Amicus Curiae Brief — Harper v. Virginia Dept. of Taxation

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No. 91-794 | “— 7

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+ re ert CLLAK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

HENRY HARPER, et al,

Petitioners,

Vv.

VIRGINIA DEPARTMENT OF TAXATION,

Respondent.

On Writ of Certiorari to the

Supreme Court of Virginia

AMICUS CURIAE BRIEF OF THE CITY

OF NEW YORK IN SUPPORT OF

RESPONDENT

O. PETER SHERWOOD,

Corporation Counsel of the

City of New York,

100 Church Street,

New York, New York 10007.

(212) 788-0835 or 0841

EDWARD F. X. HART,*

FRANCES J. HENN,

STANLEY BUCHSBAUM,

of Counsel.

September 4, 1992.

*Counsel of Record.

TABLE OF CONTENTS

Interest of the Amicus Curiae ..........

Summary of Argument ___.....................

Argument

THE DETERMINATION MADE IN

DAVIS v. MICHIGAN SHOULD BE

APPLIED PROSPECTIVELY WHEN

IT IS EXTENDED TO INCOME TAX

LAWS OF OTHER STATES AND

MUNICIPALITIES —__e nee enue

RE a ee

Page

26

TABLE OF AUTHORITIES

Cases Page

Adams v. Illinois,

405 U.S. 278 (1972). ~—_.......... o 14

Allen v. Hardy,

478 U.S. 255 (1986). =... ....... 14,15

American Trucking Association,

Inc. v. Smith 496 U.S. 167

OTE | ceccceseces 17

James B. Beam Distilling Co.

v. Georgia, 111 Sup.

Ct. 2439 (1991), is en 3,9,

Passim

Burstein v. United States,

232 F.2d 19 (8th Cir., 1956). ‘a 7

Butler v. McKellar,

494 U.S. 407 (1990). &— ..... 16

Calvin Klein Ltd. v. Trylon

Trucking Corp., 892 F.2d

191 (2d Cir., 1989). 2s 6

Cates v. Morgan Portable Bldg. Corp.,

780 F.2d 683 (7th Cir., 1985)... 7

Chevron Oil Co. v. Huson,

404 U.S. 97 (1971). .......... 3,5,15

Passim

Cipriano v. City of Houma,

395 U.S. 701 (1969). —_............ 14

City of Novi v. City of Detroit,

166 Mich. App. 397 (1988). bene 7-8

Authorities (cont'd) Page

Cullen v. Maples, ;

