Amicus Curiae Brief — Airwork Service Division v. Director, Division of Taxation of New Jersey

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

AIRWOPK SERVICE DIVISION,

Petitioner,

Vv.

DIRECTOR, DIVISION OF TAXATION,

Respondent.

On Petition for a Writ of Certiorari

to the Supreme Court of New Jersey

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE

OF THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA

IN SUPPORT OF THE PETITION

ROBIN S. CONRAD

Counsel of Record

PAULA J. CONNELLY

LYNN M. SMELKINSON

NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

Counsel for the Amicus Curiae

Chamber of Commerce

of the United States

WILSON - Eres PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 84-1506

AIRWORK SERVICE DIVISION,

Petitioner,

V.

DIRECTOR, DIVISION OF TAXATION,

Respondent.

On Petition for a Writ of Certiorari

to the Supreme Court of New Jersey

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

The Chamber of Commerce of the United States

(“Chamber”) hereby moves for leave to file the attached

brief amicus curiae in this case pursuant to Supreme

Court Rule 36.1. This brief is filed in support and with

the written consent of Petitioner Airwork Service Divi-

sion (‘“Airwork’’).1 The consent of Respondent Division

of Taxation (“Tax Division”) was requested but refused,

thus making this motion necessary.

The Chamber is the largest federation of business or-

ganizations and individuals in the United States. The

1A copy of the consent letter is being filed with the attached

brief.

Chamber’s current membership exceeds 184,000, including

over 180,000 corporations, partnerships and proprietor-

ships, as well as several thousand trade associations and

local and state chambers of commerce. The Chamber reg-

ularly advocates its members’ views in court and before

administrative agencies on issues of national concern to

the American business community. The Chamber’s inter-

est in tax issues is well-established.”

This case involves the retroactive assessment of state

sales taxes against companies that render services to out-

of-state customers.’ At issue is a constitutional question

of vital concern to the business community, that is,

whether the retroactive imposition of sales taxes based on

a revised interpretation of law, adopted without notice

and in violation of the state’s Administrative Procedure

Act, violates the constitutional guarantee of due‘ process

of law. :

The Chamber opposes the concept of retroactive law

enforcement, and has participated in several cases ad-

vocating the reversal of government actions with retro-

2 The Chamber has submitted comments to administrative agen-

cies on tax matters, and has participated as an amicus in several

cases before this Court on tax issues. See, e.g., Comments of the

Chamber of Commerce of the United States on Proposed Regula-

tions Relating to the Limitation on the Amount of Depreciation

and Investment Tax Credit for Automobiles and the Limitation

when Certain Property is Used for Personal Purposes (December

12, 1984); United States v. Arthur Young Co., 104 S.Ct. 1495

(1984) (confidentiality of tax analysis work papers); El Paso Co.

v. United States, cert. denied, 52 U.S.L.W. 3756 (U.S. April 16,

1984) (same issue as Arthur Young); Thor Power Tool Co. v. IRS,

439 U.S. 522 (1979) (whether the IRS should accept for tax pur-

poses certain inventory and accounting methods).

8 That the impact of this problem extends beyond the Petitioner

is evidenced by the Petition for Writ of Certiorari to the New

Jersey Supreme Court filed in S.G. Frantz Co. v. Director, Division

of Taxation, No. 84-1504 (U.S. Mar. 22, 1985), currently pending

before this Court.

active effect.t The Chamber believes that, in order to com-

ply with regulatory programs, businesses need to know on

a timely basis what conduct is permitted and what is

proscribed by the regulations applicable to their opera-

tions. This is particularly important with the collection

of sales taxes, because sellers have only one opportunity

to collect sales taxes, that is, at the time of sale. Once

the sale is complete, it is often too late to collect the tax,

especially when services are provided to out-of-state cus-

tomers. Accordingly, businesses must know in advance

whether they are expected to collect sales taxes for such

services, rather than learning about policy changes

through retroactive assessments by the state taxing au-

thority.

