National Can Corp. v. State, Dept. of Revenue

• Decision Date: 28 January 1988
• Docket Number: 51910-2,Nos. 51110-1,s. 51110-1
• Citation: 109 Wn.2d 878,749 P.2d 1286
• Parties: NATIONAL CAN CORPORATION, Kalama Chemical, Inc., and Xerox Corporation, Appellants, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent. TYLER PIPE INDUSTRIES, INC., a Delaware corporation, Appellant, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.
• Court: Washington Supreme Court

Page 878

109 Wn.2d 878

749 P.2d 1286

NATIONAL CAN CORPORATION, Kalama Chemical, Inc., and Xerox

Corporation, Appellants, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

TYLER PIPE INDUSTRIES, INC., a Delaware corporation, Appellant, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

Nos. 51110-1, 51910-2.

Supreme Court of Washington,

En Banc.

Jan. 28, 1988.

Bogle & Gates, Franklin G. Dinces, John T. Piper, D. Michael Young, James R. Johnston, Seattle, Wash., for Nat. Can Corp., et al.

Riddell, Williams, Bullitt & Walkinshaw, Thomas C. McKinnon, Thomas C. Armitage, Seattle, Wash., for Tyler Pipe Industries.

Kenneth O. Eikenberry, Atty. Gen., Leland T. Johnson, Senior Asst. Atty. Gen., William B. Collins, Timothy R. Malone, Asst. Attys. Gen., Olympia, Wash., for respondent.

UTTER, Justice.

This is a remand from the United States Supreme Court where various commercial enterprises (taxpayers) claimed Washington's multiple activities exemption to the business and occupation (B & O) tax, RCW 82.04.440, discriminated against interstate commerce in violation of the commerce clause, U.S. Const. art 1, § 8. In Tyler Pipe Indus., Inc. v. Washington Dep't of Rev., --- U.S. ----, 107 S.Ct. 2810, 55 L.Ed.2d 199 (1987) (hereinafter Tyler ) the United States Supreme Court vacated and remanded this court's decisions in Tyler Pipe Indus., Inc. v. Department of Rev., 105 Wash.2d 318, 715 P.2d 123 (1986) (hereinafter Tyler Pipe ) and National Can Corp. v. Department of Rev., 105 Wash.2d 327, 732 P.2d 134 (1986) (hereinafter National Can ). In Tyler Pipe and National Can, this court held Washington's B & O tax exemption was valid under the commerce clause in that (1) there was a sufficient nexus between the interstate activities and the State, (2) it was fairly apportioned, (3) it was fairly related to the services provided, and (4) it did not discriminate against interstate commerce. The United States Supreme Court held there was sufficient nexus, and the tax was fairly apportioned, but found the multiple activities exemption discriminated against interstate commerce. The Court then remanded to this court to decide the refund issues raised by its ruling.

The decisive issues before this court are whether state law mandates refunds, and if not, whether this is an appropriate case for prospective application. We hold state law does not require refunds, and prospective application is appropriate.

I. STATE LAW

In order to reach the retroactivity issue, this court must first decide if Washington state statutory law or state case law mandates refunds of taxes paid prior to the Supreme Court's Tyler decision. If this state's tax refund statutes, RCW 82.04.4286 and RCW 82.32.060 apply, then all other issues are irrelevant.

This court has stated that, if a tax were in violation of the due process or commerce clauses, it would also be in violation of RCW 82.04.430(6) (subsequently recodified as RCW 82.04.4286). Chicago Bridge & Iron Co. v. Department of Rev., 98 Wash.2d 814, 819, 659 P.2d 463 (1983). However, taxpayers' argument based on Chicago Bridge misconstrues the more basic inquiry at issue here. If the taxes were collected in violation of the constitution, then the state refund statutes would mandate refunds. However, if the court finds the Tyler holding is to be applied only prospectively, then for the purposes of applying the refund statutes it is as if the taxes collected pre-Tyler were constitutionally collected. The statutory argument ignores the very meaning of prospective application. Washington case law does not support the proposition that tax refunds are always mandated when a statutory scheme is found to be unconstitutional. This court recently found a part of Washington's sales tax to be unconstitutional and yet gave only prospective application to its decision and afforded no refunds to taxpayers. Bond v. Burrows, 103 Wash.2d 153, 690 P.2d 1168 (1984). See also Cascade Sec. Bank v. Butler, 88 Wash.2d 777, 786, 567 P.2d 631 (1977); State ex rel. Finance Comm. v. Martin, 62 Wash.2d 645, 673, 384 P.2d 833 (1963).

