Can State Penalize Taxpayers for Failing to Remit Taxes First and Obtain Review Later ?
In McKesson v. Division of Alcoholic Beverages and Tobacco, Dept. of Business Regulation of Florida, 496 U.S. 18, 110 L. Ed. 2d 17, 110 S. Ct. 2238 (1990), the United States Supreme Court held that if a state penalizes taxpayers for failing to remit taxes in a timely fashion, thereby requiring them to remit the taxes first and obtain review later, the Due Process Clause of the United States Constitution requires that the "State must provide meaningful backward-looking relief to rectify any unconstitutional deprivation." McKesson, 496 U.S. at 31.
In fashioning such relief in Annenberg v. Commonwealth, 562 Pa. 581, 757 A.2d 338 (2000), consistent with the dictates of McKesson, the Pennsylvania Supreme Court noted that this could take the form of:
(1) refunding the difference between the tax paid and the tax that would have been assessed had the unlawful exemption been applied to all taxpayers;
(2) assessing and collecting the back taxes from those that had benefited from the unlawful exemption; and (3) applying a combination of a partial refund and a partial retroactive assessment. Annenberg, 562 Pa. at 600-601, 757 A.2d at 349-350 (citing McKesson, 496 U.S. at 40-41).
However, in outlining what the States may do to comport with the Due Process requirements, in McKesson the United States Supreme Court noted that:
In the future, States may avail themselves of a variety of procedural protections against any disruptive effects of a tax scheme's invalidation, such as providing by statute that refunds will be available to only those taxpayers paying under protest, or enforcing relatively short statutes of limitation applicable to refund actions. See supra at 45 ("The State might, for example, provide by statute that refunds will be available only to those taxpayers paying under protest or providing some other timely notice of complaint....").
Such procedural measures would sufficiently protect States' fiscal security when weighed against their obligation to provide meaningful relief for their unconstitutional taxation. McKesson, 496 U.S. at 50.