In keeping with traditional notions of fundamental

fairness, government agencies have an obligation to notify

businesses of what the law is before it is enforced against

them. The New Jersey Tax Division failed to meet this

obligation when it reversed its policy on sales tax collec-

tion without notice, and retroactively assessed uncollected

sales taxes against a company that relied on a prior pub-

lished policy statement. This retroactive assessment is

offensive to constitutional principles of due process.

In many jurisdictions, sellers are charged with the re-

sponsibility of collecting sales taxes from their customers

for the government. In their efforts to comply with these

requirements, businesses must be able to rely on official

published statements of policy issued by taxing authori-

ties. The notion that surprise retroactive tax assessments

4 See, e.g., Pension Benefit Guaranty Corporation v. R. A. Gray

& Co., US. , 104 S.Ct. 2709 (1984) (successful challenge

of the retroactive application of the Multiemployer Pension Plar

Amendments Act of 1980); United States v. Exxon Corporation,

appeal pending, No. DC-93 (Temp. Emer. Ct. App. 1983) (chal-

lenging the retroactive application of Department of Energy rules

regarding price controls).

may be made based on the taxing authority’s most cur-

rent interpretation of the law violates the most funda-

mental concepts of due process. Moreover, such assess-

ments shift the burden of the sales tax from the customer

to the vendor, converting the business from tax collector

to taxpayer.

As the principal voice of the American business com-

munity, the Chamber is well-suited to present the broad

interest of business in this case. The Chamber believes it

is important for this Court to recognize the significance

of these tax issues to business as a whole and, therefore,

respectfully requests leave to file the attached brief.

Respectfully submitted,

ROBIN S. CONRAD .

Counsel of Record

PAULA J. CONNELLY

LYNN M. SMELKINSON

NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

Counsel for the Amicus Curiae

Chamber of Commerce

of the United States

TABLE OF CONTENTS

STATEMENT OF INTEREST ...............---...---------00---++-

RN II srcnessimrccprentnsmiencensngenanenneipnnaemaneeniacnaninti

BIE, sitnceicnecntetctimgenenipnancctsennienpaenccnnbesnnmnennieinaten

I.

II.

THIS RETROACTIVE ASSESSMENT OF

UNCOLLECTED SALES TAXES VIOLATES

AIRWORK’S FOURTEENTH AMENDMENT

I aie cease asein en gnsa ee esets iedcunaiinca banearaaaiass

THE DECISION OF THE NEW JERSEY

SUPREME COURT CONFLICTS WITH THE

DECISIONS OF THIS COURT, SEVERAL

FEDERAL CIRCUIT COURTS, AND

NUMEROUS HIGHEST STATE COURTS ......

COC CEIIIN acceibletciinctesiciessinnestiansiesban Ai Meesiicdctontitian

11

ii

TABLE OF AUTHORITIES

CASES Page

Amtroniz Industries, Ltd. vy. State of Wisconsin,

Labor and Industry Review Commission, 115

Wis.2d 108, 339 N.W.2d 802 (Wis. Ct. App.

BS ili eh tieccsancid scientncasatoa iliesiansadiiegneiiapalnddonpnaesbantentatoten 9

Appeal of Denman, 120 N.H. 568, 419 A.2d 1084

ks I Becta i sl cniehainsiaanietiitateenttione 10

Blocker Drilling Canada, Ltd. v. Conrad, 354

eB Be I eS eenrees 10

Briscoe v. Kusper, 485 F.2d 1046 (7th Cir. 1970) .. 8

Cafeteria and Restaurant Workers Union v. Mc-

Elroy, 367 U.S. 886 (1961) ................................ 5

Central Illinois Public Service Co. v. United States,

ey ee IIE kescchstectendith dcacteiessnitbnceideictionincs 6,7

Coolidge v. Long, 282 U.S. 582 (1931) ............-...... «6

Department of Revenue v. Family Hospital, Inc.,_ .

