Amicus Curiae Brief — Ashland Oil, Inc. v. Rose

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$$ No. 86-1295

© ro a IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

ASHLAND OIL, INC.,

- Appellant,

HERSCHEL H. Ross, III,

STATE TAX COMMISSIONER OF WEST VIRGINIA,

Appellee.

On Appeal from the Supreme Court

of Appeals of West Virginia

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

IN SUPPORT OF

APPELLANT’S JURISDICTIONAL STATEMENT AND

BRIEF OF THE COMMITTEE ON STATE TAXATION OF

THE COUNCIL OF STATE CHAMBERS OF COMMERCE

AS AMICUS CURIAE IN SUPPORT OF

APPELLANT’S JURISDICTIONAL STATEMENT

JEAN A. WALKER *

Tax Counsel

PAUL H. FRANKEL

Chairman, Lawyers

Coordinating Subcommittee

Committee on State Taxation

of the Council of

State Chambers of Commerce

122 C Street, N.W., Suite 200

Washington, D.C. 20001

(202) 484-8103

* Counsel of Record

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WHison - EPES PRINTING Co., INC. - 789-O096 - WASHINGTON, D.C. 29001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-1295

ASHLAND OIL, INC.,

. Appellant,

HERSCHEL H. Ross, III,

STATE TAX COMMISSIONER OF WEST VIRGINIA,

Appellee.

On Appeal from the Supreme Court

of Appeals of West Virginia

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

IN SUPPORT OF

APPELLANT’S JURISDICTIONAL STATEMENT

The Committee on State Taxation of the Council of

State Chambers of Commerce hereby respectfully moves

for leave to file the attached brief amicus curiae in this

case. The consent of the Attorney for the Appellant has

been obtained. The consent of the Attorney for the Ap-

pellee was requested and refused.

The Council of State Chambers of Commerce (COUN-

CIL), organized in 1932, consists of 41 Chambers of

Commerce. The Committee on State Taxation (COST),

one of the three advisory committees of the COUNCIL,

consists of 258 corporate members which conduct a sub-

stantial portion of the interstate commerce of United

States taxpayers. One of COST’s principal activities has

been to work with the states and others toward develop-

ing fair and equitable standards of state taxation. Mem-

ber companies of COST are representative of that part

of the Nation’s business sector which is most directly

affected by state taxation of interstate operations. COST

is, therefore, vitally interested in cases such as this one

which deprive taxpayers of the constitutional guarantees

of due process and equal protection under the Fourteenth

Amendment.

In this case, West Virginia seeks to give prospective

effect only to this Court’s decision in Armco, Inc. v. Har-

desty, 467 U.S. 638 (1984), invalidating the state’s

wholesale gross receipts tax as unconstitutionally dis-

criminatory under the Commerce Clause. Thus, the

State seeks to retain the discriminatory taxes assessed

and collected prior to this Court’s Armco decision, ex-

cept as to the taxpayer therein, thereby reaping the bene-

fits of those revenues collected under the unconstitu-

tional law. A substantial number of COST members are

among those taxpayers which are adversely affected by

the prospective ruling of the court below since the right

to recovery of these illegally-exacted taxes pursuant to

the refund statute provided by the state legislature is

effectively extinguished. If permitted to stand, the find-

ing of unconstitutional state taxation by this Court in

Armco would thus become meaningless as to these many

taxpayers.

Furthermore, an increasing number of states in recent

years have determined that judicial decisions invalidat-

ing unconstitutional state taxes should be applied pro-

spectively. In First of McAlester Corp. v. Oklahoma Tax

Commission, 709 P.2d 1026 (Okla. 1985), the Oklahoma

Supreme Court applied its decision invalidating the state

bank tax as unconstitutional under Memphis Bank &

Trust Co. v. Garner, 459 U.S. 392 (1983), prospectively

only from January 24, 1983, the date of this Court’s

decision.

In Midland Bank & Trust Co. v. Olsen, 717 S.W.2d

580 (Tn. 1986), the issue of prospective/retrospective

application arose when the Commissioner of Revenue

“Implie[d], without presenting any argument or author-

ity,” 717 S.W.2d at 583, that allowing the refund of the

taxpayers’ 1982 corporate excise taxes required retro-

active application of the Memphis Bank decision. The

court held, however, that the refunds mandated by Mem-

phis Bank did not involve the retrospective application

of that decision since the taxpayers’ cause of action did

not accrue until the 1982 taxes were due and paid under

protest which occurred after the decision was rendered.

The issue of retroactive application of this Court’s Mem-

phis Bank decision for tax years earlier than 1982 was

expressly reserved by the Tennessee Supreme Court.

