Petitioner McKesson Corporation brought this action in Florida state court, alleging that Florida's liquor excise tax violated the Commerce Clause of the United States Constitution. The Florida Supreme Court agreed with petitioner that the tax scheme unconstitutionally discriminated against interstate commerce because it provided preferences for distributors of certain local products. Although the court enjoined the State from giving effect to those preferences in the future, the court also refused to provide petitioner a refund or any other form of relief for taxes it had already paid.
Our precedents establish that if a State penalizes taxpayers for failure to remit their taxes in timely fashion, thus requiring them to pay first and obtain review of the tax's validity later in a refund action, the Due Process Clause requires the State to afford taxpayers a meaningful opportunity to secure postpayment relief for taxes already paid pursuant to a tax scheme ultimately found unconstitutional. We therefore agree with petitioner that the state court's decision denying such relief must be reversed.
For several decades until 1985, Florida's liquor excise tax scheme, which imposes taxes on manufactures, distributors, and in some cases vendors of alcoholic beverages, provided
Petitioner McKesson Corporation is a licensed wholesale distributor of alcoholic beverages whose products did not qualify for the rate reductions.
On petitioner's motion for partial summary judgment, the Florida trial court invalidated the discriminatory tax scheme on Commerce Clause grounds because the revised "legislation failed to surmount the constitutional violations addressed in Bacchus [Imports, supra]." App. 263. The trial court enjoined future enforcement of the preferential rate reductions, leaving all distributors subject to the Liquor Tax's nonpreferred rates. The court, however, declined to order a refund or any other form of relief for the taxes previously paid and timely challenged under the discriminatory scheme. The court's order of prospective relief was stayed pending respondents' appeal of the Commerce Clause ruling to the Florida Supreme Court.
Petitioner McKesson cross-appealed the trial court's ruling, arguing that as a matter of both federal and state law it was entitled at least to "a refund of the difference between the disfavored product's tax rate and the favored product's tax rate." 524 So.2d 1000, 1009 (1988). The State Supreme
After petitioner's request for rehearing was denied, petitioner filed a petition for writ of certiorari in this Court, presenting the question whether federal law entitles it to a partial tax refund. We granted the petition, 488 U.S. 954 (1988), and consolidated the case with American Trucking Assns., Inc. v. Smith, No. 88-325, which we also decide today.
Respondents first ask us to hold that, though the Florida courts accepted jurisdiction over this suit which sought monetary relief from various state entities, the Eleventh Amendment
It is undisputed that the Florida Supreme Court, after holding that the Liquor Tax unconstitutionally discriminated against interstate commerce because of its preferences for liquor made from " `crops which Florida is adapted to growing,' " 524 So. 2d, at 1008, acted correctly in awarding petitioner declaratory and injunctive relief against continued enforcement of the discriminatory provisions. The question before us is whether prospective relief, by itself, exhausts the requirements of federal law. The answer is no: If a State places a taxpayer under duress promptly to pay a tax when due and relegates him to a postpayment refund action in which he can challenge the tax's legality, the Due Process Clause of the Fourteenth Amendment
We have not had occasion in recent years to explain the scope of a State's obligation to provide retrospective relief as part of its postdeprivation procedure in cases such as this.
After finding that the railroad company's tax payment "was made under duress," id., at 287, the Court issued a judgment entitling the company to a "refunding of the tax." Ibid. Thus was the taxpayer provided a "clear and certain remedy" for the State's unlawful extraction of tax moneys under duress.
In Ward v. Love County Board of Comm'rs, 253 U.S. 17 (1920), we reversed the Oklahoma Supreme Court's refusal to award a refund for an unlawful tax. A subdivision of the State sought to tax lands allotted by Congress to members of the Choctaw and Chickasaw Indian Tribes despite a provision of the allotment treaty making the " `lands allotted . . . nontaxable while the title remains in the original allottee, but not to exceed twenty-one years from date of patent.' " Id., at 19, quoting Act of June 28, 1898, § 29, 30 Stat. 507. To avoid a distress sale of its lands, the Choctaw Tribe paid the taxes under protest and then brought suit in state court to obtain a refund. We observed that "it is certain that the lands were nontaxable" by the State and its subdivisions under the allotment treaty and, therefore, the taxes were assessed in violation of federal law. 253 U. S., at 21. After finding that the Tribe paid the taxes under duress, id., at 23, we ordered a refund. We explained the State's duty to remit the tax as follows:
See also Carpenter v. Shaw, 280 U.S. 363, 369 (1930) (holding, in a case analogous to Ward, that "a denial by a state court of a recovery of taxes exacted in violation of the laws or Constitution of the United States by compulsion is itself in contravention of the Fourteenth Amendment").
