Miller v. Johnson Controls, Inc.

Secretary MILLER, the Fi- Jonathan Administration Cabinet

nance and Kentucky;

the Commonwealth Kentucky, Depart-

Commonwealth Revenue, Appellants/Cross-

ment

Appellees, Security INC.; CONTROLS,

JOHNSON Subsidiaries, Includ-

Group, Inc. and Greenleaf, Inc.; Willis

ing Sargent & America, Affiliates;

North Inc. USA, In-

Bunzl Inc. and Subsidiaries Inc.; Mak-Pak, Tredegar

cluding Cor- Subsidiaries;

poration, Inc. Cos- Broadcasting Corporation

mos

Affiliates, Appellees/Cross-Appellants. 2006-SC-000416-DG,

Nos.

2007-SC-000819-DG. Kentucky.

Supreme Court of

Aug. 2009.

Rehearing Denied Nov. Corporation;

Courier Cellular Computer Emporium; Broadway Courier Corp. Opinion of the Justice NOBLE.

This appeal addresses the constitutional- ity application of certain amendments corporate to the passed by statutes General in 2000 that barred the filing of combined tax returns under the concept business and the issuance of tax refunds related filing, to such a even return, if by years amended for the prior (and Appellants 1995. The Cross-Ap- Miller, pellees) al., Jonathan et collectively on behalf of the Commonwealth of Ken- tucky, assert that the amended tax stat- satisfy utes all requirements, constitutional they and that were economic legitimate enacted for a purpose, even though they filing disallow combined re- collecting turns or a refund thereon for the years before 1995. The Appellants also argue legislature that the effectively with- drew its consent to be sued for such re- (and Appellees funds. Cross-Appellants) Controls, al., Johnson et argue that their process rights will be if the violated 2000 amendments to the tax statutes are Trower, Atlanta, GA, Christopher C. allowed to them prevent getting Laura Ferguson, Department Marie They refund. equal also claim denial of Revenue, Services, Office of Legal Frank- protection under the law and violation of fort, KY, Appellants/Cross- Counsel for other Kentucky rights. Constitutional Be- Appellees. cause we find that the tax statute amend- Clark, Horn, Lynn Bruce F. Erica Mar- were legitimate gov- ments enacted for the Grant, garet Roger Benjamin R. Critten- revenue, purpose ernmental of regulating den, Harbison, PLLC, Frankfort, & Stites rationally and that the amendments are KY, Frankel, H. Paul Morrison & Foer- purpose, related to that there is no due ster, York, LLP, NY, New Counsel for process or other constitutional violation. Appellees/Cross-Appellants. Luber, Wyrick, Thomas J. Mitzi Denise Background I. Combs, LLP, Wyatt Tarrant and Louis- Background A. Factual ville, KY, Curiae, Counsel for Amicus Gan- Network, Inc.; nett Beginning Kentucky Satellite Information Reve- Co.; Journal nue began interpreting Courier and Louisville Times Sendees, Inc.; Marketing filing Gannett Direct 141.120to disallow the of a combined Gannett River Publishing Corp.; States tax return under the con- (RP) 41P225, a refund of taxes therefore claim Policy could

cept. In Revenue overpaid. have they claim to literally apply Cabinet determined 141.120which stated in KRS language applying GTE would Recognizing Prior to were disallowed. such returns unanticipated significant in a result this, years, for sixteen loss, Assembly re- the General revenue businesses to choose qualified allowed statutes to the relevant peatedly amended com- returns or a separate to file whether returns under type of combined bar unitary business return under bined Appel- plan that the unitary business it clear that RP 41P225 made file, concept. pay- to and to bar lees amended allowed returns would be only separate that would be any tax refunds ment of corpora- group the fact that a despite of amended filing type this persons to unitary a busi- function under claim these statu- might Appellees tions return. The have denied them due plan. tory ness amendments protec- equal law and violated process of as enterprises function Many corporate tion. corporations, chains related clusters or many Determin- state lines. often across History Legislative and B. Procedural to apportion corporate income ing how to and 141.200 KRS 141.120 KRS taxation in each state can be allow actually lie at the heart of Two statutes to and can lend itself extremely difficult KRS 141.120 and KRS controversy: this or fraud. One method to “dodges” tax subject they Because have been 141.200. specific part taxation for a proper arrive at shifting and in- significant amendment simply tax each of a business chain is recounting of his- terpretations, some method, Another known part separately. understanding this helpful will be tory unitary return under a busi- a combined as case. entity file as a corporate lets the plan, ness whole, ac- apportions then the state tax 1. Before 1996 pros are to some formula. There cording of KRS 141.120in read the version GTE tо both methods which are not and cons multiple “authorize at that time to effect germane here. unitary engaged in a business corporations Appellees originally separate filed The income tax returns.” to file combined this decided tax returns. above, GTE, noted 889 S.W.2d at 791. As Cabinet, v. Revenue Commonwealth GTE corporations (e.g., meant that related Kentucky, (Ky.1994), 889 S.W.2d 788 effectively subsidiary) and could parent (such corporations that related which held so single file a tax return. The Court held file a subsidiary) and could parent as 141.200(1)at the the fact that KRS despite tax under combined return “[cjorporations that are required time decided, concept. After GTE was business each make a re- affiliated must sought in this case to amend Appellees “corporation” as turn.” The Court read re- substituting their returns combined 141.200to mean both individ- used KRS concept under the business groups corpora- turns corporations ual GTE, they “unitary allowed in because would as a business.” operated as tions that GTE, meant that at 793.1 This approach 889 S.W.2d owe less tax under such 141.010(24) defined KRS Specifically, lions” is 1. the Court stated: meaning with having consistent the defi- recognize argument by Although we 7701(a)3 § the word in 141.200(1) nition of Revenue Cabinet that KRS re- 26 U.S.C. Revenue Code. Federal Internal corporate filings, quires separate we do not apportionment concept of placed agree interpretation with the on the obviously place among has no within "Corpora- states last sentence of that statute. GTE, Assembly be treated General technically subsidiaries would undid GTE and its “unitary single forward, business under as a at going implemented least could therefore concept” they substantially similar scheme under the “af- file a combined return. group” approach. filiated This allowed the Assembly General follow national Amendments

2.The recognized trend GTE had while giv- General amended ing it more control over the than 1996, directly substantially 141.120 judiciary. GTE, response to the decision Court’s effect change having retrospective with the Budget 3. The 1998 Bill year ending on or after Decem- 1998, Sometime in the Rеvenue 239, 31, Ky. Acts ch. ber 1995. See interpretation Cabinet realized that GTE’s read, 1, §§ 3. A section was added of KRS 141.120 was creating substantial be construed “Nothing in this section shall tax refund liabilities for the state for the requiring filing or of a allowing as years prior to 1995. The General Assem- busi- combined return under of, bly apprised was not or at least return.” concept ness or a consolidated address, able to problems these until late 141.120(11). KRS Session, Regular the 1998 when was KRS 141.200was amended its entire- well into budgeting process. Because having retrospective ty, changes with its legislative only every sessions were held ending on or after any year effect to tax then, year other the first chance to deal 31, Ky. 1995. See 1996 Acts ch. December problem legislation with the with direct 2, “[cjorporations §§ The that are 3. years would come two later. To at least re- separate affiliated must each make temporarily patch problem, the Gener- place, was removed. In its language turn” Assembly provision al inserted a in the Assembly included definitions the General Budget barring Bill the state trea- re- group” of “affiliated and “consolidated sury from out paying any sought refunds turns,” the feder- both of which referenced pursuant theory to the announced GTE. The General al Internal Revenue Code. Budget Bill would be in effect for language allowing also included years, meaning problem two would groups” “affiliated to file “consolidated re- fully have to be addressed in 2000. turns.” of was to undo effect 4. The 2000 Amendments “unitary concept” injected business Assembly finally the General allowing parent- into the law GTE while directly chance to deal with like subsidiary groups corporations, corpo- created those emerging problem litigation, to file those involved the GTE trying to file returns for rations amended single going return what amounted to words, years advantage In other before 1995 to take forward from 1995. plan. corporate It does not of the Federal tax Our income return. confines "Corporation” interpretation of the word component corporation mean that each is, however, 141.200(1) as in KRS used unitary group separately. The must file definition. We consistent with the Federal between sim- taxation statutes differentiate interpret phrase § the last which is corporations unitary corporations. ple "corporations affiliated” to refer to that are simply requires a return for This statute unitary corporations GTE and Sub- such as corporate taxpayers. both classes of merely requires that sidiaries. The statute GTE, at 792-93. 889 S.W.2d unitary corporation each file a any return for concept or a consolidated of the version interpretation GTE’s years. in those 141.120in effect year ending taxable before December 31, 1995, December unless on or before 141.120 to remove the It amended KRS corporation group “unitary filings under the express bar on in the 1996 ver- concept” found amended corporations business filed an initial or 141.120(11). Ky. See 2000 at KRS sion con- return under the business § 2. This was not a rollback Act. ch. return for a taxable cept or consolidated “unitary disapproval ending before December year however. concept,” (11)This not be con- section shall Instead, Assembly again the General impair the strued to limit or otherwise substantially to ad- KRS 141.200 amended authority under KRS 141.205. cabinet’s Ky. Act. ch. problem. See dress 543, § added the fol- 1. The amendment language KRS 141.200. The bill also had lowing language: (7) ret- stating apply that subsection “shall (7) year ending taxable on or For roactively years ending on or taxable 31, 1995, except pro- December after 31, 1995,” that subsec- after December (3) of this sec- vided under subsection (8) (11) retroactively “shall apply tions to tion, chapter in be nothing this shall years ending before Decem- for all taxable allowing requiring or construed as 543, § Ky. 1995.” 2000 Acts ch. 3. ber filing of:

(a) effect of this was to amendment A combined return under the unitary concept; business or returns un- maintain the bar on combined

(b) A return. “unitary concept” consolidated and to der business (8) tax retrospectively apply years No assessment additional that bar to be- any year ending for taxable on or due 1995. Because thex-ewas no alterna- fore made after before December tive for returns” for filing “consolidated 22,1994, requir- and based on December in groups” years, “affiliated those as had any initially ing change a from filed beginning been allowed 1995 under separate return or returns to com- amendments, 1996 this new amendment unitary business bined return under pui'ported any might to undo effect GTE return, concept or to a consolidated shall to prior have had 1995. recognized any pur- for be effective or pose. Subsequent 5. Amendments

