Amicus Curiae Brief — McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Fla. Dept. of Business Regulation

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} FILED |

| auG 17 1988

No. 88-192 JOSEPH F. SPANIOL, JR.

Iu the Supreme Court of the United States

OCTOBER TERM, 1989

MCKESSON CORPORATION, PETITIONER

DIVISION OF ALCOHOLIC BEVERAGES AND TOBACCO,

DEPARTMENT OF BUSINESS REGULATION, and

OFFICE OF THE COMPTROLLER,

STATE OF FLORIDA, RESPONDENTS

On Writ of Certiorari to the

Supreme Court of Florida

BRIEF FOR

AMERICAN TRUCKING ASSOCIATIONS, INC. ET AL.

AS AMICI CURIAE IN SUPPORT OF PETITIONER

DANIEL R. BARNEY ANDREW L. FREY

ROBERT DIGGES, JR. Counsel of Record

LAURIE T. BAULIG KENNETH S. GELLER

ATA Litigation Center MARK I. LEVY

2200 Mill Road ANDREW J. PINCUS

Alervandria, VA 22314 EVAN M. TAGER

(703) 838-1865 Mayer, Brown & Platt

Of Counsel: 2000 Pennsylvania Ave., N.W.

Washington, D.C, 20006

WILLIAM S. BUSKE

AMS. B R (202) 778-0602

American Trucking

Associations, Inc. PETER G. KUMPE

Williams & Anderson

111 Center Street, Suite 400

Little Rock, AR 72201

(501) 372-0800

Ee eS

Dee A Ae Sill ek ple, Bi i i th ti, i te te ee

QUESTION PRESENTED

This brief will address the first question set forth in

the Court’s July 3, 1989 order:

When a taxpayer pays under protest a state tax found

to violate clearly established law under the Commerce

Clause must the State provide some form of retrospective

relief, such as a tax refund or an offsetting tax on past

beneficiaries of the tax preference, or may the State elect

to provide only prospective relief?

(1)

RULE 28.1 STATEMENT

Amici are certified plaintiff classes in American Truck-

ing Associations, Inc. Vv. Smith, No. 88-325, consisting of

all moter carriers whose vehicles were “subject to the

Highway Use Equalization Tax embodied in Act 685 of

1983,” including the following named plaintiffs:

American Trucking Associations, Inc. (ATA), an in-

dependent corporation that has no subsidiaries or affili-

ates that are not wholly owned.

Arkansas Motor Carriers Association, Inc., formerly the

Arkansas Bus & Truck Association, Inc., an independent

corporation that has no subsidiaries or affiliates that are

not wholly owned.

Leon Cawood, a sole proprietor doing business as Leon

Cawood Trucking.

Commercial Carriers, Inc., a wholly owned subsidiary

of Ryder Commercial Transport, Inc., which in turn is a

wholly owned subsidiary of Ryder System, Inc. Commer-

cial Carriers’ affiliates or subsidiaries (other than wholly

owned subsidiaries) are Automotive Railhandling, Inc;

B & C, Inec.; Blazer Truck Lines, Inc.; Carrier Support,

Inc.; Complete Auto Transit, Inc.; Delevan Industries,

Inc.; F. J. Boutell Driveaway Co., Inc.; Fleet Carrier

Corporation; Fleet Carrier Dealer Services, Inc.; Janes-

ville Auto Transportation Company; M & G Convoy, Ine.;

Murray Sandblast & Paint, Inc.; National Trucking Com-

pany; Ryder Energy Distribution Corporation; Ryder

Truck Rental, Inc.; Summit Industries, Inc.; and Trans-

port Support, Inc.

Diamond Transportation System, Inc., an independent

corporation whose subsidiaries and affiliates (other than

wholly owned subsidiaries) are Fox Motor Transport,

Ltd.; Fox Transportation, Inc.; Sed. Air, Ine.; and

Snicknej Co.

Joe Fortenberry, a sole proprietor doing business as

Fernwood Transportation.

Jones Truck Lines, Inc., which has no affiliates or sub-

sidiaries that are not wholly owned, is a subsidiary of

JTL Holding Company.

Rollins Leasing Corporation, a wholly owned subsidiary

of R.L.C. Corporation. Rollins’ only affiliate or subsidiary

(other than wholly owned subsidiaries) is Rollins-Matlack

Administrative Services, Inc.

Transcon Lines, which has no affiliates or subsidiaries

that are not wholly owned, is a subsidiary of Transcon,

Inc.

TABLE OF CONTENTS

Page

Interest of the Amici Curiae ............................00c0..-0000+. Ms 1

Introduction and Summary of Argument .............. ee 2

Argument ...... EV Sea Ide aL IU A Geren the Rhee IDS IRR ee 6

A State Must Disgorge And Refund To An Ag-

grieved Taxpayer The Discriminatory Component

Of A Tax Exacted In Violation Of The Commerce

RINE” cc ncisnaincteninmiiaceasebiaas sla seeaiaoninnaaiotandadaan men 6

A. This Court Has Recognized In A Variety Of

Contexts That Retrospective Relief Is Essential

To Remedy A Violation Of The Constitution...... 8

B. Federal Law Supplies A Disgorgement Remedy

To Taxpayers Forced To Pay A Tax That Vio-

lates The Commerce Clause ...........0000000000000-- 11

1. The Cause of Action Requirement is Satis-

it | 2. ease eae eed . 13

2. The Constitution Requires a Disgorgement

Remedy in Appropriate Cases ................... n 15

3. The Scope of the Restitutionary Remedy .. 24

CONCLUSION .................... Me caanaahieadaase tase themaazea teas 30

TABLE OF AUTHORITIES

Cases:

Allegheny Pittsburgh Coal Co. v. County Comm’n,

a 15

Ashland Oil, Inc. v. Rose, No. 88-421 (juris. state-

ment filed Sept. 9, 1988) ...............02.0.00. cece cece. 16

ATA Vv. Conway, 508 A.2d 405 (Vt. 1986), cert.

denied, 483 U.S. 1019-1020 (1987) 2.000000... 26

ATA Vv. Conway, St. Tax Rep. (CCH) %% 200-306

(Vt. Super. Ct., Washington Cty., Feb. 11,

REN eee eae) aay eck A ae

ATA V. Goldstein, 312 Md. 588, 541 A.2d 955

ESR 2

TABLE OF AUTHORITIES—Continued

Page

ATA V. Kline, No. 07-14-1667-85 MVT (N.J. Tax

ae i eas 26

ATA V. Quinn, 437 A.2d 623 (Me. RM RRESE SE 2

ATA V. Scheiner, 483 U.S. 266 (1987) 0.00... 1, 2, 25

Atchison T. & S.F.R.R. v. O’Connor, 223 U.S. 280

I 8

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263

RE EES an ae AR aeaatunduaend 11

Beil v. Hood, 327 U. S. 676 (1946) 00. Gevatesinins 14,17

Bivens v. Six Unknown Named Agents, 403 U.S.

ee 10, 12, 14, 18

Boston Stock Exchange v. State Tax Comm’n, 429

i I I iain censaiiteinieieninerinncenitteniininiieten 26

Carpenter v. Shaw, 280 U.S. 363 (1930) .....8, 9, 11, 15, 25

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971)........ passim

Commonwealth of Kentucky, Transp. Cabinet v.