105 Wis.2d 250, 313 N.W.2d 828 (Wis. 1982)... 9

Dickman v. Commissioner, —— U.S. ——, 104

Bi ie I I ctialic ania dasicnaiiennbidictbndinninsinecmses 2,8

Foote’s Dixie Dandy, Inc. v. McHenry, 270 Ark.

816, 607 S.W.2d 828 (1980) ................................. 10

George W. Davis & Sons, Inc. v. Askew, 343 So.2d

Se rk SR FED bttdpchetiigptaictctiintibiievicsccces 1

Grayned Vv. City of Rockford, 408 U.S. 104 (1972)...

Griswold vy. Connecticut, 381 U.S. 479 (1965)

Helvering V. Griffiths, 318 U.S. 371 (1943) ............

Hoffman v. City of Syracuse, 2 N.Y.2d 490, 161

Ra ee, HID cccieihcdidesiitin itt daciditiaaiseaionunce 9

Illinois Bell Telephone Co. v. Allphin, 95 Ill. App.

3d 115, 419 N.E.2d 1188 (Ill. App. 1981), af-

orn

firmed, 443 N.E.2d 580 (Ill. 1982) —.............0..... 11

In re Fox, 609 F.2d 178 (5th Cir. 1980) _............. 4

Joint Anti-Fascist Refugee Committee v. McGrath,

IE) IE IED. Aschinesninctiecicnisnctsnicicsctansesésenicse 5

Lansons, Inc. v. Commissioner of Internal Reve-

nue, 622 F.2d 774 (5th Cir. 1980) .......... 8

Lassiter v. Department of Social Services, 452

U.S. 18 (1981)

iii

TABLE OF AUTHORITIES—Continued

Market Street Ry. Co. Vv. California State Board of

Equalization, 190 P.2d 20 (Cal. Ct. App.

| IIR Se REE ESE reer WC

Mesaba Aviation Division v. County of Itasca, 258

I I I cemnenene

Metromedia, Inc. v. Director, Division of Taxation,

97 N.J. 313, 478 A.2d 742 (N.J. 1984) _..............

Mullane v. Central Hanover Bank & Trust Co., 339

i GG RR TE TE a

Nichols v. Coolidge, 274 U.S. 531 (1926) —..............

Ormet Corp. v. Lindley, 69 Ohio St. 2d 263, 431

8 8 AS

Parrat v. Taylor, 451 U.S. 527 (1980) -..................

Pennwalt Corp. v. Metropolitan Sanitary District,

382 F. Supp. 972 (N.D. Ill. 1978) ........................

Rock Island, A. & L. R. Co. v. United States, 254

A ees

Rosenow V. State of Illinois, Department of Reve-

nue, 715 F.2d 277 (7th Cir. 1983) —..........00.........

Ross Jewelers, Inc. y. State, 260 Ala. 682, 72 So.2d

RSE re es eee Se eR

S.G. Frantz Co. v. Director, Division of Taxation,

pet. for cert. filed, No. 84-1504 (U.S. Mar. 22,

I aii dtadiicieiah aisle ciel taille isa eaiisaactaniennien

United States v. Caceres, 440 U.S. 741 (1979)....

United States v. Darusmont, 449 U.S. 292 (1981)..

Untermyer v. Anderson, 276 U.S. 440 (1927)........

Vitarelli v. Seaton, 359 U.S. 535 (1959) 0...

Welch v. Henry, 305 U.S. 184 (1988) —.....0000000.....

Wendland v. Commissioner of Internal Revenue,

789 F.2d 680 (9th Cir. 1984) ..................000..00.......

Wisconsin Department of Revenue v. Moebius

Printing Co., 89 Wis.2d 610, 279 N.W.2d 213

SITTIN idnsnesih cand sipseiahiecihaiasnciialeichiacidlieidaniadilialieasastigainenananase

Woodward v. United States, 445 F.2d 1204 (1971),

affirming 322 F. Supp. 332 (W.D. Va. 1971) ......

Page

11

on ocw#n ov

iv

TABLE OF AUTHORITIES—Continued

STATUTES

New Jersey Administrative Procedure Act,

I nn OB I ac ev icnesctnicindintnceneores

OTHER MATERIALS

Assembly Taxation Committee Statement, No.

