Washington Case Involving Retroactive Refund Amendment Spurs COST Amicus Brief

  by Stewart Weintraub and Jennifer Weidler

The Washington Supreme Court is currently considering the legality of the state legislature’s attempt to create a statutory amendment barring the granting of twenty-four (24) years of tax refund claims.  Tesoro Refining & Marketing Co., No. 39417-1-II (Wash. Ct. App. Dec. 21, 2010).  Tesoro Refining and Marketing Company (“Tesoro”) is a manufacturer of bunker fuels.   Prior to 2009, Washington law permitted companies that manufacture and sell a qualifying fuel (e.g. bunker fuel) to deduct the amount derived from the sale of the fuel against its manufacturing business and occupation (B&O) tax liability.  Tesoro failed to take the deduction on its originally filed returns and later filed a claim for refund.  The Washington Department of Revenue (“Department”) denied the refund claims, asserting that the deduction applied only to wholesaler and retailer B&O tax, not to manufacturer B&O tax.  Tesoro appealed to the Washington Superior Court.  During 2009, while the appeal was pending, the Washington legislature amended the statute to limit the applicability of the B&O tax deduction to retailers and wholesalers both prospectively and retroactively.  The Superior Court granted summary judgment to the Department and Tesoro appealed.

Reversing the lower court’s decision, the Washington Court of Appeals held that pursuant to the plain language of the pre-2009 B&O tax statute, no restriction existed for the applicability of the deduction.    As such, the Department could not alter the plain language of the statute to resolve an ambiguity that did not exist on its face.  Furthermore, the court found the retroactive application of the 2009 amendment violated Tesoro’s due process rights because it impermissibly attempted to look back twenty-four (24) years.

An appeal was filed with the Washington Supreme Court.  The Council On State Taxation (“COST”) filed an amicus brief urging the Washington Supreme Court to uphold the decision of the Washington Court of Appeals.  COST argues that the twenty-four (24) year period of retroactivity greatly exceeds that which has previously been permitted by the United States Supreme Court.  Furthermore, COST argues that the retroactive amendment is a violation of the due process clause and is an unconstitutional “bait and switch” tactic.

Notably, this is not the first time a state attempted to retroactively deny refunds.  Since May 2010, the U.S. Supreme Court declined to review three (3) state tax cases involving similar retroactivity issues. See Asworth LLC v. Kentucky Department of Revenue, Finance and Administration Cabinet, U.S. No. 10-662 cert. denied (Jan. 24, 2011); Ford Motor Credit Co. v. Michigan Dept. of Treas., U.S., No. 10-481, cert. denied (Jan. 18, 2011); and Johnson Controls, Inc. v. Miller, U.S. No. 09-981, cert. denied. (May 24, 2010).

Johnson Controls was a Kentucky case in which the state courts upheld legislation that retroactively disallowed a corporate income tax refund.  COST filed an amicus brief supporting Johnson Controls’ petition for certiorari to the U.S. Supreme Court.  COST urged the Court to hear the case, arguing, somewhat prophetically, that numerous states would be inclined to follow suit and enact similar retroactive refund legislation, which deprives taxpayers of their due process rights.

Subsequently, the U.S. Supreme Court denied certiorari in Ford Motor Credit Co., in which Ford Motor Credit Co. claimed that a Michigan sales tax law that retroactively barred refund suits related to bad debt deductions violated the Due Process Clause of the U.S. Constitution.  COST again filed an amicus brief supporting Ford Motor Credit Co.’s petition for certiorari to the U.S. Supreme Court.

Most recently, the United States Supreme Court denied certiorari in another Kentucky case, Asworth, which involved a claim for a corporate income tax refund, plus interest.  However, prior to the resolution of the case, the Kentucky legislature amended a law, which retroactively changed the date for the accrual of interest on a refund claim, thereby effectively extinguishing the taxpayer’s claim to the interest.  The Kentucky courts denied the claim that the amended retroactive law violated the taxpayer’s due process rights, and for that reason – as well as for other additional grounds not applicable to this discussion –  denied Asworth’s claim.

Because of the state of the economy, it would not be surprising if more states enacted similar legislation attempting to curtail the payment of refunds otherwise due.  With the United States Supreme Court’s continuous denial of certiorari, taxpayers’ pleas for relief have largely gone unheard.  While Tesoro has, for the time being, found court approval for its position, many other taxpayers are left without recourse when a state retroactively amends its statutes denying a refund.

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2 Comments on “Washington Case Involving Retroactive Refund Amendment Spurs COST Amicus Brief”


  1. [...] (11) year retroactive use tax amendment was unconstitutional.  We have addressed this issue in a previous blog post, touching on other cases in which taxpayers have attempted to challenge a state’s attempt to [...]


  2. [...] (11) year retroactive use tax amendment was unconstitutional.  We have addressed this issue in a previous blog post, touching on other cases in which taxpayers have attempted to challenge a state’s attempt to [...]


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