In the Supreme Court of the United States.

No. 09-981




On a Petition for a Writ of Certiorari to the Supreme Court of Kentucky


On March 24, 2010, Tax Executives Institute filed the following brief amicus curiae with the Supreme Court of the United States. Eli J. Dicker, TEI's Chief Tax Counsel, is the Institute's Counsel of Record in the case. Daniel J. De Jong and Timothy J. McCormally also contributed to the preparation of the brief. On March 24, the Court declined to review the case.

Interest of Amicus Curiae

Pursuant to Rule 37 of the Rules of this Court, Tax Executives Institute, Inc. respectfully submits this brief as amicus curiae in support of the petition for a writ of certiorari. (1) Tax Executives Institute (hereinafter "TEI" or "the Institute") is a voluntary, nonprofit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. TEI was organized in 1944 under the laws of the State of New York and is exempt from taxation under section 501(c)(6) of the Internal Revenue Code (26 U.S.C.). The Institute is dedicated to promoting the uniform and equitable enforcement of the tax laws, reducing the costs and burdens of administration and compliance to the benefit of both the government and taxpayers, and vindicating the Commerce Clause and other constitutional rights of all business taxpayers.

TEI has approximately 7,000 members who represent more than 3,000 of the leading corporations in the United States, Canada, Europe, and Asia, including many domiciled or doing business in the Commonwealth of Kentucky. As tax professionals who recognize the States' right to collect properly levied taxes and who respect the legitimacy of state assessments, TEI members have a significant interest in the standards applied in assessing the adequacy of remedies accorded taxpayers for unlawfully imposed and collected state taxes.

The Kentucky Supreme Court's decision below threatens to undermine the protections afforded by the Due Process Clause against States retaining improperly collected taxes. By upholding that legislation retroactively stripped taxpayers of the ability to obtain a refund, the decision raises fundamental questions about the availability of remedies where taxpayers have paid taxes that are subsequently found invalid. In Reich v. Collins, 513 U.S. 106 (1994), the Court held that a State may not hold out what plainly appears to be a "clear and certain" post-deprivation remedy--its tax refund statute--and then, after taxpayers have relied on it and paid over the disputed tax, gamely declare that no such remedy exists. That is exactly what the Kentucky legislature did here. It first induced petitioners (hereinafter collectively referred to as "Johnson Controls") to pay taxes by providing a tax refund statute as a mechanism for recovering taxes improperly collected, and then it retroactively rescinded the refund option--completing the "bait and switch" this Court found constitutionally repugnant in Reich. Allowing the decision of the Kentucky Supreme Court to stand could undermine both Reich and sound tax administration. In the longer term, it could even diminish the States' financial security by discouraging taxpayers from paying suspect taxes rather than paying those taxes and then seeking a refund that they may never receive. And, although the need for state revenues is especially pronounced given the current recession, this need cannot rightly trump the taxpayer's right to a constitutionally adequate remedy to recover wrongfully imposed and collected taxes.

The Institute's members and the businesses by which they are employed have a keen and vital interest in ensuring the sufficiency of remedies accorded taxpayers subjected to invalid state rules and regulations. Unless reversed, this case will affect far more than the Commonwealth of Kentucky's authority to retain the taxes wrongfully exacted from Johnson Controls; it will inevitably have a deleterious effect on the administration of other States' taxing schemes.


Background This case tests the constitutional limitations on a State's ability to retroactively deny a taxpayer's right to claim a refund of taxes paid pursuant to a state administrative pronouncement found to contravene state law. The underlying tax rule has a tortuous past. Beginning in the early 1970s, the Kentucky Revenue Cabinet (the agency charged with administering Kentucky's income tax laws) interpreted Kentucky law as allowing taxpayers to file unitary "combined" corporate tax returns. (2) From 1972 to 1988, the Revenue Cabinet followed this position, consistently reiterating its position that combined returns were permissible. Castner Knott Dry Goods Co. v. Revenue Cabinet, K90-R-31 to K90-R-34, Ky. B.T.A. (Dec. 6, 1991).

More than a decade and a half after establishing its position on combined reporting, the Revenue Cabinet reversed itself and promulgated Revenue Policy 41P225 (September 27, 1988), which prohibited the filing of unitary combined returns by taxpayers other than sham or shell corporations established to lower a group's tax liability. (App. 4.) Taxpayers challenged the policy reversal, arguing it contravened longstanding Kentucky law. In 1994, the Kentucky Supreme Court agreed, rejecting the Commonwealth's attempts to rewrite the law administratively and holding that taxpayers and their unitary subsidiaries "have a right, pursuant to KRS 141.120, to file their Kentucky Income Tax Return[s] on a combined unitary basis." GTE v. Revenue Cabinet, 889 S.W.2d 788, 793 (Ky. 1994) (emphasis added). Soon after the decision in GTE, Johnson Controls filed amended returns for tax periods from 1990 through 1994 to reflect the unitary combined methodology upheld in that case and...

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