Editor's Note: The U.S. Supreme Court yesterday denied the petition for certiorari Johnson Controls, Inc. v. Miller, 2010 U.S. LEXIS 4206 (U.S. May 24, 2010) by Johnson Controls, Inc., pursuant to last fall's decision of the Kentucky Supreme Court, upholding the constitutionality, and retroactive application, of the state's statutory prohibition against filing unitary returns. The following commentary from last autumn recounts the litigation history.
...
Broken Promises - the Decision of the Kentucky Supreme Court in Miller v. Johnson Controls
SUMMARY: Johnson Controls and other corporate taxpayers challenged Kentucky legislation that barred refund claims based on the state's change from separate return to combined filing. The Kentucky Supreme Court denied the taxpayers contention that the legislation was unconstitutional in denying them a meaningful refund remedy and that it was excessively retroactive. The Johnson Controls petition for certiorari was denied on May 24, 2010 by the U.S. Supreme Court.
Author Erica Horn writes:The jurisprudence of the United States Supreme Court provides taxpayers with two promises (1) a meaningful post-payment remedy, and (2) limits on the retroactivity of certain statutes. In Miller v. Johnson Controls, 2009 Ky. LEXIS 196, Supreme Court of Kentucky, Nos. 2006-SC-00416-DG and 2007-SC-000819-DG (August 27, 2009), pet. for reh'g pending, however, the Kentucky Supreme Court has broken both promises.
Johnson Controls and other corporate taxpayers (referred to collectively with the other affected businesses as "Taxpayers") challenged the constitutionality of legislative amendments made to KRS § 141.200 through H.B. 541 passed by the 2000 Kentucky General Assembly. The Taxpayers maintain that the legislation eliminates, in an unconstitutional manner, refund claims filed by them based on a change from separate return to combined filings, which change was required by a 1994 decision of the same Court in GTE and Subsidiaries v. Revenue Cabinet, 889 S.W.2d. 788 (Ky. 1994). While unsuccessful at the trial court, on appeal, the Court of Appeals agreed with the Taxpayers' contention that the legislation deprived them of due process. (See Johnson Controls, Inc. v. Rudolph, 2006 Ky. App. LEXIS 132, *20 (May 5, 2006)). The Kentucky Supreme Court reversed the Court of Appeals in a 4-2 decision.
...
While the Taxpayers have made numerous arguments attacking H.B. 541 (unlawful special legislation, an unconstitutional "taking", etc.), the primary arguments are that the legislation results in a deprivation of the Taxpayers' due process and equal protection rights. The Commonwealth, on the other hand, has argued (1) there is no violation of the due process or equal protection rights of the Taxpayers, and (2) H.B. 541 was a revocation of the Commonwealth's consent to be sued for a refund claim and therefore, under the doctrine of sovereign immunity, no refunds are owed to the Taxpayers.
...
The Kentucky Supreme Court reversed the Court of Appeals, holding that H.B. 541 furthered a "legitimate governmental purpose" and the bill was "rationally related to that purpose." (Slip op. at 22-23.) While the Supreme Court acknowledged that "the length of the period of retroactivity is to be considered as part of the test of whether the statute is a rational means of achieving the government's goal," the Court concluded that the retroactivity of H.B. 541 was not excessive. (Id. at 18.) Additionally, the Court distinguished this case from McKesson Corp. v. Div. of Alcoholic Bevs. & Tobacco, 496 U.S. 18 (U.S. 1990) by agreeing with the Commonwealth that McKesson applied only to claims arising from statutes held to be unconstitutional. (Id. at 20.) The Taxpayers maintain that to reach these conclusions, the Court misconstrued the facts and misapplied the law.
The opinion of the Court is premised on three key factual findings that are unsupported by the record of the case...
...
The Court erred in applying the due process requirements of both McKesson Corp. v. Div. of Alcoholic Bevs. & Tobacco, 496 U.S. 18 (U.S. 1990) and United States v. Carlton, 512 U.S. 26 (U.S. 1994).
...
In addition to the legal errors related to McKesson and Carlton, the Taxpayers assert that the Court improperly relied on Montana Rail Link, Inc. v. United States, 76 F.3d 992 (9th Cir. 1996) ("MRL"). The Court describes MRL as "upholding a law that was very similar in effect to this one." (Slip op. at 21.) Yet, the case is distinguishable on at least two fronts.
...
On September 15, 2009, the Taxpayers sought a rehearing from the Kentucky Supreme Court. In light of the 4-2 decision, only one Justice needs to change his or her mind for the decision of the Court of Appeals to be affirmed. The timetable upon which the Kentucky Supreme Court will decide the petition for rehearing is unknown. Regardless of the Court's decision, it is anticipated that the aggrieved party will file a petition for writ of certiorari at the United States Supreme Court.
...
In addition to Ms. Horn, Stites & Harbison attorneys' Bruce F. Clark, Margaret Grant and R. Benjamin Crittenden are co-counsel for the Taxpayers with Paul H. Frankel of Morrison & Foerster. While authored by Ms. Horn, this article reflects the collective analysis, argument, thoughts and writing of each of those attorneys. Ms. Horn may be reached at (502) 209-1218 or ehorn@stites.com. Mr. Frankel may be reached at (212) 468-8034 or pfrankel@mofo.com.
Subscribers can access the complete commentary on LEXIS.com. Additional fees may be incurred. (Approx. 12 pages)
If you do not have a lexis.com ID, you can purchase the Emerging Issues Analysis content through our lexisONE Research Packages.
LEXIS.com subscribers can view further discussion at 1-3 Bender's State Taxation: Principles and Practice § 3.05 and 1-3 Bender's State Taxation: Principles and Practice § 3.12.
For information about the print version of Bender's State Taxation: Principles and Practice, visit the LexisNexis® Store.