(9) No claim for refund or credit of a overpayment any year taxable tax Subsequent of KRS amendments December, 31, 1995, ending on or before 141.120 and left the 1996 and 2000 .200 any by made an amended return or oth- Also, substantially amendments intact. 22, 1994, er method after December KRS 141.200 has been amended to include any initially on a based groups” “affiliated provisions i'elated to or filed return returns to a for the tax and “consolidated x-eturns” unitary combined return under the busi- years 2004 to 2007. This has had the return, concept ness or to a consolidated 141.200(7) (11), of moving effect KRS — recognized shall be effective or statute, in the version of the to found 2000 purpose. 141.200(15) (19). pur- present KRS For (10) — corporation group No of cor- however, appears the law to be sub- poses, porations shall be allowed to file a com- stantially appeai-ed bined return under the business the same as it the unitary concept years Analysis business for the II. in question, they claim a property interest Immunity Sovereign A. will be taken without due if of law Appellants Appellees argued that tax amended statutes are ret- allowed obtain a tax action cannot this roactive application bar their claims. legislature because from Revenue It has been established that “a taxpayer consent, its to be specifically, withdrew right has no vested in the Internal Reve- a refund under a return sued for combined Carlton, nue Code.” United States v. plan on the based U.S. 114 S.Ct. 129 L.Ed.2d 141.200(17). Certainly, plain (Nor, by comparison, is there However, of that meaning section. right vested in the Kentucky Revenue The constitutional of a State privilege Code.) statement, By written Jus- immunity in sovereign its its assert Blackmun, tice the United States Supreme upon own courts does not confer there Court held that is no substantive disregard a concomitant right state process right prevents which retroactive Constitution or law. valid federal applications. law The Supreme Court The States and their are bound officers explained: by obligations imposed by the Constitu-

tion and federal statutes com- “Taxation is neither a penalty imposed design.... with port the constitutional taxpayer on the nor liability he Sovereign immunity bar all does not by contract. way assumes It is judicial review of state with compliance apportioning the government cost of federal law. Constitution valid among those who some are measure Maine, 706, 755-56, enjoy privileged Alden v. U.S. benefits must 2240, 144 L.Ed.2d S.Ct. 636 bear its burdens. Since en- no citizen burden, joys immunity from that ret- its Appellees The have raised a federal due imposition necessarily roactive does not process challenge to the amendments. 2000 ” such, process.... due infringe on their federal As constitutional claims Supremacy must be considered under the 134, (quoting Henry, Id. Welch v. 305 U.S. If there Clause. is a federal constitutional (1938)) 146-47, 59 S.Ct. 83 L.Ed. 87 violation, that prevails. law (omission original). that Having determined matters involv- B. Due Process ing do not involve taxation a fundamental The term process” “due has two (and right implicate thus did not substan- (1) meanings American jurisprudence: tive the also process), Supreme due Court due process, substantive which is based on undertook to determine whether retroac- the that some rights idea are so fundamen statute, tive of a tax application without government the tal that have an ex must causing taxpayer, notice and loss to the ceedingly important regulate reason to procedural violate Af- process. would due them, all, at ‍​​‌‌​​​‌‌​‌‌​‌​​​​‌‌‌​​‌‌​​​‌​‌‌​‌‌‌​​‌​‌​​‌‌‌‌‌‍if such as the to free right painstaking analysis, ter a the Supreme vote; (2) or to speech and due procedural long stat- Court determined as as the which process, requires government the utory rationally amendmеnt was related to known procedures, follow and established legitimate legislative a it purpose, would to act arbitrarily unfairly and not or process. not violate due life, regulating liberty property. Since analysis Supreme began The Court Appellees paid have and are taxes by recognizing a number of cases wherein seeking by amending sepa their rate returns to a combined under upheld legislation against return retroactive

398 instituted in federal challenge legisla when a refund action district process “ court, process ‘harsh and a due violation. oppressive claiming tion not so limita the constitutional transgress rejected his due district court ” (quoting 114 S.Ct. 2018 tion.’ Id. at argument. panel A divided Ninth 134, 147,59 S.Ct. Henry,

Welch reversed Circuit Court of on the (1938)). explain L.Ed. 87 To grounds inadequate notice retro- oppressive,” stated “harsh and active that the taxpayer amendment and equivalent were to “arbi that these words pre-amend- on had relied to his detriment id., irrational,” explained: trary and ment law. “ retrospective appli- ‘Provided that Supreme found that Carlton’s by is supported cation of a statute dispositive lack of notice was not because a purpose furthered legitimate legislative taxpayer takes his chances there will means, judgments rational about burden be an increase in the tax legislation remain within wisdom of such government might come about when province of the legislative the exclusive policy carries out an established of taxa- branches.... and executive Further, tion. it held since the aspects retrospective legis- ... The amendment not been made lation, prospective aspects, as well as improper inducing such as purpose, Carl- of due process, meet the test must rely only ton to to target statute justifications latter fact, given him after the that he had suffice for the former.... But that bur- no because immunity from taxation it was simply by showing that the den is met liability neither a penalty nor a application retroactive obligation exchange his for the benefits legisla- justifiеd rational itself ” government, reliance on pre- his purpose.’ tive amendment statute alone was insufficient 30-31, Id. Pen- (quoting at 114 S.Ct. violation. establish a constitutional Guaranty Corporation sion v. R.A. Benefit Instead, Court held the Co., 729-30, Gray & U.S. view of of Appeals the Ninth Circuit Court (some (1984)) L.Ed.2d 601 to be an unduly strict standard: “Because omitted, marks quotation internal citations application we conclude that retroactive added, omitted, emphasis first and third the 1987 to amendment Section 2057 is original). omission in rationally legislative a legitimate related to Respondent legiti- The Carlton that the purpose, we conclude amendment advantage of tax mately taken an estate applied as to Carlton’s transactions under a revised statute which deduction consistent Due Process with the Clause.” significant have saved the estate a would 35,114 Id. at 2018. It is notable that A money. year little over a amount holding ultimate did mention a later, Congress recognized that the statute (on “modesty” requirement which the was and enacted a curative overbroad case), in this relied limiting amendment deduction to such though note with majority did favor it no degree longer apply that would Congress promptly ap- had acted by making It did so estate. plied period retroactivity a modest if incorporated retroactive as amendment (meaning period length that the provision. deduction original deduction, part considered as retroactivity is to be IRS disallowed and Carlton the test of the statute is rational paid deficiency, whether plus the asserted interest. refund, of achieving government’s goal). He filed a claim for a and means then fact, only certainly Justice O’Connor stated in a legitimate legislative pur- concurring opinion her that the retroactivi- pose, law that retroactively ty period year, should not exceed one thus tax, deduction, adds a removes a or in- that she implying “modesty” considered creases a rate rationally furthers that process guarantee. be a due Her goal. I welcome this recognition that opinion no carried other votes. the Due Process Clause pre- does not taxes, vent retroactive since I believe Thomas,

Justices Scalia and in a sepa- that the Due Process guarantees rate Clause concurring opinion, took the view that (as no substantive rights, time is not even a relevant but only consideration. it Instead, they says) process. focused on the fact that the taxpayer statute, has already relied on the Id. (Scalia, J., at 114 S.Ct. 2018 concur- and the amendment comes after that reli- (internal omitted). ring) citations They ance. felt that whether the amend- Clearly, eight justices of the nine viewed immediately ment comes long after or af- what “rationally legitimate further” a ter deprivation does not the fact of governmental interest as being broader after reliance on then existing law. See id. than the year one that only Justice O’Con- (Scalia, J., at 114 S.Ct. 2018 concur- impose nor would a “modesty” measure. (“The ring) reasoning the applies Thus what is “modest” acceptable uphold the guarantees statute this case process purposes due depends on the facts that all retroactive tax laws will henceforth case, notice, including expec- settled valid.”). be tations, reliance, detrimental etc. application Retroactive of a statute need when, This was following demonstrated (1) only be supported by legitimate legis- Carlton, (where in 1996 the Ninth Circuit (2) purpose lative furthered rational originated) Carlton held Montana Rail means, which appropriate includes an mod- Link, States, Inc. v. United 76 F.3d 991 esty requirement. requires analysis This (9th Cir.1996), that a statute with a seven of the facts and circumstances of each year retroactivity period did not violate case, applying rather than a specified mod- process. The facts of that case are esty period. pertinent question is strikingly similar to this one. whether the period retroactivity is one Montana Rail required pay that makes sense in supporting legiti- governmental compensation mate excise on purpose (rationally рaid re- to its lated). employees, and to a tax imposed withhold employees railroad under a retirement differences, Despite these Justices system separate security social O’Connor, Scalia and Thomas did concur in though paid to the Internal Revenue Ser- case, the result of the joining majority vice. years, For several Montana Rail in saying that retroactive application of as compensation treated taxable its contri- revenue rationally measures is related to (k) plans, butions to 401 advice of legitimate governmental purpose of Board, stopped Railroad Retirement revenue, raising prevent to a “significant (k) including 401 contributions when calcu- unanticipated and revenue loss.” As Jus- lating employee compensa- tice Scalia the amount of wrote his concurring opinion, purposes tion for retirement fund and 1988. This resulted in what it consid- pass

To constitutional muster the ret- a tax overpayment ered to be for those aspects roactive only statute need be “rationally years, related to a so Montana Rail refunded that legitimate leg- purpose.” islative raising Revenue employees, sought amount to its and a “unlawful,” overpayment gov- “improper” from the ment’s and “er- refund of this ernment. Contrary roneous” collection of taxes. assertion, to MRL’s the IRS did not 1989, Congress redefined December any by accepting violate federal law tax compensation retirement the railroad overpayment. Seeking MRL’s a refund specifically to include contributions to base voluntary own overpayment one’s 401(k) part compen- of the taxable plans as a lawful tax the same sation, pursuing is not specifically made the and “ paid remedy payment illegal to ‘remuneration before of an tax. retroactive 1, 1990Id. at 993 n. 1 January Id. at 995. (quoting Budget Omnibus Reconciliation In light of Carlton and Montana Rail it 10206(c)(2)(A)). 1989, § This affect- Act of opinion clear that the the Ken- becomes tax status of these retirement con- ed the tucky Appeals gave undue weight 1983, whеn ambiguity tributions from concurring to dicta in Justice O’Connor’s arose, forward. Montana Rail’s refund re- it opinion when held that this case turned quest was denied. But it claimed that it year “modesty” on a one requirement. the advice of the and had relied on Board The issue instead is whether the ret- law, existing the then state of the and that rationally roactive statute of 2000 furthers deny pro- to its refund would violate due legitimate governmental purpose of Montana Rail in federal cess. filed suit raising controlling prevent and revenue to refund, seeking district court but its significant unanticipated and revenue claim was denied there also. here, loss. that Applying test there can be Ninth Appeals up- Circuit Court of question no the legislature acted to ruling, specifically held the district court correct what as a viewed mistake Congress applying Carlton find had law, interpretation GTE’s that it had legitimate legislative purpose pro- a legitimate governmental purpose (raising tecting employees the reliance interests of revenue) controlling and that the stat- expecting higher who were to receive ben- rationally purpose. ute furthers this Fur- withheld, paid efits based on the taxes ther, prevent significant and unantic- specifical- and to avoid loss of revenue. It loss, ipated Appellees revenue had been on ly period retroactivity held that the bore notice of the revenue intent from 1988 underlying legis- rational relation to the when RP 41P225 was issued until 1994 purpose, year lative and that the seven decided, when GTE was and could not retroactivity period appropriate be- have expectations” “settled to the cause contrary. 10206(b) § [gjiving year a one or two

period retroactivity would have se- Additionally, the legislature’s intent verely hurt workers who had retired supercede apparent became GTE almost expecting they would receive a level session, immediately. leg- In the 1996 part pay- of benefits on tax based islature amended KRS 141.120 to disallow ments made from 1983 1987. A through filing a return combined under the period retroactivity shorter would concept, developed its own arbitrary have been and irrational. approach filing a consolidated return (internal omitted). Id. at 994 citations affiliation, specifically ownership. based on