31 N.Y.2d 818 (1972). —_............. 7

Dana Corp v. Appeal Board of

Mich. Emp. Sec. Com'n.,

371 Mich. 107 (1963). ~— ...... : 6

Davis v. Michigan Dept. of Treasury,

489 U.S. 803 (1989). = ....... 2,4,

Passim

Fiduciary Trust Co. v. State Tax Commn.,

120 A.D.2d 848 (3rd Dept., 1986) . 25

Fisher v. First Stamford Bank and

Trust Co., 751 F.2d 519

| > 7

Florida v. Long,

487 U.S. 223 (1988). _........... 14,17

Goodman v. Lukens Steel Co.,

482 U.S. 656 (1987). .......... 17

Griffith v. Kentucky,

479 U.S. 314 (1987). _.......... 14,15,25

Harper v. Virginia Dept. of Taxation,

241 Va. 232 (1991). Ss... . se ee 20

Harris v. Sweetland,

48 Mich. 100 (1882). — ........... 6

International Adm'rs vy. Life Ins. Co.,

753 F.2d 1373 (7th Cir., 1985). : 7

Johnson v. United States,

318 U.S. 189 (1943). 7 6

Kline v. Kline,

92 Mich. App. 62 (1979). ........ 6

ii

Authorities (Con't) Page

Linkletter v. Walker,

381 U.S. 618 (1965). —............. 12,13-14

Mercury Machine Imp. Corp. v. City

of New York,

3N.Y.23@ 418 (1087). ........... 25

Mitchell v. New York Hospital,

61 N.Y.2d 208 (1984). ~—.............. 5

Murphy Door Bed Co. yv. Interior Sleep

Systems, 874 F.2d 95 (2d Cir.,

as © “Subeendeeetocesce 7

Muslin v. Frelinghuysen Livestock

Managers, 777 F.2d 1230 (7th

vs -weebesseesoces cs 6,7

Northern Pipeline Co. v. Marathon

Pipe Line Co., 458 U.S. 50

uae aan NY ne eee 14,17

Pacific R.R. v. Ketchum,

Ee SS fF. |.) rere 6

Prout v. Starr,

188 U.S. 537 (1903). _........ 6

Robinson v. Neil,

409 U.S. 505 (1973). — .......... 13

Rochester v. Chiarella,

58 N.Y.2d 316 (1983). ........... 25

Saint Francis College v. Al-Khazraji,

481 U.S. 604 (1987). —.............. 17

Solem v. Stumes, -

465 U.S. 638 (1984). _—_.............. 15

iii

Authorities (cont'd)

Stovall v. Denno,

388 U.S. 293 (1967). oe

Streight v. Ragland,

280 Ark. 206 (1983). 208

Teague v. Lane,

485 U.S. 288 (1989). er

T.W. Oil v. Con Edison Co.,

57 N.Y.2d 574 (1982). bee

United States v. Johnson,

457 U.S. 537 (1982). ses

Statutes and Constitution

Federal Statutes

S Weems BEES ch eececcccess

New York State

Constitution, Article 5 § 7

Constitution, Article 16 § 5

‘Laws of 1920, Chapter 427

Laws of 1920, Chapter 741

Laws of 1989, Chapter 664

Tax Law §612(c)(3-a)

Tax Law §687(a)

Tax Law, Article 16

Tax Law, Article 22

New York City

Greater New York City Charter

§ 1723 pes

iv

TrTTT 19

Authorities (cont'd) Page

Administrative Code,

GLL-27ABlep(S-a) wc ccc nee. 24

Administrative Code,

§11-1712(c)(3)(i) sw ww ee ee eee 2

Administrative Code,

§11-1712(c)(3)(ii) iw iw ww eee 2

Administrative Code,

r+) se cengvedece 25

Administrative Code,

Title T, Chapter 17 ............ 19

Administrative Code,

Title 11, Chapter 17. ........... 19

Other State Statutes

Montana Laws 1937,

Chapter 87, §13 ee 20

North Carolina Session Laws

1941, Chapter 25, §19 Pre 20

South Carolina Code of Laws

1945, §9-1-1680 ee 20

Virginia Acts 1942, Chapter 325 .. 20

Treatises

83 C.J.S. Stipulations § 2 sabe 7

83 C.J.S. Stipulations §4b(3) cue 7

10 ALR 3rd 1382, Prospective

or Retroactive Operation of

Overruling Decision eae 13

Cardozo, The Nature of The

Judicial Process (1921) re 13

Other

Federal Tax Administrators, Research

Report No. 131, Davis v. Michigan

Department of Treasury:

One year later 20, 24

No. 91-794

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1992

HENRY HARPER, et al,

Petitioners,

v.

VIRGINIA DEPARTMENT OF TAXATION,

Respondent.

AMICUS CURIAE BRIEF OF CITY

OF NEW YORK IN SUPPORT OF RESPONDENT

Interest of the Amicus Curiae

Pursuant to Rule 37.5, the City of New

York, as a political subdivision of the State of

New York, is exercising the right to file a brief

amicus curiae in support of the position of the

State of Virginia.

The City's interest in the case stems from

the fact that a similar question of liability for a

tax refund may arise under the personal income

tax law which the City imposes. That law

excludes from the tax the amounts paid as

pensions by the State of New York or by its

political subdivisions, including the City of New

York. [New York City Administrative Code,

Title 11, §11-1712(c)(3)(i)]. No such exclusion

was provided for pensions paid by the federal

government until a statutory amendment was

enacted in 1989 to take effect on January 1 of

that year. [Id., §11-1712(c)(3)(ii); N.Y. Laws

1989, c.664.]

Summary of Argument

Davis v. Michigan Dept. of Treasury, 489

U.S. 803 (1989), did not decide whether its

determination should be applied prospectively or

retrospectively. The Court indicated that Mr.

Davis was entitled to a refund, but this was

based upon a concession that this was the

appropriate relief by the State of Michigan when

the appellant had also sought such relief. Such

concession or agreement is usually accepted by

-32-

the Court and, as a result, no attempt is made

to decide the issue that would otherwise arise.

