Kay Elec. Co-op. v. State ex rel. Oklahoma Tax Com'n

• Decision Date: 09 July 1991
• Docket Number: Nos. 74,076,74,198 and 73,942,s. 74,076
• Citation: 815 P.2d 175
• Parties: KAY ELECTRIC COOPERATIVE, Appellant, v. STATE of Oklahoma ex rel. OKLAHOMA TAX COMMISSION, Appellee. In Matter of SALES TAX PROTEST OF KAY ELECTRIC COOPERATIVE. KAY ELECTRIC COOPERATIVE, Appellant, v. OKLAHOMA TAX COMMISSION, Appellee. COTTON ELECTRIC COOPERATIVE, INC., Appellant, v. STATE of Oklahoma ex rel. OKLAHOMA TAX COMMISSION, Appellee.
• Court: Oklahoma Supreme Court

Page 175

815 P.2d 175

1991 OK 76

KAY ELECTRIC COOPERATIVE, Appellant, v. STATE of Oklahoma ex rel. OKLAHOMA TAX COMMISSION, Appellee.

In Matter of SALES TAX PROTEST OF KAY ELECTRIC COOPERATIVE.

KAY ELECTRIC COOPERATIVE, Appellant, v. OKLAHOMA TAX COMMISSION, Appellee.

COTTON ELECTRIC COOPERATIVE, INC., Appellant, v. STATE of Oklahoma ex rel. OKLAHOMA TAX COMMISSION, Appellee.

Nos. 74,076, 74,198 and 73,942.

Supreme Court of Oklahoma.

July 9, 1991.

Appeal from Oklahoma Tax Commission.

Tax Commission issued Regulation 13-62 requiring rural electric cooperatives to collect and remit taxes on sale of electricity. Appellants remitted taxes under protest and timely filed for refund. Commission denied refund. Appellants appealed.

ORDER OF TAX COMMISSION REVERSED. CAUSE REMANDED WITH INSTRUCTIONS TO REFUND PROTESTED STATE SALES TAXES.

Derryberry, Quigley, Parrish, Solomon & Blankenship by Larry Derryberry, Patrick D. Shore, and Eric Mitts, Oklahoma City, for appellant Kay Elec. Co-op.

J.W. Doolin, Lawton, for appellant Cotton Elec. Co-op., Inc.

Oklahoma Tax Com'n by Joe Mark Elkouri, Gen. Counsel, and Marjorie Welch, Asst. Gen. Counsel, Oklahoma City, for appellee.

The City of Norman by Jeff F. Raley, City Atty., Norman, for amicus curiae The City of Norman and as authorized by other amici curiae.

HODGES, Vice Chief Justice.

On March 20, 1987, the Oklahoma Tax Commission (Commission) adopted Regulation 13-62 requiring rural electric cooperatives to collect, report and remit state, city and county taxes on the sale of electricity. As a result, the appellants, Kay Electric Cooperative and Cotton Electric Cooperative (collectively, coops), collected and remitted sales tax to the Commission. The tax was paid under protest. The coops then separately filed for refunds. The Commission denied both requests for refunds based on the Administrative Law Judge's Findings, Conclusions and Recommendations. Both coops appealed from those denials. The cases were consolidated on appeal.

In Branch Trucking Co. v. Oklahoma Tax Comm'n, 801 P.2d 686 (Okla.1990), this Court addressed the question of whether rural electric cooperatives were exempt from collecting, reporting, and remitting sales tax. Branch was a challenge to the validity of the Commission's order under Okla.Stat. tit. 68, § 225(f) (1981). Therefore, the issue of whether the tax should be refunded was not addressed.

The only difference in the present cases and Branch is that the present appeal is from the denials of requests for refunds. The Commission, after this Court requested additional briefs, argues that Branch should only be given prospective effect. We disagree.

The general rule is that a decision of a court will be given retrospective application. An exception to that rule was set out in Chevron Oil Company v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), and adopted by this Court. See Griggs v. State, 702 P.2d 1017, 1020-21 (Okla.1985). The three factors for determining if a decision should be given only prospective application are:

First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied or by deciding an issue of first impression whose resolution was not clearly foreshadowed. Second, it has been stressed that "we must ... weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation." Finally we have weighed the inequity imposed by retroactive application, for "[w]here a decision of this Court could produce substantial inequitable results if applied retroactively."

Chevron, 404 U.S. at 106-07, 92 S.Ct. at 355-56 (citations omitted); Griggs 702 P.2d at 1020.

In Branch, there was no new pronouncement overruling clear past precedent on which the litigants relied. In fact, the Commission was bound by two early 1900 district court cases. See Alfalfa Elec. Coop. v. Oklahoma Tax Comm'n, No. 105,766, slip op. (D.Ct.Okla. Jan. 29, 1943); Cotton Elec. Coop. v. Oklahoma Tax Comm'n, No. 105,778, slip op. (D.Ct.Okla. Aug. 11, 1942). Further, Branch was not a case of first impression. It has long been the rule that a party to an action is bound by stare decisis and that the Attorney General cannot overrule a court of competent jurisdiction.