Further the pointed any Ninth Circuit out It the effective made statute for tax that year ending on or after December erroneously taxpayers attempt MRL 1995. That would to equates its mistaken overpayment of taxes with the amend their returns to combined govern- returns concept ipated in the business or- revenue under loss. Revenue is raising claim under the refund statute was der to province the sole legislature, and the unknown, literally legisla- because courts only should involve themselves in it knowing had no means of who ture would when clear constitutional or interpretive to combine their in separate wish returns issues arise. due process While is certain- refund, or request to a even if a order ly a protected constitutionally right, is it after required they refund would be did. case, not impacted under facts of this notice, next By beginning given lengthy biennial clear and the lack session the was legislative effect GTE expectations settled and lack of detri- during still not clear. Sometime the ses- mental reliance. All the legislature did sion, however, such evidence of claims was was clarify after the statute this Court raised, and the problem addressed interpreted it in GTE. bill, which through budget directed tack, Taking another Appellees have ar- pay attempts Revenue not to refunds to that gued a case decided before the to separate amend returns combined re- Supreme Court later the Court the unitary concept turns under business ruled that a State not “bait and for a in order make a claim refund taxpayer switch” remedies when a seeks session, By the the prob- under GTE. illegally refund of or unconstitutionally col- defined, legislature had been and the lem require lected taxes which this amended KRS 141.200 to disallow the fil- they find that are entitled ato refund of an

ing of combined returns under the overpayment of taxes due to being re- concept year taxable business end- quired to they file returns whеn 31,1995, or before ing on December and to were entitled to file combined return payment of refunds on amend- disallow under the unitary plan. Reich returns filed after December ed Collins, 115 S.Ct. (not coincidentally, the date GTE was de- case, however, L.Ed.2d 454 This cided). opportuni- At the first reasonable clearly distinguishable from the present issues, it became ty, as aware of circumstances on facts and legal ques- its only legislature, biennially, met then tions. provisions and amendments. made might tempting require be

While Reich practice concerned common legislature to be so as omniscient to where state retirement benefits were ex- immediately ramifications understand taxes, empt from state income but federal statutory application, law on case histo- retirement benefits were not. After the that ry development tells us often the of Supreme practice Court found this holdings law based on the cases takes intergovernmen- violated the constitutional go through process time to before the doctrine, tax immunity tal most states re- impact can clear be seen. Combine this pealed special exemption state delays legislative with caused a biennial retirees, automatically but did not schedule, and it is rational that the legisla- illegal taxes to federal retirees. Reich diligence ture acted with reasonable Georgia tax refund sued for a under complicated matter. The case took refund statute. several turns, finally up ended with twists held, to pass As constitu Carlton holding the United States muster, a tional retroactive statute need Georgia its depriva- could rationally legitimate be related remedy in middle of the stream tion legislative purpose, which this case as in significant arbitrarily post- was a and unantic- its clear declaring Ca.rlton However, in did not make GTE longer apply would no remedy deprivation declaration, but instead exclusively rely on a going it was to constitutional because remedy. Justice interpreted a constitutional stat- pre-deprivation merely Reich was entitled to wrote that any way in O’Connor That did not ute. decision remedy, re- post-deprivation pursue the remedy available process for a impact Georgia pre- also had whether gardless of that an- merely it said taxpayers; to the remedies, the lan- because deprivation was also process filing returns other in the refund statute would lead guage constitutionality was not Since available. that to think obvious average taxpayer involved, analysis goes then from de- remedy. that himself of he could avail property without privation of effectively away any taken had Georgia analysis well-established of law to the by changing pre-depri- at all to its remedy may enact government and how the when exclusively after Reich vation remedies specifically revenue- legislation, economic the unconstitutional tax- already paid controlling legislation, under Carlton es. line of cases. The decision followed McKesson Reich from Reich and present case differs Beverages Corp. v. Division Alcoholic many important ways. in McKesson Tobacco, Regula Business Dept. Here, right claim that their Appellees Florida, 18, 110 tion S.Ct. return under the file a combined (1990), which dealt 110 L.Ed.2d concept pursuant holding to tax certain attempt with an Florida taken from them. improperly was GTE products favorably of Florida more types inter- They filed for a refund under GTE’s found to products than other had been statute, order to be pretation as a violation of the be unconstitutional refund, they had to eligible get Supreme Clause. The Florida Commerce returns to a their return from recognized the unconstitutional Court had return under the busi- combined ity, but had declared that relief would be concept, required taking which ness only, and did not allow a re prospective paperwork of several different returns and this, challengers. Reversing fund to the Only return. combining them into one Justice Brennan wrote for a unanimous be- Appellees after this was done would court they for a eligible come refund. While places taxpayer If a under du- State may have been denied them choice of promptly pay ress a tax when due and return, the returns advantageous most him relegates postpayment to a refund they illegal, did file were not challenge action in which he can certainly could have been chosen meth- legality, tax’s the Due Process Clause of od, GTE, they if would have even under obligates Amendment Fourteenth Appellees’ advantage. to the been meaningful to provide State back- Rail the Ninth Circuit made this Montana rectify

ward-looking relief to uncon- distinguishing that case from point, same deprivation. stitutional Reich, law that upholding very was (footnote omitted, Id. at to this one. similar effect added). emphasis difference, significant howev- most It to note that the important er, Reich and McKesson did not is that ruling prem- made its McKesson application the retroactive of a involve upon being ised due for un- tax, effectively changed state tax statute application of a which constitutional naturally impacts process. federal due the amount of tax owed and pur- a legitimate governmental enacted for ed to a state legitimate interest.” Dur- the same Co., While Reich came out pose. ham Peabody Coal 272 S.W.3d Carlton, the on year as cases ‍​​‌‌​​​‌‌​‌‌​‌​​​​‌‌‌​​‌‌​​​‌​‌‌​‌‌‌​​‌​‌​​‌‌‌‌‌‍are two Cleburne, 195 (Ky.2008) (citing City of the entirely different issues. state Where Center, Living Texas v. Cleburne 473 U.S. away Georgia arbitrarily took a “clear 105 S.Ct. 87 L.Ed.2d 313 post-deprivation remedy and certain” (1985)). analysis The is the same under Reich, in undisputedly illegal taking taxes Kentucky the Constitution. Id. “ra- This away the legislature the this case took tional test basis” is the required same as hence that dispute, any illegality under due economic legislation, claimed, might by properly enacting be and, above, as discussed the 2000 amend- ques- statute retroactive that mooted ments to tax satisfy statute it. clearly entitled Appellees tion of whether the were The question all falling matters short of By declaring to a refund. retroactively right, fundamental and particularly to pri- that combined returns were disallowed economic legislation, or taxation is whether or to 1995 and that no would be refunds there legitimate governmental is a purpose file allowed due to amendments to com- action, for the and whether the means business unitary bined returns under a accomplish used to it rationally relates to legislature concept, reestablished that purpose. Having found that such quo prior as it saw it to GTE. The status purpose case, exists no there is provided by the statute remedy Appellees’ merit to the claims. all; longer no simply was not affected at applies Appellees to the in this case be- III. Conclusion has been underlying cause tax law Because the amendments to Ken- just no changed, longer as the deduction tucky tax code made legislature applied Carlton. were and 2000 made to clarify regard law in to combined returns under Equal Rights C. Protection and Other plan business and to exercise Appellees argue also revenue-raising powers, they further equal the tax amendments violate their legitimate governmental purpose. More- protection rights rights and other under over, the amendments re- rationally were Kentucky other Constitution because purpose. Ap- lated to Consequently, corporations were allowed to amend their pellees’ process rights have not been granted returns and were tax refunds. they impacted are not entitled However, this case controlling fact in they refunds because could not amend government’s power is the to tax and to their returns to re- a combined revenue enact that controls the turn under plan. immunity Since a taxpayer stream. has no opinion re- of the Court of taxation, which is not a contractual versed. liability but rather the shared costs of the government, benefits no fundamental VENTERS, JJ., SCOTT concur. Carlton, right is involved. at 33- Rather, SCHRODER, J., 114 S.Ct. 2018. statutes concurs in result practices have the effect distin opinion. by separate guishing solely between entities an eco ABRAMSON, J., by separate dissents “presumed nomic basis are valid and be CUNNINGHAM, J., opinion in which equal ... generally comply with federal joins. protection requirements if classifica C.J., they rationally MINTON, relat- sitting. tions that create are 1996, SCHRODER, Justice, concurring In October the Cabinet estimated approxi- refund unpaid result. claims to be worth million, to mately which rose $177 $160 majority the correct the utilizes While by April response, In million 1997. to the correct and arrives at framework legal fund, huge general a loss the at avoid result, observations disagree I with some 1998, session, legislative next the Gen- the opinion. in its analysis portions and Assembly in the eral included 1998-2000 Therefore, legally a separate, I write albeit bill, prohibited budget which similar, measure opinion. paying any the Revenue Cabinet from 1988, Revenue through the From 1972 321, § refund claims. H.B. 33. post-GTE “Cabinet”) (the KRS interpreted Cabinet prohibition. the parties challenged Several unitary corporations to file 141.120to allow The Franklin Circuit invalidated the Court 1988, issued the Cabinet tax returns. grounds on it did not provision comply 41P225, Policy prohibited Revenue republication” with the “reenactment and returns, unitary required and filing the of Kentucky of provisions the Section 51 challenged returns.1 separate GTE policy appealed shift in a case to the Constitution. Cabinet Cabinet’s opinion In an this Court in 1994. Appeals. appeal reached Court While 1994, 22, December this Court rendered H.B. on its pending, expired own v. Revenue in GTE’s favor. GTE decided (in 2000), terms and the Cabinet, (Ky.1994). 889 S.W.2d GTE appeal dismissed as moot. allowing as uni- interpreted 141.120 nearly The claims had $200 risen RP 41P225 un- tary filing, and invalidated 1998, million at end of June with $65 contemporaneous con- der doctrine of that At the being million interest. at 792. taxes Id. Because their struction. session, legislative faced with massive unitary been would have lower under the state treasury drain of result of filing, corporations, method of number claims, pending the General refund refunds, their seeking thereafter amended 541, Assembly legislation enacted H.B. unitary for various returns returns at in this H.B. issue case. 541 substantial- in which RP 41P225 was in effect. years (1) 141.200, prohibit- amended KRS ly and Although the Cabinet acted on some of the years refund claims ending ed for taxable claims, it took no immediatе action refund 31, 1995, before made by on or December claims. Appellees’ 22, return December amended filed after began tracking actual and 1994, on a based from of their potential claimants and the amount return, (2) unitary corpora- prohibited time, claims the end of 1995. At that filing unitary tions returns tax the claims to be Cabinet estimated 31, 1995, ending years before December legis- worth about million. In the first $50 corporations unless filed re- decision, following lative session the GTE on or before turns December the General enacted H.B. years ending December before filing which abolished the The effect H.B. 541 was to extin- years ending returns for tax on or after guish Appellees’ refund claims. legislation, December 1995. This how- declaratory ever, Two actions judgment no effect on were pending seeking claims. filed in Franklin Circuit Court Cabinet, permitted policy unitary reporting (Ky. 1. The v. Revenue 889 S.W.2d paper 1994). if the subsidiaries were a sham or cor poration with activities. GTE limited viable portions to have the retroactive of H.B. In United GTE decision.2 States Carl two ton, 541 declared unconstitutional. The the United States held cases were consolidated the circuit prevention “significant constitutional, court, finding unanticipated revenue loss” satisfies due granted summary judgment to the Cabi- process legitimate as a legislative purpose of Appeals net. The Court reversed for a retroactive tax statute. 512 U.S. at retroactivity of grounds period 32,114 S.Ct. Carlton 2018. involved a new granted was excessive. This Court discre- tax provision, estate 26 U.S.C. Section tionary review. 2057, 22, 1986, enacted on October which

