TEI files amicus brief in Dot Foods retroactivity case.

• Position: TECHNICAL SUBMISSIONS

On October 11, 2016, TEI filed an amicus brief with the U.S. Supreme Court in a Washington state tax retroactivity case, Dot Foods v. State of Washington. TEI's brief was prepared under the aegis of TEI's State and Local Tax Committee, whose chair is Jamie Fenwick. TEI Tax Counsel Pilar Mata coordinated the preparation of the brief and was its principal author.

DOT FOODS, INC., Petitioner, v. DEPARTMENT OF REVENUE OF THE STATE OF WASHINGTON, Respondent.

IN THE SUPREME COURT OF THE UNITED STATES

On Petition for Writ of Certiorari to the Supreme Court of Washington

BRIEF FOR TAX EXECUTIVES INSTITUTE, INC.

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

A. PILAR MATA

Counsel of Record

W. PATRICK EVANS

ELI J. DICKER

TAX EXECUTIVES INSTITUTE, INC.

1200 G Street, N.W., Suite 300

Washington, D.C. 20005-3814

(202) 464-8346

pmata@tei.org

Counsel for Amicus Curiae

October 11, 2016

TABLE OF CONTENTS

INTRODUCTION STATEMENT OF INTEREST SUMMARY OF REASONS FOR GRANTING THE PETITION REASONS FOR GRANTING THE PETITION

1. INCONSISTENT INTERPRETATIONS OF CARLTON HAVE CREATED A STRIKING CONFLICT AMONG STATE COURTS

   A. Due Process Imposes Meaningful Limits on Retroactive Tax Legislation

   B. State Courts Purporting to Follow Carlton Have Utilized Different Standards to Analyze Retroactive Taxes and Reached Inconsistent Conclusions.

2. GUIDANCE IS ESSENTIAL TO DETER THE EMERGING PRACTICE OF OVERRULING STATE COURT DECISIONS WITH RETROACTIVE LEGISLATION

   C. Dot Foods II Encourages and Validates Retroactive Tax Legislation to Overrule Court Decisions

   4. The Dot Foods Litigation

   5. Dot Foods II is Inconsistent with Carlton

   B. Numerous State Legislatures Have Enacted Retroactive Legislation to Overrule Taxpayer-Favorable Decisions.

3. Retroactive Tax Legislation Should Be Discouraged

   A. Sound Tax Policy and Administration Demand that Retroactive Tax Legislation Be Used Sparingly

   B. Retroactive Tax Legislation Overruling Court Decisions Raises Other Legal Concerns

   CONCLUSION

   TABLE OF AUTHORITIES

   CASES

   Betten Auto Ctr., Inc. v. Dep't of Treasury, 723 N.W.2d 914 (Mich. Ct. App. 2006) City of Modesto v. Nat'l Med, Inc., 128 Cal. App. 4th 518 (2005)

   Daimler Chrysler Servs. N. Am. LLC v. Dep't of Treasury, 723 N.W.2d 569 (Mich. Ct. App. 2006)

   Dot Foods, Inc. v. State of Washington, Dep't of Revenue, 372 P.3d 747 (Wash. 2016)

   Dot Foods, Inc. v. Wash. Dep't of Revenue, 215 P.3d 185 (Wash. 2009)

   Dot Foods, Inc. v. Dep't of Revenue, 173 P.3d 309 (Wash. App. 2007)

   Eastern Enterprises v. Apfel, 524 U.S. 498 (1998)

   Estate of Bracken, 290 P.3d 99 (Wash. 2012)

   Estate of Hambleton, 335 P.3d 398 (Wash. 2014), cert, denied, 136 S. Ct. (2015)

   Gen. Motors Corp. v. Dep't of Treasury, 803 N.W.2d 698 (Mich. Ct. App. 2010), cert, denied, 132 S. Ct. 1143 (2012)

   General Motors Corp. v. Romein, 503 U.S. 181(1992)

   Gillette Commercial Operations North America v. Dep't of Treasury, 878 N.W. 2d 891 (Mich. App. 2015) appl. for leave to appeal denied, 880 N.W. 2d 230 (Mich. 2016)

   GMAC LLC v. Dep't of Treasury, 781 N.W.2d 310 (Mich. Ct. App. 2009)

   GTE v. Revenue Cabinet, 889 S.W. 2d 788 (Ky. 1994)

   Int'l Bus. Machs. Corp. v. Dep't of Treasury, 852 N.W.2d 865 (Mich. 2014)

   M'Culloch v. Maryland, 17 U.S. 316 (1819)

   McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18 (1990)

   Miller v. Johnson Controls, Inc., 296 S.W.3d 392 (Ky. 2009), cert, denied, 560 U.S. 935 (2010)

   Reich v. Collins, 513 U.S. 106 (1994)

   Rivers v. South Carolina, 490 S.E.2d 261 (S.C. 1997)

   Sonoco Products Co. v. Dep't of Treasury, 878 N.W. 2d 891 (Mich. App. 2015)

   United States v. Carlton, 512 U.S. 26 (1994) Welch v. Henry, 305 U.S. 134 (1938)

