Reply Brief — Taber v. Pledger

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IN THE

Supreme Court of the United States

October Term, 1990 ~

BILL TABER, pa

- TABER’S GRASS FARM

Petitioncr

v.

JAMES C. PLEDGER, DIRECTOR,

ARKANSAS DEPARTMENT OF

FINANCE AND ADMINISTRATION

Respondent

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ARKANSAS

PETITIONER’S REPLY BRIEF TO

RESPONDENT’S BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ARKANSAS

EUGENE G. SAYRE

Jscx, Lyon & JONES

3400 TCBY Tower

425 West Capitol Avenue

Little Rock, Arkansas 72201

(501) 375-1122

Counsel of Record for Petitioner

TREVATHAN PRESS « LITTLE ROCK

TABLE OF CONTENTS

Page

1. This Court’s recent decision in McKesson held

that “federal” due process standards require

that the states provide either a pre-deprivation

hearing or a post-deprivation hearing to the

contesting taxpayer. These hearings must be

“judicial reviews,” not “administrative reviews,”

of the disputed tax ASSCSSMEMNIS..........sesceresereeereceeeneers 2

a. Judicial review of a disputed tax assessment

is required for a state to meet the “federal”

guaranteed rights of due process of the laws........ 3

b. The pre-deprivation review afforded the

taxpayer by the Arkansas Tax Procedure Act

was an administrative review, not a judicial

review, and therefore it clearly cannot be

deemed to have met the “federal” due proc-

COB CT inoee cteccnnevenennsnnssansicenionvaennnnapsnisnanvenes 5

c. Arkansas’ Tax Procedure Act provides only a

post-deprivation basis for judicial review of

the Respondent’s actions in assessing state

2. The lowa Supreme Court, in a post-McKesson

decision, has rendered a ruling in direct conflict,

for “federal” due process purposes, with the

decision of the Arkansas Supreme Court in this

FI COI nencnsnnicctsnszanenssnincinttheintinpuinisennitiaabiaanieatlaseibasnitetineenne 9

IT RR NOREEN TW PRE a OOP Ler er -aei 10

il PETITIONER'S REPLY BRIEF

TABLE OF AUTHORITIES

Cases: -

Baker v. Carr, 369 U.S. 186 (1962)... eeeseseeeees

Commissioner v. Shapiro, 424 U.S. 614 (1976)

Flora v. United States, 362 U.S. 145 (1960)...

Laing v. United States, 423 U.S. 161 (1976).....

Marbury v. Madison, 1 Cranch 137, 2 L.Ed.2d

RR ee RE a

McKesson Corp. v. Div. of Alcoholic Beverages

and Tobacco, 495 U.S. —, 110 S.Ct.

a EE sevstiisoncinnicnaiinasssindasmaebuaianiis

Nixon v. Administrator of Genera! Services,

SS TF RR CAST Tp pscessccctcsesss cavevscsicanssnsenes

eeeceee

Northern Pipeline Co. v. Marathon Pipeline Co.,

BFF Geis PE ERED weccsesinseccernameeninionaanansnnsin

Pledger v. Boyd, Arkansas Sup. Ct. Docket

A, Ie vesncinechsiiicdensisennninnuninesiinalatildanpniasinate

Powell v. McCormack, 395 U.S. 486 (1969).....

Schroeder Oil Co. v. Dept. of Rev. & Finance,

458 N.W.2d 602 (La. 1990)... ee eeeeeees

Constitutional Provisions:

U.S. Constitution:

Fifth Amendment ....................cceceeescceeeeeeees

Fourteenth Amendment.................ccccceeeees

Statutory Provisions:

Ark. Code Ann. §25-15-212........ccccsceseeeees

Ark. Code Ann. §26-18-404..........ccceeeeee

Ark. Code Ann. §26-18-405...........ccccsesceseseeees

eeeeree

eeeeeee

eeeseee

passim

passim

PETITIONER'S REPLY BRIEF 1

Ark. Code Ann. §26-18-406.............cccccccesseeeeees 4,8

Ark. Code Ann. §26-18-507..............ccccccseeeseeees 8

Ark. Code Ann. §26-18-701

od

a |

No. 90-484

IN THE

Supreme Court of the United States

October Term, 1990

BILL TABER, bD/pa

TABER’S GRASS FARM

Petitioner

v.

JAMES C. PLEDGER, DIRECTOR,

ARKANSAS DEPARTMENT OF

FINANCE AND ADMINISTRATION

Respondent —

PETITIONER’S REPLY BRIEF

)

The Petitioner will address separately be-

low the points raised by Respondent Pledger in his Brief

in Opposition. The Petitioner will also specifically ad-

dress the real conflict that now exists between the ration-

ale of the Arkansas Supreme Court’s decision in this Tab-

er case and that set forth by the Iowa Supreme Court in

that court’s recent decision in the case of Schroeder Oil

Co. v. Dept. of Rev. & Finance, 458 N.W.2d 602 (Ia. 1990).

