
Now, the government, by the way, has--
Justice Kennedy: Well, but if we... if we accept your view in this case, they can go in a district court and enjoin them.
It's not a tax.
The Tax Injunction Act doesn't apply.
Ms Millett: --The... the--
Justice Kennedy: And... which is just what Justice Ginsburg's questions point out.
And earlier I had indicated that in this case they did pay the tax.
Ms Millett: --I--
Justice Kennedy: So it seems to me there is a distinction.
It may be that you would prevail in your argument.
Ms Millett: --I know.
We couldn't have--
Justice Kennedy: If they tried... if they tried... do you think they could enjoin the collection of a tax refund?
Ms Millett: --No, they couldn't because in addition to showing the government's imposition of the tax is legally indefensible, you still have to show entitlement to an injunction, and unless you can establish irreparable harm just by paying money, which I'm not aware of any coal company that could have, you could have gotten an injunction.
Justice Kennedy: But, I mean, in your argument you say it is absolutely... that it doesn't apply.
Just get an injunction.
Ms Millett: --You can't get an injunction just because something is unlawful.
That's never been allowed under equity.
You also have to show irreparable harm.
Justice Kennedy: Well, then we'll invent the hypothetical company that is going to go broke and all that stuff.
Ms Millett: But I mean, it's not a question of inventing.
This Court dealt with exactly that question in Enochs, where... Enochs versus Williams Packing, and later again in South Carolina versus Regan, and Commissioner versus Shapiro... that you can't just come in and say it's unlawful, that you actually have to then establish irreparable harm.
Everything in the tax scheme points to taxpayers with enormous penalties and enormous risks to pay first, fight later.
And when a taxpayer does that, it's also--
Justice Kennedy: But you can't have it both ways.
You're saying it isn't a tax for your purposes, and then in my hypothetical case you say you have to go through the tax law.
Ms Millett: --It's the government that--
Justice Kennedy: And the same with your answer, what I thought was your answer to Justice Ginsburg's question.
Ms Millett: --It's the government that wants to have it both ways.
It wants to say it is a tax just for purposes of making it a nonconstitutional case under the Tucker Act and to make it the tax scheme, but in no way is this defensible as a tax.
Justice Breyer: In looking at your argument, I see it now, I think, if I'm right.
You're... that it would have very broad reach.
It would reach... it doesn't just concern the constitutional claim; it concerns any claim you'd have against the IRS.
And there's authority that says if the IRS's position is too far out, you can go get an injunction.
That's what you're pointing to.
And then you're argument is, because of that authority, that kind of an exception for the far out IRS claim also applies to the statute of limitation and administrative requirement.
And your problem is the latter has never been held.
And the reason that that's a problem, I take it, is because when you're talking about injunctions, you're talking about basic equity, but when you're talking about later on administrative requirements, there's really no reason they couldn't have filed the claim.
And if we were to accept an argument on the... to the contrary and analogize it, it's going to cut through rules, regulations, statutes, constitutional claims, everything, really making a hash of their provision there... of the administrative provision.
So, what is your response to that thought which--
Ms Millett: I have two responses: One, it's going to have far less effect on this situation, in the post-payment situation, than it did in Enochs, where it wasn't limited to the Export Clause.
This situation is only going to work where you not only establish the government has no basis for this tax, a hard thing to do, but that you have a money-mandating constitutional provision.
There aren't many of them.
If you don't have a money-mandating position, you've got nowhere else to go but the tax scheme.
So it's extremely limited, but I want to get back... this is not about an equity rule.
This Court was specific in Enochs versus Williams Packing, when it said, our prior decision under Miller versus Standard Nut, in which you had done a more generous view of this get around the Tax Injunction Act, was wrong, because the Tax Injunction Act is not an equitable rule.
Enochs was a statutory construction rule.
Pages 6, 7, and 8 of that decision make it plain in terms... you talk about what the act requires, and the language of this Court is construing is the phrase "any tax".
