Community Federal Sav. & Loan Ass'n v. Director of Revenue

Decision Date17 May 1988
Docket NumberNo. 7,Nos. 69678,69718,7,s. 69678
Citation752 S.W.2d 794
Parties47 Ed. Law Rep. 1220 COMMUNITY FEDERAL SAVINGS & LOAN ASSOCIATION, Appellant, v. DIRECTOR OF REVENUE, State of Missouri, Respondent. MUTUAL SAVINGS & LOAN ASSOCIATION, Appellant, v. DIRECTOR OF REVENUE, State of Missouri, Respondent. School District of Kansas City, Missouri, Reorganized School Districtof Jackson County, Missouri (Lee's Summit), and North Kansas City School District of Clay County, Missouri, Intervenors-Respondents.
CourtMissouri Supreme Court

John Pletz, Alex Bartlett, Thomas A. Vetter, Jefferson City, for appellant.

William L. Webster, Atty. Gen., Melodie A. Powell, Ass't. Atty. Gen., Jefferson City, for respondent.

Duane Benton, Jefferson City, for intervenors-respondents.

Warren E. Slagle, Kansas City, for amicus curiae.


The Administrative Hearing Commission affirmed decisions of the Director of Revenue that appellants are not entitled to refunds of intangible property taxes paid under section 148.480, RSMo 1978, subsequently held unconstitutional in Jefferson Savings and Loan Association v. Goldberg, 626 S.W.2d 640 (Mo. banc 1982). The principal question is whether appellants are precluded by sovereign immunity from recovery under the general refund statute, section 136.035, RSMo 1986. 1 A question peculiar to appellant Community Federal is whether its claim was properly dismissed for failure to file timely appeal from the Director's final decision as provided by section 161.273, RSMo 1978 (transferred now section 621.050, RSMo 1986). A final question, raised by intervenors, is whether such refunds would violate article X, section 21, Constitution of Missouri, which prohibits the state from reducing its proportion of the costs of free public schools. Intervenors also question the subject of the holding in Jefferson Savings and Loan. The dismissal against Community Federal is affirmed; the decision against all other appellants is reversed.

Appellant Community Federal acquired three savings institutions, appellants Citizens Savings Association, Plaza Savings Association, and Crystal City Savings &amp Loan Association, by merger before the final decisions of the Director of Revenue, and two institutions, appellants Carondelet Savings & Loan Association and First Federal Savings & Loan Association of Moberly, after their appeals to the Administrative Hearing Commission. All these claims were consolidated in one appeal from the adverse decisions of the AHC and consolidated with the similar appeal of Mutual Savings & Loan Association.

Appellants are savings and loan associations of individual members engaged in the business of receiving, holding and investing members' money and making loans. Mutual Savings & Loan Association paid intangible taxes for 1975 through 1980 in total sum of $249,407.76. Community Federal Savings & Loan Association paid intangible taxes for 1975 through 1981 in a total sum of $7,256,373.00. Community Federal's five acquired institutions, Citizens, Plaza, Crystal City, Carondelet, and First Federal, paid intangible taxes in their own right during the period 1975 to 1981 in a total sum of $2,787,180.89. Appellants paid the taxes from their funds; none of their account holders paid any portion of the taxes, and appellants did not charge members' accounts for any of the taxes paid.

Respondent Director held appellants' intangible tax payments in an account until all but his two percent commission had been distributed to local governments pursuant to chapter 148, RSMo. Included in the distribution to each county was a schedule describing the amount each political subdivision in the county was to receive pursuant to section 148.500, RSMo 1978.

The amount of appellants' intangible tax payments was correctly computed. Appellants paid their taxes as required by the statutory scheme, without protest. During the periods at issue, some 53 other savings and loan associations did not pay their intangible taxes for one or more years. Respondent Director sent an assessment to the nonpaying savings and loan associations to pay the delinquent taxes. Some, if not all, of those associations filed appeals with the AHC. Subsequent to this Court's decision in Jefferson Savings and Loan, and on motion of the Director, the AHC dismissed those cases on the ground that the Director had cancelled and abated the assessments.


Appellants contend the AHC erred in failing to reverse the denial of refunds by respondent Director because their claims are authorized by the general tax refund statute, section 136.035, RSMo 1986, and are not precluded by sovereign immunity.