In Montana National Bank of Billings v. Yellowstone County, 276 U.S. 499 (1928), we applied the same due process analysis to a tax that was unlawful because it was discriminatory, though otherwise within the State's power to impose. Montana officials had imposed a tax on shares of banks incorporated under federal law but not on shares of state-incorporated banks, relying on a Montana Supreme Court decision interpreting state law to preclude such taxation of state bank shares. The Montana National Bank of Billings paid its tax under protest and then brought suit for a refund. The bank contended that the different tax treatment violated § 5219 of the Revised Statutes, a federal statute requiring equal taxation of the shares of state and national banks. On appeal, the Montana Supreme Court overruled its previous interpretation of state law and held that thereafter shares of state banks could also be taxed, thus enabling state officials to comply with § 5219. Montana National Bank of Billings v. Yellowstone County, 78 Mont. 62, 252 P. 876 (1926). The court declined, however, to order a refund of the taxes that the Montana National Bank of Billings had paid during the period when state officials had exempted state banks in reliance on the court's earlier decision. Id., at 86, 252 P., at 883. On writ of error, this Court acknowledged that the Montana Supreme Court's decision to overrule its previous interpretation of state law ensured for the future the equal treatment demanded by federal law. The Court noted, however, that prospective relief alone "d[id] not cure the mischief which had been done under the
The Court in Montana National Bank recognized that the federal mandate of equal treatment could have been satisfied by collecting back taxes from state banks rather than by granting a refund to national banks. Id., at 505. But as to this possibility, the Court remarked:
Montana National Bank thus held that one forced to pay a discriminatorily high tax in violation of federal law is entitled, in addition to prospective relief, to a refund of the excess tax paid — at least unless the disparity is removed in some other manner.
We again applied this analysis to a discriminatory tax in Iowa-Des Moines National Bank v. Bennett, 284 U.S. 239 (1931). The Court held unanimously that the State of Iowa's taxation of the shares of state and national banks at a higher rate than those of competing domestic corporations violated the Equal Protection Clause. Id., at 245-246. With respect to the banks' claim for a refund of excess taxes paid, Justice Brandeis explained:
But the State did not elect to set matters right by collecting additional taxes from the banks' competitors for the four tax years encompassed by the suit. And the Court found it "well settled" that the banks could not be "remitted to the necessity of awaiting such action by the state officials upon their own initiative." Ibid. The Court held, therefore, that the banks were "entitled to obtain in these suits refund of the excess of taxes exacted from them." Ibid.
These cases demonstrate the traditional legal analysis appropriate for determining Florida's constitutional duty to provide relief to petitioner McKesson for its payment of an unlawful tax. Because exaction of a tax constitutes a deprivation of property, the State must provide procedural safeguards against unlawful exactions in order to satisfy the commands of the Due Process Clause.
Had the Florida courts declared the Liquor Tax invalid either because (other than its discriminatory nature) it was beyond the State's power to impose, as was the unapportioned tax in O'Connor, or because the taxpayers were absolutely immune from the tax, as were the Indian Tribes in Ward and Carpenter, no corrective action by the State could cure the invalidity of the tax during the contested tax period. The State would have had no choice but to "undo" the unlawful deprivation by refunding the tax previously paid under duress, because allowing the State to "collect these unlawful taxes by coercive means and not incur any obligation to pay them back . . . would be in contravention of the Fourteenth Amendment." Ward, 253 U. S., at 24; see also Carpenter, 280 U. S., at 369.
Here, however, the Florida courts did not invalidate the Liquor Tax in its entirety; rather, they declared the tax scheme unconstitutional only insofar as it operated in a manner that discriminated against interstate commerce. The State may, of course, choose to erase the property deprivation itself by providing petitioner with a full refund of its tax payments. But as both Montana National Bank and Bennett illustrate, a State found to have imposed an impermissibly discriminatory tax retains flexibility in responding to this
More specifically, the State may cure the invalidity of the Liquor Tax by refunding to petitioner the difference between the tax it paid and the tax it would have been assessed were it extended the same rate reductions that its competitors actually received. Cf. Montana National Bank and Bennett (curing discrimination through such refunds). Alternatively, to the extent consistent with other constitutional restrictions, the State may assess and collect back taxes from petitioner's competitors who benefited from the rate reductions during the contested tax period, calibrating the retroactive assessment to create in hindsight a nondiscriminatory scheme. Cf. Bennett, 284 U. S., at 247 (suggesting State could erase the unconstitutional discrimination by "collecting the additional taxes from the favored competitors").