And if it has no legitimate basis, then it's in the guise of a tax.
That same language has been on the books for almost half a century.
Congress went back from the Tax Injunction Act eight times without changing it in response to this Court's decisions.
Enochs has been reaffirmed by this Court five times.
Congress enacted an entirely new Internal Revenue Code in 1986 that used that 7422, with this Court's five decisions on the book and kept that language.
And it makes sense.
Congress doesn't... doesn't enact a tax where it's only tax function--
Justice Breyer: --What do you want to do about your argument, as I hear it, has nothing to do with the nature of the claim that you're asserting to get the money back.
It has to do with the nature of the IRS's defense and... well, can you do it that way?
Can you say the word "any tax" or "any claim"... I can't remember that other.
What was it?
It was any... "any sum"... "any sum" or "any tax".
Can you say, well, it means one thing if they are saying that the reason they want it back is that it violates the Constitution, and those words mean a different thing if the reason that you want it back is it violates an IRS reg; it violates an IRS statute.
Ms Millett: --I'm not saying that "any tax" means anything different.
I'm just pointing out that if you succeed--
Justice Breyer: Well, if it doesn't mean anything different and then if the very far-out claim to a tax is so far out it isn't a tax, that would be true in the regulation context, in the statutory context as well as the constitutional context.
Am I missing something?
Ms Millett: --No, because you have to have a money-mandating claim under the Constitution to fall within the Tucker Act.
The... this Court said, the Tucker Act for purposes of the statutory claims under the Internal Revenue Code, as this court said in Kreider, takes three years to the statute of limitations.
So I don't think, after Kreider, that you would still have a six-year statute of limitations under the Tucker Act for a statutory tax claim.
The difference is constitutional enforcement, and this is fundamentally a constitutional right that's being enforced.
And the question is, would Congress had thought... this is all a question of statutory construction... would Congress have thought this is more a constitutional claim or a tax claim?
And they've made the sensible decision, at least as this Court construed it in Enochs, in South Carolina versus Regan... addressed it in Janis and Bob Jones University and the Americans United case, all of which are in our brief--
Justice Ginsburg: But you're saying it's both.
You're not saying it's "either/or" because for three years you did use the refund procedure.
So you used the refund procedure for the years that were within the three-year period, and then for the years that were outside the three-year period, you have this other theory.
So you're not saying this is not for refund.
That route is closed.
The only route is this constitutional... this claim directly under the Export Clause.
But your own conduct seems to have been it's our option.
We can treat it as a refund claim or we can treat it as a constitutional claim.
Ms Millett: --One can get... there is nothing in the tax administrative scheme where one when shows up to file a tax refund where you say if I go by this route, I'm waiving all others.
It's not like I'm agreeing to go go through arbitration and forgoing my rights to go through a court procedure.
Justice Ginsburg: In other words, what were you just telling us is that this is not a refund claim; this is a constitutional claim.
But you are now saying, I think, that it's both; it's whatever the taxpayer or the plaintiff wants it to be.
Ms Millett: --It's a constitutional claim to get your tax money back.
And the administrative scheme is fully amenable to that.
That's certainly the government's position, and we don't disagree.
The question is--
Chief Justice Roberts: Plus you get interest.
Ms Millett: --Yes.
We could get it on both grounds, but you get--
Justice Ginsburg: You're saying you get interest too in either way.
You're saying... I thought you said for the three years that are within the three-year refund limit, you get interest and then you're also saying, going back six years, you also get interest.
You're not saying that if you... if you're outside the refund procedure you don't get interest.
Ms Millett: --Right.
But that's because we're... I mean, there's a... there's a separate interest provision in the tax code for the administrative refund procedure.
They don't really an 28 U.S.C. 2411.
I think it's 26 U.S.C. 6511.
But there's a specific administrative brief on tax... I'm sorry, interest provision for the administrative refund scheme.