The Iowa Supreme Court held, in its Schroeder Oil case,

that a taxpayer’s “federal” Fourteenth Amendment rights

to due process were denied to the protesting taxpayer in

2 PETITIONER'S REPLY BRIEF

that case, because there was a total lack of post-depriva-

tion review available to the taxpayer to contest the state

excise tax assessment under Iowa’s tax procedure statutes.

1. This Court's recent decision in McKesson

held that ‘‘federal’’ due process standards

require that the states provide either a pre-

deprivation hearing or a post-deprivation

hearing to the contesting taxpayer. These

hearings on the disputed tax assessments

must be ‘‘judicial reviews," not state tax

“administrative reviews.’

The Respondent’s on/y real argument in

opposition to the Petitioner’s Petition for Certiorari is

that the Petitioner has been afforded a pre-deprivation

hearing on the merits, and that he is therefore not also

entitled to a post-deprivation hearing on the merits.

(Resp. Br. 3-5). The Petitioner submits that the Respond-

ent cleirly misrepresents or inisinterprets what this Court

held was required of states to meet “federal” due process

standards in McKesson Corp. v. Div. of Alcoholic Beverages

and Tobacco, 485 U.S. —, 110 S.Ct. 2238 (1990). There,

this Court clear!y indicated that any pre-deprivation hear-

ing must be a “judicial hearing,” as Lpposed to an “ad-

ministrative hearing.” Therefore, the in-house “adminis-

trative review” provided to the Petitioner by the

Respondent’s agents, under the provisions of the Arkan-

sas Tax Procedure Act (ATPA) (Ark. Code Ann. §26-18-

404 and 405) falls woefully short of meeting this Court’s

mandate that the states must provide taxpayers with a fair

PETITIONER'S REPLY BRIEF 3

opportunity for a “‘judicial hearing” within which to

contest the validity and legality of the assessed state tax.

Mr. Taber has been totally denied his rights to “federal”

due process by the State of Arkansas in this contested

Sales Tax assessment.

a. A judicial review of a disputed tax as-

sessment is required for a state to meet the

“federally” guaranteed rights of due process

of the laws.

In McKesson, 110 S.Ct. at 2250, this Court

held that the states must provide cither a pre-deprivation

hearing or a post-deprivation hearing to give the protest-

ing taxpayer “a fair opportunity to challenge the accuracy

and iegal validity of the tax obligation.” This Court clear-

ly stated (with regard to the pre-deprivation alternative)

that:

Because the exaction of a tax constitutes depriva-

tion of property, the State must provide proce-

dural safeguards against unlawful exactions in

order to satisfy the requirements of the due

process clause. The State may choose to provide

a form of ‘pre-deprivation process,’ for example,

by authorizing taxpayers to bring suit to enjoin im-

position of a tax prior to its payment, or by allowing

payers to withhold payment and then interpose their

objections as defenses in @ tax enforcenient pro-

ceeding initiated by the State. [Emphasis

4 PETITIONER'S REPLY BRIEF

Supplied}!

The “preassessment” or pre-deprivation”

administrative review granted to Arkansas taxpayers by

the provisions of Ark. Code Ann. §§26-18-404 and 405,

though providing taxpayers with some rudimentary

procedural due process, it is not the type of procedural

due process guaranteed to a taxpayer by the Fourteenth

Amendment. This “federally” guaranteed right to due

process means that the taxpayer is entitled to a “judicial

review” of his dispute with the tax administrator, especial-

ly in a post-deprivation setting where the tax is contested

by the taxpayer.” This Court’s admonition that taxpayers

must be provided a “ fair opportunity to challenge the

accuracy and legal validity” of the tax assessment, can

only be satisfied by a “judicial review” of the actions of

the personnel of the Executive Branch; in light of the tax

statute adopted by the Legislative Branch; with both oth-

er branch’s actions being governed by the parameters of

Ime Petitioner submits that this Court clearly indicated in this passage from the

Mckesson decision that the required “pre-deprivation” hearing process involve ei-

ther (1) a suit for injunction or declaratory judgment, or (2) a contest in a collection

suit by the state. Ark. Code Ann. §26-18-406(d) specifically prohibits a taxpayer

from secking injunctive or declaratory relief in the Arkansas courts. Here, though

the Respondent could have initiated a collection suit against Taber, he chose, in-

stead, to use summary methods of collection through levy and distraint processes

provided by Ark. Code Ann. §26-18-701. (Petitioner's Pet., App. C, 13a).

