Ragsdale v. Department of Revenue

• Decision Date: 03 January 1992
• Citation: 823 P.2d 971,312 Or. 529
• Parties: , 14 Employee Benefits Cas. 2169 Julia D. RAGSDALE, Appellant, v. DEPARTMENT OF REVENUE, State of Oregon, Respondent. OTC 2958; SC S37704.
• Court: Oregon Supreme Court

Page 971

823 P.2d 971

312 Or. 529, 14 Employee Benefits Cas. 2169

Julia D. RAGSDALE, Appellant, v. DEPARTMENT OF REVENUE, State of Oregon, Respondent.

OTC 2958; SC S37704.

Supreme Court of Oregon In Banc.

Argued and Submitted July 10, 1991.

Decided Jan. 3, 1992.

Russell A. Sandor, of Wetzel De Frang & Sandor, Portland, argued the cause and filed the briefs for appellant. With him on the briefs was Joseph Wetzel.

Robert M. Atkinson, Asst. Atty. Gen., Salem, argued the cause for respondent. With him on the brief were Dave Frohnmayer, Atty. Gen., and Virginia L. Linder, Sol. Gen., Salem.

Gary I. Grenley and Michael C. Zusman, of Grenley, Rotenberg, Laskowski, Evans & Bragg, P.C., Portland, Eugene O. Duffy and Gregory W. Lyons, of O'Neil, Cannon & Hollman, S.C., Milwaukee, Wis., and John B. Gould, Portland, filed a brief on behalf of amici curiae Oregon Federation of Chapters, National Ass'n of Retired Federal Employees; Air Force Sergeants Ass'n, Div. Fourteen (Alaska-Oregon-Washington); Non Commissioned Officers Ass'n of Oregon; and Oregon State Council of Chapters of The Retired Officers Ass'n.

PETERSON, Justice.

The taxpayer, Julia Ragsdale, appeals a judgment of the Oregon Tax Court upholding the defendant Department of Revenue's (the Department) denial of her claim for tax refunds for taxes paid in calendar years 1970 through 1988. The taxpayer claims a refund of state income tax paid on her federal retirement income.

Oregon's tax laws completely exempted state government retirement payments from taxation from 1970 through 1988 but provided only a limited exemption for retirement payments received by federal retirees. ORS 316.680(1)(c), (d) (1987). In Davis v. Michigan Department of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989), the Supreme Court of the United States held that a Michigan tax law that exempted state but not federal pension benefits from state taxation was contrary to the Public Salary Act of 1939 (now at 4 U.S.C. § 111 (1988)), which codified the constitutional doctrine of intergovernmental tax immunity. Under 4 U.S.C. section 111, a taxpayer's federal pension income is immune from state taxation that is discriminatory. 489 US at 814.

The parties agree that, because Oregon's tax laws completely exempted state government retirement benefits from state taxation, but did not accord the same treatment to federal retirement benefits, Oregon's tax laws impermissibly discriminated against the federal government and those who dealt with it, see Davis v. Michigan Department of Treasury, supra, 489 U.S. at 814-17 & n. 4, 109 S.Ct. at 1507-08 & n. 4, and that the taxpayer's federal retirement income was not lawfully subject to state tax so long as Oregon law completely exempted state government retirement payments from its income tax.

In April 1989, the taxpayer filed her claims for refund with the Department. After a hearing, the Department denied the claims. The taxpayer then filed a complaint in the tax court, which granted summary judgment to the Department on the ground that, although Oregon's total exemption of state but not federal benefits was unconstitutional under Davis, the decision in Davis would apply only prospectively to taxes imposed after the date of the Davis decision. The taxpayer appealed, asserting that she is entitled to a refund for each year from 1970 through 1988. Alternatively, the taxpayer asserts that she is entitled to a refund for calendar years 1985 through 1988, because her refund claims were filed within the general omnibus tax refund three-year statute of limitations. See ORS 305.270 and 314.415.

The taxpayer's claims are these:

1. The Department has stipulated that she is entitled to a refund for tax years 1970 through 1988.

2. Davis applies retroactively. Therefore, she is entitled to a refund for tax years 1970 through 1988.

3. In the alternative, at least, she is entitled to a refund for tax years 1985 through 1988.

The Department disputes all three assertions and claims that the taxpayer is not entitled to any refund.

In part A, we discuss Oregon's refund statutes and conclude that, whether or not Davis applies retroactively, state law mandates a refund to the taxpayer for tax year 1988 and any tax years thereafter in which federal retirement income was included in her state taxable income at a time when, for the same tax year, state retirement income was completely exempt from state taxation. We also conclude that Oregon law does not permit a refund for any of the earlier tax years for which claims were filed. In part B, we discuss whether limiting the relief to tax years 1988 and thereafter is constitutional, and we conclude that it is. In Part C, we discuss the taxpayer's contention concerning the stipulation.