Respondents suggest that, in order to redress fully petitioner's unconstitutional deprivation, the State need not actually impose a constitutional tax scheme retroactively on all distributors during the contested tax period. Rather, they claim, the State need only place petitioner in the same tax position that petitioner would have been placed by such a hypothetical scheme. Specifically, respondents contend that the State, had it known that the Liquor Tax would be declared unconstitutional, would have imposed the higher flat tax rate on all distributors. Because petitioner would have paid the same tax under this hypothetical scheme as it did under the Liquor Tax, respondents claim that petitioner is not entitled to any retrospective relief (at least in the form of a refund);
We implicitly rejected this line of reasoning in Montana National Bank and Bennett, and we expressly do so today. Even aside from the contrived and self-serving nature of the baseline against which respondents propose to measure petitioner's "deprivation,"
The Florida Supreme Court cites two "equitable considerations" as grounds for providing petitioner only prospective relief, but neither is sufficient to override the constitutional requirement that Florida provide retrospective relief as part of its postdeprivation procedure. The Florida court first mentions that "the tax preference scheme [was] implemented by the [Division of Alcoholic Beverages and Tobacco] in good faith reliance on a presumptively valid statute." 524 So. 2d, at 1010. This observation bespeaks a concern that a State's obligation to provide refunds for what later turns out to be an unconstitutional tax would undermine the State's ability to engage in sound fiscal planning. However, leaving aside the
And in the present case, Florida's failure to avail itself of certain of these methods of self-protection weakens any "equitable" justification for avoiding its constitutional obligation to provide relief.
The Florida Supreme Court also speculated that "if given a refund, [petitioner] would in all probability receive a windfall, since the cost of the tax has likely been passed on to [its] customers." 524 So. 2d, at 1010. The court's premise seems to be that the State, faced with an obligation to cure its discrimination during the contested tax period and choosing to meet that obligation through a refund, could legitimately choose to avoid generating a "windfall" for petitioner by refunding only that portion of the tax payment not "passed on" to customers (or even suppliers). Even were we to accept this premise, the State could not refuse to provide a refund based on sheer speculation that a "pass-on" occurred.
In any event, however, we reject respondents' premise that "equitable considerations" justify a State's attempt to avoid bestowing this so-called "windfall" when redressing a tax that is unconstitutional because discriminatory. In United States v. Jefferson Electric Mfg. Co., 291 U.S. 386 (1934), we enforced a statutorily created pass-on defense in a refund action designed to redress a tax overassessment. Comparing such an action to one in assumpsit for "money had and received," we affirmed the Federal Government's power in this equitable action to withhold the amount that the taxpayer had already passed on to others, on the theory that the taxpayer ought not be "unjustly enriched" by his recovery from the Government after he has already "recovered" his losses through the pass-on. We observed that if the taxpayer "has shifted the [economic] burden [of the tax] to the purchasers, they and not he have been the actual sufferers
But petitioner does not challenge here a tax assessment that merely exceeded the amount authorized by statute; petitioner's complaint was that the Florida tax scheme unconstitutionally discriminated against interstate commerce. The tax injured petitioner not only because it left petitioner poorer in an absolute sense than before (a problem that might be rectified to the extent petitioner passed on the economic incidence of the tax to others), but also because it placed petitioner at a relative disadvantage in the marketplace vis-a-vis competitors distributing preferred local products. See n. 25, supra; see also Bacchus Imports, supra, at 267 ("[E]ven if the tax [was] completely and successfully passed on, it increase[d] the price of [petitioner's] products as compared to the exempted beverages"). To whatever extent petitioner succeeded in passing on the economic incidence of the tax through higher prices to its customers, it most likely lost sales to the favored distributors or else incurred other costs (e. g., for advertising) in an effort to maintain its market share.
Respondents assert that requiring the State to rectify its unconstitutional discrimination during the contested tax period "would plainly cause serious economic and administrative
Respondents also observe that the State's choice of relief may entail various administrative costs (apart from the "cost"
When a State penalizes taxpayers for failure to remit their taxes in timely fashion, thus requiring them to pay first before obtaining review of the tax's validity, federal due process principles long recognized by our cases require the State's postdeprivation procedure to provide a "clear and certain remedy," O'Connor, 223 U. S., at 285, for the deprivation of tax moneys in an unconstitutional manner. In this case, Florida may satisfy this obligation through any form of relief, ranging from a refund of the excess taxes paid by petitioner to an offsetting charge to previously favored distributors, that will cure any unconstitutional discrimination against interstate commerce during the contested tax period. The State is free to choose which form of relief it will provide, so long as that relief satisfies the minimum federal requirements
It is so ordered.
The Liquor Tax also contains "retaliation" provisions which declare that the rate reductions applicable to the preferred products do not apply when they are imported from a State that imposes discriminatory taxes or provides agricultural price supports or export subsidies benefiting its own locally produced alcoholic beverages. Fla. Stat. §§ 564.06(9), 565.12(1)(c), 565.12(2)(c) (1989).