And so, under that, when you're in the administrative scheme, you get what the administrative scheme's interest provision gives you.
We don't dispute that.
And then the question is, once you've gone to court, the relevant interest provision is the one in 28 U.S.C., not in the tax code, by the way, but in 28 U.S.C., providing them... providing for interest when you've recovered an overpayment of taxes.
Justice Kennedy: Is the interest the same in amount in either case?
Ms Millett: Yes, because in 2411 it cross-references the... well, let me clarify.
There is one potential wrinkle, but generally speaking 2411 if you look at it, and it's at the end of the cross-references--
Justice Ginsburg: 2411... 2411 is what you use in the court when you have a straight tax refund claim.
It's not as though 2411 is there for some other claim.
It's what you get when you go to court and you're suing for a refund.
That's applicable if you get a judgment for an overpayment in respect of any Internal Revenue tax.
That's what... it's in Title 28, but that's what it's for.
It's for an overpayment in respect of any Internal Revenue tax.
Ms Millett: --This is all on page 4a of the Government's brief if you want to see where it cross-references the Internal Revenue interest provisions.
No, there's nothing there that says you have to have gone through the administrative scheme.
All you have to have is an overpayment.
If you have an overpayment, under Bonwit Teller--
Justice Ginsburg: But... the use of any Internal Revenue tax, and your whole argument is this isn't an Internal Revenue tax.
So it's clearly not an Internal Revenue tax that you have a constitutional claim directly under the Constitution, so how does it become for purposes of 2411 an Internal Revenue tax?
Ms Millett: --I'm sorry, I misunderstood your question, Justice Ginsburg.
But I want to make clear that you don't have to go through the refund scheme to get this.
This interest would apply in Bonwit Teller for accounts stated, in the Rosenman case for deposit on taxes.
That's how we read it.
Your second point, yes, that if we say this is not a plausible tax under Enochs versus Williams, that I think, and if this Court agrees, that this is not a tax under Enochs versus Williams, so that we're not bound by 7422, then I agree that our interest argument becomes harder at that point textually.
I will tell you that I still think the fact that they say
"in respect of any Internal Revenue tax. "
gives us room to say that where the government has at least treated it and collected the money as though it were an Internal Revenue tax, that might be a way to get interest.
If this Court agrees, though, that it's not--
Justice Ginsburg: But you don't agree in your basic claim that if the government is treating it as an Internal Revenue tax, which it certainly didn't, you'd say that works only for the interest, not--
Ms Millett: --Only... I'm sorry.
Only because we have the "in respect of language".
That's the only... but if this Court disagrees with that, and we recognize it's harder if this Court agreed, we have a separate constitutional argument that the Export Clause, just like the Just Compensation Clause requires interest paid in its own right.
And so that's the alternative basis.
And this Court, of course, can affirm the judgment on any basis supported by the record.
But I want to get back.
Very clearly that there is, the bottom... I mean, Justice Scalia, you talked about, you know, which pot you want to put this in.
The rarity of this case and what's unique about it is that the government came in agreeing up front, stipulated judgment, no fact dispute, no law disputes, this is in the pot of no legitimate status of the tax.
No claim whatsoever.
The government couldn't think of anything.
But for purposes of limiting your constitutional relief, then it's in the pot of a legitimate tax and we think they can't have it both, ways and particularly as a matter of statutory construction.
This is ultimately a question of which scheme is better fitted to vindicating the Constitution.
And Congress said any tax, just like it said in the Tax Injunction Act.
This court has said what any tax means.
It said it five times after Enochs.
And Congress has not reacted to it.
Stare decisis applies most powerfully in the statutory construction Congress... context, and if Congress thought there were a problem with what... with how this Court defined any tax, it would have said so.
It could have done so.
It's had half a century to do something.
Chief Justice Roberts: You give all of this up when it comes to the statute of limitations.
I mean, the government's argument could be just as implausible as you suggested it is here.
