Reaching Back into the Past, Part 2
by Tom Yamachika, President, Tax Foundation Hawaii
Last week we looked at a decision by the Supreme Court of Washington allowing a 27-year retroactive “technical fix” to legislation. We do retroactive legislation in Hawaii frequently, and there have been several instances where we in the Foundation had no issue with this effort. This week we look at different kinds of retroactive legislation and why some are okay while others just shock the conscience.
Our Due Process Clause generally gives citizens the rights to notice and an opportunity to be heard before the law. In general, the desirability of retroactive legislation is based on notice (or lack thereof). People get viscerally upset when you tell them they need to follow a rule they didn't know and couldn't have known. The government doesn't notify everyone of every new law that passes, and it doesn't have to if there is some publicly accessible place where people can see and read the law if they so choose. People can’t even search out the law if it is retroactive, because it obviously didn't exist at the time it becomes effective. Its acceptability depends on whether the public needed fair notice of the law.
For example, we in Hawaii pass retroactive legislation every year to incorporate into our income tax law the changes in the federal tax code enacted in the prior year. This isn't a problem because our law says that we generally will follow Uncle Sam's lead on such things so that our beleaguered taxpayers don't have to learn and follow two entirely dissimilar income tax systems.
Retroactive legislation is also used when the legislature acts promptly to fix language in a measure that otherwise would make no sense. Take Act 18 of 2015, for example. Our general excise tax (GET) Law has an exemption for revenue of hospitals acting "as such." In 2011, "as such" was taken out of the statute, which doesn't seem like a big deal but those two words were pivotal in a 1983 case involving a famous hospital. Hospital got parking revenue. Our tax folks wanted a piece of it. Hospital said that it was exempt because it was related to it being a hospital; patients benefit when relatives and loved ones can visit. Our supreme court said that may be true but parking revenue didn't come from a hospital acting "as such," so the exemption didn't apply and the Department won.
When the 2011 amendment took out "as such," nothing in the legislative history mentioned a desire to bring back the exemption for hospital parking revenue. The Department continued to enforce the law as if the two words never had been taken out. It seemed like the language fell by the wayside only because of the Legislature’s frenzied pace. It seemed that a retroactive fix was defensible. Still, taking four years to fix the problem seemed a bit much.
The Dot Foods case discussed last week seems clearly on the other side of the continuum of injustice. There, the Washington Department of Revenue had enforced the statute in a certain way for 17 years, granting the taxpayer a ruling letter in the process. The Department then changed its mind and started assessing the taxpayer and other industry members. When the Washington Supreme Court sided with the taxpayer, the Chicken Littles in the Department squawked about massive revenue loss, leading to a statutory amendment reaching back 27 years. Note well that if revenue loss is justification for grand-scale retroactivity, no one is safe! All tax laws are there to raise revenue.
Citizens have the right to notice of the laws before they are effective. Retroactive laws shouldn’t be used to rewrite history, but may be acceptable to clarify it. And our lawmakers’ duty is to make our laws clear so citizens understand what they must do without having to use revisionist legislation.