The State's immediate filing of its Notice of Appeal automatically stayed the trial court's order. Fla. Rule App. Proc. 9.310(b)(2). Petitioner requested the trial court to vacate the stay, arguing that continued enforcement of the unconstitutional tax scheme pending State Supreme Court review would continue to expose Florida's treasury to claims for tax refunds. After a hearing, the trial court denied the motion. Pending the State Supreme Court's final decision, therefore, respondents continued to collect taxes under the Liquor Tax with the unconstitutional preferences still in effect.
Hence in this case petitioner contests the validity of the taxes it paid from July 1985 until the State Supreme Court's final decision was given effect in February 1988 (the contested tax period).
Of course, though the Eleventh Amendment does not constrain this Court's appellate jurisdiction over such suits, appellate jurisdiction may be constrained for other reasons not apposite here. For example, a state-court judgment would be unreviewable were it to rest on an independent and adequate state-law ground. See Michigan v. Long, 463 U.S. 1032, 1038, n. 4 (1983).
For example, in Smith v. Reeves, 178 U.S. 436 (1900), the Court dismissed a suit brought in federal court by an aggrieved taxpayer seeking a refund for a State's illegal assessment. We explained, however, that the State's decision to consent to suit only in state, but not federal, court is "subject always to the condition, arising out of the supremacy of the Constitution of the United States and the laws made in pursuance thereof, that the final judgment of the highest court of the State in any action brought against it with its consent may be reviewed or reexamined [by this Court], as prescribed by the act of Congress, if it denies to the plaintiff any right, title, privilege or immunity secured to him and specially claimed under the Constitution or laws of the United States." Id., at 445.
Similarly, in Chandler v. Dix, 194 U.S. 590 (1904), the Court dismissed a quiet title suit brought in federal court by a citizen with respect to lands that had been taken by a State and sold to recoup compensation for certain tax deficiencies. The Court found that the State was a necessary party defendant and that the Eleventh Amendment barred initiation of the suit in federal court. The Court simultaneously declared, however, that "[o]f course, a taxpayer denied rights secured to him by the Constitution and laws of the United States, and specially set up by him, could bring the case here [to the Supreme Court] by writ of error from the highest courts of the State." Id., at 592. See also Rosewell v. LaSalle National Bank, 450 U.S. 503, 515-516, n. 19 (1981) (under state tax refund scheme, "a taxpayer may raise all constitutional objections, including those based on the State's failure to pay interest or to return all unconstitutionally collected taxes, in the [state] legal refund proceeding, . . . after which the litigants have an opportunity to seek review in this Court").
In contrast, if a State chooses not to secure payments under duress and instead offers a meaningful opportunity for taxpayers to withhold contested tax assessments and to challenge their validity in a predeprivation hearing, payments tendered may be deemed "voluntary." The availability of a predeprivation hearing constitutes a procedural safeguard against unlawful deprivations sufficient by itself to satisfy the Due Process Clause, and taxpayers cannot complain if they fail to avail themselves of this procedure. See Mississippi Tax Comm'n, supra, at 368, n. 11 ("[W]here voluntary payment [of a tax] is knowingly made pursuant to an illegal demand. recovery of that payment may be denied").
Because we do not know whether the State will choose in this case to assess and collect back taxes from previously favored distributors, we need not decide whether this choice would violate due process by unduly interfering with settled expectations.
Should the State choose this remedial alternative, the State's effort to collect back taxes from previously favored distributors may not be perfectly successful. Some of these distributors, for example, may no longer be in business. But a good-faith effort to administer and enforce such a retroactive assessment likely would constitute adequate relief, to the same extent that a tax scheme would not violate the Commerce Clause merely because tax collectors inadvertently missed a few in-state taxpayers.
We agree with respondents that the State might remedy the invalidity of petitioner's deprivation by extending to petitioner the sliding scale schedule in a nondiscriminatory fashion — but respondents' proposal would appear not to accomplish this result. If, as proposed, the State were to calculate the tax rate applicable to petitioner based on the total volume of sales of both preferred and nonpreferred goods, but leave untouched the taxes actually collected from the favored distributors based on the volume of sales of only preferred goods, the resulting tax scheme would itself raise questions under the Commerce Clause due to the State's use of a different "volume" variable for the preferred and nonpreferred goods in a manner that clearly disadvantages the latter. In order to cure the illegality of the tax as originally imposed, the State must ultimately collect a tax for the contested tax period that in no respect impermissibly discriminates against interstate commerce.
Petitioner's market share and total revenue also might have stayed constant, at least in the short run, had all of its sales to liquor retailers been pursuant to cost-plus contracts. See Hanover Shoe, supra, at 494. But respondents do not claim that petitioner was in this position.