In another instance where an unconstitutional taxing

scheme was found under this Court’s Memphis Bank de-

cision, the state and the city differ in their application

of the state court of appeals decision. The City of New

York has taken the position that the decision in Matter

of Forbes, Inc. v. Department of Finance, 487 N.E. 2d

252 (N.Y. Ct. App. 1985), cert. denied, US.

(Apr. 7, 1986) (No. 85-1371), invalidating the city’s

treatment of federal government obligations for general

corporation tax purposes as discriminatory and uncon-

stitutional, is to be applied prospectively from November

19, 1985, the date of the court of appeals decision. The

State of New York, however, has announced its past

policy of allowing refund claims for all open years.

Prospective effect which a North Dakota district court

gave to its ruling as of the date of the recording of

judgment was affirmed on appeal in Metropolitan Life

Insurance Co. v. Commissioner, 373 N.W.2d 399 (N.D.

1985) in a case brought by several out-of-state insurance

companies. Thus, while the taxpayers were successful in

their challenge of the state’s gross insurance premiums

tax as unconstitutionally discriminatory under this

Court’s decision in Metropolitan Life Insurance Co. v.

Ward, 105 S. Ct. 1676 (1985), the prospective ruling

effectively denied their claims for refund.

The issue of prospectivity has also been raised in a

“test case” before this Court, National Can Corporation

v. State of Washington, Department of Revenue, No. 85-

2006, in which the Appellant interstate businesses are rep-

resentative of more than 100 taxpayers engaging in in-

terstate commerce who filed substantially similar actions

in reliance upon this Court’s decision in Armco. The

Washington Department of Revenue has asked the Court,

if its ruling is adverse to the State, to apply its decision

prospectively in order to extinquish the taxpayers’ rights

to refunds. Brief for Appellee at 44-46.

Other states—including Ohio, New Jersey, Kentucky,

New York, Florida and Arizona—have also denied re-

funds to taxpayers by giving a decisional state or- local

tax rule prospective operation only. See OAMCO v.

Lindley, 27 Ohio St. 3d (1986), aff'd on rehearing,

27 Ohio St. 3d (1987) ; Salorio v. Glaser, 461 A.2d

1100, cert. denied, 464 U.S. 993 (1983); Jacobs v. Lex-

ington-Fayette Urban County Government, 560 S.W.2d

10 (Ky. 1977); Pellnat v. City of Buffalo, 59 A.D.2d

1938, 399 N.Y.S.2d 788 (1977) ; Hurd v. City of Buffalo,

41 A.D.2d 402, 343 N.Y.S.2d 950 (1973), affd, 34 N.Y.

2d 628, 311 N.E.2d 504, 355 N.Y.S.2d 369 (1974);

Gulesian v. Dade County School Board, 281 So.2d 325

(Fla. 1973) ; Southern Pacific Co. v. Cochise County, 377

P.2d 770 (1963).

Until recently, the states and taxpayers alike have

generally recognized the taxpayer’s right to a refund or

abatement of unconstitutionally exacted taxes. There is

an emerging trend by some states to apply a judicial

decision of unconstitutional state taxation only on a

prospective basis, thereby allowing them to retain the

financial benefit of the revenues collected under the un-

constitutional law. However, it has long been established

that “[t]he retention by the state of an unconstitutional

tax is as much a violation of the Constitution as was the

collection of tax in the first instance. See, Carpenter v.

Shaw, 280 U.S. 363, 369, 50 S. Ct. 121, 123, 74 L.Ed.

478 (1930).” United States v. State Tax Commission of

Mississippi, 645 F.2d 4, 5 (5th Cir.), cert. denied, 454

U.S. 896 (1981). The purpose and effect of the rule of

prospectivity adopted by the West Virginia Supreme

Court is to deny the Appellant Ashland and all other tax-

payers the remedy to which they are constitutionally

entitled.

By this motion, COST seeks leave to show that this

Court’s decision in Armco, Inc. v. Hardesty, holding the

West Virginia wholesale gross receipts tax to be uncon-

stitutional, should apply retrospectively to prevent in-

equity and protect the constitutional rights of interstate

corporate taxpayers.

COST therefore urges that leave be granted to file a

brief as amicus curiae and respectfully so moves the

Court.