Here it seems clear that the Court relied on the

concession. Nor does James B. Beam Distilling

Co. v. Georgia, _U.S._., 111 Sup. Ct. 2439

(1991), or any of the principles decided in that

case determine the issue of Davis retroactivity.

Since 1965 in a variety of cases, both civil

and criminal, it has been held that particular

determinations made by this Court shall apply

only prospectively. In Chevron Oil Co. vy.

Huson, 404 U.S. 97 (1971), a three-prong test

was formulated to apply to civil cases. The

Davis case fully satisfies all the prongs of that

test.

THE DETERMINATION MADE IN DAVIS

vy. MICHIGAN SHOULD BE APPLIED

PROSPECTIVELY WHEN IT IS EXTENDED

TO INCOME TAX LAWS OF OTHER

STATES AND MUNICIPLALITIES.

a. This Court did not decide whether its

decision in the Davis Case should be

The petitioners seek to avoid discussing

whether the Davis case should be applied

prospectively or retrospectively. They contend

that the decision was already made in the

determination of that case. They take this

position despite the fact that, in Davis, this

Court said (489 U.S. at 817):

The State having conceded that a

refund is appropriate in these

circumstances, see Brief for Appellee

63, to the extent appellant has paid

taxes pursuant to this invalid tax

scheme, he is entitled to a refund.

The concession to which the Court

referred also accorded with the relief sought by

the appellant in the conclusion of his main brief

(p.27) and repeated at page 10 of his reply

brief.

Where both parties agree, for example, to

the measure of relief to be granted to a

successful plaintiff, the courts normally accept

their conclusion. The basic governing principle

has been well stated in Mitchell v. New York

Hospital, 61 NY2c 208 (1984), where the Court

said (p. 214):

Whenever the enforceability of a

stipulation among parties in a _ civil

case is put in issue, we must begin

our analysis with the recognition that

courts have long favored and

encouraged the fashioning of

stipulations as a means of expediting

and simplifying the _ resolution of

disputes. (Salesian Soc. v Village of

Ellenville, 41 NY2d 521, 525-526.) We

have repeatedly held that, unless

public policy is affronted, parties to a

civil dispute are free to chart their

own litigation course. (T.W. OU v

Consolidated Edison Co., 57 NY2d 574,

579-580; Rector, Church Wardens &

Vestrymen of St. Bartholomew's

Church vy Committee to Preserve St.

Bartholomew's Church, 56 NY2d 71,

76; Martin v City of Cohoes, 37 NY2d

162, 165.) They “may fashion the

basis upon which a_ particular

controversy will be resolved" (Cullen v

Naples, 31 NY2d 818, 820) and in

-5-

doing so "[t]hey may stipulate away

statutory, and even constitutional

rights." (Matter of New York,

Lackawanna & Western R.R. Co., 98

NY 447, 453).

Essentially the same principle has been

applied by this Court and lower federal courts.

See, e.g., Pacific R.R. v. Ketchum, 101 U.S.

289, 297 (1879); Prout v. Starr, 188 U.S. 537,

542 (1903); Johnson v. United States, 318 U.S.

189 (1943); Muslin v. Frelinghuysen Livestock

Managers, 777 F.2d 1230, 1231, n.1 (7th Cir.,

1985); Calvin Klein Ltd. v. Trylon Trucking

Corp., 892 F.2d 191, 194 (2d Cir., 1989).

Michigan also applies the same stipulation

principle. Harris v. Sweetland, 48 Mich. 100,

11 N.W. 830, 831-2 (1882); Kline v. Kline, 92

Mich. App. 62, 284 N.W.2d 488, 492-3, 495-6

(1979). See Dana Corp. v. Appeal Board of

Mich. Emp. Sec. Com'n, 371 Mich. 107, 123

N.W.2d 277, 278 (1963).

Courts generally look with favor on such

stipulations. 83 C.J.S. Stipulations, §2.

Normally such stipulations must be in writing or

made in open court. Where, however, the

intent of the parties is made clear, even an

implied or informal stipulation will be followed.

Cates v. Morgan Portable Bldg. Corp., 780

F.2d 683, 687-8 (7th Cir., 1985); Muslin v.