I Taina eatiamnieannpeienininngnaanes

Comment, Developments in the Law, The Constitu-

tion and the Family, 93 Harv. L. Rev. 1156

SI citroen aicieeal taaieniahianehanireimnatngeanapeontaieerees

Mcquire and Limet, Hobson’s Choice and Similar

Practices in Federal Taxation, 48 Harv. L. Rev.

BE IIIT on) nceptehineancetaapacbinteiareenntaatntgnmaniegaave

Page

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 84-1506

AIRWORK SERVICE DIVISION,

Petitioner,

Vv.

DIRECTOR, DIVISION OF TAXATION,

Respondent.

On Petition for a Writ of Certiorari

to the Supreme Court of New Jersey

BRIEF AMICUS CURIAE

OF THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA

IN SUPPORT OF THE PETITION

STATEMENT OF INTEREST

The Chamber of Commerce of the United States

(“Chamber”) respectfully refers this Court to its Mo

tion for Leave to File Brief Amicus Curiae for a state-

ment of its interest in this proceeding.

INTRODUCTION

American businesses are subject to a number of fed-

eral and state regulatory programs. In order to func-

tion efficiently and in compliance with applicable regu-

2

lations, they must be able to readily ascertain the mean-

ing of those regulations. Without clarity, companies can-

not determine whether their business decisions are lawful

or unlawful. While it is unquestionably the duty of Amer-

ican businesses to comply with the law, it is the duty of

the government to make clear what the law is, in ad-

vance, so that companies can comply with it. Grayned v.

City of Rockford, 408 U.S. 104, 108 (1972). Clear regu-

lations are especially important when they involve the

collection of sales taxes, a one-time activity occurring only

at the time of sale. The New Jersey Division of Taxatior

(“Tax Division”), as detailed below,’ failed to make its

requirements clear, and now seeks to make Petitioner Air-

work Service Division (“Airwork”) bear the burden of

its failure.

In 1966, the Tax Division issued an “Official News

Release” which provided that charges for repairs to arti-

cles delivered out of state were exempt from the state

sales tax.2 No vendor, viewing this statement, could

reasonably have suspected that a taxing obligation ex-

isted for such services.* In 1973, the Tax Division pub-

lished a statement reversing its prior position, ruling

that the services were subject to the tax. From 1966 to

1973, the Division gave no notice of any kind of its

change in policy. The 1966 release was neither with-

1A brief restatement of the facts is necessary to adequately

present the fairness issue to this Court.

2The Tax Division was under no obligation to “assert a par-

ticular position as soon as the statute authorize[d] such an inter-

pretation.” Dickman v. Commissioner, —— U.S. ——, 194 S. Ct.

1086, 1094 (1984). But the Division did assert an official position

in 1966, and issued a news release to publicize it.

3 The Division’s “Official News Release” stated :

Charges for repairs where the articles upon which the work

is performed are delivered, upon completion, pursuant to coxi-

tract, to a purchaser outside the State for use outside the

State are exempt from the sales tax.

3

drawn nor corrected. Moreover, the Tax Division audited

Airwork during that period and did not assess the com-

pany for any tax deficiency.

In 1973, the Ta> Jivision assessed Airwork for more

than $600,000 in uncollected sales taxes, contending that

the company should have known of its change in policy.

This assessment had the effect of requiring the company

to pay out of its own pocket taxes which it would have

collected from its customers, had it not followed the Tax

Division’s own written directive on the issue. The fun-

damental unfairness of this result is striking, and the

intervention of this Court is needed to protect the com-

pany’s constitutional right to due process of law.‘

ARGUMENT

I. THIS RETROACTIVE ASSESSMENT OF

UNCOLLECTED SALES TAXES VIOLATES

AIRWORK’S FOURTEENTH AMENDMENT

RIGHTS.

The Due Process Clause of the Fourteenth Amend-

ment prohibits the states from depriving any person of

life, liberty or property without due process of law.