ATA, 746 S.W.2d 65 (Ky. 1988) .......... er

Davis v. Michigan Dep’t of the Treasury, 109 S.Ct.

I A a oh 4,17

Davis v. Passman, 442 U.S. 228 (1979) 12, 14

Department of Revenue v. AMREP Corp., 358

I TED GR TI UID cecivcccnecteeivecsvtccennccvaccavesess 12

Department of Revenue v. Page, 541 So.2d 1270

(Fla. Ct. App. 1989)... ...... PREIS ae tenet i2

District of Columbia Vv. Thompson, 281 U.S. 25

FEES RATED MESES Ce ne 8, 21

First English Evangelical Lutheran Church v.

County of Los Angeles, 482 U.S. 304 (1987)... 10, 24

Gallagher v. Evans, 536 F.2d 899 (10th Cir. 1976) _ 9

General Oil Co. v. Crain, 209 U.S. 211 (1908)........ 13

Guy V. Baltimore, 100 U.S. 434 (1880) 0000. 19

Iowa-Des Moines Nat'l Bank v. Bennett, 284 U.S.

a lees 8

Jackson County V. United ‘States, 308 US. 343

SPER a SORE Sere tere Oe s

Lemon V. Kurtzman, 411 U.S. 192 (1973) .. . 27

Lewis Vv. BT Investment Managers, Inc., 447 U. s.

27 (1980) een ae eee 18-19

Martinez v. California, 444 US. 277 (1980) ........... 3

Vil

TABLE OF AUTHORITIES—Continued

Page

Massachusetts v. Oakes, 109 S.Ct. 2633 (1989) ..18, 20-21

McGoldrick v. Berwind-White Co., 309 U.S. 33

INSEE cA PES EL REE SE AED ERE ae RES Soot ee 19

Montana Nat’l Bank v. Yellowstone County, 276

REE ITA SR ee ae en 8

National Can Corp. v. Department of Revenue, 749

P.2d 1286 (Wash.), appeal dism’d & cert. de-

nied, 108 S.Ct. 20380 (1988) —...... 27

New Energy Co. v. Limbach, 108 S.Ct. 1803

SETI scessc scetshacdenihehanchanibiendesaniemaciediadainnabaasietaniieiondte eons 18

Nippert v. Richmond, 327 U.S. 416 (1946) _.... ..... 19

Ohio Oil Co. v. Conway, 279 U.S. 813 (1929)........ 9

Ostendorf v. Turner, 426 So.2d 539 (Fla. 1982)... 11-12

Owen v. City of Independence, 445 U.S. 622

a aa a a aad .....9, 10, 20

Private Truck Council of Am., Inc. v. New Hamp-

shire, 517 A.2d 1150 (N.H. 1986) ......... “i 13

Ryder Truck Rental, Inc. v. Revenue Cabinet, No.

K 88-R-38 (Ky. Bd. Tax App., June 16, 1989)

I I i cetsciiiaeioelones 26

South Carolina State Highway Dep't. v. Barnwell

Bros., Inc., 308 U.S. 177 (19388) ........................... 19

Southern Pacific Co. v. Arizona, 325 U.S. 761

REE ea ot ER Oe de one Sn CT SO 19

State ex rel. Szabo Food Services, Inc. V. Dickin-

son, 286 So.2d 529 (Fla. 1973) 0... 25

State ex rel. Victor Chemical Works v. Gay, 74

So.2d 561 (Fila. 1954) ..............--.....----....e-ee eee. 11

Tyler Pipe Indus. Vv. Washington Dep’t of Reve-

nue, 483 U.S. 232 (1987) _...... AEE NES aS 2,27

United States v. Calandra, 414 U.S. 338 (1974) 18

United States v. Leon, 468 U.S. 897 (1984)... 18

United States v. State Tax Comm’n, 645 F.2d 4

(5th Cir.), cert. denied, 454 U.S. 896 (1981)... &

Ward v. Board of County Commissioners, 253 U.S.

I passim

Westinghouse Elec. Corp. V. Tully, 466 U.S. 388

(1984) . Sanit Tite AE Se RAPS AP AL aATS 25

Vill

TABLE OF AUTHORITIES—Continued

Statutes: Page

Ark. Code Ann. § 27-35-205 (f) 0. 29

Pa ee ee Ce 11

Miscellaneous:

Fallon, Of Legislative Courts, Administrative

Agencies, and Article II], 101 Harv. L. Rev. 915

SUIT siereshbninessbdinineemmnaniiasiaeciiadnsneaiamdaadn iid tated 15

Field, Sources of Law: The Scope of Federal

Common Law, 99 Harv. L. Rev. 883 (1986) 15

Grano, Prophylactic Rules in Criminal Procedure:

A Question of Article III Legitimacy, 80 Nw. U.

SEA we 15

Hill, Constitutional Remedies, 69 Colum. L. Rev.

1109 (1969) ........ ceil dane iat at 18

Monaghan, Third Party Standing, 84 Colum. L.

I i a to 15

R. Posner, Economics Analysis of Law (3d ed.

I sieht aa a ais 20

Tatarowicz, Right to a Refund for Unconstitu-

tionally Discriminatory State Taxes and Other

Controversial State Tax Issues Under the Com-

merce Clause, 41 Tax Law. 103 (1987)... 11, 20

L. Tribe, American Constitutional Law (2d ed.

ae ST Ce RES TT 20

Wolcher, Sovereign Immunity and the Suprem-

acy Clause: Damages Against States in Their

Own Courts for Constitutional Violations, 69

es as , ee GD 15, 20, 22

Iu the Supreme Court of the United States

OCTOBER TERM, 1989

No. 88-192

MCKESSON CORPORATION, PETITIONER

Vv,

DIVISION OF ALCOHOLIC BEVERAGES AND TOBACCO,

DEPARTMENT OF BUSINESS REGULATION, and

OFFICE OF THE COMPTROLLER,

STATE OF FLORIDA, RESPONDENTS

On Writ of Certiorari to the

Supreme Court of Florida

BRIEF FOR

AMERICAN TRUCKING ASSOCIATIONS, INC. ET AL.,

AS AMICI CURIAE IN SUPPORT OF PETITIONER

INTEREST OF THE AMICI CURIAE

American Trucking Associations, Inc., et al. (“ATA”),

are the plaintiffs (petitioners before this Court) in the

companion case to this one—American Trucking Associa-

tions, Inc. v. Smith, No. 88-325 (“ATA”). The questions

posed by the Court in its July 3 order are not dispositive

of ATA because relief in that case was denied solely on

the federal iaw ground that ATA v. Scheiner, 483 U.S.