But if it involves a claim six years and one day out, it's just too bad.
It doesn't matter that it's a constitutional claim.
It doesn't matter how erroneous the government's position was, because the government can impose limitations like that even on the assertion of constitutional claims.
That's all they are doing here.
Ms Millett: But the Tucker Act doesn't use the word "any tax" in defining the statute of limitations.
It's a statute of limitations for constitutional claims.
Our argument is what the word 7422 and does it force us to go through the tax refund scheme.
Our argument is, as this Court said unanimously in Enochs... the decision has never been questioned by any justice of this court... that any tax does not apply if it had no tax status for any other purpose.
It can't be just to limit--
Chief Justice Roberts: We say just as unanimously a couple of things last year on... term as well in Jencks and certainly the Federal circuit's decision wouldn't have come out the same if they had had Hinck's term of trust on the books.
Ms Millett: --I'm not sure... I'm not sure it would have come out differently.
Maybe they would have explained things differently.
But this Court said in most cases the question is which statutory scheme is better fitted.
And at two levels we think the Tucker Act is better fitted for this claim.
One, because any tax only applies when there is asserted legitimate basis for the tax; and two, the Export Clause is a unique limitation, specifically denies the government any authority to use exports as a source of revenue.
And you have a refund scheme here that has been designed over the years specifically to protect revenue interest, to make you pay the revenue first and have them hold it.
It's not just holding them for six months.
They had to pay every two weeks.
But, of course, the government didn't treat that as paid for purposes of interest until the end of the quarter when a return was filed.
That's one way why the interest calculation might be different under the Tucker Act than it would be under the refund scheme, just the timing of whether it's the deposit or the actual return.
Justice Kennedy, I forgot to get back to you on that.
But the question here is whether the Export Clause can be fully enforced by... which it's... it's not a suggestion and it doesn't say when you're doing your tax stuff, it's okay if you slop on on exports a little bit.
Exports are completely off limits to the tax power.
And Congress using its tax power to create a tax scheme that specifically preserves and protects revenue and is not a revenue neutral system is not the best scheme for vindicating the Export Clause.
It's not better for that.
It is at cross purposes with the Export Clause.
But the bottom is this Court doesn't need to get to that constitutional question.
We think it certainly informs the analysis.
It certainly is enough of a constitutional concern or doubt to conclude that Enochs still applies any tax in the tax injunction... any tax in any court.
No suit shall be maintained for any tax in any court means the same thing in 7422 that it means in the Tax Injunction Act.
If Congress thought it meant something different, it has had half... almost half a century to tell us.
It hasn't done that, and the Export Clause can't serve its unique historical function of keeping government's tax regulatory hands off... hands off the tax export process and the revenue out of the Federal fisc unless this is treated as a constitutional claim.
Thank you, Mr. Chief Justice.
Rebuttal of William M. Jay
Chief Justice Roberts: Thank you, Ms. Millett.
Mr. Jay, you have 15 minutes.
Justice Ginsburg: --Mr. Jay, I hope in the 15 minutes, you will state what the government's position is on this Enochs case that's been mentioned at least a dozen times.
Mr. Jay: I'll be glad to, Your Honor.
Enochs case construed not Section 7422, but Section 7421, the Injunction Act provision of the tax code.
And the question in Enochs was whether the taxpayer simply by alleging that the tax was so... so invalidly applied that it was only in the guise of the tax could avoid paying the tax and bring an injunctive claim.
The court in Enochs held that it could not because the taxpayer had not, in fact, satisfied the basic requirement of all claims for injunctive relief as irreparable injury.
And the court also held that whether a tax is defensible for purposes of this very narrow exception is to be determined on the basis of the information to the government at the time of suit.
So in this--
Justice Scalia: Wait what very narrow exception?
It didn't apply the exception.
Mr. Jay: --As the Court was preserving, I think, in dicta, though, because... because the Court ultimately denied the exception in that case and in each case since, preserving the holding in Standard Nut and Margarine, a case from the 1920's.
