High court rules that tax law decisions apply to similar laws in other states


WASHINGTON -- The Supreme Court indicated yesterday that businesses may often be entitled to refunds if they paid state taxes that turned out to be unconstitutional.

Because the court was split 6-3, and especially because the majority of six gave its views in four separate and sometimes conflicting opinions, the decision in a liquor tax case from Georgia did not lay down a general rule requiring states to pay back all collections of taxes after the taxes have been struck down.

What did emerge was a ruling that a court decision striking down one state's tax law should usually be understood as nullifying simultaneously all similar laws in other states and making collections under themunconstitutional. Since the laws were invalid, refunds of those collections could follow as a remedy.

The court sent the liquor case back to Georgia courts to decide whether a bourbon distiller, James Beam Distilling Co., based in Delaware, is entitled to refunds of $2.4 million in taxes it paid to that state under a law similar to one that the Supreme Court had nullified in 1984.

In other states, businesses have pending claims for refunds totaling billions of dollars for taxes that have been ruled invalid. Because yesterday's decision was so widely split, its impact on other taxes in other states probably will have to await case-by-case testing.

The court's ruling on the legal aftermath of decisions striking down state tax laws came in the case of James Beam Distilling vs. Georgia (No. 89-680).

It marked the court's latest attempt to find a majority on a basic constitutional dispute. The issue is whether a decision nullifying a state tax law is to be applied retroactively, so that the tax is considered invalid from the beginning -- and thus should never have been collected.

Last June, in a trucking tax case, the court could get only four of the nine justices to agree on one approach to that issue. So, it agreed to take on a new case, Beam's challenge to a Georgia law.

Again, however, no group of five justices could agree on the same legal reasoning.

Beam had paid a Georgia tax that was levied at higher amounts on alcoholic beverages imported into the state than on those made in Georgia -- a tax very similar to a Hawaii imported liquor tax struck down by the Supreme Court in 1984.

The distiller contended that it should be allowed to rely on the 1984 ruling, even though it did not sue to challenge the Georgia tax until after the Supreme Court had acted on the Hawaii tax.

Georgia courts did nullify their state's tax, but they said Beam was not entitled to a refund because state officials were entitled to consider that their tax remained valid until it was struck down directly.

However, the Supreme Court majority said the Hawaii ruling was intended to apply retroactively, and that Beam was entitled to rely upon that because the decision had signaled the end of the Georgia tax, too. Beam was as fully entitled to the benefit of that ruling as were those who had challenged the similar Hawaii law, according to the court majority.

The majority's views, however, were spread through opinions authored by Justices David H. Souter, Byron R. White, Harry A. Blackmun, and Antonin Scalia; none of those opinions represented the view of more than three justices.

Justice Sandra Day O'Connor, writing for the three dissenters, said that the ruling will subject states like Georgia to "potentially devastating liability without fair warning," because those states had been entitled to assume that their own tax laws were valid until they were directly nullified by a court.

Georgia faces $30 million in refund claims for the liquor tax alone, the dissenters said.

Joining the dissent were Chief Justice William H. Rehnquist and Justice Anthony M. Kennedy.

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