266 (1987), is not retroactive. Unlike in this case, there

is no suggestion in ATA that, if this Court held Scheiner

retroactive, the state law refund remedy invoked by ATA

would be unavailable. Accordingly, there is no occasion

for the Court to address in ATA the existence of a fed-

eral right to such relief. See 88-325 Reply Br. 9.

(1)

The Court’s resolution of the latter issue may affect

subsequent proceedings in ATA, however, because the

Arkansas courts might on remand hold that the state law

remedy is not available. Amici’s right to a refund would

then depend upon the existence of such a remedy as a

matter of federal law. For that reason, amici have an

interest in the resolution of the questions raised by the

Court. More generally, ATA and its members frequently

—and often successfully—challenge state taxes on Com-

merce Clause grounds. See, ¢.g., ATA v. Scheiner, supra;

ATA Vv. Goldstein, 312 Md. 583, 541 A.2d 955 (1988);

Commonwealth of Kentucky, Transp. Cabinet v. ATA,

746 S.W.2d 65 (Ky. 1988) ; ATA v. Quinn, 437 A.2d 623

(Me. 1981). Amici accordingly have a general interest in

the availability of refunds when such challenges are suc-

cessful.’

INTRODUCTION AND SUMMARY OF ARGUMENT

The Court has asked the parties to address whether

federal law requires a state to provide some form of retro-

spective relief when taxes have been exacted in clear

violation of the Commerce Clause. There is no categori-

cal answer to that question. It goes too far to say that

federal law always requires such refunds; there clearly

are cases where there has been no actual or at least no

material injury to interests protected by the Commerce

Clause, and in which prospective relief is entirely ade-

quate ‘see the discussion of Tyler Pipe Indus., Inc. v.

Washington Dep’t of Revenue, 483 U.S. 232 (1987), at

page 27, infra). The opposite extreme, that there is never

a federal right to restitution of unconstitutional taxes, is

equally unsound, for the reasons we set forth in the

argument that follows. In our view, the proper rule is to

treat restitutionary relief as the norm, while recognizing

that in certain limited circumstances the taxing authority

will be able to show that disgorgement of a lesser amount,

' Letters from the parties consenting to the filing of this brief

have been filed with the Clerk of this Court. See Sup. Ct. R. 36.

or prospective relief alone, is adequate to serve the rele-

vant federal! interests.

Florida’s arguments do not rely primarily upon any

universal rejection of retrospective relief. Instead, they

focus on singular attributes of this case that were found

by the Florida Supreme Court to warrant a departure

from what would appear otherwise to be a general state

law refund right. Though we disagree with Florida’s

contention, any special circumstances of tis case should

not be allowed to obscure the Court’s analysis of the gen-

eral question whether there is ordinarily a federal right

to refunds of taxes exacted in violation of the Commerce

Clause.

The Court should therefore approach the question it

posed by considering in the first instance cases in which

no equitable considerations could possibly bar refunds.

Suppose that instead of taxing alcoholic beverages and

favoring those made from citrus fruits, Florida taxed the

sale of such fruits themselves, imposing a higher rate on

citrus imported from other states than on that grown in

Florida. Given the dominance of Florida citrus in the

Florida market, no one could assert that this was simply

a matter of an improper “exemption.” Conceptually, how-

ever, the same fundamental issue of federal rights and

remedies would be presented. We submit that in such a

case federal law would require the State to surrender the

excess tax unlawfully exacted from non-Florida growers.

The Court has traditionally structured this kind of in-

quiry by looking at five elements: whether the court in

which suit was brought had jurisdiction; whether the

plaintiff has alleged sufficient injury to confer standing;

whether a cause of action exists to secure some form of

redress for the wrong alleged; whether the remedy sought

by the plaintiff is available to redress that wrong; and

whether the defendant can show some affirmative defense

to the grant of relief in the particular case. See page 12,

infra.

Here, there is no question of jurisdiction or standing.

Nor can there be any serious doubt that the cause of ac-

tion requirement is satisfied. Florida permits taxpayers

to challenge the legality of taxes on Commerce Clause

grounds, as demonstrated by the fact that its eourts ad-

judicated McKesson’s claim on the merits and conferred

prospective relief. And even if there were no state cause

of action, a federal cause of action exists directly under

the Constitution, as is implicit from the jurisprudence

permitting injured parties to sue for vindication of rights

under the dormant Commerce Clause.

The more substantial question is that of remedy:

whether, in addition to providing a right to obtain pro-

spective relief to terminate Commerce Clause violations,

federal law confers a right to retrospective relief, restitu-

tionary in nature, in appropriate circumstances. The

Court has repeatedly affirmed the existence of such a right

in the context of unlawful taxation (see cases cited at

page 8,4ufra), stressing the inequity of any other result.

It is argued in response that such equitable concerns are

not persuasive because Commerce Clause rights are struc-

tural rather than personal. Not only has this distinction

recently been rejected by the Court (Davis v. Michigan

Dep't of the Treasury, 109 S.Ct. 1500 (1989)), but it

overlooks the fact that it is the structural needs of the

Commerce Clause that make the retrospective remedy

essential.

The Commerce Clause is a response to a special prob-

lem inherent in the federal structure of our political sys-

tem—the natural tendency of state lawmakers to serve

the parochial interests of their constituents at the ex-

pense of the national free trade market. The mere pro-

spect of forward-looking relief is often, as in this case,

entirely inadequate to bring about discontinuance of dis-

criminatory legislation, because it makes the violation of

the Commerce Clause cost-free by permitting the State

and its local interests to retain the benefits of the uncon-

stitutional law. The need for a retrospective remedy is

thus great.

The costs of a disgorgement remedy are not sufficient

to offset the deterrence and fairness benefits of requiring

retrospective relief. First, such relief will not be required

in that class of cases in which, under the Chevron test,

a weighing of the governmental reliance interests, the

relevant constitutional policies, and the equities dictates

that a rule of law be confined to prospective application.

