States warned against using "bait-and-switch" tactics in denying refunds of unconstitutionally collected taxes.

• Author: Todd, Glenn D.

The Supreme Court has once again held that a state may not deny properly filed refund claims of an unconstitutionally collected tax simply because the state provided adequate pre-deprivation remedies (i.e., remedies available before payment) (Newsweek, Inc. v. Florida Dep't of Revenue, 118 Sup. Ct. 904 (1998)). In 1990, the Florida Supreme Court declared a state sales tax statute that exempted sales of newspapers but not magazines unconstitutional (Dep't of Revenue v. Magazine Publishers of America, Inc., 565 So 2d 1304 (Fla. 1990)). After this ruling, Newsweek sought a refund of sales tax paid under the unconstitutional statute for tax years 1988 through 1990. Florida denied Newsweek's claim, asserting that the claim was barred because Newsweek did not avail itself of the pre-deprivation remedies available under state law.

In the past, the US. Supreme Court has interpreted the Due Process Clause to require "meaningful backward-looking relief" when a taxpayer is forced to pay a tax before having the opportunity to establish its unconstitutionality (McKesson Corp., 496 US 18 (1990)). The Florida District Court of Appeals, in affirming the denial of Newsweek's refund, distinguished McKesson because Newsweek (unlike the taxpayer in McKesson) had available to it adequate pre-deprivation remedies (Newsweek, Inc., 689 So.2d 361 (Fla. Dist. Ct. App. 1997)). Under Florida law, a taxpayer may challenge an unconstitutional or unlawful tax by filing an action and paying the contested amount into the court registry, posting a bond or seeking a court order for an alternative arrangement. Florida law also includes a refund mechanism that permits taxpayers to seek refunds of unconstitutionally or unlawfully collected taxes after they have been paid. Because Newsweek declined the pre-deprivation remedy and instead chose to seek a refund of tax after the statute had been declared unconstitutional, the district court held that the refund was properly denied

The Supreme Court reversed; although exclusively pre-deprivation remedies may satisfy the Due Process Clause requirements as interpreted in McKesson, the Florida court did not filly contemplate the effect of Florida's statutorily provided post-deprivation remedies (i.e., the state's refund statute). As the Newsweek Court pointed out, the refund statute was commonly relied on by Florida taxpayers and widely recognized by the courts. By providing this post-deprivation remedy, and then denying claims pursued...