Frelinghuysen Livestock Managers, supra, 777

F.2d at 1231 n.1; International Adm'rs. v. Life

Ins. Co., 753 F.2d 1373, 1376 (7th Cir., 1985);

Cullen v. Maples, 31 N.Y.2d 818, 820 (1972).

See 83 C.J.S. Stipulations §4b (3).

Normally a stipulation may not deal with

questions of law. Stipulations with regard to

damages, however, are regarded as

appropriate. Burstein v. United States, 232

F.2d 19, 23 (8th Cir., 1956); Fisher v. First

Stamford Bank and Trust Co., 751 F.2d 519,

523 (2d Cir., 1984); Murphy Door Bed Co. vy.

Interior Sleep Systems, 874 F.2d 95, 103 (2d

Cir., 1989); City of Novi v. City of Detroit,

166 Mich. App. 397, 420 N.W.2d 839, 843

-7-

(1988); T.W. Oil v. Con Edison Co., 57 N.Y.2d

574, 579-80, 586-7 (1982).

In Davis, as we have earlier pointed out,

the State conceded that a refund was _ the

appropriate relief for the appellant to the

extent that he had paid taxes under what this

Court found to be an invalid tax scheme. This

concession was in accord with relief sought by

the appellant. This clear agreement between

the parties is essentially the equivalent of a

stipulation covering the nature of the relief.

Under the circumstances it seems plain

that this Court did not consider whether the

relief to be granted for those affected by the

invalid tax scheme was to be prospective or

retrospective. Certainly there was no

discussion of that issue. And the reliance on

the concession makes it plain that the issue was

not considered, since the concession dealt with

all the relief necessary in Davis.

The appellants attempt towescape this by

an unusual contrivance. They assert that the

concession made by the State of Michigan in

Davis could not be considered until this Court

first found the tax invalid and then decided to

apply that holding to Mr. Davis (App. Br.,

p.8-9). In substance, they seem to be arguing

that this Court need not have relied on the

concession, since it had already been decided

what relief for invalidity should be granted to

Mr. Davis.

The appellants, in addition, rely on James

B. Beam Distilling Co. v. Georgia, _U.S._,

111 Sup. Ct. 2439 (1991), as a basis for

concluding that the determination of this Court

in Davis decided that it should be applied

retroactively. First, they state that an opinion

that makes no mention of retroactivity decides

that retroactivity shall apply (App. Br., p.10).

They rely on the dictum of Justice Souter in

Beam at 111 Sup. Ct. at 2445-6, n.2, which is

introduced by: "Though unnecessary to our

ruling here ***", indicating that it is mere

dictum. Justice Souter's opinion is joined by

only one other justice, Justice Stevens. We om

find no such clear intimation in Justice White's

concurring opinion. The portion quoted by the

appellants from Justice White's opinion appears

to refer to the decision concerning the

Twenty-First Amendment.

Nor is there any such suggestion in the

concurring opinions of Justices Blackman and

Sealia, each joined by the other and also by

Justice Marshall. They concurred in the result

in Beam on the basis of their view that all

decisions must be applied retroactively and that

applying a determination prospectively would go

beyond the power of the Court. Their view

does not mean that they concluded that a

failure to discuss retroactivity or prospectivity,

such as occurred in Davis, means that the

Court has decided that retroactivity applies.

- 10-

The basis for the conclusion they reached

makes such a decision unnecessary since, by

their approach, retroactivity would always

automatically govern. Should these three

Justices ultimately decide that stare decisis

required them to accept prospectivity under

some circumstances, they would then be faced,

apparently for the first time, with the question

of whether a failure to discuss the matter is, in

effect, a decision calling for retroactivity.

In any event, it would seem Strange that a

determination of major consequence could rest

om mere silence by the Court. - In at least some

of these cases, the briefs-may not discuss the

issue of retroactivity. Consequently, an issue

undiscussed in the briefs would be decided by

a decision unexpressed in the opinion.

If a presumption that silence in the opinion

indicates that the Court has decided that

retroactivity shall apply, it would surely not

govern where the opinion explicitly indicates

-]l-

that the issue was not considered either

because of a concession or an implied stipulation

by the parties. Apparently the petitioners seek

to go beyond Justice Souter's determination

resting on silence. They would have the Court

hold that, even though there is a basis for

deciding the case without passing on the issue

of retroactivity and even though the Court

indicated it was relying on that other ground,

it must be concluded that the Court, in some

unusual way, considered retroactivity and

decided that it applied.

b. Prospectivity.