The AHC found, and respondent Director and intervenors argue, that section 136.035, RSMo 1986, does not expressly provide that the sovereign can be sued. Specifically, the AHC found that the term "overpayment" in section 136.035.2 should not be construed to include payment of a tax declared unconstitutional. The AHC concluded the language in section 136.035.2, "the amount refunded shall be charged against the next apportionment ...," precluded appellants from receiving a refund because when a tax is declared unconstitutional, payment stops and there will not be a "next apportionment." The AHC also found that the general assembly did not contemplate a refund in the case where an intangible property tax is declared unconstitutional and construed the statute strictly against appellants' claims under Gas Service Co. v. Morris, 353 S.W.2d 645, 648 (Mo.1962).

The courts of this state have consistently held that the state may not be sued without its consent. Kleban v. Morris, 363 Mo. 7, 247 S.W.2d 832, 836 (1952). "The right of sovereign immunity from suit exists independent of express sanction, and it is the consent to be sued that is to be expressed in constitutional or statutory enactment or waived by voluntary appearance and submission to jurisdiction." Id. 247 S.W.2d at 837, 838. Here the action is for the recovery of money, held by the state treasury, and the state is entitled to invoke its sovereign immunity unless it expressly consents not to do so. See also Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 691, 69 S.Ct. 1457, 1462 n. 11, 93 L.Ed. 1628 (1949); American Trucking Association, Inc. v. Conway, 146 Vt. 579, 585, 508 A.2d 408, 414 (1986).

The majority rule is that statutes waiving the immunity of the sovereign from suit are strictly construed, Kleban, 247 S.W.2d at 837; Gas Service Co., 353 S.W.2d at 649. Section 136.035.2 states the "director of revenue shall refund any overpayment or erroneous payment of any tax on intangible personal property ...," but does not pronounce specifically on the refund of taxes paid under a statute later held unconstitutional.

Public policy discourages suit for the refund of taxes erroneously paid or illegally collected. Governments are entitled to presume that statutes are constitutional. Government budgets are prepared on an annual cash basis. Lavin v. Hackensack Board of Education, 90 N.J. 145, 154, 447 A.2d 516 (N.J.1982), cited in Continental Trailways, Inc. v. Director, 102 N.J. 526, 509 A.2d 769, 781 (N.J.1986). Therefore in the absence of a statutory limitation on the time in which a taxpayer may file suit to declare a tax unconstitutional, governments would be subject to substantial liabilities from refunds of those unconstitutional taxes. Accordingly, in the absence of statutory authority, taxes voluntarily, although erroneously paid, albeit under an unconstitutional statute, cannot be refunded. Berry v. Daigle, 322 A.2d 320, 326-27 (Me.1974); 72 Am.Jur.2d, State & Local Taxation, p. 1074, 1087 (1974), cited in 509 A.2d at 781.

Appellants paid the intangible property tax believing the law constitutional. Appellants did not file a protest with the Director but did join in the declaratory judgment action against the Director filed by more than 90 savings and loan associations which resulted in the tax being declared unconstitutional in Jefferson Savings and Loan.

The refund of taxes illegally enacted is ordinarily a matter of governmental grace. On grounds of public policy the law discourages suit for the refund of taxes illegally collected, and many restrictions are imposed on their recovery. It is generally held that taxes voluntarily paid without compulsion, although levied under an unconstitutional statute, cannot be refunded without the aid of statutory remedy. 51 Am.Jur.Taxation, § 1167, cited in State ex rel. S.S. Kresge Co. v. Howard, 357 Mo. 302, 208 S.W.2d 247 (banc 1947). Had these appellants failed to pay the intangible property tax, they would have been subjected by the Director to assessment of a penalty for delinquent payment of taxes. § 148.530, RSMo 1978. Payment to avoid harsh penalties is not voluntary payment of taxes. Manufacturer's Casualty Ins. Co. v. Kansas City, Mo., 330 S.W.2d 263, 267 (Mo.App.1959). Appellants thus did not pay the taxes voluntarily, and they subsequently questioned the legality of the tax.

Respondent Director and intervenors classify the taxes as illegally collected taxes and because the legislature included only the terms "overpayment" and "erroneous payment of taxes," argue there can be no refund because there is no express intent by the legislature to recognize refund of taxes declared unconstitutional. Appellants argue that respondent Director focuses only on the cause and not the effect of the payment. They claim they paid more to the state than was necessary because the tax was unconstitutional, their liability was zero, and therefore they made an overpayment to respondent Director.

Section 136.035 is subject to the ordinary rules of statutory construction and interpretation. The word "overpayment" in section 144.190 2 has been interpreted by this Court in Kleban, 247 S.W.2d at 839, to include taxes illegally collected. Although the refund for overpayments in section 144.190 refers...

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