509 U.S. 86 (1993), 91-794, Harper v. Virginia Dept. of Taxation

Docket Nº:No. 91-794
Citation:509 U.S. 86, 113 S.Ct. 2510, 125 L.Ed.2d 74, 61 U.S.L.W. 4664
Case Date:June 18, 1993
Court:United States Supreme Court

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509 U.S. 86 (1993)

113 S.Ct. 2510, 125 L.Ed.2d 74, 61 U.S.L.W. 4664

HARPER et al.



No. 91-794

United States Supreme Court

June 18, 1993

Argued December 2,1992



In Davis v. Michigan Dept. of Treasury, 489 U.S. 803, this Court invalidated Michigan's practice of taxing retirement benefits paid by the Federal Government while exempting retirement benefits paid by the State or its political subdivisions. Because Michigan conceded that a refund to federal retirees was the appropriate remedy, the Court remanded for entry of judgment against the State. Virginia subsequently amended a similar statute that taxed federal retirees while exempting state and local retirees. Petitioners, federal civil service and military retirees, sought a refund of taxes assessed by Virginia before the revision of this statute. Applying the factors set forth in Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107, a state trial court denied relief to petitioners as to all taxable events occurring before Davis was decided. In affirming, the Virginia Supreme Court concluded that Davis should not be applied retroactively under Chevron Oil and American Trucking Assns., Inc. v. Smith, 496 U.S. 167 (plurality opinion). It also held, as matters of state law, that the assessments were neither erroneous nor improper and that a decision declaring a tax scheme unconstitutional has solely prospective effect. In James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, however, six Members of this Court required the retroactive application of Bacchus Imports, Ltd. v. Dias, 468 U.S. 263—which prohibited States from imposing higher excise taxes on imported alcoholic beverages than on locally produced beverages—to claims arising from facts predating that decision. Those Justices disagreed with the Georgia Supreme Court's use of Chevron Oil 's retroactivity analysis. After this Court ordered reevaluation of petitioners' suit in light of Beam, the Virginia Supreme Court reaffirmed its decision in all respects. It held that Beam did not foreclose the use of Chevron Oil 's analysis because Davis did not decide whether its rule applied retroactively.


1. When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate the announcement of the rule. Pp. 94-99.

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(a) This rule fairly reflects the position of a majority of Justices in Beam and extends to civil cases the ban against "selective application of new rules" in criminal cases. Griffith v. Kentucky, 479 U.S. 314,323. Mindful of the "basic norms of constitutional adjudication" animating the Court's view of retroactivity in criminal cases, id., at 322—that the nature of judicial review strips the Court of the quintessentially legislative prerogative to make rules of law retroactive or prospective as it sees fit and that selective application of new rules violates the principle of treating similarly situated parties the same, id., at 322, 323—the Court prohibits the erection of selective temporal barriers to the application of federal law in noncriminal cases. When the Court does not reserve the question whether its holding should be applied to the parties before it, the opinion is properly understood to have followed the normal rule of retroactive application, Beam, 501 U.S. at 540 (opinion of Souter, J.), and the legal imperative to apply such a rule prevails "over any claim based on a Chevron Oil analysis," ibid. Pp. 94-98.

(b) This Court applied the rule of law announced in Davis to the parties before the Court. The Court's response to Michigan's concession that a refund would be appropriate in Davis, far from reserving the retroactivity question, constituted a retroactive application of the rule. A decision to accord solely prospective effect to Davis would have foreclosed any discussion of remedial issues. Pp. 98-99.

2. The decision below does not rest on independent and adequate state-law grounds. In holding that state-law retroactivity doctrine permitted the solely prospective application of the ruling, the State Supreme Court simply incorporated into state law the analysis of Chevron Oil and criminal retroactivity cases overruled by Griffith. The Supremacy Clause, however, does not allow federal retroactivity doctrine to be supplanted by the invocation of a contrary approach to retroactivity under state law. Similarly, the state court's conclusion that the challenged assessments were not erroneous or improper under state law rested solely on its determination that Davis did not apply retroactively. Pp. 99-100.