(1)

Until the 1965 decision of Linkletter vy.

Walker, 381 U.S. 618, almost any decision

overruling a prior decision or reaching a new

or novel result, criminal on ctu, constitutional

or not, would be treated as retrospective. Up

to that time, the Supreme Court, and most state

courts, followed what has been termed the

~12-

Blackstonian theory of law to the effect that a

court, in overruling an earlier decision, did not

make a new law. Rather, it merely expounded

or vindicated the old one from a prior

misrepresentation. It treated the old decision,

not as bad law, but as simply not being the

law. The new decision was an application of

what had always been the true law. Linkletter,

381 U.S. at 622-5; Note, Prospective or

Retroactive Operation of Overruling Decision, 10

ALR 3rd 1382; Cardozo, The Nature of the

Judicial Process (1921), pp. 124-125.

Despite the general rule applied

theretofore, the Court in Linkletter relied, in

part, on a variety of cases to reach the

conclusion that the Court was not required to

treat each such determination as retroactive,

but rather that it would determine the question

of retroactivity by weighing the merits.

Linkletter, 381 U.S. at 628-9; Robinson v.

Neil, 409 U.S. 505, 507 (1973). In Linkletter ,

“13- -

the Court also indicated that no distinction need

be drawn between civil and criminal cases.

Linkletter, 381 U.S. at 627-8.

After this shift in the approach to the

issue of retroactivity, many criminal cases

involving constitutional issues were, until 1987,

held to apply prospectively. See, e.g., Stovall

v. Denno, 388 U.S. 293, 296-297 (1967); Adams

v. Illinois, 405 U.S. 278, 284 (1972); Allen v.

Hardy, 478 U.S. 255, 258 (1986). (In Griffith

v. Kentucky, 479 U.S. 314, 328 [1987], it was

held that new rules’ governirg - criminal

procedure would apply retroactively to all cases

pending on direct review or not yet final. )

Prospectivity was applied also to a number

of civil cases. See, e.g., Cipriano v. City of

Houma, 395 U.S. 701 (1969); Northern Pipeline

Co. v. Marathon Pipe Line Co., 458 U.S. 50,

87-88 (1982); Florida v. Long, 487 U.S. 223,

235, 240 (1988).

« 14-

(2)

A three-prong test was devised in Stovall

v. Denno, supra, 388 U.S. at 297, for

determining whether the decision in a criminal

case should be treated as_ retroactive. A

slightly different three-prong test was

established shortly thereafter for civil cases.

Chevron Oil Co. v. Huson, 404 U.S. 97,

106-107 (1971).

In criminal cases the three-prong rule was

later modified or expanded. It was first held

that a decision announcing a new standard is

almost automatically nonretroactive. United

States v. Johnson, 457 U.S. 537, 549-550

(1982); Solem v. Stumes, 465 U.S. 638, 645-646

(1984); Allen v. Hardy, supra, 478 U.S. at

258. However, Griffith v. Kentucky, supra,

479 U.S. 314, concluded that new _ rules

governing criminal matters would apply

retroactively to all cases pending on direct

review. But recent cases make it clear that the

-15-

new rule will not be applied when a conviction

is challenged in a collateral attack. Teague v.

Lane, 489 U.S. 288 (1989); Butler v. McKellar,

497 U.S. 407 (1990).

The three-prong test used in civil cases

emphasizes the break with the past as its first

prong. The three factors to be considered in

determining whether retroactivity shall apply

in civil matters are stated in Chevron Oil Co.

v. Huson, supra, 404 U.S. at 106-107:

In our cases dealing with the

nonretroactivity question, we have

generally considered three _ separate

factors. First, the decision to be

applied nonretroactively must establish

a new principle of law, either by

overruling clear past precedent on

which litigants may have relied, see,

e.g., Hanover Shoe v. United Shoe

Machinery Corp, supra, [392 U.S.] at

496, or by deciding an issue of first

impression whose resolution was not

clearly foreshadowed, see, e.g., Allen

v. State Board of Elections, supra,

[393 U.S.] at 572. Second, it has

been stressed that "we must ,

weigh the merits and demerits in each

case by looking to the prior history of

the rule in question, its purpose and

effect, and whether _ retrospective

operation will further or retard the

operation.” Linkletter v. Walker,

-16-

supra, [381 U.S.] at 629. Finally, we

have weighed the inequity imposed by

retroactive application, for "[w]here a

decision of this Court could produce

substantial inequitable results if

applied retroactively, there is ample

basis in our cases for avoiding the

‘injustice or hardship’ by a holding of

nonretroactivity." Cipriano v. City of

Houma, supra, [395 U.S.] at 706.