New Jersey’s retroactive assessment against Airwork of

sales taxes the company did not collect in reliance on

the Tax Division’s “Official News Release” is repugnant

to this constitutional guarantee.

Pursuant to the doctrine of substantive due process,

“governmental deprivations of life, liberty or property

* Also at issue is the constitutionality of imposing sales taxes on

nonresident purchasers of services performed in state and de-

livered out-of-state under the Commerce Clause, the Equal Protec-

tion Clause, and the Due Process Clause. The Chamber believes

that these significant issues are thoroughly addressed in the Peti-

tion for Writ of Certiorari to the New Jersey Supreme Court filed

in S.G. Frantz Co. Vv. Director, Division of Taxation, No. 84-1504

(U.S. Mar. 22, 1985), currently pending before this Court. Rather

than burdening the Court with a restatement of these arguments,

the Chamber respectfully directs the Court’s attention to that

Petition.

4

are subject to limitations regardless of the adequacy of

the procedures employed.” * New Jersey’s retroactive ap-

plication of its change in tax policy, adopted without

complying with state administrative procedures,’ so egre-

giously offends Airwork’s due process rights that it com-

pels this Court’s review.

In normal circumstances, sales tax liability falls on

the purchaser, not the seller." The seller merely collects

the tax under the authority and for the benefit of the

state, adding it to the price of the goods or services of-

fered. In this case, however, New Jersey has turned

tax policy inside out, converting the seller from a tax

collector to a taxpayer.

5 Comment, Developments in the Law—The Constitution and the

Family, 93 Harv. L. Rev. 1156, 1166 (1980). See also, Parrat v.

Taylor, 451 U.S. 527, 545 (1980) (Blackmun, J., concurring) ;

Griswold v. Connecticut, 381 U.S. 479, 4938 (1965) (Goldberg, J.,

concurring).

®*The New Jersey Administrative Procedure Act, N.J.S.A.

52:14B-1 et seq., mandates the completion of certain notice and

comment procedures before a valid administrative rule can be

adopted. Absent compliance with these requirements, the Tax

Division’s change of official policy was invalid, despite reliance

on broad statutory authority. See, Metromedia, Inc. v. Director,

Division of Taxation, 97 N.J. 313, 478 A.2d 742, 752 (N.J. 1984)

and Airwork’s Petition at 8.

T Collection of these taxes by the seller is similar to “trust fund

taxes,” a term of art used to describe, inter alia, employment

withholding deductions. See Rosenow v. State of Illinois, Dept. of

Revenue, 715 F.2d 277, 279 (7th Cir. 1983).

8 See Rosenow Vv. State of Illinois, Dept. of Revenue, 715 F.2d

at 281 and n.6 (the sales tax obligation remains primarily that

of the purchaser, who remains liable for the tax if the seller fails

to collect it); Pennwalt Corp. v. Metropolitan Sanitary District,

382 F. Supp. 972, 978 (N.D. Ill. 1978) ; Ross Jewelere, Inc. v. State,

260 Ala. 682, 72 So.2d 402 (1953) (the ultimate burden of sales

taxes is on consumers, not sellers). See also, In re Fox, 609 F.2d

178, 181 (5th Cir. 1980).

5

This Court has noted repeatedly that due process “is

not a technical conception with a fixed content unrelated

to time, place and circumstances.” Cafeteria and Res-

taurant Workers Union v. McElroy, 367 U.S. 886, 895

(1961), quoting Joint Anti-Fascist Refugee Committee

v. McGrath, 341 U.S. 128, 162 (1951) (Frankfurter, J.,

concurring). Rather, “fundamental fairness” must be

accorded in light of all the circumstances. Lassiter v.

Department of Social Services, 452 U.S. 18, 24-25

(1981).® This direct assessment against a taxpayer who

followed the taxing authority’s published directive in an

earnest effort to fulfill its role as sales tax collector of-

fends all notions of fundamental! fairness.