Justice Breyer alluded to this when he asked my friend, Ms. Millett, about whether this exception is geared primarily to factual issues or to legal issues.
In Standard Nut and Margarine the government had decided to attempt to impose a tax meant for oleomargarine on a product made entirely from nuts.
And this Court, you know, without construing the tax-injunctive provision, simply referring to principles of equity, this Court held that the government's theory of assessing the tax was simply in the guise of a tax and it permitted the injunctive claim to proceed.
In Williams Packing the government's... the government had a collateral basis for assessing the tax, and so the taxpayer was remitted to the same remedy that any taxpayer who wants to challenge a tax as having been unlawfully assessed or collected is subject to; that is, to pay the tax, file a refund claim, and if the refund claim is upheld either by the IRS or subsequently in court, to receive a full refund with interest.
Justice Scalia: Don't the two go together?
If you could bring an injunction action, surely you don't have to pay the tax.
Mr. Jay: Well, if you can satisfy the requirements for injunctive relief... and Williams Packing, the taxpayer, couldn't; and in the cases since the taxpayer couldn't... then the court can enjoin the collection of the taxes applied to you.
Justice Scalia: Well, that's what she is saying.
She is saying that those conditions exist here.
That this is not... not a plausible tax; and, therefore, she could have gotten an injunction; and, therefore, by a parity of reasoning, she doesn't have to go through the tax provisions.
Mr. Jay: I think I have three responses to that.
One is that we don't think that a... an exception to the... to 7421 should carry over into Section 7422.
But even in the circumstances of this case, this is a facially constitutional tax.
The tax is imposed on coal mined in the United States.
And if no... if none of the coal that is subject to the tax is ever in the stream of export when the tax is imposed, then the tax is perfectly constitutional.
And that is why Section 4121 remains on the books today.
The tax is unconstitutional only in certain narrow circumstances when the coal actually is is in the stream of export.
As I explained--
Justice Scalia: Well, you could say the same about the tax on oleomargarine.
It is a perfectly valid tax but not when you impose it on nuts.
And here the tax on coal is a perfectly valid tax, but not when you impose it on coal that's in the stream of export.
Mr. Jay: --But if one of these coal companies had sought to enjoin the tax, the government would have pointed to the provision in Williams Packing that says that whether the tax is defensible is to be determined on the basis of the information available to the government at the time of suit until the taxpayer demonstrates that the coal is actually in the stream of export, which is precisely what's done during the refund process that the taxpayers used in this case to show that their coal was in the stream of export when they obtained the refund.
That's what... that's how they obtained a full... full relief.
But, in any event, the history of this litigation shows that this is not... this is not a claim about the facial unconstitutionality of the tax because the tax continued to be collected without protest in the case of the Respondents here for 21 consecutive years.
And by the time they filed for a refund this Court had decided IBM.
It had decided U.S. shoe.
The district court had decided Ranger Fuel, and the government had announced that it would not appeal the decision in Ranger Fuel striking down the coal tax.
But that doesn't mean that for that... for that entire time the government had no basis on which to defend the tax.
I mean the government had colorable arguments to defend the tax at issue in U.S. Shoe in June 1996.
And it had colorful arguments to defend the harbor maintenance tax in U.S. Shoe.
I may have misspoke.
IBM in 1996, and U.S. Shoe in 1998.
So to say that during the period at issue in this case, 1994 through 1996, the tax was so facially invalid that the narrow Williams Packing exception to another statutory provision justifies Respondents' attempt to circumvent the tax refund statute, we just think is not correct.
In the case of a taxpayer who... who can satisfy the exception, you know, the Tax Code does, indeed, put that taxpayer to the choice.
It gives them a fully effective post-payment refund remedy where they can avoid any penalties and interest by paying the tax and litigating for a full refund.
Justice Breyer: Right.