Second, the financial impact is ordinarily limited to dis-

gorgement of moneys that the government should have

known were being unlawfully collected. And finally, there

are many methods available to ameliorate the impact of

refunds on the public fise, including, most notably, the

ability to raise through new (but nondiscriminatory)

taxation the revenues needed to finance a refund.

The conclusion that federal law requires retrospective

relief—including, where necessary to cure the constitu-

tional injury, tax refunds—does not end the inquiry, for

there might in a particular case be affirmative defenses to

payment of any refund or to payment of the full amount

claimed by the taxpayer. For example, sovereign immu-

nity might be asserted in some cases involving state taxes.

We believe that sovereign immunity is not an available

defense to the federal right to retrospective monetary re-

lief in this context. But the Court need not consider the

point in this case, for it is clear that Florida has waived

sovereign immunity for suits seeking refunds of the taxes

at issue here, and the denial of refunds rested on wholly

different grounds.

Florida’s primary defense here is that, even if there is

a general federal right to a refund, it should not apply to

eases like this one in which the Commerce Clause viola-

tion consists of improper exemption of a relatively small

group of potential taxpayers. But even if McKesson

would have been required to pay nearly the same amount

of tax in the absence of the unlawful exemption of in-stacc

producers, that consideration appears inadequate to out-

weigh the federal interest in deterring the kind of dis-

criminatory legislation at issue here. |

Finally, it should be recognized that Florida’s “wind-

fall” argument is not one of general application. In many

cases, of which ATA is an example, the Commerce Clause

violation clearly causes the out-of-state taxpayer to pay

far more than its fair share of the total tax burden.

Accordingly, even were the Court disposed to deny relief

amounting to a “windfall,” the federal retrospective rem-

edy must at a minimum operate to restore the taxpayer

to a position no worse than it would have been in under

a proper form of the tax.

ARGUMENT

A STATE MUST DISGORGE AND REFUND TO AN

AGGRIEVED TAXPAYER THE DISCRIMINATORY

COMPONENT OF A TAX EXACTED IN VIOLATION

OF THE COMMERCE CLAUSE

Before proceeding with the body of the argument, we

tender some preliminary observations about the way in

which the Court framed the additional questions to be

considered on reargument. The Court’s first question

places the issue in context by summarizing the key facts

of this case—that the tax was paid under protest and that

the tax violated clearly established Commerce Clause

principles. It is important to recognize, however, that

those precise facts are not necessary to establish a tax-

payer’s right to retrospective relief.

For example, some states do not require that taxes be

paid under protest in order to preserve the taxpayer's

right to a refund. In those states, there would be no rea-

son to condition the federal right to retrospective relief

upon satisfaction of such a requirement. Of course, where

state law does impose reasonable procedural rules for

preserving a tax refund claim, such as lodging a protest

or complying with a statute of limitations, those require-

ments may be incorporated into federal law as valid pre-

conditions to the »vailability of any federal remedy. See

Ward v. Board of County Commissioners, 253 U.S. 17,

25 (1920) (recognizing that a refund claim could be

barred by “valid” local law such as a statute of limita-

tions).

Similarly, while the extent of justifiable reliance on

prior law is certainly relevant to the federal refund right,

that right should not be limited to cases in which a state

tax violates clearly established Commerce Clause prin-

ciples. The Court’s Chevron test contemplates retrospec-

tive relief even when a decision resolves prior legal un-

certainty or embodies a new and unexpected legal rule,

provided that the relevant constitutional policies and

equitable considerations call for such an outcome (see 88-

395 Pet. Br. 14-40). The considerations identified in

Chevron parallel those that shape the federal right to

disgorgement of unconstitutional taxes. Accordingly, if

Commerce Clause principles warrant retroactive applica-

tion under Chevron, a violation of those principles should

normally give rise to the same retrospective federal reme-

dies as a violation of “clearly established” principles.

The second question posed by the Court deals with the

constitutionality of retroactive taxation of the favored

class as a means of rectifying an unlawful discrimina-

tion. In theory, any obligation to grant retrospective re-

lief could be satisfied in this manner, provided that such

retroactive taxation is both practical and constitutional.’

In some cases, however, this alternate remedy simply will

not be available. The facts of the companion case to this

one—American Trucking Associations, Inc. v. Smith, No.

88.325 (“ATA”)—illustrate the potential practical prob-

lems.2 Where the alternative of raising the taxes of the

2 Even where this approach would be administratively praticable,

we have serious doubts as to its constitutionality.

8 Retroactive taxation of the favored class of Arkansas-based

trucks is not practical because records simply do not exist from

which their Arkansas highway mileage could be calculated. Most

ef these vehicles satisfied the HUE tax by paying the flat $175

benefited class is not available, any federal obligation to

afford retrospective relief would have to be discharged by

providing refunds to taxpayers victimized by the uncon-

stitutional discrimination.

A. This Court Has Recognized In A Variety Of Contexts

That Retrospective Relief Is Essential To Remedy A

Violation Of The Constitution

There is nothing novel or surprising in the principle

that unconstitutional taxes must ordinarily be refunded

to those from whom they were wrongfully exacted. To

the contrary, a long line of this Court’s decisions—each

unanimous—requires disgorgement of taxes exacted in

violation of the Constitution. In Carpenter v. Shaw,

280 U.S. 363 (1930), for example, the Court held that

“a denial by a state court of a recovery of taxes ex-

acted in violation of the laws or Constitution of the

United States by compulsion is itself in contravention of

the Fourteenth Amendment.” Jd. at 369. And in Mon-

tana Nat'l Bank v. Yellowstone County, 276 U.S. 499

(1928), the Court made the point in unmistakable terms:

“{A taxpayer] cannot be deprived of its legal right to

recover the amount of the tax[es] unlawfully exacted of

it by [a] later decision which, while repudiating the con-

struction under which the unlawful exaction was made,

leaves the monies thus exacted in the public treasury.”

276 U.S. at 504-505; see also Jackson County v. United

States, 308 U.S. 343, 350-351 (1939): Jowa-Des Moines

Nat'l Bank v. Bennett, 284 U.S. 239, 247 (1931): Dis-

trict of Columbia v. Thompson, 281 U.S. 25, 31-33

(1930); Ward, 253 U.S. at 24; Atchison T. & S.F_RR.

v. O'Connor, 223 U.S. 280, 285 (1912). The lower fed-

eral courts have recognized the continued vitality of this

principle. United States v. State Tar Comm'n, 645 F.2d

4, 5 (5th Cir.), cert. denied, 454 U.S. 896 (1981):

amount; moreover, because many of them were operated only within

the State, they did not have to maintain mileage records for pur-

poses of the fuel use tax.

Gallagher v. Evans, 536 F.2d 899, 900-901 (10th Cir.