This Court has invalidated retroactive taxes when

their application is “so harsh and oppressive as to trans-

gress the constitutional due process limitation.” Welch

v. Henry, 305 U.S. 134, 147 (1938). This analysis may

take into account whether the taxpayer could have al-

tered its behavior to avoid liability if the tax could have

been anticipated at the time of the transaction, and

whether the taxpayer had notice of the tax. United States

v. Darusmont, 449 U.S. 292 (1981).

Thus, this Court has held retroactive application of a

tax so arbitrary and oppressive as to be a denial of due

process in cases in which the taxpayer might well have

refrained from a particular course of action, had it

anticipated the tax.’° And the Court has invalidated

® See also, Mullane Vv. Centrai Hanover Bank & Trust Co., 339

U.S. 306 (1950) (fundamental fairness is what due process means) ;

Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. at 162

(Frankfurter, J., concurring) (due process “[r]epresent[s] a pro-

found attitude of fairness between .. . the individual and govern-

ment”).

10 See, Coolidge v. Long, 282 U.S. 582 (1931); Untermyer v.

Anderson, 276 U.S. 440, 445 (1927); Nichols v. Coolidge, 274 U.S.

531, 542 (1926).

6

retroactive tax determinations as unfair in circumstances

where the taxpayer could not reasonably have known of

its liability. In Central Illinois Public Service Co. V.

United States, 485 U.S. 21, 32 (1978), the Court invali-

dated the retroactive application of a rule requiring em-

ployers to withhold certain taxes from employees’ wages.

The Court stated: “In 1963 not one regulation or ruling

required witholding . .. . No employer, in viewing the

regulations, could reasonably suspect that a withholding

obligation existed.” ™

Fairness requires administrative agencies to abide by

their own rules until they are lawfully changed. Vitarelli

v. Seaton, 359 U.S. 585 (1959). This is especially true

when an individual or company “reasonably relied on

agency regulations promulgated for his guidance or

benefit and has suffered substantially because of their

violation by the agency.” United States v. Caceres, 440

U.S. 741, 752-53 (1979).

Had Airwork known of the Division’s change in tax

policy, it would have passed this liability to its cus-

tomers during the years in question. In fact, as soon

as the company learned, through the Division’s 1973

publication announcing the change, that services to its

nonresident customers were indeed taxable, it immedi-

ately began to collect sales taxes from those customers.

The New Jersey assessment violates basic notions of fun-

damental fairness and due process. Its imposition con-

verts Airwork from a state-mandated sales tax collector

to a taxpayer, shifting the burden of tax liability from

the purchaser to the seller without due process, indeed

without any process at all. This result is unconstitu-

tional and must not be allowed to stand.

11 See also, Helvering V. Griffiths, 318 U.S. 371 (1948).

7

II. THE DECISION OF THE NEW JERSEY SUPREME

COURT CONFLICTS WITH THE DECISIONS OF

THIS COURT, SEVERAL FEDERAL CIRCUIT

COURTS, AND NUMEROUS HIGHEST STATE

COURTS.

The New Jersey Supreme Court’s decision to uphold

the retroactive assessment against Airwork conflicts with

a decision of this Court, and with numerous circuit and

state court decisions. This conflict alone meets one of the

traditional standards for exercise of this Court’s jurisdic-

tion and has far-reaching implications for all taxpayers.

In Central Illinois, this Court struck down a retroac-

tive assessment of taxes in circumstances analogous to

this case. 435 U.S. 21. The decision below directly con-

flicts with this Court’s decision. Accordingly, this Court

should grant the petition for review.

In invalidating the retroactive assessment against Cen-

tral Illinois, this Court found that “imposition of taxes

retroactively . . . would not serve the important func-

tion of ensring that all similarly situated taxpayers are

assessed equally. Instead, the likely effect would be that

. . . petitioner will bear the tax directly rather than

simply acting as a collection conduit ....” 435 U.S. at 38

(Brennan, J., concurring). The same result obtains in

this case. Converted from tax collector to taxpayer, Air-

work is required to pay uncollected sales taxes out of its

own pocket. The unfairness of this result was recognized

by New Jersey’s own legislature when it enacted a for-

rial sales tax exemption for repairs provided to out-

of-state purchasers. The Committee stated: “Such taxes,

when assessed against New Jersey businesses, in many

cases incur a loss because they are unable to collect from

customers after the fact.” Assembly Taxation Committee

Statement, No. 1787, L. 1977 ¢c. 54.