This three-factor test has been applied

regularly since the Chevron case was decided in

1971. See, e.g.: Northern Pipeline Co. v.

Marathon Pipe Line Co., supra, 458 U.S. at

87-88; Saint Francis College v. Al-Khazraji, 481

U.S. 604, 608-9 (1987); Goodman v. Lukens

Steel Co., 482 U.S. 656, 662-3 (1987);

American Trucking Association, Inc. v. Smith,

496 U.S. 167 110 Sup. Ct. 2323, 2331 (1990);

ef., Florida v. Long, 487 U.S. 223, 230 et seq.

(1988).

Although Davis did not involve’ the

overruling of a clear past precedent, it did

decide an issue of first impression whose

resolution was not clearly foreshadowed.

-17-

A finding that the first prong of the

Chevron test has not been met should not rest

on the emphatic language used in the Davis

majority opinion. The Court there said that the

“plain language of the statute” dictates the

result reached and that it had "no difficulty" in

reaching that conclusion (489 U.S. at 808).

The meaning of the statute was found to be

"unmistakable" (id. at 810). Similar forceful

language might also be used in an _ opinion

overruling a prior determination of this Court.

For example, it is not unusual to say that the

determination being set aside rested on no

sound legal basis. Moreover, while eight

justices joined in the Davis opinion, one member

of this Court dissented.

Here the issue decided was plainly of

"first impression" and its “resolution was not

clearly foreshadowed." This is shown by the

history of state and local tax exemptions for

pension income of their own former employees.

-18-

The federal statute, 4 U.S.C. §111, was

enacted in 1939. As early as 1920, New York

State had enacted a tax exemption for pensions

of State and local employees (N.Y.Laws 1920,

c.741, §70). That year a similar tax exemption

provision was also enacted for New York City

(N.Y.Laws 1920, c.427, §1, amending Greater

New York City Charter §1723). These

provisions have continued until the present.

An amendment to the New York Constitution,

adopted in 1938 and effective on January 1,

1939, provided for exemption from taxation for

employees of the State and its subdivisions

(Const. Art. 5, §7, Art. 16, §5).

New York State had an income tax for

many years before 1939 (N.Y. Tax Law, Art.

16, now in Art. 22). New York City's personal

income tax took effect in 1966 (N.Y.C. Admin.

Code, Title T, now in Admin. Code, Title 11,

ch.17).

-19-

At least one other State had ex®mpted

pensions of its former employees from its own

income tax before 4 U.S.C. 111 was enacted.

Mont. Laws 1937, c¢.87, §13. A number of

other States enacted similar exemptions within a

few years after 1939. E.g., 1941 N.C. Sess.

L., ¢.25 §9; Ch 325, 1942, Va. Acts 500; 1945,

S.C. Code of Laws §9-1-1680.

In the course of time, other states adopted

similar tax provisions so that, when the Davis

case reached the courts, there were 23 states,

in addition to Michigan, providing such an

exemption. See, Harper v. Virginia Dept. of

Taxation, 241 Va. 232, 401 S.E.2d 868, 871,

n.3 (1991); Federal Tax Administrators,

Research Report No. 131, entitled Davis v.

Michigan Department of Treasury: One Year

Later.

Thus we have two states adopting

legislation before the federal enactment in 1939

and numerous other states adopting similar

-20-

legislation over the years. since then. All

granted exemption on pension income of former

state or local employees without providing a

similar exemption to pensions of former federal

employees. Yet, so far as we have been able

to find, no case was brought in the courts

challenging the state and _ local employee

exemptions until the Davis case was begun in

1984, a lapse of 45 years from enactment of the

federal law to the challenge.

