Christensen v. Griffes

686 A.2d 964, 166 Vt. 21, 1996 Vt. LEXIS 114

Opinions

Gibson, J.

Taxpayers appeal from a judgment in these consolidated class actions in which the superior court concluded that taxpayers are not entitled to interest on tax refunds paid by the Department of Motor Vehicles. They argue that the Fifth Amendment Just Compensation Clause and the Fourteenth Amendment Due Process Clause require payment of interest on the wrongfully collected taxes. We affirm.

In Barringer v. Griffes, 1 F.3d 1331, 1339 (2d Cir. 1993), cert. denied, 510 U.S. 1072 (1994), the United States Court of Appeals for the Second Circuit held that Vermont’s motor vehicle purchase and use tax, which provided a credit for sales tax paid to Vermont but not for sales tax paid to other states, violated the Commerce Clause of the United States Constitution. In response, the Vermont Legislature passed Act No. 223, which requires the Commissioner of Motor Vehicles to refund any use tax collected after August 31,1980, where the claimant requests the refund in writing with proof of payment of sales or use tax in another state. The Act specifically states that the tax shall be refunded “without interest.” 1993, No. 223 (Adj. Sess.), § 3. Taxpayers received refunds but claim they are also entitled to interest.

Footnotes

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The Fifth Amendment Just Compensation Clause provides that “private property [shall not] be taken for public use, without just compensation.” U.S. Const, amend. V. Taxpayers rely on Henderson Bridge Co. v. Henderson City, 173 U.S. 592, 614-15 (1899), arguing that the United States Supreme Court explicitly recognizes that the Just Compensation Clause applies to taxes illegally collected. In Henderson, the Court rejected the defendant’s contention that municipal taxation of a bridge that did not receive any benefits from the municipality amounted to a taking of private property without just compensation. The Court noted, however, that “[i]t is conceivable that taxation may be of such a nature and so burdensome as properly to be characterized a taking.” Id. at 614; see also Acker v. Commissioner of Internal Revenue, 258 F.2d 568, 575 (6th Cir. 1958) (income tax rates, although high, have not reached confiscation or “taking in constitutional sense”; taxpayers’ concerns must be addressed to Congress, not courts), aff’d, 361 U.S. 87 (1959).

Although it is “conceivable” that in extreme cases a tax may rise to the level of a taking, we cannot find the interest at issue here so extreme or burdensome as to bring a taxation claim within the proscription of the Fifth Amendment. See Pendell v. Department of Revenue, 847 P.2d 846, 849-50 (Or. 1993) (taxpayers challenge government’s power to tax, not power of eminent domain, where they sought interest on income tax refunds). Indeed, taxpayers have cited no case in which a tax, or the interest on a tax, is held to be a taking.

Instead, taxpayers rely on Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980), and United States v. $277,000 U.S. Currency, 69 F.3d 1491 (9th Cir. 1995). In Webb’s, the United States Supreme Court held that the county violated the Fifth Amendment by retaining the interest on an interpleader fund, where the county also retained a clerk’s fee for services rendered. 449 U.S. at 164-65. In $277,000, the Court of Appeals for the Ninth Circuit held that, where the government has actually or constructively earned interest on cash it seized in a forfeiture action, it must disgorge the interest along with the money it is required to return. 69 F.3d at 1498. Neither case asserts taxpayers’ position that failure to pay interest on a tax refund amounts to a taking. Indeed, the holding in $277,000 is based on a previous order of the trial court, not the Just Compensation Clause. See id. at 1496.

Taxpayers also argue that the Commissioner is obligated to pay interest on the tax refunds under the Due Process Clause of the Fourteenth Amendment. They rely on McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18 (1990), which held that “the Due Process Clause of the Fourteenth Amendment obligates the State to provide meaningful backward-looking relief to rectify any unconstitutional deprivation.” Id. at 31 (footnote omitted). Applying this principle in McKesson, the Court ruled that “Florida may satisfy this obligation through any form of relief, ranging from a refund of the excess taxes paid by petitioner to an offsetting charge to previously favored distributors, that will cure any unconstitutional discrimination against interstate commerce during the contested tax period.” Id. at 51.

Taxpayers contend that, under McKesson, the state is required to provide relief that will put taxpayers in the position they would have been in absent a Commerce Clause violation. Because taxpayers have been deprived of the use of their funds during the years it has taken to obtain the refund, taxpayers maintain that the Commissioner must pay them interest. As taxpayers acknowledge, however, McKesson did not address the issue of interest on tax refunds. Moreover, no court has extended McKesson to require a state to pay such interest. Cf. Chicago Freight Car Leasing Co. v. Limbach, 584 N.E.2d 690, 694-95 (Ohio 1992) (McKesson “did not rule that the state’s failure to pay interest on refunds of illegally collected taxes is a denial of due process”); Pendell, 847 P.2d at 850 (“lack of interest on refunds of taxes that were imposed by laws that this court invalidates does not violate taxpayers’ due process rights under McKesson”). Consequently, we decline to extend McKesson to require payment of interest on tax refunds.

Finally, taxpayers argue that this Court should order the Commissioner to pay interest on the tax refunds as a matter of state law under 32 V.S.A. § 8914 and V.R.C.E 54(a). Section 8914 provides, “Any overpayment of [the purchase and use] tax as determined by the commissioner shall be refunded.” The statute is silent with respect to interest; accordingly, no interest is due on the refunds. See Library of Congress v. Shaw, 478 U.S. 310, 317 (1986) (apart from constitutional requirements, in absence of specific provision by contract or statute, or express consent by Congress, interest does not run on claim against United States); LaShay v. Department of Social & Rehab. Servs., 160 Vt. 60, 67, 625 A.2d 224, 228 (1993) (sovereign immunity protects state from suit unless immunity expressly waived by statute). Nor does V.R.C.E 54(a) (“the amount of the judgment shall include the principal amount found to be due, [and] all interest accrued”) require the state to pay interest absent an express waiver of immunity by the Legislature.

In view of the express intent of the Legislature that the Commissioner refund the motor vehicle use tax “without interest,” 1993, No. 223 (Adj. Sess.), § 3, and absent any constitutional requirement for interest, the superior court correctly ruled that taxpayers are not entitled to interest on their tax refunds.

Affirmed.

Earlier history of this case is detailed in Williams v. State, 156 Vt. 42, 44-47, 589 A.2d 840, 842-43 (1990).