Several federal circuit courts also have invalidated

retroactive agency determinations on the basis of fair-

8

ness. Others have noted the sufficiency of process accorded

in upholding such determinations. Of particular note are

Lansons, Inc. v. Commissioner of Internal Revenue, 622

F.2d 774 (5th Cir. 1980) and Briscoe v. Kusper, 435

F.2d 1046 (7th Cir. 1970).

In Lansons, the Fifth Circuit refused to permit the

IRS to retroactively revoke its determination that the tax-

payer’s trust plan was a qualified trust. The court noted

that the taxpayer had substantially relied in good faith

on the Commissioner’s determination, and held that retro-

active revocation would produce an “inordinate adverse

effect.” 622 F.2d at 778. The Fourth Circuit approved

the same analysis in Woodward v. United States, 445 F.2d

1204 (1971), affirming 322 F. Supp. 332 (W.D. Va.

1971).

In Briscoe, the Seventh Circuit emphasized that an

agency “may not deviate from .. . prior rules of decision

on the applicability of a fundamental directive without

announcing in advance its change in policy.” 435 F.2d

at 1055. Moreover, the court stated, “[u]ntil such time

as [the agency] makes public its new determination, it is

constitutionally prohibited from imposing that rule on

unsuspecting persons.” Id.

Numerous highest state courts also have invalidated

retroactive tax liability on the grounds of due process and

fundamental fairness. Many of these cases resemble the

case at bar both because of the taxpayers’ reliance on

prior government actions and their current inability to

collect the tax.

12 See also, Wendland v. Commissioner of Internal Revenue, 739

F.2d 580 (9th Cir. 1984) (court noted that the taxpayers had

notice of an impending tax policy through a news release and publi-

cation of proposed and final versions in the Federal Register, and

thus upheld retroactive application). And just this term, this Court

noted, in upholding retroactive application of a tax policy, that the

taxpayer had notice of it in advance of the contested actions. |

Dickman v. Commissioner, 104 S. Ct. at 1094 n.18 (1984).

9

The Court of Appeals of New York refused to allow

a retroactive sales tax assessment in Hoffman v. City of

Syracuse, 2 N.Y.2d 490, 161 N.Y.S.2d 111, 116 (1957),

declaring:

[I]t hardly needs statement that the city is not en-

titled to hold the liquor dealers liable for the higher

sales tax which they could have charged and col-

lected, had the commissioner not directed a contrary

course of action during that period... . [I]t would

be unthinkable to hold [the sellers] responsible for

the larger amounts they would have collected... .

The Supreme Court of Wisconsin has struck down sev-

eral retroactive sales tax assessments. In Wisconsin De-

partment of Revenue v. Moebius Printing Co., 89 Wis.2d

610, 279 N.W.2d 2138, 225 (1979), noting that it was un-

clear whether the taxpayer could collect the tax retro-

actively from its customers, the court held that govern-

mental conduct which works a “serious injustice” cannot

be permitted. In that case, the taxpayer had not col-

lected the tax in reliance on the post-audit letter of a

state auditor, which indicated that the company was doing

an “excellent all around job” in complying with the state

sales tax law. The court also found it significant that

shortly after the tax period at issue, the lezislature en-

acted a sales tax exemption covering precisely the type

of sale the state was attempting to tax. As noted above,

the New Jersey legislature enacted an exemption from the

sales tax at issue here in 1977.