It is settled that a tax act well granted a proceeds deduction half the because it is necessarily unconstitutional sale, of of “any employer by securities 134, Henry, v. retroactive. Welch 305 U.S. executor of an employee estate” “an 147, 121, 87 59 83 L.Ed. Ret S.Ct. 28,114 ownership plan.” stock Id. at S.Ct. legislation roactive tax satisfies the Due 2018. The purpose of deduction was to “ provided sup Process that it Clause ‘is promote employee ownership. Congress portеd by legitimate legislative purpose initially estimated a revenue loss Sec ” means.’ furthered rational United 2057 tion of approximately million $300 Carlton, 26, 30-31, 114 States v. 512 U.S. 31-32, year over a five period. Id. at 114 (1994) 2018, 129 22 S.Ct. L.Ed.2d (quoting 1986, 10, 2018. S.Ct. On December Carl Guaranty Corporation Pension v. Benefit ton, estate, executor of an used estate Co., R.A. &Gray 467 104 U.S. purchase funds MCI stock for $11.2 (1984)). 2709, 81 601 S.Ct. L.Ed.2d million which days he resold two later to United States re has million, the MCI ESOP for a loss $10.6 of peatedly upheld retroactive $600,000,for express purpose of claim 30, against process challenge. a due Id. at (half ing a tax deduction of million $5.3 114 (citing 2018 United v. S.Ct. States sale) 2057, proceeds of the under Section Hemme, 2071, 558, 476 U.S. 106 90 S.Ct. reducing the tax by estate million. $2.5 (1986); Da L.Ed.2d 538 States v. United Shortly after real- passage, Congress its rusmont, 292, 549, 449 101 66 U.S. S.Ct. the expected ized that revenue loss from (1981); L.Ed.2d 513 v. 305 Henry, Welch 134, (1938); Section 2057 be as much bil- 121, could as $7 U.S. 59 S.Ct. 83 L.Ed. 87 498, lion, Hudson, loophole United States v. 299 57 because of a the law which U.S. 309, (1937); S.Ct. 81 L.Ed. 370 v. Milliken limit the did not deduction to situations States, 15, 324, United 283 51 75 U.S. S.Ct. decedent owned the securities (1931); States, L.Ed. 809 Cooper United 32, immediately death. before Id. at S.Ct. L.Ed. 2018. protect treasury S.Ct. To (1930)). loss, against massive on December 1987, approximately year one Carl- after purpose The General in en Assembly’s transaction, Congress ton’s stock amended acting H.B. 541 prevent massive treasury loss to the state as result of the 2057 to that the require Section securities legislative purpose treasury 2. The of H.B. 541 could and raid the state ... to the back not be clear: more $190 And what this tune million. that’s 541], it, [pass don't is all ... then “[I]f [I]f we do this H.B. bill about we don't do up $ could cost us to 190 million ... These budget figure better how to we out cut the corporations plan that are involved did not $190 million.” Remarks of Chairman Mob- filing way their business based on Hearing erly, Transcript on H.B. they attempting are now to come back February 2000. get they ... refunds But want now to come dered) rationally 1995 is years prior have been owned must to an ESOP sold The Franklin purpose. related to immediately before death. the decedent cor- Appeals Court and Court retroac- Circuit was made amendment The 1987 such. rectly found as hаd been contained as if it tive October, enacted originally as statute however, erred, The Court 29, 114 2018. Carlton’s Id. at vio- that H.B. 541 nevertheless concluding December, 1986, was invalidat- transaction period process lated due because ed, significant to incur a causing the estate retroactivity was excessive. loss. setting Appeals misinterpreted Carlton accept- is an rule as to what bright-line the 1987 amendment’s upheld

The Court retroactivity, relying on period able retroactivity against Carlton’s (slightly approval of the “modest” pre- the Court’s held that challenge. The Court in retroactivity year) period one of unanticipated over “significant of a vention “modesty” of that ease. The consideration legislative legitimate loss” was a revenue point at taxpayer’s right to a some was a relates that the amendment purpose, and Carlton, 512 expectations. See purpose. to settled achieving said rational means of (O’Connor, J., 37-38,114 2018 at S.Ct. 32, 35, The Court U.S. 114 2018. Id. at S.Ct. the concurring). regard, In this United might have Congress that while recognized Supreme Court has indicated by burdening States up make the loss chosen to no notice or could taxpayer a through gen- where taxpayers, “innocent” equally (as in change a a tax taxation, anticipated not have not arbi- was prospective eral Carlton) tax could plausible in that it is a pre- to choose to trary nor unreasonable as to past to reach so far into the denying attempt the by retroactively vent the loss Welch, at process. offend due engaged who had taxpayers deduction (albeit 148, The has never 59 121. legal) stock S.Ct. in tax-motivated purely bright-line rule as to what established a 2018. The Id. at 114 S.Ct. transfers. Rather, whether period this would be. detrimental reliance found Carlton’s the con- “transgress[es] retroactive tax act and lack of notice insuf- upon provision violation, depends upon the stitutional limitation” process ficient to establish due particular facts and circumstances and a promise, is not a as “[t]ax 121; v. Milliken case. Id. at 59 S.Ct. right in the Inter- has no vested taxpayer States, 283 51 S.Ct. U.S. at 114 S.Ct. United nal Revenue Id. Code.” 324, 75 L.Ed. 809 approval with The Court observed short, retroactivity was period indicated, however, that The Court has 32-33, 114 year. one Id. at S.Ct. just over event the where at the time of the taxable therefore one that period 2018. The potential of even a taxpayer had notice tax- longstanding and settled upset did not law, is not process in a tax 37-38, at 114 payer expectations. See id. period en- offended when the retroactive (O’Connor, J., concurring). 2018 S.Ct. event. the time of the taxable compasses Milliken, 21, 24, 51 at See U.S. legitimate Similarly, H.B. 541 serves 147-148, 324; Welch, 305 at see also U.S. preventing a massive legislative purpose of the taxable 121. At the time of 59 S.Ct. treasury as a result loss to state (the receipt of income event in this case in the wake of being claims filed refund effect), years RP 41P225 was during the prevent legislature’s decision GTE. their aware that Appellees fully were amended returns by prohibiting the loss computed under liability would be after De- method filed under (the They paid their separate return method. was ren- cember date GTE sively return method. the General legislate taxes under unitary, They permitted were not to file after-the-fact effort retain tax expecta- no and could have had “settled monies which this Court has held were contrary. At if point, tions” to the collected contravention state law? expectations” they there were “settled taxpayer Whether the is an individual citi- Commonwealth’s, taxpay- were the not the corporation, zen or a the answer to that King Campbell ers’. County, question lies the Due Process Clause (Ky.App.2006). did S.W.3d Nor the Fourteenth Amendment to the United Appellees right obtain a vested in a refund prohibits States Constitution which decision. id. at following GTE See taking property process without due Appellees’ 869-870. expectations Generally, law. must sovereign provide could not be deemed settled or vested “meaningful relief’ in form of a majority noted, leg- this case. As the invalidly and, collected taxes while supercede islature’s intent to GTE became there some legislate latitude to tax law apparent immediately almost first the—at retroactively, that power must be exer- GTE, legislative Gen- following session cised for a promptly legitimate purpose Assembly began legisla- eral period. and for a modest The 2000 Ken- tively decision.3 influx undoing the As the tucky increased, General of exceeded the claims so did the General Assembly’s response, culminating process in its re- due it passed bounds of when H.B. here, Therefore, sponse agree 541. H.B. I 541 in effort entirely to undo this with majority period the that the retro- of ruling years Court’s over five earlier activity impact under process does not due Cabinet, GTE v. Revenue 889 S.W.2d 788 case, the given facts of this and clear (1994). Neither the ban of all complete notice, lengthy expecta- lack of settled outstanding tax refund claims associated tions, and the lack detrimental reliance. with the GTE case nor retroactive

Finally, is well while it settled that due rewrite state tax law to condone the process requires “meaningful backward- of corporate invalidly retention taxes col- looking taxes relief'’ for in viola- collected lected five to years previously twelve constitution, tion of the law or taxes passes By uphold- constitutional muster. paid by Appellees under long ing these after-the-fact revisions of return method were neither nor illegal, laws, majority our tax misconstrues unconstitutional. McKesson Div. Corp. v. Accordingly, the constitutional restraints. Tobacco, Beverages Alcoholic and 496 I respectfully dissent. 18, 31, U.S. 110 110 17 S.Ct. L.Ed.2d (1990); Collins, full understanding Reich v. While a of this matter U.S. 115 S.Ct. L.Ed.2d approaches appreciation entails various later, tax which corporate are addressed issues, remaining As to the I concur simply basic facts can be stated. For with the the majority result reached years, any sixteen from 1972 until well. corporation qualified as a so-called ABRAMSON, Justice, dissenting. “unitary business” was allowed to file Ken- tucky tax returns on a or com- This corporate presents tax case a rаth- straightforward question: aggres- er bined-reporting how basis. In without legislative body op- 3. A must have reasonable Welch, portunity to act. 305 U.S. at H.B. invalidated legislature, Our Court part of our action on the

any taxpayers’ Revenue Poli- due issued 541 as violation the Revenue Cabinet 41P225, halting right abruptly appeal, On cy process rights. file the taxpayers to corporate