Respectfully submitted,

JEAN A. WALKER *

Tax Counsel

PAUL H. FRANKEL

Chairman, Lawyers

Coordinating Subcommittee

Committee on State Taxation

of the Council of

State Chambers of Commerce

122 C Street, N.W., Suite 200

Washington, D.C. 20001

(202) 484-8103

* Counsel of Record

Dated: March 11, 1987

TABLE OF CONTENTS

Page

topy et byt) ba ye Wy 4 | 1, yf renee 1

INTEREST OF AMICUS CURIAE ..........................---- 1

SUMMARY OF ARGUMENT ............ ahiccilesiebua edict 2

PE von vectcsuhinteccn adandaeedistnanaeudaasdaingsannmtbneaamennee 2

oa aanbiininaieernasaninn 5

TABLE OF AUTHORITIES

CASES:

Bradley v. School Board, 416 U.S. 602 (1960) ........ 2

Carpenter v. Wabash Ry., 309 U.S. 23 (1940) ........ 2

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) -_-....- 3

Desist v. United States, 394 U.S. 244 (1969) _...... 3

Griffith v. Kentucky, 57 U.S.L.W. 4089 (U.S.L.W.

BE I I seca nce caclcnscgaaieneslabendacepnintavanteattamanianans 3,4

Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473

Cae ae saeeetimabanansindsndes 2

Linkletter v. Walker, 381 U.S. 618 (1965) _............. 2

Mackey v. United States, 401 U.S. 667 (1971) ........ 3

Moores v. National Bank, 104 U.S. 625 (1882)... 2

Thorpe v. Housing Authority, 393 U.S. 268 (1969) .. 2

United States v. Alabama, 362 U.S. 602 (1960)

(per curiam) ......................... ipa diandilapeuedaddanduaneainns 2

United States v. Chambers, 291 U.S. 217 (1934)... 2

United States v. Estate of Donnelly, 397 U.S. 286

E> sinks <cncastn-*k-stousvakediesnnhapaaeiaibadiasiedesansiecenawuappnimnened 4,5

United States v. The Schooner Peggy, 1 Cranch

IED os ccssinu-candanbeulgiddesayenncuacusaaceanebebsubannaen 2

Vandenbark v. Owens-Illinois Glass Ce., 311 U.S.

I, CD ataictckubinthacenciracteecnasedrdde edie cmkeeniatans 2-

Ziffrin, Inc. v. United States, 318 U.S. 73 (1943) .... 2

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-1295

ASHLAND OIL, INC.,

- Appellant,

HERSCHEL H. Ross, III,

STATE TAX COMMISSIONER OF WEST VIRGINIA,

Appellee.

On Appeal from the Supreme Court

of Appeals of West Virginia

BRIEF OF THE COMMITTEE ON STATE TAXATION OF

THE COUNCIL OF STATE CHAMBERS OF COMMERCE

AS AMICUS CURIAE IN SUPPORT OF

APPELLANT’S JURISDICTIONAL STATEMENT

INTRODUCTORY STATEMENT

This brief is submitted by the Committee on State

Taxation of the Council of State Chambers of Commerce

as amicus curiae in support of Appellant’s Jurisdictional

Statement in the above-captioned case.

INTEREST OF AMICUS CURIAE

The interest of the Committee on State Taxation of the

Council of State Chambers of Commerce is set forth in

the accompanying Motion for Leave to File Brief Amicus

Curiae.

2

SUMMARY OF ARGUMENT

This Court’s decision in Armco, Inc. v. Hardesty, hold-

ing the West Virginia wholesale gross receipts tax to be

unconstitutional, should apply retrospectively to prevent

inequitable treatment as to all interstate corporate tax-

payers.

ARGUMENT

The rule of limited retrospectivity that a change in

law must, at a minimum, be given effect while a case is

pending on direct review was established in United

States v. The Schooner Peggy, 1 Cranch 103 (1801).

While this principle was applied in Schooner Peggy where

the intervening change in law involved a treaty, this

same approach hax been applied in cases where a change

in law is made by statute, Bradley v. School Board, 416

U.S. 602 (1960); United States v. Alabama, 362 USS.

602 (1960) (per curiam) ; Ziffrin, Ine. v. United States,

318 U.S. 73 (1943); Carpenter v. Wabash Ry., 309 U.S.

23 (1940); by Constitutional amendment, United States

v. Chambers, 291 U.S. 217 (1934); by judicial decision,

Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473

(1981); Vandenbark v. Owens-Illinois Glass Co., 311

U.S. 538 (1941); Moores v. National Bank, 104 U.S. 625

(1882): and where the change in law is “constitutional,

statutory or judicial”, Thorpe v. Housing Authority, 393

U.S. 268, 282 (1969).

The rule of Schooner Peggy was noted as being appli-

cable in both civil and criminal litigation in Linkletter

v. Waiker, 381 U.S. 618 (1965) when this Court adopted

the first of its modern retroactivity tests for cases involv-

ing application of new constitutional rules. The three-

prong test established therein applied to criminal litiga-

tion and required a “weigh[ing] of the merits and

demerits in each ease by looking to the prior history of

the rule in question, its purpose and effect, and whether

retrospective operation will further or retard its opera-

tion.” 381 U.S. at 629.