‘The Petitioner has never stopped protesting the assessment in question. There-

fore, he has not voluntarily allowed his procedural rights to lapse, notwithstanding

any implication to the contrary by the Respondent. (Resp. Br. 4-5).

PETITIONER'S REPLY BRIEF 5

the U.S. Constitution.“

b. The pre-deprivation review afforded the

taxpayer by the Arkansas Tax Procedure Act

was an administrative review, not a judicial

review, and therefore it clearly cannot be

“deemed to have met the “‘iederai’’ due

process requirements.

In his brief in opposition, the Respondent’s

counsel artfully attempts to clothe the pre-deprivation

“administrative hearing” afforded taxpayers under the

terms of the ATPA with judicial trappings by using terms

such as “a trial on the merits” (Resp. Br. 2); the hearing

was in “an Administrative Law Court” (Resp. Br. 1); or

the Administrative Law Judge renders his decision in

writing with “findings of fact and conclusions of law based

upon the evidence presented at trial.” (Resp. Br. 4).

However, the plain and unvarnished truth is that the pre-

deprivation review procedure afforded a contesting

Arkansas taxpayer (under the provisions of Ark. Code

Ann. §§26-18-404 and 405) is strictly an “administrative

review” (manned by a member of the Executive Branch

of Arkansas’ state government). These personnel answer

to the ultimate administrator (the Respondent) of the

>See Marbury v, Madison, 1 Cranch 137, 177, 2L.Ed.2d 60 (1803); Baker v. Carr,

369 U.S. 186 at 217 (1962); Powell v. McCormack, 395 U.S. 486, 521 (1969); Nixon v.

Administrator of General Services, 433 U.S. 425, 503 (1977); and Northern Pipeline

Co. v, Marathon Pipeline Co., 458 U.S. 50, 61-62 (1902).

6 PETITIONER'S REPLY BRIEF

challenged Sales Taxes;* the Arkansas Rules of Evidence

are ot applicable in these hearings; and the hearings are,

by their nature, very similar to an informal Appellate Di-

vision conference with an IRS representative, under the

similar federal tax procedure scheme.

A meaningful type of “‘pre-deprivation

review” that could be afforded a protesting taxpayer

would be one where an appeal could be taken by the tax-

payer, from the tax administrator’s adverse administrative

decision, directly into the state court system without the

necessity of making payment of the disputed assessment.

Such a “pre-deprivation review” would be afforded under

Arkansas’ general Administrative Procedure Act (Ark.

Code Ann. §25-15-212), but the provisions of the ATPA

(§26-18-405) specifically exclude tax controversies from

being subjected to the provisions or requirements of the

Arkansas Administrative Procedures Act.

Finally, in a refund action by a similarly sit-

uated Arkansas sod farmer-taxpayer, Coy Mac Boyd (who

was financially able to afford to “make full payment” of

+The administrative review is performed by the tax administrators within the Execu-

tive Branch of Arkansas’ state government, and the final appeal provided by §26-18-

405(d)(4) is to the Commissioner of Revenues. In fact, that option was exercised by

Taber and denied by the Respondent in this case. The Respondent, in his letter

denying the requested revision in the taxpayer's favor, notified Taber that the tax-

payer had “exhausted his administrative remedies.”

‘A system similar to the U.S. Tax Court tax procedure in the federal tax procedures

system.

PETITIONER'S REPLY BRIEF 7

the entire amount of Sales Taxes assessed by the Re-

spondent), secured an objective and independent “judi-

cial review” of his claim that his sales of sod qualified for

the exemption for the sale of “raw farm products,” where

the chancellor in the trial found against the Respondent,

and, in effect, against the Respondent’s Hearing Officer

who had previously rendered adverse “administrative

decisions” against both Taber and Boyd at this “adminis-

trative review” level.°

c. Arkansas’ Tax Procedure Act provides

only a post-deprivation basis for judicial re-

view of the Respondent’s actions in assess-

ing state taxes.

There are only two ways that a taxpayer

contesting an Arkansas state tax may secure a “judicial

review” of his dispute with the Respondent under the

ATPA. Both of these statutory causes of action, the “pro-

test provision” (§26-18-406) and the “claim for refund”

°-see the decision of the Honorable Ralph E. Wilson, Jr., in the case of Coy Mac

Boyd, d/b/a Turf Plantation v. Ragland, Commissioner of Revenues, Craighead

County Chancery Court Docket No. 89-1153 (Pet. App. D, p. 22a). This case is now

pending appeal before the Arkansas Supreme Court in an action styled Pledger v.