   LEGISLATIVE MATERIALS

   2000 Ky. Act. ch. 543, [section] 1

   Former Wash. Rev. Code [section] 82.04.423(l)(d), (2)

   I.R.C. [section] 501(c)(6)

   Wash. Laws of 2010,1st Sp. Sess., ch. 23, [section][section] 401, 402

   Wash. Rev. Code [section] 82.04.423

   OTHER

   Broom, A Selection of Legal Maxims, 24 (8th ed. 1911)

   2 Story, Commentaries on the Constitution (5th ed. 1891), [section] 1398

   INTRODUCTION

   Amicus curiae Tax Executives Institute, Inc. ("TEI") respectfully files this brief in support of the petitioner. (1) Dot Foods, Inc. v. State of Washington, Department of Revenue, 372 R3d 747 (Wash. 2016) ("Dot Foods II"), upholds 2010 legislation amending Washington's business and occupation ("B&O") tax in response to the Washington Supreme Court's decision regarding the interpretation of a statute in Dot Foods, Inc. v. Department of Revenue, 215 P.3d 185 (Wash. 2009) ("Dot Foods I"). The 2010 amendment did not only apply prospectively--as is the legislature's clear province--but also applied retroactively back to 1983 to eliminate taxpayers' right to claim an exemption from tax, except for cases in which a final judgment had been entered. In petitioner's case, the amendment denied refund claims retroactively for four years.

   Dot Foods II is the latest in a line of state court decisions upholding retroactive tax legislation under the Due Process Clause. Indeed, next month, numerous taxpayers will seek this Court's review of a Michigan Court of Appeals' decision upholding a six-year retroactive amendment to that state's business tax. (2) The standard employed by the Washington and Michigan courts to assess the constitutionality of such retroactive amendments imposes virtually no limit on retroactive tax legislation. (3)

   As a result of this extraordinarily permissive standard, several state legislatures have chosen to use retroactive tax legislation to overrule specific court decisions rather than prospectively amending their tax codes at the earliest reasonable opportunity. Fairness dictates that taxpayers know what the law is when they enter into transactions and make business decisions. This Court's intervention is necessary to halt this disturbing and shocking trend and reconfirm that due process imposes meaningful constraints on retroactive tax legislation, especially when such legislation is enacted to overturn a judicial decision.

   Intervention is also necessary to resolve a conflict among state courts interpreting this Court's decision in United States v. Carlton, 512 U.S. 26 (1994), the seminal case addressing the constitutionality of retroactive tax legislation. In contrast to the approach taken by Washington and Michigan, other state courts have considered the factors analyzed in Carlton as fundamental tenets of a fair tax, and thus have concluded retroactive tax legislation is permissible only if the legislature had a legitimate purpose, acted promptly, and applied a modest period of retroactivity. These courts have reached dramatically different conclusions regarding acceptable periods of retroactivity compared to Washington and Michigan's approach. This Courts review is also necessary to resolve this conflict and clarify the proper test for retroactive tax legislation, which is becoming alarmingly common.

   STATEMENT OF INTEREST

   TEI is a voluntary, nonprofit association of corporate and other business executives, managers, and administrators 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. TEI is dedicated to the development of sound tax policy, the uniform and equitable enforcement of tax laws, the minimization of administration and compliance costs for governments and taxpayers, and the vindication of taxpayers) constitutional rights.

   TEI's members are employed by a broad cross-section of the business community. As tax professionals, TEI's members must evaluate tax laws, advise their companies regarding the tax consequences of various transactions and business decisions, and make practical decisions regarding whether to challenge tax assessments and refund claims that taxing authorities have denied. TEI's members thus have a vital interest in ensuring a legislature's power to enact retroactive tax legislation is properly constrained and remedies for unlawfully imposing and collecting taxes are adequate.

   SUMMARY OF REASONS FOR GRANTING THE PETITION

   This Court should grant the taxpayer's petition for a write of certiorari to resolve the significant differences among state courts applying Carlton and to prevent state legislatures from overturning judicial decisions with legislation employing extended retroactive periods.

   In Carlton, this Court held that retroactive tax legislation must be "supported by a legitimate legislative purpose furthered by rational means" and gave meaning to that test by analyzing whether the legislative purpose was "illegitimate" or "arbitrary," whether the legislature acted promptly, and whether the legislature established a "modest" period of retroactivity.

   State courts examining the constitutionality of retroactive tax statutes since Carlton have taken one of two approaches. The first approach questions (1) whether the legislative purpose is "arbitrary" or "illegitimate," and (2) whether the legislature acted "promptly" and established a "modest" period of retroactivity as a means to determine whether the legislation is, in fact, "supported by a legitimate legislative purpose furthered by rational means." Courts employing this approach have consistently held that taxes with retroactive periods exceeding one or two years are invalid because the period is not "modest."

   The second approach posits that retroactive tax legislation is constitutional as long as the legislature has a legitimate purpose for the retroactive amendment and the retroactive period is rationally related to that legislative purpose. Courts employing the second approach have concluded that increasing taxes to raise revenue constitutes a legitimate purpose and lengthy retroactive periods are permissible if they are necessary to fully undo a revenue shortfall.

   By conflating the analysis, these courts have upheld retroactive tax legislation against constitutional challenges even if the legislature did not act promptly...