It is difficult to conclude that Davis was

foreshadowed when at least 24 state legislatures

enacted new, or continued prior, statutes, if

the indications were evident that the legislation

was doomed to fail upon challenge. It is even

more difficult to believe that, if that were so,

a

The case of Streight v. Ragland, 280 Ark.

206, 655 S.W.2d 459 (1983), decided only a

year before Davis commenced, unsuccessfully

challenged such a statute on behalf of private

pensioners, relying on equal protection

grounds.

-21-

no federal pensioner thought it worthwhile to

challenge the state tax on his pension in any of

those states.

Aside from the legal issues raised by

Justice Stevens in his dissent, this history of

the numerous Davis type statutes should, we

submit, be enough to meet the first prong of

Chevron.

The second Chevron prong involves the

consideration of the prior history of the rule,

its purpose and effect, and =~ whether

retrospective operation will further or retard

these considerations. In light of Davis, we

must assume that a state's tax on pensions was

to be treated the same as one on wages with

regard to the limitations of 4 U.S.C. 111.

That, however, apparently was not the view of

the federal pensioners until the Davis decision.

From all appearances they did not assert such a

right until after this Court's determination. To

give them retrospective benefit would be to give

-32-

them refunds which they neither expected nor

made claim for until Davis was instituted.

Moreover, in Virginia the Davis type of

relief has now been granted by legislation

enacted in 1989, taking effect for taxable year

1989. In New York, a new law grants full tax

exemptions to federal pensioners under both

state and local income taxes for taxable years

beginning on or after January 1, ~~ 1989

(N.Y.Laws 1989, ch.664).

There would appear to be no ground for

treating the second prong as calling for

retrospectivity except to provide an unexpected

windfall to federal pensioners.

The third prong of Chevron weighs the

inequity of the imposition of a _ retroactive

application. As noted, there would be no

inequity to federal pensioners because all that

retroactivity would give them would be an

unanticipated refund. Judicial notice, however,

may be taken of the dire fiscal straits of states

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and cities. A study by the Federation of Tax

Administrators concludes that retroactive refund

claims could exceed $2 billion (Research Report

No. 131, April 1990, p.8, Table 3, p.18). The

impact of retroactivity would be substantial for

many, if not most, of them.

While in New York there are two factors

that would somewhat reduce the impact of a

determination that Davis applies retroactively as

compared with the impact upon Virginia, the

impact upon New York will nevertheless be

substantial. First, the State and the City of

New York have, since 1981, provided = an

exemption of up to $20,000 on all pensions of

persons 594 or older, whether the pension is

private or public [N.Y. Tax Law, §612 (c)

(3-a); N.Y¥.C. Admin. Code, §11-1712(c)

(3-a)].

Second, in New York there are limitations

on the recovery of refunds that may not be

applicable in other states. Recovery may be

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had, as in most other states, pursuant to the

administrative tax procedure. In New York an

application for such a refund must be made

within three years after the tax return was

filed or two years from the time the tax was

paid [N.Y. Tax Law, §687(a); N.Y.C. Admin.

Code, §11-1787(a)]. Recovery may also be had

in an action for money had and received with

six year period of limitations, but such a

recovery is available only when the tax payment

was made under protest or was compelled by

duress. Mercury Machine Imp. Corp. v. City

of New York. 3 N.Y.2d 418 (1957); Rochester

v. Chiarella, 58 N.Y.2d 316, 323 91983); Mtr.

of Fiduciary Trust Co. v. State Tax Comm.,

120 A.D.2d 848, 850 (3rd Dept., 1986).

Although Griffith v. Kentucky supra, has

shifted the rule with respect to criminal matters

on direct review so that any new determination

will be applied retroactively, this provides no

reason to abandon the Chevron approach to

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civil cases. A failure to apply retroactivity in

a criminal case leaves a man in prison. There

is no such drastic impact in civil cases. Often,

as in the present case, making the Davis case

retroactive would merely provide windfalls for

persons who had no reason to believe that a

portion of their taxes would he refunded.

CONCLUSION

THE JUDGMENT BELOW SHOULD BE

AFFIRMED.

Respectfully submitted,

O. PETER SHERWOOD,

Corporation Counsel of

the City of New York,

Attorney for Amicus Curiae

City of New York.

EDWARD F. X. HART,*

FRANCES J. HENN,

STANLEY BUCHSBAUM,

of Counsel.

September 4, 1992.

*Counsel of record.

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