In Department of Revenue v. Family Hospital, Inc., 105

Wis.2d 250, 313 N.W.2d 828, 832 (Wis. 1982), the Wis-

consin Supreme Court invalidated a retroactive sales tax

assessment on a hospital’s parking receipts, after th.: hos-

pital relied on a “technical information memorandum”

stating that such receipts were non-taxable. Once again,

the court emphasized its “interest in guaranteeing that

taxpayers receive fair play from our state’s tax enforce-

ment officials.” See also, Amtronix Industries, Ltd. v.

10

State of Wisconsin, Labor and Industry Review Comm’n,

115 Wis.2d 108, 3389 N.W.2d 802, 806 (Wis. Ct. App.

1983) (court invalidated retroactive assessment of un-

employment taxes, noting that company was “trapped,”

because it could not now change the employment relation-

ship it held in prior years with its subcontractors).

The Supreme Court of Arkansas refused to allow a re-

troactive assessment of unemployment insurance contribu-

tions in Foote’s Dixie Dandy, Inc. v. McHenry, 270 Ark.

816, 607 S.W.2d 323, 327 (1980), again on the basis of

fairness. In discussing this issue, the court quoted this

Court’s statement in Rock Island, A. & L. R. Co. v. United

States, 254 U.S. 141, 143 (1920) that “[m]Jen must turn

square corners when they deal with the government,” and

its “logical corollary” that “the government [should be]

held to a like standard of rectangular rectitude when

dealing with its citizens.” 607 S.W.2d at 307, quoting,

Mcquire and Limet, Hobson’s Choice and Similar Prac-

tices in Federal Taxation, 48 Harv. L. Rev. 1281, 1299

(1935). See also, Flocker Drilling Canada, Ltd. Vv.

Conrad, 354 N.W.2d 912, 922 (N.D. 1984) (Supreme

Court of North Dakota invalidated reassessment on the

grounds of “manifest injustice to the taxpayers”).

Similarly, courts in New Hampshire, Minnesota, Ohio,

Florida, California and Illinois have refused to al-

low retroactive assessments of taxes. Generally, these

cases involve companies, like Airwork, that had insuffi-

cient notice of the tax or reasonably relied on official

statements exempting them from liability. See, e.g., Ap-

peal of Denman, 120 N.H. 568, 419 A.2d 1084, 1088 (N.H.

1980) (“a reasonable reading of the regulations” would

not have indicated that sales taxes should be collected) ;

Mesaba Aviation Division v. County of Itasca, 258 N.W.2d

877, 880-81 (Minn. 1977) (if a specific representation

is authoritatively made and invites reliance, and tax-

payer’s change of position makes it inequitable to retract

the representation, the government may be prevented from

11

imposing retroactive assessment) ; Ormet Corp. v. Lindley,

69 Ohio St. 2d 263, 431 N.E.2d 686, 689 (1982) (court

invalidated retroactive assessment of sales and use tax on

company’s machinery, noting long-established administra-

tive practice of considering the plant exempt). Other

state courts have applied similar analyses. See George

W. Davis & Sons, Inc. v. Askew, 343 So.2d 13829, 1332

(Fla. App. 1977); Market Street Ry. Co. v. California

State Board of Equalization, 290 P.2d 20, 30 (Cal. Ct.

App. 1955); Illinois Bell Telephone Co. v. Allphin, 95

Ill. App. 3d 115, 419 N.E.2d 1188, 1196-97 (Ill. App.

1981), affirmed, 443 N.E.2d 580 (Til. 1982).

The overwhelming weight of aithority thus precludes

a retroactive assessment such as the cne imposed on Air-

work. The decision of the New Jersey Supreme Court

conflicts with the holdings of courts on every level, in-

cluding this Court. Accc- uingly, it is imperative that this

Court review the decision and eliminate this conflict.

CONCLUSION

In order to protect Airwork’s constitutional rights and

resolve the conflict among the lower courts, the Chamber

respectfully urges this Court to grant the Petition For a

Writ of Certiorari.

Respectfully submitted,

ROBIN S. CONRAD

Counsel of Record

PAULA J. CONNELLY

LYNN M. SMELKINSON

NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

Counsel for the Amicus Curiae

Chamber of Commerce

of the United States

April 22, 1985