virtually all appellate court’s due maintains accepted which had been unitary returns analysis wrong was and process taxes as a higher with years. Faced im- sovereign event the Commonwealth’s an administrator’s of the stroke of result munity trumps taxpayers’ process ultimately taxpayers sued pen, several argues, es- rights. Commonwealth Kentucky Supreme before the prevailed sence, in contra- that it can collect taxes Cabinet, su- v. Revenue Court. GTE law, this litigate vention of and lose before concluded that the Cabi- pra, this Court Court, sovereign immunity and then assert reading longstanding taxpayers’ net’s and found were to retain tax monies and, a reasonable one of KRS 141.120was invalidly sovereign pow- collected. The contemporaneous the doctrine under but it too must answer to the Consti- erful construction, reading had become and, specifically, tution more too is con- until the on the Cabinet unless and binding protections strained the due contrary Assembly expressed General afforded its citizens for otherwise intent. meaningless. be rendered Clause would by filing Taxpayers responded GTE tax- H.B. 541 is unconstitutional these but, returns on a basis amended pursue meaning- are entitled to payers settling some of the pi*ocessing after remedy ful which is codified claims, sought legisla- the Cabinet 134.580, grounded in the Due Process stop-gap A measure de- tive intervention. all who taxpayers and available to Clause passed 1998 and laying all refunds in- paid subsequently have taxes deemed up” “clean attempted complete then an valid. obliterating rights all to re- the situation by the 2000 General passed funds was AND RELEVANT BACKGROUND That Assembly in the form of H.B. 541. HISTORY PROCEDURAL dedicated to a sin- provisions bill had two inevitably cоm- litigation Tax is almost provision One withdrew gle purpose. plex exception. this case is no A brief who had filed corporate taxpayers those “unitary con- discussion of the unitary seeking and were amended returns Kentucky tax law cept” history and its light the basic refund post-GTE refunds analysis will context for the that provide ordinarily in KRS 134.580 and codified follows. taxpayers paid to all who have available Corporate Appor- Tax of State Income — invalid. The taxes later determined to be tionment. provision attempt was an to recast second Many corporations today engage in busi- pre-GTE destroy legal law and the under- one nesses that extend into more than taxpayers’ of the refund claims pinnings GTE) wishing to (and state and thus states tax these by stat- holding this Court’s corporations’ income are confronted with retroactively position the ing indeed income problem apportioning in RP the by the 41P225 had stated in- among themselves.1 Almost since the always been the law. Corporation v. problem fraught Commerce Clause. Mobil Oil is a with constitution- This Vermont, ability implications, as the states’ al Commissioner Taxes significantly enterprises con- interstate 100 S.Ct. 63 L.Ed.2d 510 by strained both the Due Process Clause taxes, ception of income various Reporting. methods Combined effecting apportionment have been approach Another is for taxing state but in 1966 our General employed, Assem- to treat the enterprise entire as in essence adopted bly the method devised entity to be taxed apply and to Bar American Association’s Commission apportionment formula to the entire State Laws published Uniform as group’s combined income. ap- This is the the Uniform Division of Income for Tax proach known as “unitary-busi- (UDITPA). Act Purposes See KRS ness/formula-apportionment” method or UDITPA, 141.120. Under a multi-state reporting” “combined method. As one enterprise’s income is characterized as ei- commentator has stated: ther business or non-business. non- The purpose of reporting combined is to business income is allocated to the source determine the income of a multistate rules, pursuant state sourcing various taxpayer attributable to a given state. while the business income—income arising accomplished This is by applying the from transactions and activity regu- ‍​​‌‌​​​‌‌​‌‌​‌​​​​‌‌‌​​‌‌​​​‌​‌‌​‌‌‌​​‌​‌​​‌‌‌‌‌‍apportionment factors unitary lar course of trade or business —is appor- business to the group’s business among tioned the states contributing to income.... according that income to an apportionment formula A proportion report based on combined does necessarily enterprise’s property, payroll, and sales in involve a single tax return for group. taxing compared state Instead, with its total given is the name to a series property, payroll, Although and sales. calculations busi- General has since modified the ness apportions its income geo- on a apportionment formula to give additional graphic California, basis. for exam- factor, weight to the Kentucky’s ap- sales ple, entity each with nexus files its own apportionment proach essentially is still providing return reflecting schedules formulary approach adopted UDITPA However, unitary activity. the [Fran- 141.120(8). in 1966. KRS chise Tax has adopted proce- Board] Determining Apportionable Income. dures under which some or all of the taxpayer-members unitary group of a Separate Accounting. group elect to file a return. problem Related to the apportioning of a Sutton, Giles of “Comparison Group Re- enterprise’s multi-state business income is Income,” porting Sourcing Methods and of the no problem less fundamental of defin- (2004). 9 St. 8s Loc. Tax Law. 29 A ing enterprise whose income is to be “unitary gen- business” for this is purpose apportioned. problem arises from the multi-state, erally understood to abe mul- many corporate fact that enterprises are ti-corporate enterprise “operations whose organized not single corporations as but as conducted in one state benefit and are clusters or corporations. chains of related operations benefited conducted given This fact primary has rise to three another state or states. If its various taxing responses. response One is for the parts are interdependent and of mutual taxing to ignore larger enterprise state benefit so one integral as to form business and to treat corporate each component as entities, rather than several business it is separate entity, taxing the entities with unitary.” Corporation Pioneer Container nexus in solely the state on the of basis Beshears, 396, 745, v. 235 Kan. 684 P.2d their own ap- individual incomes. This (internal (1984) quotation omit- proach “separate entity” is known as the marks ted). “separate accounting” approach. a multi- components Where the of turning specific to the of enterprise integrated by are suffi- but before facts state case, ownership, operation, response unity legislative cient of and this a third use, unitary concept business has been taxing multi-corporate enterprises of law, v. applied. Edison Stores mention. federal tax deserves Under California 472, McColgan, 30 183 P.2d 16 group” corpora- Cal.2d an “affiliated of “includible (1947); Cabinet, Armco Inc. v. Revenue may elect to file a tions” “consolidated” (Ky.1988). return, ie., 748 S.W.2d 372 The United single return for the entire Supreme States has held that §§ group. affiliated 26 U.S.C. 1501-1504. unitary-business/formulary-apportionment Sutton, “Comparison Group Reporting of corporate income approach taxation Methods,” supra. “Affiliation” for this passes provided constitutional muster purpose is defined terms of the part unitary “at some busi- [the least business, unified corporations’ member state,” in the conducted ness] control, solely ownership in terms of ownership “there be some bond of or con- all generally including inter-corporate con- ‘unitary uniting purported trol busi- there is nections where 80% or more of ” ness,’ “the out-of-State activities ownership both and control.3 Id. A consol- purported ‘unitary be relat- business return is not the same as a com- idated way ed in some concrete to the in-State unitary report: bined or ” Corporation activities.’ Container report A is an accounting combined Board, America Franchise Tax whereby method each member of a 159, 166, 103 L.Ed.2d 545 carrying on a group business (1983). Indeed, at in part least because of computes its individual taxable income enterprise’s elevation of the substance by taking portion net combined form, over its the U.S. Court has group. income of the A consolidated princi- characterized the taxing whereby return is a method two linchpin as “the ple apportionability corporations are treated as taxpay- one the field state income taxation.” Mobil er. Corporation, supra, 445 at Oil U.S. Rev., Caterpillar Dept. Tractor Co. v. 100 S.Ct. 1223.2 289 Or. P.2d 1262-63 Consolidated Returns. adopted Several states have “consoli-

Kentucky’s posture provisions dated return” based on the vis-a-vis combined model, reporting “unitary or the business con- federal the General cept” present controversy, Assembly underlies the amended 141.200 add- Many ly corporate lobbying, commentators have described the ad- result successful vantages reporting, including adopted of combined as of 2005 seventeen states had single-state corporations, mandatory reporting. fairness to combined Id. accura- cy, neutrality between different forms corporate organization, and freedom from the report- 3. The "unified business” for combined accounting tax-loophole problems ing and purposes necessarily associ- will not be the same among with group” ated cross-border transfers relat- as the "affiliated for consolidated re- corporations. example ed purposes. See John A. turn The unified business in- for Swain, Questions, "Same Different Answers: clude related entities with 50% owner- 80% Comparative A ship, example, group Look at International and while the affiliated Taxation,” not, and group State Local 50 Ariz. L.Rev. will and the affiliated will include (2008); Ill Mark J. and ownership, Cowan Clint Kakst- all affiliates with or more 80% ys, "A Green part enterprise, Miracle and The Gar- whether a unified Mountain or not den State Grab: Frоm Lessons Vermont And whereas the unified business will exclude en- Reform,” Jersey Corporate part New on State Tax tities that are not of the same unified (2007). Nevertheless, large- enterprise regardless ownership 60 Tax Law. 351 share. group” together formulary of “affiliated and with ing apportionment, definitions incorporate return” that for example Corporation, “consolidated Mobil Oil supra, by federal definitions and Butler corresponding McColgan, Bros. v. groups 991(1942) to file consoli-

permitting affiliated 86 L.Ed. and Edison returns, only group Stores, Inc., if the con- dated but supra, but also on California eight status for sents to use consolidated the fact that designedly UDITPA is consis- years. Otherwise the 1996 version tent with a combined-reporting regime. re- requires separate entity KRS 141.200 In particular, originally enacted in Ken- The 1996 session of the General porting. tucky, the required UDITPA scheme 141.120 Assembly also amended KRS business income shall appor- “[a]ll be adding provision expressly disavowing pursuant tioned” to the property, payroll, “unitary concept.” business 1996 and sales factors mentioned above. KRS updated, have since amendments been 141.120(9) (1966). The law defined “busi- disavowing unitary provision and the ness income” arising as “income from to KRS concept business has been moved activity transactions and in the regular 141.200(15), reporting options but basic its course of a trade or business of the tax- remain in effect. Since 1996 it has been 141.120(l)(a) (1966). payer.” KRS But apportion- clear that the UDITPA-based “taxpayer” undefined, was left and thus provisions apply ment of KRS 141.120 to the state was free to ap- include single corporations with income both proach to “taxpayers” unitary business Kentucky within and without and to “af- concept require and to reports combined corporations with such groups” filiated appropriate where if it so chose.4 Encour- income, multi-corpo- not multi-state aging such approach Kentucky, aside rate “unified businesses” under the “uni- times, from the tenor of the was the fact tary concept.” business Prior UDITPA, apart that even Kentucky however, Kentucky the law in was less recognized law multi-corpo- notion of clear, prior and it is that law which un- 141.205(1) rate income accounting. KRS derlies case. (1966), example, provided History Procedural department may require any par- [t]he ent corporation subsidiary corpora- or Accepts 1972-1988 —The Cabinet tion doing business within this state to Rejects Reporting. Then Combined covering file a consolidated return above, formulary apportion- As noted operations parent corpora- entire early ment of interstate income was subsidiaries, tion and its whenever con- associated with inter-corporate finds that transac- Thus, al- cept reporting. and combined group tions of the related tend to reduce though does not include UDITPA itself corporation, the net income of the or reporting provisions, the General Assem- corporations, doing business within this bly’s adoption appor- of the UDITPA prob- state below the amount that would perceived by tionment was scheme ably corporation, corpo- result if such Revenue the courts as an rations, was not a member of the related combined or embrace or a confirmation of group. Kentucky. per- That reporting reasons, others, ception perhaps on case law For these based upholding reporting began in 1972 the Revenue allow- the use combined Cabinet by "corporation” for "tax- 4. Another introduced the 1996 of the word UDITPA's payer.” amendment of KRS 141.120 was substitution ing unitary GTE, businesses to file combined or pressed contrary intent. under KRS 141.120. In S.W.2d at 792-93. reports Assembly apparently the General en- GTE, In the wake of pro- by policy amending dorsed this KRS posed regulation mandating combined provide expressly to for “com- 141.205 reporting Kentucky. Kathryn L. bined” as well as “consolidated” returns: Moore, “Taxation,” Ky. L.J. 877-81 may require “The department either a (1997-98). Corporate opposition in- consolidated return or combined return tense, however, prompting the withdrawal any corporations conducting from or all proposed regulation adoption intercorрorate transactions whenever the n instead of the 1996 amendments to KRS department intercorporate finds such above, 141.120 and 141.200 discussed transactions reduce taxable net income ... disavowing “unitary amendments busi- which below the amount would result if the concept” ness providing voluntary, arms-length.” transactions were at federal-style consolidated returns. Id. policy Cabinet’s combined-return contin- meantime, In the several corporate ued, acquiescence with the of the General groups, including Appellees, that had Assembly, September until 1988. of been precluded filing combined re- however, year, abruptly the Cabinet ports during the life of RP re- 41P225 made an about face. legisla- Without sponded by filing GTE amended returns laws, changes tive in the tax the Cabinet on a or unitaiy combined basis for some or 41P225, Policy by issued Revenue which it all years. of the affected tax Alleging that purported to limit reporting combined liability their tax was reduced when calcu- parent-subsidiary relationships which lated on the report, basis of a combined subsidiary “paper was a mere corpora- corporate groups sought these also tion with limited viable activities.” The initially processed refunds. The Cabinet policy effect of this essentially shift was claims, and settled a few of these refund halt the filing reports of combined in Ken- early late 1996 or 1997 its estimate tucky. of the claims’ worth had risen substantial- GTE and Its Aftermath. ly,5and at that point, apparently, the Cabi- net ceased processing claims and GTE,