1976).*

No sound reason exists for the Court to repudiate this

long line of precedent. These cases have sound jurispru-

dential moorings that justify—indeed, mandate—con-

tinued adherence to the principle that federal law re-

quires that a taxpayer be afforded retrospective relief.

There may be exceptions to this general principle, as

where the three-part Chevron test allows prospective-only

application of the rule, or perhaps even where retrospec-

tive relief would produce an unjustified windfall. But

the possibility of exceptions does not undermine the legiti-

macy of the general principle.

The federal right to retrospective relief is not limited

to unconstitutional taxation. In Owen v. City of Inde-

pendence, 445 U.S. 622 (1980), for example, the Court

held that a city is not entitled to qualified immunity from

damages liability in an action under 42 U.S.C. § 1983.

The Court reached that result in large part because it

Was consonant with general remedial principles. Thus,

the Court observed that “[a] damages remedy against

the offending party is a vital component” of any remedial

scheme (445 U.S. at 651). The Court added that “[i]t

*Contrary to the assertion (Br. 8) of amici NCSL, eft al., Ohio

Oil Co. Vv. Conway, 279 U.S. 813 (1929) (per curiam), does not

undermine the holdings of Ward, Carpenter, and their progeny.

Ohio Oil was a case in federal court that involved state law as well

as federal constitutional challenges to a state tax. The Court

granted a preliminary injunction barring enforcement of the tax

during the pendency of the action, noting “the entire absence under

local law of any remedy enforceable by the plaintiff if the tax be

paid and afterwards held invalid by the final decree.” 279 U.S. at

815. Because any federal refund right would not extend to the

pendent state law claims, Ohio Oil is not inconsistent with the

existence of such a right. In any event, there is no basis for infer-

ring from the Court’s cpaque per curiam disposition of this request

for preliminary relief a considered analysis and rejection of the

principle set forth in Ward; to the contrary, only 10 months later

the Court reaffirmed that principle in Carpenter.

hardly seems unjust to require a municipal defendant

which has violated a citizen’s constitutional rights to com-

pensate him for the injury suffered thereby. * * * Ele-

mental notions of fairness dictate that one who causes a

loss should bear that loss.” Jd. at 654; see also Bivens Vv.

Six Unknown Named Agents, 403 U.S. 388, 396 (1971) ;

id, at 407-409 (Harlan, J., concurring).

The Court concluded in Owen that these general reme-

dial considerations apply with particular force when gov-

ernment acts in violation of the Constitution. “[T]he im-

portance of assuring [the] efficacy [of a scheme for

vindicating constitutional rights] is only accentuated

when the wrongdoer is the institution that has been es-

tablished to protect the very rights it has transgressed.”

445 U.S. at 651. In this situation especially, “it is fairer

to allocate any resulting financial loss to the inevitable

costs of government borne by all the taxpayers, than to

allow its impact to be felt solely by those whose rights

* * * have been violated.” Jd. at 655; see also 88-325

Pet. Br. 12-13.

Similar principles underlie the Court’s decision in First

English Evangelical Lutheran Church v. County of Los

Angeles, 482 U.S. 304 (1987). The Court there held ‘at

even if government discontinues action held to be a tak-

ing, thereby providing the property owner with the equiv-

alent of prospective relief, the Constitution nevertheless

requires provision of a retrospective remedy. “[{N]o sub-

sequent action by the government can relieve it of the

duty to provide compensation for the period during which

the taking was effective.” Jd.at 321.°

* Florida (Br. 9-13) and the NCSL (Br. 17-18, 24-25) place

heavy reliance on cases indicating that, insofar as prospective

relief is concerned, states are entitled to remedy equal protection

violations by eliminating the unlawful discrimination. These cases

are entirely beside the point, for nothing in them rules out the

potential need for retrospective relief. Indeed, if the question were

squarely presented we doubt that this Court would deny a restitu-

tionary remedy to, for example, victims of a racially discriminatory

Although the Court has not had occasion in recent years

to invoke the rule set forth in Ward and Carpenter, it has

indicated that the general remedial principles discussed

above are fully applicable in the context of taxes violative

of the Commerce Clause. For example, in Bacchus Im-

ports, Ltd. v. Dias, 468 U.S. 263 (1984), Hawaii argued

that the Court did not have to reach the merits of the

Commerce Clause challenge to a state tax because the

exemptions at issue were severable from the rest of the

statute. The Court rejected the contention, noting that

“the challenged exemptions have now expired and ‘sever-

ance’ would not relieve the harm inflicted during the time

the wholesalers’ imported products were taxed but locally

produced products were not.” 468 U.S. at 267-268 n.7.

In other words, the elimination of discrimination for the

future did not provide all of the relief to which the plain-

tiffs were entitled; some form of retrospective relief also

was necessary. As we now discuss, this conclusion is well

founded in the general legal principles governing the

availability of remedies under the Constitution.

B. Federal Law Supplies A Disgorgement Remedy To

Taxpayers Forced To Pay A Ta» That Violates The

Commerce Clause

Many states have statutes authorizing refunds of il-

legally collected taxes. See Tatarowicz, Right to a Refund

for Unconstitutionally Discriminatory State Taxes and

Other Controversial State Tax Issues Under the Com-

merce Clause, 41 Tax Law. 103, 126-127 (1987). But

even if a state has such a statute, state law may not au-

thorize retrospective relief in all circumstances. For ex-

ample, the Florida refund statute generally requires re-

funds of taxes found to be unlawful, including those held

violative of the federal Constitution. See Fla. Stat.

§ 215.26 (1988); State ex rel. Victor Chemical Works v.

Gay, 74 So.2d 560, 564 (Fla. 1954); see also Ostendorf

tax or of a charge only to women for state services provided to

both men and women.

v. Turner, 426 So.2d 539, 545 (Fla. 1982) ; Department of

Revenue Vv. AMREP Corp., 358 So.2d 1343 (Fla. 1978) ;

Department of Revenue v. Page, 541 So.2d 1270 (Fla.

Ct. App. 1989). Nevertheless, the Florida Supreme Court

held that a refund was unavailable in the present case on

the ground that it would amount to “a windfall, since the

cost of the tax has likely been passed on to [McKesson’s]

customers.” J.A. 430.

When a state tax is found to violate the Commerce

Clause and that ruling is held retroactive as a matter of

federal law, but retrospective relief is not available under

state law, the question arises whether the Constitution

itself entitles the taxpayer to retrospective relief in the

form of disgorgement of the illegally exacted taxes. We

submit that the Constitution does ordinarily so require,

although there may be circumstances in which such relief

could properly be withheld, and the amount of refund

might be less than the full amount of the tax. See page

27, infra.