Is the government's view that the money that they are seeking here, if you look at 7422, that it falls within the language of any Internal Revenue tax alleged to be erroneously or illegally assessed or the language
"any sum alleged to have been in any manner wrongfully collected. "
Mr. Jay: I don't think that we need to go beyond the first clause, Your Honor.
Justice Breyer: So when I decide this case, I should forget the words "any sum"?
Mr. Jay: I mean the Court construed a similar provision in Flora versus United States in 1960, which explained that "any sum" is a cumulative provision.
So that if something is within the scope of an Internal Revenue tax alleged to have been erroneously or illegally collected or assessed, that's as far as you need to go.
Justice Breyer: But it means that if, in fact, it is not within the scope of the word "tax", then it is not within "any sum"?
Mr. Jay: No.
To the contrary, Your Honor.
I think that the holding in Flora is that if it's not within the scope of the first provision, then you would need to look at the second... actually the third provision, the "any sum" language.
Justice Breyer: In Enochs... she is quite right, your opposing lawyer... it says the exaction is merely in the guise of a tax.
And when it says it is within the guise of a tax, then it doesn't fall within the Tax Injunction Act.
And there it says if it is clear that under no circumstances could the government ultimately prevail, the central purpose of the Tax Injunction Act is inapplicable.
And then it's just in the guise of a tax.
And that, she says, is the test we should apply here.
So that's where I think Justice Ginsburg began.
What is your specific response to that?
Mr. Jay: Well, my specific response, Your Honor, first is that in this case the tax simply was not in the guise of a tax.
But even if, you know, today, if the taxpayer were... if a taxpayer were alleging that the coal tax were in the guise of a tax and that it, therefore, could bring a prepayment... a prepayment action, it does not then follow that the taxpayer could still after the fact, if it opted not to bring that prepayment action, the taxpayer could then escape the three-year, nontollable, unusually emphatic limitation period that applies to a claim for a postpayment remedy, which is the exclusive means of obtaining a postpayment remedy.
And, you know, the courts recognized time and again that taxing authorities have a strong interest in fiscal stability, and it effectively closes the books on a particular tax year.
So that taxpayers, after the tax is paid, if they want to protest the tax, they have three years in which to put the government on notice.
That, you know, even if the claim is this tax is so beyond the pale that it can't be defended, they have to put the government on notice of that claim.
And if they do, then the IRS considers it; and if the IRS turns them down, then they can proceed to district court or to the Court of Federal Claims.
In addition, I think I just wanted to clarify one point about the availability of prepayment remedies in this case.
I think, Justice Ginsburg, my friend, Miss Millett, was correct about the fact that this excise tax does not... is not susceptible to the deficiency proceeding in tax court.
And we have cited in footnote 7 of our reply brief at page 16 the possibility that there may be another route if the taxpayer feels strongly about the unconstitutionality of the tax and is willing to take the chance that if the taxpayer's position is rejected, that the taxpayer may be liable for penalties and interest for not paying the tax.
I mean, of course, the general rule is that the taxpayer is expected to pay the tax and proceed postpayment by putting the IRS on notice of the claim.
But Congress, in Section 6330(c)(2)(B) of Title 26, has provided some limited ability, if a taxpayer has not previously been able to litigate the merits of the tax, the taxpayer has a limited opportunity to do so first before the IRS, then in Tax Court, and then before the Court of Appeals.
And, again, on Miss Millett's supposition that this is a completely, clearly unconstitutional tax, then the taxpayer would have the option of doing that.
Again, the refund scheme is set up so that if the taxpayer doesn't want to take the chance that its argument will not be accepted, the taxpayer has a simple, open remedy: To file a refund claim at any point within three years.
That's exactly what Respondents did not do for the 21 consecutive years that they paid this tax without complaint.
If the Court has no further questions?
Chief Justice Roberts: Thank you, counsel.
The case is submitted. We'll hear the third case beginning this afternoon.