State collects $4 million in illegal taxes, won't give it back

(Photo courtesy Pixabay)

Barack Obama's weaponization of the Internal Revenue Service, which admitted it targeted non-profits based on their conservative and Christian beliefs, only increased feelings of antipathy toward the federal agency.

But there also are state tax agencies across the United States, and Pennsylvania's has given its citizens another reason to despise tax collectors.

After all, they collected taxes that weren't due.

Then they kept them.

And even went to court to get an order saying they didn't have to be returned.

The case now is before the U.S. Supreme Court, where Nextel Communications of the Mid-Atlantic is pointing out that "the Supreme Court of Pennsylvania agreed with a taxpayer that a collection of state taxes violated a long-settled understanding of the state constitution."

Yet, it "expressly refused to grant the taxpayer any relief," in apparent violation of the U.S. Constitution's Due Process clause.

The justices are being asked to decide if that part of the 14th Amendment requires "a state to make a remedy available to a taxpayer if the collection of a tax violates settled state law."

The case developed after the company paid about $4 million taxes then disputed them and obtained a ruling from the Supreme Court of Pennsylvania that the collection "violated the state constitution."

However, the court made no move to solve the problem.

The state court, according to the complaint, "withheld any relief. It did so without refuting or even mentioning the taxpayer's straightforward claim under the 14th Amendment: a state that deprives a person of property must provide a process to obtain relief if the deprivation was illegal."

The company now is asking the high court to take up the case.

"Pennsylvania had no such process available here, and instead simply chooses to retain tax money over which it has no legal right," the company said.

Joining in the argument on behalf of the company was the Pacific Legal Foundation.

"If a state illegally taxes you, and you successfully sue to recover the money, does the state have to refund the taxes? Oddly enough, the answer to this question may depend on whether the state’s illegal taxes violated federal law or state law," the organization explained.

"In McKesson Corp v. Div. of Alcohol, Bev. & Tobacco (1990), the Supreme Court held that the Due Process Clause requires a state to refund money that was collected in violation of the federal constitution or federal laws. Because that case didn't involve violation of state laws, the court didn't say anything about whether the rule applied in that situation," said Pacific Justice.

In the Nextel case, the Pennsylvania Supreme Court "held that the state collected about $4 million in taxes from Nextel in violation of that state's constitution. But when the state complained that repaying the illegally collected taxes would hurt the public treasury, the court refused to grant Nextel a refund," the foundation said.

"Protecting the state treasury is an objective that serves a state as a whole, and is not properly made the burden of a few taxpayers. Yet, as in this case, the burden in many illegal tax cases of protecting constitutional rights frequently falls upon those few taxpayers who pay the most."

"The power to tax is the power to destroy," PLF wrote. "Given the magnitude of this power, a state's interest in raising and controlling revenue is limited by the due process guaranteed to taxpayers under the 14th Amendment."

"In this case, the Commonwealth of Pennsylvania assessed Nextel Communications nearly $4 million state taxes, in violation of the state constitution's Uniformity Cluase. Nextel sued. … The Pennsylvania Supreme Court held in favor of Nextel insofar as the tax was illegally collected.

"But the court failed to address Nextel's due process claim and it gave Nextel no remedy, i.e., no reimbursement of the illegally collected tax."

The high court should take the case and change the result, PLF contended.

"A taxpayer who remits millions of dollars under an illegal collection scheme cares not whether the illegality derives from federal or state law. Justice – and due process – require a remedy," PLF said.

The organization pointed out that Pennsylvania and Florida, "among others, have been known to repeatedly try to assess illegal taxes "even in light of court rulings striking them down."

The company says the state's failure to address due process alone merits review by the Supreme Court.