Fonger v. Department of Treasury

• Decision Date: 04 February 1992
• Docket Number: Docket No. 130294
• Citation: 483 N.W.2d 920,193 Mich.App. 71
• Parties: John W. FONGER, Personal Representative of the Estate of George F. Fonger, Deceased, Petitioner-Appellee/Cross-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellant/Cross-Appellee. 193 Mich.App. 71, 483 N.W.2d 920, 15 Employee Benefits Cas. 1655
• Court: Court of Appeal of Michigan — District of US

Page 920

483 N.W.2d 920

John W. FONGER, Personal Representative of the Estate of George F. Fonger, Deceased Petitioner-Appellee/Cross-Appellant, v. DEPARTMENT OF TREASURY Respondent-Appellant/Cross-Appellee.

Docket No. 130294.

193 Mich.App. 71, 483 N.W.2d 920,

15 Employee Benefits Cas. 1655

Court of Appeals of Michigan.

Submitted Oct. 1, 1992, at Lansing.

Decided Feb. 4, 1992, at 9:10 a.m.

Released for Publication May 19, 1992.

[193 MICHAPP 72] Anderson, Hay & Wonch, P.C. by Thomas H. Hay, Lansing and John E. Hunt, East Lansing, for John W. Fonger.

Frank J. Kelley, Atty. Gen., Gay Secor Hardy, Sol. Gen., and Richard R. Roesch and Ross H. Bishop, Asst. Attys. Gen., for Dept. of Treasury.

Charfoos & Christensen, P.C. by David R. Parker, Detroit, amici curiae for Hammond et al.

Miller, Canfield, Paddock & Stone by Gregory A. Nowak, Detroit, amici curiae for Astfalk et al.

Schwendener & Valade, P.C. by Alan M. Valade, Mason, amici curiae, for Larson et al.

Sommers, Schwartz, Silver & Schwartz, P.C. by David L. Nelson, Patrick J. Burkett, and Lawrence B. Rogers, Southfield, amici curiae, for Grogan et al.

Before MARILYN J. KELLY, P.J., and WAHLS and FITZGERALD, JJ.

PER CURIAM.

Respondent appeals as of right from an order of the Michigan Tax Tribunal that required it to refund to petitioner state income taxes paid on federal pension benefits for tax years 1985 through 1987. Petitioner has cross appealed and argues that respondent was required to refund all state income taxes paid on the pension benefits regardless of any statute of limitations. We have been advised by the parties and the Tax Tribunal that more than three thousand cases pending before the tribunal are being held in abeyance pending the final resolution of this case. We have been further advised that a class-action suit in the Court of Claims, brought on behalf of Michigan residents who are federal pensioners, has been similarly stayed. The class-action plaintiffs appear in this case as amici curiae.

On March 28, 1989, the United States Supreme Court decided the case of Davis v. Michigan Dep't of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). Davis held that Sec. 30(1)(f) of the Income Tax Act, M.C.L. Sec. 206.30(1)(f); M.S.A. Sec. 7.557(130)(1)(f), was invalid under the constitutional doctrine of intergovernmental tax immunity because it imposed a tax on retirement or pension benefits that discriminated in favor of state retirees and against federal retirees. The state conceded that, under the circumstances, the petitioner was entitled to a refund. Davis left unanswered the question of exactly what prospective remedy was to be afforded the petitioner, a federal retiree who had sought a refund for income taxes paid on his federal retirement benefits, and the case was remanded for further proceedings consistent with the opinion and state law. A panel of this Court subsequently determined that Sec. 30(1)(f) should be severed from the remainder of the statute to the extent it applied to retired federal employees, thus [193 MICHAPP 74] affording those retirees the same tax benefits enjoyed by state and local government employees. Davis v. Dep't of Treasury (On Remand), 179 Mich.App. 683, 446 N.W.2d 531 (1989).

In the present case, petitioner's decedent, a federal retiree, had paid state income taxes from 1982 through 1987 on his federal pension benefits pursuant to the now invalid Sec. 30(1)(f). After the Supreme Court decided Davis, petitioner filed amended income tax returns with respondent and requested a refund for taxes paid from 1982 through 1987. Respondent denied the request on the ground that petitioner had not filed a timely claim for a refund pursuant to Sec. 27a(6) of the revenue act, M.C.L. Sec. 205.27a(6); M.S.A. Sec. 7.657(27a)(6), which provided:

Notwithstanding the provisions of subsection (2) [which provides for a four-year period after the date a return is to be filed in which to claim a refund], a claim for refund based upon the validity of a tax law based on the laws or constitution of the United States or the state constitution of 1963 shall not be paid unless the claim is filed within 90 days after the date set for filing a return or when ordered pursuant to an appeal under section 22. [Since amended by 1990 P.A. 285, effective December 21, 1990.]