A party’s right to invoke the judicial process to obtain

a particular type of relief depends upon the satisfaction

of several different prerequisites. Davis v. Passman, 442

U.S. 228, 234-249 (1979); Bivens, 403 U.S. at 399-407.

First, the court in which the action is instituted must

have subject matter jurisdiction over the claim. Second,

the party invoking the court’s jurisdiction must have

standing to maintain the action. Third, the plaintiff must

have a cause of action—he must be “a member of the

class of litigants that may, as a matter of law, appro-

priately invoke the power of the court.” Davis, 442 U.S.

at 239-240 n.18. Fourth, the remedy sought by the plain-

tiff must be a permissible form of relief. And, fifth, the

plaintiff must be entitled to that remedy on the facts of

the particular case.

McKesson’s claim easily satisfies the first two require-

ments. There is no dispute either that the Florida court

in which McKesson instituted the action had jurisdiction

to entertain McKesson’s claims or that the controversy

between McKesson and the State was and is sufficiently

concrete and adverse to support standing.

Moreover, in considering the issue in this case the

Court should put to one side the question whether a state

may assert an affirmative defense of sovereign immunity

to defeat the federal obligation to disgorge unconstitu-

tionally exacted taxes. The existence of such a defense

would, of course, be a question of federal law (see Mar-

tinez V. California, 444 U.S. 277, 284 (1980)), and we

are doubtful that federal law ever would recognize such a

defense in view of the strong policies underlying the dis-

gorgement remedy (see pages 15-22, infra). See Gen-

eral Oil Co. v. Crain, 209 U.S. 211, 226 (1908); Private

Truck Counci! of Am., Inc. v. New Hampshire, 517 A.2d

1150, 1156 (N.H. 1986) (“policy considerations inherent

in the doctrine [of sovereign immunity] require that sov-

ereign immunity not bar a common law claim for refunds

when the State has been given fair notice that the tax-

payer protested payment of the tax’’).

But where a state has not asserted its sovereign im-

munity to bar tax refunds, the issue does not even arise.

And that is precisely the situation here. As noted, Flor-

ida has generally agreed to refund illegally exacted taxes,

and it is clear from the decision below that the grounds

relied on would be equally available in the case of a

county or city tax. Since Florida has not invoked its

sovereign immunity to bar judicial resolution of tax

refund claims, there is no reason that it should be ac-

corded a sovereign immunity defense as a matter of

federal law.

Against this backeround, we turn to the elements of a

taxpayer’s claim that are at issue in this case.

1. The Cause of Action Requirement Is Satisfied in

This Case

This Court has observed that “the question whether

a litigant has a ‘cause of action’ is analytically distinct

and prior to the question of what relief, if any, a litigant

may b entitled to receive. The concept of a ‘cause of

action’ is employed specifically to determine who may

judicially enforce * * * rights or obligations.” Davis,

442 U.S. at 239; see also Bivens, 403 U.S. at 397; id. at

400-402 (Harlan, J., concurring). “A plaintiff may have

a cause of action even though he be entitled to no relief

at all, as, for example, when a plaintiff sues for declara-

tory or injunctive relief although his case does not ful:

fill the ‘preconditions’ for such equitable remedies.” Davis,

442 U.S. at 239-240 n.18.

It is plain that F'orida law supplies the requisite cause

of action here. Florida has specifically authorized its

taxpayers to enforce in its courts all substantive rights

to be free from improper taxation, whether conferred by

state or federal law. See pages 11-12, supra. The decision

in this case, where the state courts adjudicated McKes-

son’s Commerce Clause claim on the merits and awarded

prospective relief, establishes beyond any doubt the ex-

istence of the state cause of action."

If there were a state that did not provide a cause of

action to enforce rights under the Commerce Clause,

there would nevertheless be a federal cause of action

implied directly under the Commerce Clause. This Court

has repeatedly concluded that an implied cause of action

is available with respect to constitutional protections that

are judicially enforceable. Davis, 442 U.S. at 242-243:

Bivens, 403 U.S. at 397; id. at 400-401 (Harlan, J., con-

curring); Bell v. Hood, 327 U.S. 678, 684 (1946). The

rationale of those decisions applies in this context as well.

Absent an implied cause of action, a taxpayer could not

obtain prospective injunctive relief against an ongoing

violation of the Commerce Clause—a result that Florida,

Arkansas, and their amici do not and could not defend.

Whether a taxpayer seeks prospective or retrospective

*It is similarly clear in ATA that Arkansas law provides an

analogous cause of action. See 88-325 Reply Br. 9.

relief for a Commerce Clause violation, the cause of ac-

tion is precisely the same.

2. The Constitution Requires a Disgorgement Remedy

in Appropriate Cases

Once a cause of action exists, the next essential ques-

tions are whether the Constitution ever requires the

restitution of unconstitutionally exacted taxes, and, if so,

whether it does so in the particular case. To the extent

the Constitution does mandate such a remedy, a court ad-

judicating a Commerce Clause challenge in the context of

a state law cause of action would be obliged to make the

remedy available with respect to taxes collected in viola-

tion of the Commerce Clause. See Carpenter, 280 U.S. at

369 (“a denial by a state court of a recovery of taxes

exacted in violation of the laws or Constitution of the

United States by compulsion is itself in contravention of

the Fourteenth Amendment”); ef. Allegheny Pittsburgh

Coal Co. v. County Comm’n, 109 S.Ct. 633, 639 (1989)

(the Constitution. bars a state from limiting a taxpayer

-to the remedy of seeking to raise the taxes of others:

the state itself must provide a remedy for the unconsti-

tutional discrimination).’ Similarly, a remedy required

7 This is how the commentators have read Carpenter and related

cases. See, e.g., Monaghan, Third Party Standing, 84 Colum. L.

Rev. 277, 294 n.97, 297 n.111 (1984) (citing Ward: “[{Slome fed-

eral rights require provision of an adequate state remedy. * * *

[S|tate courts are required by the Constitution to provide adequate

remedies for constitutional guaranties * * * [, including] appro-

priate restitutionary relief for breach of federally imposed du-

ties”) ; Field, Sources of Law: The Scope of Federal Common Law,

99 Harv. L. Rev. 885, 939, 972-973 n.394 (1986) (citing Ward:

“The Court * * * sometimes * * * has said that states must provide

a remedy but has left to the states the choice of what remedy to

provide. * * * [T|he federal system chose to rely on state remedies

to recover illegally exacted taxes. A state rule that no recovery

was possible, however, transgressed federal purposes and was not

an acceptable rule”); Fallon, Of Legislative Courts, Administrative

Agencies, and Article III, 101 Harv. L. Rev. 915, 955 (1988)

(citing Ward: “the Supreme Court has compelled state courts to

provide constitutional remedies even when state law conferred no

by the Constitution would be available to a taxpayer who

invokes the federal cause of action described above.

