Dot Foods, Inc. v. Department of Revenue
185 Wash. 2d 239
| Wash. | 2016Background
- Dot Foods, an Illinois reseller, claimed Washington B&O tax exemption under former RCW 82.04.423 for sales through its subsidiary and prevailed in Dot Foods I (supreme court decision holding the Department’s narrow interpretation incorrect for January 2000–April 2006).
- Dot Foods sought refunds for additional periods (including May 2006–December 2007) after paying tax during litigation; the legislature amended RCW 82.04.423 in 2010, narrowing the exemption and making the change retroactive.
- The Department denied refunds for periods outside Dot Foods I based on the 2010 amendment but preserved refunds covered by Dot Foods I; Dot Foods sued challenging retroactive application on due process, collateral estoppel, and separation of powers grounds.
- The trial court found for Dot Foods on due process but for the Department on collateral estoppel and separation of powers; the Department appealed and the case reached the Washington Supreme Court.
- The Supreme Court applied the Carlton rational-basis test for retroactive tax legislation (as interpreted in Hambleton) and evaluated whether (1) the amendment served a legitimate legislative purpose and (2) the retroactivity was rationally related to that purpose.
- The Court held the amendment legitimately sought to prevent revenue loss and restore parity, the retroactivity as applied to May 2006–Dec 2007 was rational (statute-of-limitations limited effect to four years), collateral estoppel did not apply to periods not litigated in Dot Foods I, and separation-of-powers concerns were avoided by preserving final judgments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether retroactive application of the 2010 amendment to RCW 82.04.423 violates due process | Dot Foods: Retroactive narrowing is arbitrary, targets prior court intent, and violates due process | State: Retroactive amendment advances legitimate legislative purpose and meets rational-basis standard (prevents revenue loss, restores parity) | Held for State: retroactive application to May 2006–Dec 2007 satisfies Carlton/Hambleton rational-basis test |
| Whether collateral estoppel prevents taxing the May 2006–Dec 2007 periods | Dot Foods: Dot Foods I decided its exempt status and should preclude relitigation for subsequent periods | State: Dot Foods I addressed different, specific tax periods; collateral estoppel applies only to actually litigated issues | Held for State: collateral estoppel does not apply because the interim periods were not litigated in Dot Foods I |
| Whether statutory preservation of prior judgments (2010 §1706) extends Dot Foods I judgment to later periods | Dot Foods: §1706 embodies preclusion of relitigation and preserves Dot Foods’ exemption beyond periods litigated | State: §1706 preserves final judgments only for tax periods actually adjudicated; interim refund claims were not final when amendment took effect | Held for State: §1706 preserves only final judgments; it does not extend Dot Foods I to the May 2006–Dec 2007 periods |
| Whether retroactive amendment infringes judicial power (separation of powers) | Dot Foods: Retroactive reversal of court interpretation encroaches on judicial role | State: Legislature may amend statutes in response to judicial interpretation and explicitly preserved final judgments | Held for State: No separation-of-powers violation; legislature did not disturb final judgments and acted within authority |
Key Cases Cited
- United States v. Carlton, 512 U.S. 26 (establishes rational-basis due process standard for retroactive tax legislation)
- Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717 (retroactive economic legislation test; cited in Carlton)
- In re Estate of Hambleton, 181 Wn.2d 802 (Washington precedent upholding retroactive tax amendment under Carlton)
- Dot Foods, Inc. v. Dep’t of Revenue, 166 Wn.2d 912 (prior Washington decision interpreting RCW 82.04.423; scope limited to periods litigated)
- Commissioner v. Sunnen, 333 U.S. 591 (prior tax judgments do not preclude relitigation for different tax periods)
- W.R. Grace & Co. v. Dep’t of Revenue, 137 Wn.2d 580 (upholding retroactive application of remedial tax legislation)