The issue, as formulated by the Tax Tribunal, was: When should federal retirees be entitled to receive refunds for the income tax paid under the unconstitutional statute? Three options were presented: (1) all federal retirees who had ever paid income taxes pursuant to Sec. 30(1)(f) are entitled to refunds irrespective of any statute of limitations because Sec. 30(1)(f) was void ab initio; (2) refunds are available to federal retirees who claim them within four years of the due date for filing of a [193 MICHAPP 75] return pursuant to Sec. 441 of the Income Tax Act, M.C.L. Sec. 206.441; M.S.A. Sec. 7.557(1441); or (3) only retirees who file claims within ninety days after the due date of a return are entitled to refunds pursuant to Sec. 27a(6) of the revenue act, M.C.L. Sec. 205.27a(6); M.S.A. Sec. 7.657(27a)(6). The tribunal believed that it did not have to determine the retroactivity of Davis, because the United States Supreme Court had stated in other opinions that remedial issues are purely questions of state law. After rejecting the first option described above, the tribunal held that the ninety-day period of M.C.L. Sec. 205.27a(6); M.S.A. Sec. 7.657(27a)(6) was in conflict with the four-year limitation period of M.C.L. Sec. 206.441; M.S.A. Sec. 7.557(1441) and, under the conflict resolution section of the Income Tax Act, M.C.L. Sec. 206.402; M.S.A. Sec. 7.557(1402), the four-year period prevailed. Respondent has appealed from that decision, and petitioner has cross appealed, again arguing that the refunds may be claimed irrespective of any limitation period.

Contrary to the position taken by the Tax Tribunal, we believe that we must decide whether the decision in Davis applies retroactively. Retroactive application of a decision and the appropriate remedy are separate issues. American Trucking Ass'ns, Inc. v. Smith, 496 U.S. 167, 110 S.Ct. 2323, 2333, 110 L.Ed.2d 148, 159 (1990) (opinion of O'Connor, J.); Caterpillar, Inc. v. Dep't of Treasury, 188 Mich.App. 621, 626, 470 N.W.2d 80 (1991). Retroactive operation of a constitutional decision of the United States Supreme Court is a question of federal law. James B. Beam Distilling Co. v. Georgia, 501 U.S. ----, 111 S.Ct. 2439, 2443, 115 L.Ed.2d 481, 488 (1991); American Trucking Ass'ns, Inc., 496 U.S. at 176-77, 110 S.Ct. at 2330, 110 L.Ed.2d at 159. If the decision in Davis is to be given purely prospective application, then the question of remedy need [193 MICHAPP 76] never be reached. We believe that Davis was intended to apply retroactively. The state had conceded that, were Sec. 30(1)(f) to be found unconstitutional, a refund was appropriate. Nonetheless, the United States Supreme Court remandedDavis for consideration of a separate remedy issue, thereby necessarily implying that the decision was to be given retroactive effect. See Beam, 501 U.S. at ----, 111 S.Ct. at 2445, 115 L.Ed.2d at 490-491. Furthermore, decisions of two state supreme courts that had held that Davis was to be applied only prospectively were vacated and remanded for further consideration by the United States Supreme Court in light of Beam. SeeBass v. State, 302 S.C. 250, 395 S.E.2d 171 (1990), vacated 501 U.S. ----, 111 S.Ct. 2881, 115 L.Ed.2d 1047 (1991), and Harper v. Virginia Dep't of Taxation, 241 Va. 232, 401 S.E.2d 868 (1991), vacated 501 U.S. ----, 111 S.Ct. 2883, 115 L.Ed.2d 1049 (1991). We conclude that the United States Supreme Court intended Davis to have retroactive effect.

Since the date of the Tax Tribunal's decision, action taken by the Legislature has rendered moot many of the issues presented to us. 1990 P.A. 285, effective December 21, 1990, added subsection 7 to Sec. 27a of the revenue act. Subsection 7, which appears to be specifically aimed at resolving any conflict in the limitation periods provided by Sec. 27a and the Income Tax Act, provides in part:

Subsection (6) does not apply to a claim for the refund of a tax paid for the 1984 tax year or a tax year after the 1984 tax year on income received as retirement or pension benefits from a public retirement system of the United States government if the claimant waives any claim for the refund of such a tax paid for a tax year before 1984.

Subsection 7 sets forth a schedule by which [193 MICHAPP 77] refunds for tax years 1984 through 1988 are to be made in installments over a four-year period from July 1, 1990, through July 1, 1993. At the same time subsection 7 was enacted,1990 P.A. 285 repealed the four-year limitation period of Sec. 441 of the Income Tax Act, M.C.L. Sec. 206.441; M.S.A. Sec. 7.557(1441). Subsection 7, combined with subsection 2, M.C.L. Sec. 205.27a(2); M.S.A. Sec. 7.657(27a)(2), thus establishes a four-year limitation period in which a federal retiree may claim a refund from taxes wrongfully paid pursuant to Sec. 30(1)(f). Subsection 7 expressly applies to claims that accrue before the date on which it took effect, thus evidencing a clear, though not conclusive, legislative intent that subsection 7 is to be applied retroactively to such claims. Selk v. Detroit Plastic Products, 419 Mich. 1, 9, 345 N.W.2d 184 (1984). Furthermore, subsection 7 neither creates nor destroys any vested rights; taxpayers may still claim refunds, thus retaining their remedy, and subsection 7 merely changes the procedural mode by which the refunds are made, as well as eliminates any confusion concerning which limitation period is applicable to Sec. 30(1)(f) refund claims. Hence, even in the absence of evidence of legislative intent, subsection 7 is a procedural statute that should be given retroactive effect. Preston v. Dep't of Treasury, 190 Mich.App....