3. Virginia is free to choose the form of relief it will provide, so long as that relief is consistent with federal due process principles. A State retains flexibility in responding to the determination that it has imposed an impermissibly discriminatory tax. The availability of a predeprivation hearing constitutes a procedural safeguard sufficient to satisfy due process, but if no such relief exists, the State must provide meaningful backward-looking relief either by awarding full refunds or by issuing some other order that creates in hindsight a nondiscriminatory scheme. Since any remedy's constitutional sufficiency turns (at least initially) on whether Virginia law provides an adequate form of predeprivation process,

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and since that issue has not been properly presented, this question and the performance of other tasks pertaining to the crafting of an appropriate remedy are left to the Virginia courts. Pp. 100-102.

242 Va. 322, 410 S.E.2d 629, reversed and remanded.

Thomas, J., delivered the opinion of the Court, in which Blackmun, Stevens, Scalia, and Souter, JJ., joined, and in Parts I and III of which White and Kennedy, JJ., joined. Scalia, J., filed a concurring opinion, post, p. 102. Kennedy, J., filed an opinion concurring in part and concurring in the judgment, in which White, J., joined, post, p. 110. O'Connor, J., filed a dissenting opinion, in which Rehnquist, C. J., joined, post, p. 113.

Michael J. Kator argued the cause and filed the briefs for petitioners.

Gail Starling Marshall argued the cause for respondent. With her on the brief were Mary Sue Terry, Attorney General of Virginia, Stephen D. Rosenthal, Chief Deputy Attorney General, Gregory E. Lucyk and N. Pendleton Rogers, Senior Assistant Attorneys General, Barbara H. Vann, Assistant Attorney General, and Peter W. Low.[*]

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Justice Thomas delivered the opinion of the Court.

In Davis v. Michigan Dept. of Treasury, 489 U.S. 803(1989), we held that a State violates the constitutional doctrine of intergovernmental tax immunity when it taxes retirement benefits paid by the Federal Government but exempts from taxation all retirement benefits paid by the State or its political subdivisions. Relying on the retroactivity analysis of Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), the Supreme Court of Virginia twice refused to apply Davis to

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taxes imposed before Davis was decided. In accord with Griffith v. Kentucky, 479 U.S. 314 (1987), and James B. Beam Distilling Co. v. Georgia, 501 U.S. 529 (1991), we hold that this Court's application of a rule of federal law to the parties before the Court requires every court to give retroactive effect to that decision. We therefore reverse.


The Michigan tax scheme at issue in Davis "exempt[ed] from taxation all retirement benefits paid by the State or its political subdivisions, but levie[d] an income tax on retirement benefits paid by . . . the Federal Government." 489 U.S., at 805. We held that the United States had not consented under 4 U.S.C. § 111[1] to this discriminatory imposition of a heavier tax burden on federal benefits than on state and local benefits. 489 U.S., at 808-817. Because Michigan "conceded that a refund [was] appropriate," we recognized that federal retirees were entitled to a refund of taxes "paid. . . pursuant to this invalid tax scheme." Id., at 817.[2]

Like Michigan, Virginia exempted state and local employees' retirement benefits from state income taxation while taxing federal retirement benefits. Va. Code Ann. § 58.1- 322(c)(3) (Supp. 1988). In response to Davis, Virginia repealed its exemption for state and local government employees. 1989 Va. Acts, Special Sess. II, ch. 3. It also enacted a special statute of limitations for refund claims made in light of Davis. Under this statute, taxpayers may seek a refund

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of state taxes imposed on federal retirement benefits in 1985, 1986, 1987, and 1988 for up to one year from the date of the final judicial resolution of whether Virginia must refund these taxes. Va. Code Ann. § 58.1-1823(b) (Supp. 1992).[3]

Petitioners, 421 federal civil service and military retirees, sought a refund of taxes "erroneously or improperly assessed" in violation of Davis 'nondiscrimination principle. Va. Code Ann. § 58.1-1826 (1991). The trial court denied relief. Law No. CL891080 (Va. Cir. Ct., Mar. 12, 1990). Applying the factors set forth in Chevron Oil Co. v. Huson, supra, at 106-107,[4] the court reasoned that " Davis decided an issue of first impression whose resolution was not clearly foreshadowed," that "prospective application of Davis will not retard its operation," and that "retroactive application would result in inequity, injustice and hardship." App. to Pet. for Cert. 20a.

The Supreme Court of Virginia affirmed. Harper v. Virginia Dept. of Taxation, 241 Va. 232, 401 S.E.2d 868 (1991). It too concluded, after consulting Chevron and the plurality opinion...

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