The history and purpose of the rule favor retroactive application. As just stated, the Commission was bound by two district court cases from which it did not appeal. It could not collaterally attack those decisions by relying on the Attorney General's opinion.

Likewise, there is little inequity in imposing the Branch decision retroactively. The coops paid the taxes under protest. The Commission was fully aware of the possibility that the taxes would have to be refunded. While the state argues that it will endure hardship if Branch is applied retrospectively, it does not argue that it would be unfair.

Balancing these three factors, the scales tilt on the side of the general rule. The Branch decision should be applied retroactively to requests for refunds of state sales taxes paid under protest. Even if the balance was shifted, this Court still must order the refunds.

The Legislature has provided that taxes which were erroneously or illegally assessed by the Commission must be refunded. Okla.Stat. tit. 68, § 225(c) (1981). Section 225(c) states: "If upon final determination of the appeal the order assessing such tax, penalties, and interest is reversed or modified and it is determined that said tax or part thereof was erroneously or illegally assessed, said amounts so paid by the taxpayer, together with the interest thereon at the rate of three percent (3%) per annum, shall be refunded to the taxpayer by the Tax Commission." Having found that the taxes were illegally collected, the Commission must refund the taxes.

The Commission relies on First of McAlester Corp. v. Oklahoma Tax Comm'n, 709 P.2d 1026 (Okla.1985), and Sun Oil Co. v. Oklahoma Tax Comm'n, 620 P.2d 896 (Okla.1981), for the proposition that the refunds should be denied. Those two cases are distinguishable from the present case because the taxes in those cases were not paid under protest. Section 206 applies only to taxes paid under protest. We express no opinion on whether Branch applies to requests for refunds of taxes which were not paid under protest because that issue is not before us.

Some municipalities have filed an amicus curiae brief arguing, among other things, that Branch should not be applied to them because they were not parties to that case. Likewise, they are not parties in the present appeal or in the hearings below. This Court's opinion in the present appeal is only binding as the law of the case on the entities which are parties to the actions. See Fry v. Pennsylvania Mut. Life Ins. Co., 195 Okl. 507, 159 P.2d 550 (1945).

ORDER OF TAX COMMISSION REVERSED. CAUSE REMANDED WITH INSTRUCTIONS TO REFUND PROTESTED STATE SALES TAXES.

LAVENDER, SIMMS and HARGRAVE, JJ., and BACON, S.J., concur.

OPALA, C.J., and ALMA WILSON, KAUGER and SUMMERS, JJ., concur in part and dissent in part.

BACON, S.J., sitting in place of DOOLIN, J., who disqualified.

SUMMERS, Justice, concurring in part and dissenting in part.

The majority orders a refund of only the state sales taxes and declines to determine whether similar municipal and county taxes are also subject to refund. Because of the inequity of requiring a refund from municipalities and counties as hereinafter developed I would decline to make Branch Trucking Company v. Oklahoma Tax Commission, 801 P.2d 686 (Okla.1990) retroactive as to counties and cities, and thus end this controversy as to those entities.

I. The Tax Commission's Obligation to Refund.

Effective November 1, 1989, collected sales taxes are deposited into the sales tax remitting account and remitted to the counties and municipalities on a monthly basis. 68 O.S.Supp.1989 §§ 1373 and 1374. These statutes clearly require remitting the collected tax to the appropriate counties and municipalities, but contain no provision for preserving sales taxes paid under protest for eventual refunds to taxpayers. The State Treasurer has apparently distributed the revenues from the unauthorized sales tax to the respective counties and municipalities notwithstanding the protests. According to the Tax Commission these funds were appropriated and spent by the entities involved.

The taxpayers ¹ paid money to the Tax Commission under protest. A taxpayer may protest an assessment. 68 O.S.Supp.1987 § 221. The Tax Commission issues an order adjudicating the protest. Id. at § 221(g). That order is appealable to this court. 68 O.S.Supp.1987 § 221(g) and 68 O.S.1981 § 225. When in the course of an appeal of a protest this court determines that the taxes paid under protest were "erroneously or illegally assessed"--then "said amounts so paid by the taxpayer, together with the interest thereon at the rate of three percent (3%) per annum, shall be refunded to the taxpayer by the Tax Commission." 68 O.S.1981 § 225(c). (Emphasis Added). Additionally, Article 2 of Title 68 provides the "Uniform Tax Procedure" for the Tax Commission, and therein is found the requirement that the Tax Commission return to the taxpayer deposited money or securities in excess of the taxpayer's liability when such was paid by the taxpayer to secure compliance with any State tax law. 68 O.S.1981 § 211. Section 225 imposes a duty on the Tax Commission to repay all of the money paid under protest--and in this controversy that amount includes amounts collected for counties and municipalities. Sections 211, 221, and 225 show that taxpayers of this State have a statutory expectation for the return of all money paid under protest. ²

This State has long required prompt payment of a tax as a condition precedent for testing the validity of the...