A. RELIEF AFFORDED BY STATE LAW

The taxpayer asserts that Davis v. Michigan Department of Treasury, supra, applies retroactively and that she is entitled to a refund for each tax year from 1970 through 1988. The Department asserts that even if Davis applies retroactively, ORS 305.765 to 305.785 preclude the taxpayer's refund claims for the tax years at issue and create a valid remedial limitation consistent with federal due process guarantees. We agree with the Department that ORS 305.765 to 305.785 apply to this case and create a remedial limit consistent with federal due process, but we disagree with the Department about how those statutes apply to the taxpayer's claims. Further, because we read ORS 305.765 to 305.785 to require a measure of retroactivity regardless of any theory of retroactivity of Davis under federal law, ¹ see pages 976-977, below, we need not decide the federal retroactivity question. ²

ORS 305.765 provides:

"Whenever, in a proceeding involving the validity of any law whereby taxes assessed or imposed have been collected and received by the state, acting through any department or agency thereof, and paid into the State Treasury, if the court of last resort holds the law or any part thereof invalid, and the time limited for any further proceeding to sustain the validity of the law, or the part thereof affected, has expired, and if there is no other statute authorizing refund thereof, all taxes collected and paid under the law or part thereof invalidated, in or after the year in which the action attacking the validity of the same was instituted, shall be refunded and repaid in the manner provided in ORS 305.770 to 305.785." ³ (Emphasis added.)

ORS 305.765 authorizes (and, in fact, mandates) refunds only for taxes "collected and paid" in or after the year in which the action resulting in the invalidation of the tax law was instituted. The limitation of ORS 305.765 in part is restated in ORS 305.780, which provides:

"Nothing contained in ORS 305.770 to 305.785 authorizes the refunding of any tax collected and paid under an invalidated tax law, or invalidated part thereof, where the tax as provided in such law became due and payable in any year prior to the year in which the suit or action seeking the invalidation of the law or part thereof was instituted."

Hence, even taxes collected or paid in or after the year the action resulting in invalidation of the tax law was instituted cannot be refunded if those taxes had become "due and payable" prior to the year in which the action was instituted. The Department argues that, because the taxpayer has claimed refunds for taxes collected and paid prior to 1990, the year in which she filed her tax court complaint, ⁴ the Department has no authority to pay the refunds requested by the taxpayer.

The taxpayer argues that ORS 305.765, by its own terms, applies only "if there is no other statute authorizing refund" of the taxes collected pursuant to the invalidated statute and that there is another statute authorizing refund of the taxes at issue here. Specifically, the taxpayer claims that ORS 305.270(1) ⁵ and 314.415(1)(a), ⁶ the general refund statutes, authorize the refunds that she has requested.

ORS 305.270 and 314.415 create a mechanism for the refund of tax paid or collected in excess of that which is properly due. The taxpayer contends that she paid excess tax for the years 1970 through 1988 because of the improper inclusion of her federal retirement income in her state taxable income and that she is entitled to a refund subject to the limitations contained in ORS 305.270 and 314.415. Because ORS 305.765 apparently is triggered only "if there is no other statute authorizing refund thereof," the court must discern what the legislature intended by the quoted phrase and, specifically, whether the legislature intended that the general refund statutes would authorize refunds of all taxes collected pursuant to laws later held invalid.

ORS 305.765 was enacted in 1931 following the invalidation of a 1929 state law taxing gross income from intangibles that applied to individuals but not corporations. See Redfield v. Fisher, 135 Or. 180, 204, 292 P. 813 (1930) (invalidating Oregon Laws 1929, chapter 429). The 1931 Legislative Assembly appropriated nearly $900,000 to pay refunds to individuals who had paid taxes under the invalidated statute. Or.Laws 1931, ch 338. At the same time, the legislature enacted Oregon Laws 1931, chapter 337, which is now codified at ORS 305.765 to 305.785. In the same session of the Legislative Assembly, the precursor to the current refund statutes, ORS 305.270 and 314.415, was enacted to create a general tax refund mechanism. Or.Laws 1931, ch. 229. These enactments apparently were an attempt to respond to the concerns raised by two opinions of the Attorney General regarding the refunding of taxes unlawfully exacted and, specifically, regarding the taxes at issue in Redfield. See 15 Op Att'y Gen 34 (Or 1930-32) (advising that refunds of taxes collected pursuant to the unconstitutional intangibles tax could only be made if the legislature specifically appropriated the funds necessary for that purpose); 15 Op Att'y Gen 37...