Boyd, Arkansas Sup. Ct. Docket No. 90-236. However, even if Coy Mac Boyd is suc-

cessful in defending his right to claim the exemption for the sale of “raw farm

products,” and the Respondent decides to apply that decision both retroactively and

prospectively to all taxpayers (including Taber), such administrative acticn will not

moot the taxpayer's claim of a denial of the “federal” due process of law guaranteed

to him by the Fourteenth Amendment, because this procedural defect will remain as

long as the Arkansas Supreme Court’s decision in Taber v. Pledger remains as the

controlling law for the State of Arkansas.

8 PETITIONER'S REPLY BRIE!

provision (§26-18-507), are available only after the dis-

puted tax has been paid. In fact, the decision of the Ad-

ministrative Hearing Officer in this case is not even bind-

ing upon the Respondent, since §26-18-406(b)(1) pro-

vides that the entire matter “shall be tried de novo” in the

Chancery Court.

To rectify the State of Arkansas’ denial of

Taber’s “federal” due process rights under the rationale

of this Court’s McKesson decision,’ this Court does not

have to strike down the provisions of either Ark. Code

Ann. §§26-18-406 or 507 as being unconstitutional. In-

stead, all this Court has to do is provide that the “divisi-

ble tax rule” and the “partial payment exception” to the

“full payment rule” (for contesting federal excise taxes

under the Fifth Amendment) applics equally under the

Fourteenth Amendment to challenges by taxpayers to

state excise taxes. Thus, by requiring state courts to follow

this Court’s mandate on this issuc, as set cut in Flora v.

United States, 362 U.S. 145 (1960), the constitutional di-

lemma can be solved and the “federal” due process rights

under either the Fifth or Fourteenth Amendment for all

taxpayers contesting excise taxes (whether of a federal or

state naturc) will be the same.

‘A copy of this Court’s decision in McKesson was provided to the members of the

Arkansas Supreme Court shortly before the oral argument was held in this case in

early June of 1990. From a reading of the opinion rendered in the court below, it is

obvious that the Arkansas Supreme Court did .0t recognize or adhere to this

Court’s reading of the “federal” due process rights guaranteed to Taber under the

Fourteenth Amendment.

PETITIONER'S REPLY BRIEF 9

2. The lowa Supreme Court, in a post-

McKesson decision, has rendered a ruling in

direct conflict, for federal due process pur-

poses, with the decision of the Arkansas

Supreme Court in this Taber case.

The Respondent argues (Resp. Br. 5-8) that

the State of lowa’s taxing procedures are so different

from those provided by the ATPA that the post McKesson

decision of the lowa Supreme Court in the case of

Schroeder Oil Co. v. lowa State Department of Revenues

and Finance, 458 N.W.2d 602 (July 18, 1990), should not

be considered as conflicting with the Arkansas Supreme

Court’s decision in this Taber case. Even a cursory exami-

nation of the lowa Supreme Court’s decision in Schroeder

Oil will be sufficient to negate and reject the Respond-

ent’s arguments in this regard.

Specifically, the lowa Supreme Court in

Schroeder Oil found that there was absolutely no “feder-

al” due process requirement that a taxpayer be given a

pre-deprivation review of the contested tax. However, the

lowa Supreme Court correctly held that the Fourteenth

Amendment requires that the contesting taxpayer be enti-

tled to a post-deprivation hearing. The Iowa court also

held that the requirement for (1) “‘full payment,” or

(2) the posting of a bond, denied the taxpayer in that case

his “federal” due process rights. The factual situation in

the Schroeder Oil case is virtually on all fours with that

presented in this Taber case. Therefore, the Petitioner

submits that there is now an additional reason for grant-

10 PETITIONER'S REPLY BRIEF

ing his Petition for Certiorari, under the provisions of

Rule 10.1(b) of the Rules of this Court, i.e., there is a

conflict between the courts of last resort in Arkansas and

lowa over this “federal” question.®

CONCLUSION

For the reasons set forth above, the Peti-

tioner submits that his Petition for Certiorari to the Ar-

kansas Supreme Court should be granted, so that this

Court may settle a real conflict that presently exists be-

tween the highest appellate courts of Arkansas and at

least one other state (and certain decisions of this Court)

regarding this important “federal” constitutional question

of state tax procedure.

October 31, 1990.

Respectfully submitted,

EUGENE G. SAYRE

Jack, Lyon & JONES

3400 TCBY Tower

425 West Capitol Avenue

Little Rock, Arkansas 72201

(501) 375-1122

Counsel of Record

for Petitioner

. Besides the prior decisions of this Court that the Petitioner cited in his Petition as

being in conflict with the Arkansas Supreme Court’s decision in the instant case,

Petitioner also cites to ths Court’s decisions in Laing v. United States, 423 U.S. 161

(1976), and Commissioner v. Shapiro, 424 U.S. 614 (1976), as further authority for

the position that his “federal” due process rights entitle him to an objective and

independent “judicial review” of this dispute with the Respondent and his agents.