3

A separate standard for governing questions of retro-

active application of new rules of law in civil cases was

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

(1971). Three factors were established as relevant in

determining whether a decision should have nonretro-

spective effect:

“First, the decision to be applied nonretroactively

must establish a new principle of law, either by

overruling clear past precedent on which the litigants

may have relied . . . or by deciding an issue of first

impression whose resolution was not clearly foreshad-

owed. . . . Second, 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 re-

tard this operation. ... Finally, we have weighed

the inequity imposed by retroactive application for

where a decision of this court would produce sub-

stantial inequitable results if applied retroactively,

there is ample basis in our cases for avoiding the

injustice or hardship by a holding of nonretroactiv-

ity.” (Citations omitted). 404 U.S. at 106-107.

Application of the retrospective standards of Linkletter

generated incompatible rules and inconsistent principles

and thus in Griffith v. Kentucky, 57 U.S.L.W. 4089

(U.S.L.W. Jan. 13, 1987), this Court adopted Justice

Harlan’s approach to retroactivity propounded in Desist

v. United States, 394 U.S. 244, 256 (1969) (dissenting

opinion) and in Mackey v. United States, 401 U.S. 667,

675 (1971). The Court held in Griffith that “a new rule

for the conduct of criminal prosecutions is to be applied

retroactively to all cases, state or federal, pending on di-

rect review or not yet final with no exception for cases

in which the new rule constitutes a ‘clear break’ with the

past.” 55 U.S.L.W. at 4092. Thus, the Court has aban-

doned its efforts, at least in the area of criminal litiga-

tion, to deviate from the established principle under the

Schooner Peggy line of cases that new rules of law should

be applied retroactively to non-final cases.

4

While it was noted in Griffith that the area of civil

retroactivity “continues to be governed by the standard

announced in Chevron Oil Co. v. Huson,” 55 U.S.L.W. at

4091, n.8, the rationale for eliminating deviating retro-

spective rules applies equally here. This Court rejected

any exception for a new rule which is a clear break with

the past for the same reasons that failure to apply a

newly-declared rule to non-final cases violates basic norms

of constitutional adjudication:

“First, it is a settled principle that this Court ad-

judicates only ‘cases’ and ‘controversies’. See U.S.

Const. Art. III, § 2. Unlike a legislature, we do not

promulgate new rules of constitutional criminal pro-

cedure on a broad basis. Rather, the nature of judi-

cial review requires that we adjudicate specific cases,

and each case usually becomes the vehicle for an-

nouncement of a new rule. But after we have de-

cided a new rule in the case selected, the integrity

of the judicial review requires that we apply the

rule to all similar cases pending on direct review.”

“Second, selective application of new rules vio-

lates the priaciple of treating similarly situated

defendants the same.” 55 U.S.L.W. at 4091.

Indeed, Justice Harlan cautioned the Court in United

States v. Estate of Donnelly, 397 U.S. 286 (1970) that

certain distinctions suggested in civil cases, such as be-

tween clear and ambiguous statutes, decisions construing

statutes for the first time, decisions overruling prior con-

structions of statutes, may lead the Court to a “retro-

activity quagmire” similar to that which it has escaped

in the criminal field. 397 U.S. at 295. In Justice Har-

lan’s view, new rules of law should be applied retrospec-

tively also in non-final civil cases, there being no justifi-

cation for applying principles, constitutional or otherwise,

determined to be wrong to litigants who are or may still

come to court. Consistent with his approach to criminal

retroactivity adopted by this Court in Griffith, “the un-

5

derlying substantive principle [is] that short of a bar

of res judicata or statute of limitations, courts should

apply the prevailing decisional rule to the cases before

them.” 397 U.S. at 297. Perhaps, it is again that time

called for by Justice Harlan when “ ‘Retroactivity’ must

be rethought.” 55 U.S.L.W. at 4091. The instant case

provides the Court that opportunity.

CONCLUSION

For the foregoing reasons, COST urges this Court to

note probable jurisdiction in the present case and give

plenary consideration to the questions discussed in Appel-

lant’s Jurisdictional Statement.

Respectfully submitted,

JEAN A. WALKER *

Tax Counsel

PAUL H. FRANKEL

Chairman, Lawyers

Coordinating Subcommittee

Committee on State Taxation

of the Council of

State Chambers of Commerce

122 C Street, N.W., Suite 200

Washington, D.C. 20001

(202) 484-8103

* Counsel of Record

Dated: March 11, 1987