II. RETROACTIVE OR PROSPECTIVE APPLICATION OF TYLER

Since Washington law does not foreclose an inquiry into prospective application, we turn to the factors enunciated by the United States Supreme Court to determine whether prospective application is to be afforded in this case. Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971) sets out the three factors to be considered in deciding whether to give retroactive or prospective effect to a new rule in a federal civil case. Tyler, --- U.S. at ----, 107 S.Ct. at 2822. Courts must (1) determine whether the decision establishes 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; (2) 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; and (3) weigh the inequity imposed by retroactive application. Chevron Oil, at 106-07. (Although the tests for retroactive application in criminal cases have recently been reworked, the inquiry in civil cases is still controlled by iChevron Oil. Griffith v. Kentucky, 479 U.S. ----, 107 S.Ct. 708, 93 L.Ed.2d 649 (1987).)

A. NEW PRINCIPLE OF LAW

The threshold factor necessary for prospective application is a finding that the Tyler decision established a new principle of law overruling past precedent on which litigants may have relied. Chevron Oil, 404 U.S. at 106, 92 S.Ct. at 355. This court's unanimous decisions in National Can and Tyler Pipe, the long line of cases upholding the Washington B & O tax, the fact that Tyler overruled past precedent on which the states may have relied, and Justice Scalia's dissent in Tyler, all compel the conclusion that Tyler did establish new principles of law.

In 1984 the United States Supreme Court invalidated West Virginia's wholesale gross receipts tax because it discriminated against interstate commerce. Armco Inc. v. Hardesty, 467 U.S. 638, 104 S.Ct. 2620, 81 L.Ed.2d 540 (1984). In National Can, this court distinguished Armco based on the belief that Washington's selling and manufacturing taxes were exacted to address the same state burdens and hence were compensatory and therefore substantially equivalent. This court distinguished West Virginia's tax (which imposed substantially different tax rates on manufacturing and on wholesaling) from Washington's tax (which imposed identical rates on each activity), and reasoned that this difference was one reason which had precluded the Supreme Court from finding the West Virginia taxes to be compensatory.

We further held that the "internal consistency" rule is not applicable to a determination of discrimination in a gross receipts tax case. It was our belief that the Court in Armco had used the internal consistency concept only in the determination of whether Armco Inc. had to show actual harm once it had demonstrated the tax was facially discriminatory. For this reason we held the Washington tax was not facially discriminatory, and relied on previousholdings of the United States Supreme Court which had upheld Washington's B & O tax against commerce clause challenges and which were not expressly overruled in Armco.

The Supreme Court held, however, that the multiple activities exemption was facially discriminatory, and that manufacturing and wholesaling are not substantially equivalent activities. Tyler, --- U.S at ----, 107 S.Ct. at 2818. The Court also held that the "internal consistency" rule was indeed to be applied in a gross receipts case where the allegation is that a tax on its face discriminates against interstate commerce. Tyler, --- U.S. at ----, 107 S.Ct at 2820. The Tyler Court concluded the B & O tax exposes out-of-state manufacturing or selling activity to a multiple burden from which only manufacturing in-state and selling in-state is exempt. The Court stated that to the extent its conclusion was inconsistent with its ruling in General Motors Corp. v. Washington, 377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430 (1964) that case was overruled.

Our unanimous decision in National Can indicates we did not read Armco as foreshadowing the result in Tyler. Taxpayers argue, however, that Armco 's reliance on Justice Goldberg's dissent in General Motors clearly informed this court that Washington's tax was unconstitutional. The Supreme Court in Tyler, discussing its Armco decision, said:

In explaining why the tax was discriminatory on its face, we expressly endorsed the reasoning of Justice Goldberg's dissenting opinion in General Motors Corp. v. Washington, 377 U.S., at 459 . We explained:

"The tax provides that two companies selling tangible property at wholesale in West Virginia will be treated differently depending on whether the taxpayer conducts manufacturing in the State or out of it. Thus, if the property was manufactured in the State, no tax on the sale is imposed. If the property was manufactured out of the State and imported for sale, a tax of 0.27% is imposed on the sale price. See General Motors Corp. v. Washington, 377 U.S. 436, 459 (1964) (Goldberg, J., dissenting) (similar provision in Washington, 'on its face, discriminated against interstate wholesale sales to Washington purchasers for it exempted the intrastate sales of locally made products while taxing the competing sales of interstate sellers' ); Columbia Steel Co. v. State, 30 Wash.2d 658, 664, 192 P.2d 976, 979 (1948) (invalidating Washington tax)." 467 U.S., at 642.

(Italics ours.) Tyler, --- U.S. at ----, 107 S.Ct. at 2816-17. The italicized material is a description of Washington's pre-1950 statute which exempted intrastate sales on locally manufactured goods. Even though the Armco court did quote Justice Goldberg's General Motors...