Protest long coming. was not sought legislative intervention. corporation New York in Kentucky active reports had filed combined uniting it During its 1998 session the General As- subsidiaries, with its promptly challenged sembly merely enacted H.B. legality policy. of the new opin- In an postponed the issue providing that no ion rendered on December post-GTE paid refund claims would be Court invalidated RP 41P225 as inconsis- during budget the biennial period. That tent with the long-standing Cabinet’s own legislation expired in 2000. The 2000 ses- interpretation of KRS 141.120. That in- sion of the General then enacted terpretation was а reasonable statutory H.B. at issue here. As held, so, reading, the Court noted, under the previously H.B. nullify 541 seeks to construction, doctrine of contemporaneous Appellees’ refund claims in two ways. First, that reading had become binding on the it purports to withdraw retroactively Cabinet until the General Assembly ex- in this small class of cases the refund interest, outstanding 5. With $200,000,000.00. claims are now said total excess remedy ordinarily available to taxpayers shall be effective or recognized for any pay who taxes later in- determined to be purpose. Second,

valid. purports remove the No corporation or group of corporations legal Appellees’ basis of the claims by ret- shall be allowed to file a combined re- roactively validating RP 41P225. turn under the unitary concept or a consolidated return any

The for Appeals Court of taxable held the ret- year ending 31, 1995, roactive reach of H.B. 541 before exceeds what December the Due unless on 22, 1994, Process Clause or before ap- allows. On December Court, peal to this the corporation the Cabinet challenges group or of corporations Appeals’ the Court of reading of the due filed an initial or amended return under process .argues issue and well that in business concept or consoli- any event sovereign immunity trumps dated return for a year taxable ending Appellees’ process rights. first, due But 22,1994. before December the Cabinet invites us to do some retroac- The provision, 141.200(17), first KRS tive validating of RP 41P225 of our own pertains to the remedy corpo- available to by revisiting GTE. In their cross-motion rate taxpayers post-GTE. parties As the review, discretionary Appellees main- note, in a case such as this one where the tain that H.B. 541 is unconstitutional for tax has not been challenged on constitu- reasons in addition process to its due in- grounds, tional KRS applica- 134.580is the firmities, notably equal most protection ble remedy statute. That provides statute arising concerns from fact that some in pertinent part that taxpayers’ post-GTE refund were claims money paid [w]hen has been into the processed. These other sig- concerns are State Treasury payment any state given nificant and are short shrift taxes, except taxes, ad valorem whether majority. I Because would affirm the payment was made voluntarily or invol- Court of on the process is- untarily, appropriate agency shall sues, however, I will not address those authorize person refunds to the who other claims. tax, paid the ... any overpayment any payment where no tax ANALYSIS due. Unconstitutionally I. H.B. 541 With- 134.580(2). of Appeals Remedy draws The Illegal For An held, and I agree, that the Due Process Tax. Clause prohibits the General Assembly Section 1 of H.B. 541 amended KRS from withdrawing remedy as KRS pertinent 141.200 in part by adding the 141.200(17)purports to do. following codified, two provisions, now re- A. The Due Process Clause Mandates 141.200(17) spectively, as KRS Meaningful Remedy A When Taxes 141.200(18): Are Collected Contravention No claim for refund or credit of a tax Applicable Law. overpayment any year taxable end- The Due Process Four- Clause ing 31, 1995, on or before December teenth Amendment to the States made United an amended return or oth- provides Constitution er that no state method after December life, “deprive any on a person liberty, based any initially property, filed return or without due of law.” returns to a combined return under the guarantee busi- essence of this is that citi- return, ness concept or to a consolidated zens given opportunity, must be at a 414 McKesson, the supra, pro- in a man that under meaningful and

meaningful time ner, legality govern guarantee only implicated of the challenge by cess is to Eldridge, Mathews v. impositions. ultimately statutes found unconstitutional. ment’s 893, 319, L.Ed.2d 18 424 96 S.Ct. 47 it is that McKesson involved a U.S. While true a tax constitutes Payment of tax invalidated under Commerce deprivation property, and the United of is Clause and thus Court’s discussion has that to Supreme held States Court terms, sometimes couched constitutional of the Due Pro satisfy requirements process principle the due involved—that a Clause, jurisdiction, taxing cess of his taxрayer may deprived not be or her ease, provide pre- must either state this meaningful opportunity property without a procedural deprivation postdeprivation or challenge legality depriva- Corporation v. Di McKesson safeguards. clearly applies regardless tion— Tobacco, Beverages and vision Alcoholic tax, ground challenging of for whether 2238, 110 18, 110 496 L.Ed.2d 17 S.Ct. U.S. or, here, federal constitution state stat- (1990). Furthermore, state, as where the McKesson, supra, cites ute. Indeed earli- the time taxes were Kentucky did at these Supreme er Court United States cases collected, citi requires encourages process where due mandated refund of rely upon postdeprivation zens collected, taxes not in violation of the Con- action, provide taxpayers “must that action stitution, in violation of federal laws. with, only opportunity a fair to chal See, e.g., County v. Bd. Ward Comm’rs accuracy legal validity lenge the Okl, 17, County, Love 253 U.S. 40 S.Ct. obligation, but also a ‘clear and their tax (1920) (taxes 419, 64 L.Ed. 751 assessed in remedy,’ ... erroneous or certain treaty). recently, violation of federal More that the tax collection ensure unlawful itself has noted that opportunity to contest the tax is a mean line of long upon McKesson “and the cases 39, ingful Id. at 110 2238 one.” S.Ct. ... depends, McKesson stand Atchison, T. & v. (quoting from S.F.R. Co. proposition that ‘a denial a state O’Connor, 280, 216, 32 56 223 U.S. S.Ct. recovery of taxes court exacted (1912)). not, The state L.Ed. 436 violation of the laws or Constitution of the “ moreover, ‘holding] plainly ap out what is compulsion United States itself pears postde- “clear and to be a certain” of the Fourteenth contravention Amend- declare, then privation remedy ” Reich, ment.’ at 115 U.S. S.Ct. disputed paid, taxes have been after McKesson, thus, ” is not limited to Newsweek, remedy that no such exists.’ deprivations which violate the U.S. Consti- Revenue, Department Florida Inc. v. tution, nor, indeed, should it be confined to U.S. law. those violation of federal A tax (1998) (quoting L.Ed.2d 888 from Reich law, exacted of state in violation no less Collins, 115 S.Ct. law, than onе in violation of federal raises (1994)). course, This, 130 L.Ed.2d 454 the exact same due concerns and 141.200(17) pur KRS precisely what requires meaningful procedural the same do, ports accordingly the safeguards. correctly determined violates the Due Process statute Clause. Immunity Sovereign Does C. Not Trump The Due Process Guarantee. B. Is Not The Due Process Guarantee Limited To Unconstitutional Taxes. also contends 134.580, above, conclusion, quoted refund statute Against the Cabinet sovereign It effects a of the state’s arguments. two contends first waiver raises immunity Assembly ty by and that the of tax holding General its laws out what to that waiver and is free withdraw to appears to be a “clear and post- certain” immunity at any the state’s time context, reassert deprivation remedy. In this any appropriate. to extent it and deems the requires provide State to 141.200(17) merely, is the Cabinet KRS promised. the it remedy ‍​​‌‌​​​‌‌​‌‌​‌​​​​‌‌‌​​‌‌​​​‌​‌‌​‌‌‌​​‌​‌​​‌‌‌‌‌‍has The obli- immunity, a limited reassertion of argues, gation arises the Constitution it- from which, insists, trumps Appel- the Cabinet self; speak Reich does not to power the rights under the Due Process Clause.6 lees’ subject of Congress to States to suits in however, cited, Reich, just case In the their own courts. supra, Supreme Court noted that the 740, (citations 527 U.S. at 119 S.Ct. 2240 guarantee applies Due Process notwith- omitted, Alden, supplied). emphasis Since standing immunity “the sovereign States several courts have noted that that case traditionally enjoy in their own courts.” specifically preserved promise Reich’s of 110,115 later, years Id. at 547. Five S.Ct. a remedy, state-court noting, “The obli- Maine, 706, in v. Alden 527 U.S. gation arises from Constitution it- (1999), 2240, 144 L.Ed.2d 636 ” self, Thus, .... where the Constitution at length Court reviewed constitutional requires particular remedy, a such as pre-constitutional bases of the states’ and through the Due Process Clause for the immunity Congress and held that had no Reich, tax in monies at issue or through power require immunity. to of that waivers the Takings Clause as indicated in First Reich, however, distinguished English [Evangelical Lutheran Church noted that obligation and the state’s 304, v. County Angeles, Los of provide to remedy case the tax refund it 2378, (1987)], 107 S.Ct. 96 L.Ed.2d 250 held out to its was nоt subject citizens the state is to required provide that sovereign immunity to because was an courts, remedy in its own notwithstand- obligation arising from the Constitution. ing immunity. sovereign Collins, that, In Reich v. held despite we DLX, Kentucky, Inc. v. 381 F.3d court, immunity from suit federal a (6th Cir.2004) Reich). See, from (quoting what plainly ap- State holds out Schweitzer, e.g. Up Seven Pete v. Venture pears postde- be “a clear and certain” (9th Cir.2008); 523 F.3d 948 Manning privation remedy for taxes collected in Mining and Division Minerals the En- declare, of (cid:127)violation federal law of Minerals, ergy, and Natural Resources disputed paid after taxes have been Department, N.M. P.3d 87 remedy, remedy reliance agree I that this is the import does not fact exist. This case arose in therefore, Alden, conclude, and the context Reich and litigation, of tax-refund 141.200(17) that KRS may deprive taxpayer upheld where State cannot be all other means of even if an challenging validi- construed as assertion of the 141.200(17) any 6. KRS no makes mention of im- or other method after December course, munity, ány and thus the Cabinet’s based on a initial- reading ly no certain. filed means In return or returns to a com- however, the General amended bined return under the business con- by adding provisions cept refund statute itself return.” KRS “re- consolidated vokefing] 134.580(9)(a) (b). withdraw[ing] its consent Because the General any any Assembly's immunity suit forum whatsoever on claim for invocation is thus refund, recovery, any overpay- enough, appropriate or credit clear it is to address the argument year ending immunity ment for taxable before De- Cabinet's without bela- 141.200(17). boring cember made an amended return construction stock-ownership plan employee Due Pro- immunity. The sovereign state’s 1986, Carlton, (ESOP). December meaningful remedy requires cess Clause estate, collected in viola- used estate funds to have been executor of an where taxes authority, in this then to an taxing which he resold purchase of law and stock tion Commonwealth, cannot invoke claiming express purpose case the ESOP for relieve itself of immunity to sovereign A week after tax deduction. estate obligation. return, constitutional the estate tax filed Carlton that Revenue Service announced Internal May Not At Here The Taxes Issue II. be- “clarifying legislation” it would seek Retroactively. Imposed Be had been intended cause the deduction re- Process Clause if the Due Even ques- in where the stock only for estates remedied, if taxes be that invalid quires “immedi- tion owned the decedent case were valid issue in this the taxes at year ately Approximately before death.” Appellees’ then of course place, the first transactions, Con- after Carlton’s stock evaporate. KRS would refund claims § that it 26 2057 so gress amended U.S.C. 141.200(18) very that bring about seeks applied only where the decedent expressly imposing, in effect by validating, result at death. The had owned the stock with the the fact consistent taxes after the made retroactive to amendment was pur- RP 41P225. The statute position of enact- original of the October 1986 date “unitary the retroactively disavow ports upholding In the amendment the ment. which concept” upon Appellees’ legislation that tax Supreme Court noted based, and thus ef- returns are amended retroactively apply made to frequently is 41P225, regula- RP fectively resurrect in the completed earlier transactions The struck down GTE. tion this Court year even in the year of enactment or that while some ruled Appeals Court explained The prior to enactment. Court allowed, is legislation retroactive tax that 141.200(18), reach of KRS retroactive applied to be standard [t]he years tax some five to encompasses effect, to tax with retroactive statutes enact- years July before its 2000 twelve7 therefore, generally as that is same ment, under the exceeds what is allowed legis- applicable to retroactive economic The main- Due Process Clause. the retroactive lation: “Provided read the tains that the Court supported by application of statute strictly. too I dis- Due Process Clause purpose furthered legitimate legislative agree. means, judgments about by rational Reach Of H.B. 541 A. The Retroactive legislation remain within wisdom of such And Is Unreasonable So Violates province legislative exclusive The Due Process Clause. sure, executive branches.... To be does have to legislation ... retroactive addressed issue The Court by legislation not faced meet a burden legislation tax United of retroactive The ret- that has future effects.... Carlton, 26, 114 S.Ct. States legislation, as well as aspects roactive 22 in- 129 L.Ed.2d Carlton aspects, must meet the prospective originally provision an estate tax volved process, justifications and the test of due provided in October 1986 which enacted may suffice for the for the latter when an estate sold stock for a deduction However, years Appeals referred to a retroac- 1990-1994. 7. The Court of 141.200(18) actually stretched back twelve tivity years, presumably period of five to nine adoption of RP 41P225. years to the 1988 Appellees’ were for tax because refund claims