The powerful commonsense support for a disgorge-

ment remedy can best be illustrated by comparing the

present case with one in which a taxpayer has refused

to pay a tax on the ground that it violates the Commerce

Clause. Cf. Ashland Oil, Inc. v. Rose, No. 88-421 (juris.

statement filed Sept. 9, 1988). Assume that the state

court adjudicating a collection action held that the tax in

question was unconstitutional but nevertheless ruled that

it had to be paid. We think it clear that, unless the state

could invoke some federally recognized ground such as

nonretroactivity under Chevron, federal law would pro-

tect the taxpaver from being forced to pay a tax con-

cededly unconstitutional under the Commerce Clause. A

taxpaver who paid the very same tax under protest

should not be disadvantaged vis-a-vis one who has re-

sisted paying the tax at all. To the extent that the latter

‘cannot be compelled to pay the unconstitutional tax, so

the former should be entitled to restitution of the ille-

gally exacted tax.

Arkansas (Br. 23-28). Florida (Br. 13-14), and the

NCSL (Br. 21-23) argue that there is no right to retro-

spective relief in this context, because the Commerce

Clause does not confer private rights but is instead

a structural provision of the Constitution. Even if this

characterization of the Commerce Clause were correct.

authority for them to do so”); Wolcher, Sovereiqn_Immunity and

the Supremacy Clause: Damages Against Stctes in Their Own

Courts for Constitutional Violations, 69 Calif. L. Rev. 189, 228

(1981) (“[T)he Court has held in several cases that the Constitu-

tion * * * requires the state court to give relief. In Ward * * *,

for instance, the Court ruled that an Oklahoma court was constitu-

tionally obligated to give the remedy of damages”); Grano, Pro-

phylactic Rules in Criminal Procedure: A Question of Article III

Legitimacy, 80 Nw. U. L. Rev. 100, 151 (1985) (“the primary

significance of [Ward] may be its support of the proposition that

state courts have a constitutional obligation to provide adequate

remedies for federal rights”).

which it is not,* it would provide no basis for cor cluding

that retrospective relief is unavailable. It is undisputed

that aggrieved individuals may obtain declaratory and

injunctive relief against discrimination that violates the

dormant Commerce Clause. This is a complete answer~

to the contention that affirmative relief may never be

awarded at the instance of those victimized by such vio-

lations. Prospective relief is available because courts

have concluded that such a remedy is appropriate to

ensure compliance with the Commerce Clause. -Bell/ v.

Hood, 327 U.S. at 684. If, as we show below, the same

* This Court recently rejected a similar argument that “struc-

tural” constitutional principles do not give rise to individual rights.

In Davis v. Michigan Dep't of the Treasury, 109 S.Ct. 1500 (1989),

a case involving intergovernmental tax immunity, the State argued

that an individual taxpayer could not claim the protection of the

immunity doctrine in seeking a tax refund because its purpose was

“to protect governments and not private entities or individuals”

(id. at 1507). The Court disagreed, holding that an individual

could maintain such a claim: “It is true that intergovernmental tax

immunity is based on the need to protect each sovereign’s govern-

mental operations from undue interference by the other. But it does

not follow that private entities or individuals who are subjected to

discriminatory taxation on account of their dealings with a sov-

ereign cannot themselves receive the protection of the constitutional

doctrine. Indeed, all precedent is to the contrary” (ibid. (citations

omitted)). The same conclusion plainly applies here as well.

In fact, the contrary argument is semantic, not substantive.

The rights conferred by the Commerce Clause, like those conferred

by many other provisions of the Constitution, are both structural

and personal. For example, the Establishment Clause is even more

purely “structural” than the Commerce Clause, yet it cannot be

doubted that individuals injured by violations of that provision

may sue to secure redress of tteir injuries. Similarly, the protec-

tion of the Free Speech Clause typically is viewed as conferring «

personal right, but the right also can be described as a structural

one, securing robust political debate in order to pr--ote the politi-

cal well-being of the Nation. In like fashion, the right of individ-

uals under the dormant Commerce Clause to participate in a na-

tional market free of discriminatory state regulation similarly can

be characterized as a structural right or as the personal right to be

free of discriminatory state regulation not authorized by Congress.

is true for retrospective monetary relief, such a remedy

also would be warranted.’

The question whether a remedy should be recognized

in a particular circumstance “must be resolved by weigh-

ing [its] costs and benefits.” United States v. Leon, 468

U.S. 897, 907 (1984). The benefits of a retrospective

remedy in the context of taxes found to violate the Com-

merce Clause far outweigh the costs associated with such

a remedy.

We already have discussed the relevant Commerce

Clause policies and the need for deterrence in consid-

erable detail (see 88-325 Pet. Br. 28-33; 88-325 Reply

Br. 16-17) and reiterate only the most salient points

here. The overriding purpose of the Commerce Clause

is to open up the channels of national commerce and

prevent the states from favoring in-state over out-of-state

businesses. See, e.g., New Energy Co. V. Limbach, 108

S.Ct. 1808, 1807 (1988); Lewis Vv. BT Investment Man-

° It is well settled that this Court will recognize a retrospective

remedy for violations of a constitutional right where that remedy

is warranted to ensure effective deterrence of violations of the

right. Thus, the exclusionary rule applicable to evidence obtained

in violation of the Fourth Amendment “ig a judicially created

remedy designed to safeguard Fourth Amendment rights generally

through its deterrent effect.” United States v. Calandra, 414 U.S.

338, 348 (1974). Similarly, the Court has shaped the remedy pro-

vided by the First Amendment overbreadth doctrine to qneure that

the adoption of unconstitutional laws is not “cost free.” Massachu-

setts v. Oakes, 109 S.Ct. 2633, 2639-2640 (1989); see generally

Hill, Constitutional Remedies, 69 Colum. L. Rev. 1109, 1149 (1969).

The debate over the exclusionary rule has focused principally on

whether the rule is appropriate in view of its costs and benefits,

not on the Court’s power to require that such a remedy be made

available in order to deter violations of the Fourth Amendment.

To the extent the latter issue is subject to dispute, it is because

of the nontraditional nature of the suppression remedy. “A court

of law vested with jurisdiction over the subject matter of a suit

has the power—and therefore the daty—to make principled choices

among traditional judicial remedies” (Bivens, 403 U.S. at 408 n.8

(Harlan, J., concurring) (emphasis added) ); the remedy of dis-

gorgement surely falls within that category.

agers, Inc., 447 U.S. 27, 44 (1980); Nippert v. Rich-

mond, 327 U.S. 416, 425-426, 434-435 (1946); Guy Vv.

