WASHINGTON -- In a closely watched case from Georgia, the U.S. Supreme Court yesterday ducked the issue of whether states must provide refunds on unconstitutionally collected taxes.
But the court's splintered decision, delivered by Justice David H. Souter, may leave cash-strapped states across the country liable for billions of dollars of refunds because the ruling held that Supreme Court decisions on the constitutionality of taxes and other actions must be applied retroactively unless barred by procedural requirements.
The court's ruling came in James B. Beam Distilling Co. v. Georgia, a case in which the bourbon manufacturer was seeking $2.4 million in refunds on a state tax that was found unconstitutional.
The court said its rulings have a retroactive effect even when states, eyeing Supreme Court precedents, had no reason to believe their taxes or actions were unconstitutional.
Noting that Georgia faces a potential refund liability of $30 million as a direct result of the court's decision yesterday, Justice Sandra Day O'Connor said in dissent that the plurality ruling represents "the height of unfairness.
"We are not concerned here with a state that reaped an unconstitutional windfall from its taxpayers," said Justice O'Connor, who was joined in dissent by Chief Justice William H. Rehnquist and Justice Anthony Kennedy. "Georgia collected in good faith what was at the time a constitutional tax. The court now subjects the state to potentially devastating liability without fair warning."
In addition to the James Beam case, Georgia is battling several other liquor manufacturers in lower courts over refunds, boosting the state's refund liability to the $30 million figure.
The high court's action yesterday was presaged in Griffith v. Kentucky, a 1987 criminal case that required complete retroactivity of all decisions to other pending cases. But the Griffith ruling applied only to criminal cases.
Justice Souter yesterday said: "Griffith cannot be confined to the criminal law. Its equality principle, that similarly situated litigants should be treated the same, carries comparable force in the civil context."
Moreover, Justice Souter said, courts should not decline to apply a ruling retroactively because of the "hardship" it might cause -- an ominous warning to states about their potential refund liability.
But Justice Souter, joined in his opinion by Justice John Paul Stevens, took pains to note that the court in its decision was not speculating "about the remedy that may be appropriate in this case.
"Nothing we say here deprives a respondent of his opportunity to raise procedural bars to recovery under state law or demonstrate reliance interests entitled to consideration in determining the nature of the remedy that must be provided," the justices said.
Now the case goes back to the Georgia Supreme Court for a determination of whether refunds are warranted.
Justice Byron R. White filed an opinion concurring in the judgment of the court, but said that only by overruling a host of cases could the court "sensibly insist on automatic retroactively for any and all judicial decisions in the federal system."
And Justice Antonin Scalia, joined by Justice Thurgood Marshall and Justice Harry A. Blackmun, likewise concurred in the judgment of the court but said they believe the court's rulings always should be given retroactive application.
The James Beam case arose in the wake of a 1984 court ruling in Bacchus Imports LTd. v. Dias, in which the justices struck down a Hawaii tax on out-of-state liquor manufacturers as a violation of the Constitution's commerce clause.
Georgia had a similar tax, which the state took off its books following the Bacchus ruling. But James Beam filed for a refund, a request denied by the Georgia Supreme Court.