417 549], But that burden is met sim- tion.” Id. at 296-297 [101 former’.... S.Ct. ap- that the retroactive ply by showing Henry, Welch v. 59 U.S. S.Ct. justi- (1938), is itself plication 83 L.Ed. [] legislative purpose.” upheld fied rational a Wisconsin income tax adopted in 1935 on dividends received 30-31, (quoting at Id. S.Ct. “ Court stated ‘recent Guaranty Corporation v. Pension Benefit ” to transactions’ which tax law be Co., & Gray R.A. U.S. retroactively applied “must be taken to (1984)). 2709, 81 S.Ct. L.Ed.2d receipt during include the of income passed 1987 estate amendment year legislative preceding session test, held, because Carlton that of its enactment.” at Id. 150 [59 [f]irst, Congress’ enacting purpose Here, the actual retroactive 121]. illegitimate amendment was neither nor effect of the 1987 amendment extended arbitrary. Congress acted to correct period only for a than slightly greater reasonably viewed as a mistake what Moreover, one year. the amendment original provision in the that would proposed by in January IRS a significant have created and unantic- by Congress February 1987, 1987 and in plausi- revenue There is no ipated loss. § within a original few months of 2057’s Congrеss ble contention that acted with enactment. motive, by targeting improper an es- 32-33, Id. at (emphasis S.Ct. 2018 representatives tate such as af- Carlton transactions,” then, supplied). “Recent deliberately engage them to inducing ter taxed, retroactively provided be that in ESOP transactions. Congress, application the retroactive of the statute is course, might up have to make chosen itself a furthering reasonable means of a unanticipated through revenue loss legitimate purpose. Although state taxation, that general prospective but defining Carlton Court refrained from “re- equally choice would have burdened “in- beyond noting they cent transactions” that Instead, taxpayers. nocent” it decided “during would include transactions prevent by denying to the loss the de- year legislative preceding of the session purely duction to those who had made that of retroactive enact- [the statute’s] tax-motivated stock transfers. We can- ment,” the Court’s discussion indicates say not that its decision was unreason- length retroactivity period that the able. important bearing is an factor on the rea- Second, Congress acted promptly and that a sonableness period established modest ret- in in period upheld much excess of the one roactivity. This Court noted in United (two years) Welch would raise serious due Darusmont, at 296 States U.S. process concerns. 549], Congress that “almost [101 exception” given general without has downplay Cabinet tries revenue statutes limit- prior prompt legislative response effective dates and the Carlton, period retroactivity the dates of actual enactment. This ed insist- “customary congressional practice” gen- ing part that neither of those factors is erally has been “confined to short process analysis, analysis and the due an periods required by prac- solely limited should focus on whether there is a producing legisla- legitimate legislative purpose.8 ticalities of national Given the However, Appeals aptly many 8. As the Court of stated in its under Carlton." courts inter- require- opinion argues preting in this "The have case: Cabinet Carlton found such ment, ‘modesty’ including explicitly requirement vain that there no one case relied is consequences over of refunds is an delay years five financial Commonwealth’s and the responding GTE decision inadequate justification legisla- for belated retroactive reach of H.B. it is long long retroactivity period. with tion such that would understandable Cabinet simply If the state had carte blanc aspects. want to minimize these Unfortu- costly taxes to impose retroactive avoid nately, reading a fair not Carlton does claims, remedy then the refund position. to the bear out Central entirely if would be rendered uncertain recognition decision was the Carlton clearly unrea- meaningless, result Congress long-standing had not disturbed sonable, and in violation of Carlton’s due because, transactions as Justice O’Connor process standard. concurring opinion, noted in her “[t]he support offers two cases in governmental revising interest the tax position legisla- that retroactive tax of its point give way laws must at some to the period tion can reach back for extended finality taxpayer’s repose.” interest time, perhaps indefinitely, and still sat- 37-38,114 512 U.S. at S.Ct. 2018. isfy Neither process.9 supports case 141.200(18) Here, KRS offends Carlton’s power the unlimited which the Cabinet First, ways. in two timeliness standard taxing authority. attributes to a passed promptly the statute was not Link, In Montana Rail Inc. v. United years rather five one-half after GTE. (9th States, Cir.1996), a 76 F.3d 991 rail- Second, it reaches back from its effective payments had made tax based road on the July date of 2000 to income received while of an reading ambiguous less favorable effect, September RP 41P225 was from statute, a provision of the Railroad Retire- 1994, retroactivity 1988 until December Act, ment Tax which is the functional period years from to twelve five-and-a-half years. agree equivalent Security I with the of the Social Act for short, avoiding employers. the state’s interest In railroad the railroad upon by Lyle, See Tate & Inc. v. tax-rate Cabinet. increase was reasonable mеans of C.I.R., 99, (3d Cir.1996) ("[t]here 87 F.3d 107 furthering Congress's gifts intent that in con ], Carlton Court set forth a [in templation of death be taxed at the same rate two-part determining test for whether the ret- Although as the rest of the decedent’s estate. application roactive of a tax statute violates taxpayer did not have notice of the in First, process. retroactivity to be rate, creased this was not a retroactive upheld, it must be shown that the statute has change apt upset taxpayer expectations, legislative purpose a rational and is not arbi- noted, planners since estate were well second, trary; period that the of retroac- gifts contemplation aware that of death tivity moderate, excessive.”).” Opinion not would be taxed at the same rate the re as at fn. 32. mainder of the estate. The Court did not hold, suggests, Cabinet that retroactive particular 9. The Cabinet also refers in to two always process taxes are "reasonable” for due Carlton, cases cited in Milliken v. United purposes merely they because serve a State’s States, 283 U.S. 51 S.Ct. 75 L.Ed. Usery need for funds. was not even a tax (1931) Usery 809 v. Turner Elkhorn Min case, case, black-lung but a benefits cited in Co., ing 96 S.Ct. 49 L.Ed.2d proposition for the Carlton the retroac Neither of these cases was cited aspects legislation for, tive of economic must in for, proposition or stands that retro dependently satisfy process the due rational active tax knows no limits. Millik Contraiy sugges basis test. to the Cabinet's an concerned the estate tax dece tion, way contraiy it in no runs to Carlton s upheld application dent’s estate. It length gift clear indication that the of the retroac- contemplation 1918 estate-tax rate to a tivity period important explained death made is a most factor bear in 1916. The Court application ing that the retroactive on the reasonableness of a retroactive tax. mistakenly overpaid. The railroad la- statute. had While find Mon- 1987 and 1988 based sought ter refunds for approval tana Rail’s clarifying of a amend- reading suggested by on a more favorable ment stretching years back six appealing, the Railroad Retirement Board. the Ninth Circuit decision makes clear that pending, while the refund claims were it is not addressing the due issues the RRTA to resolve Congress amended that arise when a tax has unlawfully been ambiguity higher in favor of the exacted and then retroactive tax laws are so as and made amendment retroactive passed. apply period to the entire of the stat- King v. Campbell County, 217 S.W.3d ambiguity, through ute’s from 862 (Ky.App.2006) 68.197, involved KRS any The amendment thus nullified authorizing statute counties to collect occu- ambiguity. claims based on the The Ninth pational license Although fees. a 1986 aspect Circuit held that the retroactive amendment to the required statute coun- the amendment satisfied rational Carlton’s give taxpayers ties to a credit for city requirement basis because a shorter retro- license they paid, fees had Campbell and period severely active would have de- Kenton Counties maintained that rail- creased the benefits of some retired amendment apply did not to them. Both Significantly, road workers. the Montana adopted occupational license fees distinguished Rail Court this situation 1978 when the required statute the issue Reich, swpra, cases such as where placed to be on the ballot for approv- voter refund claims were based on taxes found al and permitted, when counties were illegal: to be required, to give taxpayers credit for point At no pay did MRL [the railroad] city their occupational Only license fees. tax barred Constitution Campbell and passed Kenton Counties had constitutionality federal law. The occupational license fees under this older legality dispute, of the RRTA is not in statutory procedure. Ap- The Court of challenge legiti- and MRL does not peals agreed with the counties’ interpreta- 401(k) macy taxing per of contributions tion that the amended statute did not re- erroneously equates se. MRL its mis- quire give them to county taxpayers tax taken overpayment of taxes with city occupational credits for license fees. “unlawful,” government’s “improper” However, City in Covington v. Kenton and “erroneous” collection of taxes. of County, (Ky.2004), S.W.3d this assertion, Contrary to MRL’s the IRS decided that the amendment did did not violate federal law ac- (and apply implicitly Campbell to Kenton cepting overpayment. Seeking a MRL’s too) exposed county and thus voluntary overpay- poten- one’s own refund for tially devastating ment tax is not the same as refund claims for the of lawful pursuing remedy payment an withheld credits.10 immediately, Almost of illegal tax. Assembly March the General amend- clarify ed KRS 68.197 to that Campbell Id. at (emphasis supplied). Montana subject and Kenton Counties were Rail thus addressed the retroactive city fee The legislation credit. clarification tax- of valid which the abrogate made retroactive so as to payer voluntarily overpaid through had an misinterpretation ambiguous City Covington nullify own of decision and to of rationale, City Covington county's 10. Under the Ken- er taxes in refund obli- of County gations ton owed refunds from 2000 forward. would have extended back to 1986. Campbell County imposed high- King, Because See 217 S.W.3d at 866. upon King Supreme it. In refund claims based Court’s decision. rejected Campbell Coun- Court of these circumstances-where the General ty taxpayer challenges to retroactive Assembly has not with- attempted to that the Gen- legislation. The Court found legislation taxpayers draw which upon promptly, eral had acted consis- affairs, in structuring have relied their Carlton, legitimate tent with to further the promptly sought but has to foreclose legislative purpose avoiding severe dis- refunds as the result of an unantic- and, county finances ruption ipated judicial interpretation of a consti- unanticipated City Covington decision tutionally provision valid tax retro- —the expecta- had not interfered with “settled provisions active of House Bill 400 do part Campbell County tions” on not run afoul of the timeliness concerns taxpayers, acquiesced who had in the coun- exprеssed by the United States Su- interpretation ambiguous ties’ stat- preme Court in Carlton. years.11 ute for at S.W.3d Carlton, Unlike the amendment understandably focuses on however, which withdrew an unambigu- King example judicial as validation of deliberately ous deduction and under- retroactive tax stretching back reliance, taxpayer mined reasonable period well excess of the modest House Bill 400 does not withdraw a periods addressed in ad- King Carlton. provision upon taxpayers re- have mittedly more akin to the situation before lied, clarify but seeks to the license fee overpay- this Court than the mistaken provision credit in the of our wake Su- ments Montana Rail but there are cru- preme City Covington Court’s deci- cial in King differences and this case which County The Campbell taxpayers sion. strongly process analysis. bear on the due sought could have refunds Campbell and Kenton Counties were Campbell County when first'raised its taxing authorities in King City following