Baltimore, 100 U.S. 434, 443 (1880).

This Court has recognized on numerous occasions that

the political structure established by the Constitution

carries an inherent incentive for the states to engage in

the very economic protectionism that the Commerce

Clause prohibits. As it said in invalidating a discrim-

inatory tax on itinerant salesmen:

Provincial interests and local political power are at

their maximum weight in bringing about acceptance

of this type of legislation. With the forces behind it,

this is the very kind of barrier the commerce clause

was put in the fundamental law to guard against.

Nippert, 327 U.S. at 434-435. Accordingly, “to the extent

that the burden [of economic regulation] falls on eco-

nomic interests without the state, it is not likely to be

alleviated by those political restraints which aré normally

exerted on legislation where it affects adversely interests

within the state.” Mctoldrick v. Berwind-White Co., 309

U.S. 33, 46 n.2 (1940). See, e.g., Southern Pacific Co.

v. Arizona, 325 U.S. 761, 767-768 n.2 (1945); South

Carolina State Highway Dep't v. Barnwell Bros., Inc.,

303 U.S. 177, 185 n.2 (1938).

Commentators also have pointed out the hydraul!.

pressures for economic legislation that discriminates in

favo? of local interests. For example, Professor Tribe

has observed that

state and local lawmakers are especially susceptible

to pressures which may lead them to make decisions

harmfu! to the commercial interests of those who are

not constituents of their political subdivisions. That

recognition reflects not a cynical view of the failings

of statesmanship at a sub-federal level, but only an

understanding that the proper structural role of state

lawmakers is to protect and promote the interests of

their own constituents.

L. Tribe, American Constitutional Law § 6-5, at 409 (2d

ed. 1988) (emphasis in original). See also R. Posner,

Economic Analysis of Law § 26.3, at 602 (3d ed. 1986)

(“{ejach state has an economic incentive to impose taxes

whose burden will fall, so far as possible, on residents

of other states’’).

.The threat of prospective invalidation of a particular

tax statute under the Commerce Clause is not alone suffi-

cient to counter the states’ powerful structural incentives

to discriminate against out-of-state interests. A state

considering whether to adopt a statute of doubtful con-

stitutionality, or even a plainly unconstitutional one,

would retain every reason to do so: it would be able

to keep all of the taxes it managed to exact before the

statute was challenged and invalidated by a court; and

local interests would enjoy an unimpaired advantage

during that period.

The facts of both this case and ATA demonstrate that

the states do in fact act in precisely that manner. See

88-325 Pet. Br. 30-33. Indeed, one Florida legislator

specifically referred to the absence of a refund remedy in

urging his colleagues to replace one discriminatory tax

on alcoholic beverages with a new one that was equally

offensive to the Commerce Clause. 88-192 Pet. Br. 15-16.

In order to curb this tendency to enact statutes that

discriminate against interstate commerce, it is essential

that the states’ economic incentive be eliminated. Retro-

spective disgorgement relief “serve|s] as a deterrent

against future constitutional deprivations” and provides

an “incentive” for governmental decisionmakers “to err

. on the side of” complying with the Constitution. Owen,

445 U.S. at 651-652; see also Tatarowicz, 41 Tax Law. at

141-142; Wolcher, 69 Calif. L. Rev. at 310. Precisely

this point was made by a majority of the Court in con-

cluding that a First Amendment overbreadth challenge

to a criminal statute may he maintained even though the

statute has been repealed. Massachusetts v. Oakes, 109

S.Ct. at 2639-2640 (opinion of Scalia, J.) (emphasis

added) :

statute has already been amended to eliminate any

unconstitutional “chilling” of First Amendment

rights. pven as 2 policy argument, this analysis

that is, if no conviction of constitutionally proscrib-

able conduct would be lost, so long as the offending

statute was narrowed before the final a

legislatures would have significantly reduced incen-

tive to stay within constitutional bounds in the first

place. When one takes account of those overbroad

statutes that are never challenged, and of the time

that elapses before the ones that are challenged are

amended to come within constitutional bounds, a sub-

——e emount of legitimate speech would be

_ as a of the ru

consequence le the plurality

The same considerations refute the argument that pro-

spective remedies suffice to meet the needs of the Com-

merce Clause.

In addition, the fundamental unfairness of preventing

a taxpayer from recovering funds unlawfully taken from

him by the state weighs in favor of recognizing a dis-

gorgement remedy. See Ward, 253 U.S. at 24 (“[tlo

say that the county could collect these unlawful taxes by

coercive means and not incur any obligation to pay them

back is nothing short of saying that it could take or

appropriate the property of these [taxpayers] arbitrarily

and without due process of law”): see also District of

Columbia Vv. Thompson, 281 U.S. at 31 (citing Ward for

the principle that government must make restitution of

funds held “in its treasury * * * which it has no right

in equity, good conscience, or common honesty to re-

tain”). |

The sole factor on the cost side of the ledger is the

financial impact on governmental entities of the obliga-

tion to disgorge unconstitutionally exacted taxes. It is

true that the disgorgement remedy may sometimes result

in repayment obligations that appear large when viewed

in absolute terms, but several factors reduce considerably

the weight that should be accorded to this interest. First,

Chevron directs that these same considerations be weighed

in determining whether to accord a ruling retrospective

effect. Consequently, the issue of refund relief will not

even arise unless the financial burden argument already

has been found wanting. It accordingly should not he

sufficiently weighty to preclude recognition of a dis-

gorgement remedy.

Second, merely requiring the return or repayment of

funds paid to the state may be less burdensome than

obliging a state to pay damages, which could subject

it to monetary liability well beyond its revenues and

would require use of funds that the state rightfully

acquired in the first place. As Professor Wolcher has

explained (69 Calif. L. Rev. at 309-310) :

[A] state has little legitimate reason to object to a

constitutionally implied remedy in state court in

cases where the plaintiffs seek the return of prop-

erty or the refund of money that the state has un-

constitutionally taken from them. * * * A state court

should give appropriate relief in such a case because

the fiscal integrity of the state is at best minimally

affected by the remedy. * * * The state is simply

being asked to give value for equivalent value taken

The availability of the restitutionary remedy also would en-

courage taxpayers to pay their taxes and sue Yor a refund rather

than forcing the government to institute collection actions, thereby

promoting orderly adjudication of tax disputes.

and retained. Hence the net value of the fisc remains

unimpaired.

[The state] is only being asked to pay back money

which the plaintiff claims it had no right to collect

in the first place. The action in substance presents a

claim of unjust enrichment against the state that

_does not threaten the integrity of its general reve-

" nues.