license fee rates the 1986 Covington but their taxing authority was amendment to KRS 68.197. For all constrained state statute. The coun- however, years, taxpayers these ac- ties ambiguous construed rather stat- quiesced County’s interpretation in the (which ute significantly was not of their statute, of that an interpretation that making) own inapplicable to them and reasonable, this Court found construction, above, as noted was ac- rejected. If there are quiesced in by county taxpayers many case, expectations” “settled in they this years. The good reasonableness and faith County’s, taxpayers. are the not the construction, particular of that which re- taxpayers’ expectations arose Campbell lieved and Kenton of the obli- Supreme City with the Court’s Cov- gation county to credit taxpayers city ington decision in November and fees, occupational months, by was underscored the within a few short in March fact that the of Appeals upheld it. long expectations before those decided, “vested,” City Covington be When could deemed “settled” or was noted, the the General Court оf Assembly had acted to re- was an “unanticipated judicial vise the law and to Campbell interpretation” shield and of a words, Kenton Counties from what it valid tax. In other the believed counties devastating could be the consequences had interpreted ambiguous the statute Campbell County taxpayers 11. The challenge county's interpretation who filed that and King the case waited September until March 2005 to seek refunds back to Carlton, a con- by Assembly the General in Like the estate tax in passed amendment sistent, way 141.200(18) ulti- plausible but this Court KRS attempt is an to alter the the who mately taxpayers found that retroactively, tax law but unlike the in- eventually begun question had the amendment it purports Carlton to apply terpretation brought had suit to and who change just the not to recent transactions were, fact, the correct. obtain credits (the income) receipt to transactions decision, four of that the months Within in tax years years from five to twelve passed that Assembly General a statute years I Although recognize earlier. intention” “original clarified its that Assembly’s to spare General desire apply tax credit did not to “those counties budget significant from state’s where a license fee has been authorized springing claims from the Cabinet’s unau- by a public question approved by the vot- rereading thorized 1988 of KRS 141.120 short, interpretation In consis- ers.” 141.200, I agree and with the Court of tently by Campbell followed Kenton and Appeals that five-year plus this backward legislative had been the intent all Counties reach, facts, particularly these exceeds along. what the Court has indicated is presents decidedly This case different reasonable under the Due Process Clause Here, Cabinet, scenario. with and thus cannot be upheld. Simply put, acquiescence, Assembly’s long General had difficult economic consequences can never al- construed KRS 141.120 and 141.200 as justify disregarding citizens’ due process lowing reporting. Only combined rights. law, in a without settled did Cabinet purport adopt a different Wrongly B. Was GTE Not Decided. construction. GTE Court held Finally, if thе General could say the Cabinet not free to was retroactively ratify not 41P225 RP more thing meant one then day statutes one GTE, years than five after the Cabinet next day say they meant some- urges this Court to do so itself revisit- thing entirely original different. Its read- ing over-ruling our decision GTE. reasonable, ing of those statutes was decided, wrongly GTE not been corrected General Assem- insists, notwithstanding because own bly, binding. Clearly King and thus was policy sixteen-year permitting combined taxing not involve the sud- authority did reports, Chapter preclud- fact denly unilaterally reinterpreting times, reports all ed such at and thus RP unchanged to the taxpayers’ tax law detri- embodied an construction 41P225 accurate Moreover, King ment. while arose of the law. The invitation to Cabinet’s judicial “an unanticipated interpretation,” indulge in such revisionism should be re- possibly could not have been GTE unantic- decisis, jected, simply of stare because ipated. Taxpayers challenged Cabi- right. but because GTE was net’s in RP promptly about-face 41P225 GTE to the precise and was a return read- The Cabinet first on KRS focuses ing of the statute that the itself Cabinet 141.200(1). From before when the engaged years. had in for sixteen UDITPA, Assembly adopted General until pro- the amendments of that statute Given the in- long-standing, consistent “[ejvery corporation doing vided that busi- terpretation of KRS 141.120 to allow com- state, 141.200(18) except exempt ness in this those KRS cannot reporting, bined 141.040, shall from taxation under KRS merely abrogate be deemed GTE and to clarify specifically what law been. return always stating had make a entity’s as share in- respective and the items claimed of income

items by chapter. Cor- Sutton, allowed “Comparison Group come. See deductions each must porations that are affiliated Methods,” conjunc- In Reporting supra. that time- return.” In separate make a formulary apportionment, tion with com- frame, Assembly had not de- the General reporting bined allows for determination “corporations fined either “affiliated” portion that business’s in- affiliated,” some defi- are and without tаxing attributable to the state. Id. come ambiguous. sentence is nition the second “corporation” That the statutes refer to with- corporation It either “each can mean therefore, not singular, suggest does re- affiliation must file a an had been ruled out. reports that combined must turn,” corporate affiliation or “each Indeed, above, also as noted KRS 141.205 years, as separate return.” For file a required expressly “combined returns” noted, applied in effect the Cabinet had circumstances, clear certain indication and, understanding “af- reading the second the General did not intend “unitary” corporations, to include filiated” them. preclude GTE, In reports. combined permitted reporting was ruled Nor combined out reading that the Cabinet’s settled we held prior fact that by thus could not to GTE calcula- not unreasonable and its own merely Kentucky be abandoned to suit began tion of taxable income in would policy. change Such a gross income with as determined feder- Assembly. need to come the General purposes. reporting al Combined reading prior insists that its The Cabinet duly merely together considers calcu- reasonable, and that of the statute was of unitary corporations. lated incomes It This by holding that it was. we erred require a did not calculation income at argument provide does not disingenuous definitions, statutory odds with the reason to The fact sufficient revisit GTE. indicated, clearly by provi- KRS 141.205’s years, that for sixteen with remains then, reports. Again, sion for combined blessing of Assem- apparent the General has not shown that its own Cabinet 141.200 to bly, the construed KRS reading of the from 1972 until statutes reports. That settled permit combined contrary 1988was unreasonable or then- cannot be construction undone Cab- intent, plain correctly held thus GTE merely ambiguous phrase inet because reading cast that that was not to be aside initially have a different might been read legislative without direction. This did not err in so way. GTE holding. CONCLUSION statutory The Cabinet also contends that sum, agree In I Ap- with the Court of are “corporation,” the tеrm uses of 141.200(17) that both peals KRS singular imply in the thus couched 141.200(18) Process violate the Due Clause corpo- legislative only separate intent and so not be enforced. KRS however, general, rations be taxed. 141.200(17) unlawfully withdraws rem- re- statutory singulars are understood as provide the state is edy obliged plurals. 446.020. ferring as well to taxes, illegally collected and KRS above, moreover, re- combined As noted 141.200(18) retroactively imposes tax be- sep- porting disregarding does not involve period yond the Court has one corporate produce entities to arate Accordingly, indicated is I reasonable. an ac- comprehensive return but rather is 5, Opinion May affirm the would counting by corpora- method which each respectfully and so tion in a business accounts for the Court majority’s contrary from rul- dissent

ing. J.,

CUNNINGHAM, joins.

OPINION AND ORDER The Board of Governors of the Ken- tucky Bar Association has recommended to that Respondent, Gregory Cur- ASSOCIATION, KENTUCKY BAR Menefee, tis who practice was admitted to Movant, Kentucky 1990, law in in October whose 83568, No. Member and whose last Gregory MENEFEE, Curtis known bar roster address is P.O. Box Respondent. 15943, Louisville, KY be permanent- No. 2009-SC-000467-KB. ly disbarred as a of ten separate result disciplinary charges which resulted in de- Kentucky. fault cases under SCR 3.210. We agree Oct. adopt with and the Board’s recommenda-

tion. summary

A bar discipline the ten against charges Respondent follows:1 File No. 16m Clayton Respondent Lisa hired around September her 2005 to assist with a Chap- bankruptcy. ter 13 Around October she received a charitable donation an ill for $7,000. child of per- She also received a injury sonal settlement ‍​​‌‌​​​‌‌​‌‌​‌​​​​‌‌‌​​‌‌​​​‌​‌‌​‌‌‌​​‌​‌​​‌‌‌‌‌‍in the amount of $76,000. deposited She all money funds, Respondent. with those From Re- spondent Clayton’s was to have paid mort- gage payments Chapter payments. He neither and stopped communicating did Clayton entirely. with He has not ac- money Clayton gave counted him. Complaint by

A Clayton Bar was filed Respondent signed May customary 2008. A reminder was sent and Respondent on October received response Respondent 2008. No was filed. summary against charges 1. This the ten Recommendation” filed Board of Gov- Respondent exclusively comes tire ernors. Law, Fact, "Findings of Conclusions of

Case Details

Case Name: Miller v. Johnson Controls, Inc.

Court Name: Kentucky Supreme Court

Date Published: Aug 27, 2009

Citation: 296 S.W.3d 392

Docket Number: 2006-SC-000416-DG, 2007-SC-000819-DG

Court Abbreviation: Ky.