States warned against using "bait-and-switch" tactics in denying refunds of unconstitutionally collected taxes.

The Supreme Court has once again held that a state may not deny properly filed refund claims of an unconstitutionally collected tax simply because the state provided adequate pre-deprivation remedies (i.e., remedies available before payment) (Newsweek, Inc. v. Florida Dep't of Revenue, 118 Sup. Ct. 904 (1998)). In 1990, the Florida Supreme Court declared a state sales tax statute that exempted sales of newspapers but not magazines unconstitutional (Dep't of Revenue v. Magazine Publishers of America, Inc., 565 So 2d 1304 (Fla. 1990)). After this ruling, Newsweek sought a refund of sales tax paid under the unconstitutional statute for tax years 1988 through 1990. Florida denied Newsweek's claim, asserting that the claim was barred because Newsweek did not avail itself of the pre-deprivation remedies available under state law.

In the past, the US. Supreme Court has interpreted the Due Process Clause to require "meaningful backward-looking relief" when a taxpayer is forced to pay a tax before having the opportunity to establish its unconstitutionality (McKesson Corp., 496 US 18 (1990)). The Florida District Court of Appeals, in affirming the denial of Newsweek's refund, distinguished McKesson because Newsweek (unlike the taxpayer in McKesson) had available to it adequate pre-deprivation remedies (Newsweek, Inc., 689 So.2d 361 (Fla. Dist. Ct. App. 1997)). Under Florida law, a taxpayer may challenge an unconstitutional or unlawful tax by filing an action and paying the contested amount into the court registry, posting a bond or seeking a court order for an alternative arrangement. Florida law also includes a refund mechanism that permits taxpayers to seek refunds of unconstitutionally or unlawfully collected taxes after they have been paid. Because Newsweek declined the pre-deprivation remedy and instead chose to seek a refund of tax after the statute had been declared unconstitutional, the district court held that the refund was properly denied

The Supreme Court reversed; although exclusively pre-deprivation remedies may satisfy the Due Process Clause requirements as interpreted in McKesson, the Florida court did not filly contemplate the effect of Florida's statutorily provided post-deprivation remedies (i.e., the state's refund statute). As the Newsweek Court pointed out, the refund statute was commonly relied on by Florida taxpayers and widely recognized by the courts. By providing this post-deprivation remedy, and then denying claims pursued under it when a statute is later found unconstitutional, the state engages in what amounts to a "bait-and-switch" tactic, rendering the post-deprivation remedy meaningless.

Similar tactics have been held unconstitutional under the Due Process Clause. In Reich v. Collins, 513 US 106 (1994), the taxpayer sought a refund of taxes paid under a Georgia statute that had been found unconstitutional. Because Georgia law provided an adequate pre-deprivation remedy in addition to its refund statute, the state sought to deny the taxpayer's refund claim. Although the Supreme Court assumed the constitutionality of Georgia's pre-deprivation remedy, it nonetheless reversed, because "no reasonable taxpayer would have thought that [the pre-deprivation procedures] represented, in light of the apparent applicability of the refund statute, the exclusive remedy for unlawful taxes." The Reich Court pointed out that a state may maintain an exclusively pre-deprivation remedial scheme consistent with the Due Process Clause, provided that scheme is clear and certain. The state may not, however, bait and switch by "holding out what plainly appears to be a `clear and certain' postdeprivation remedy and then declar[ing], only after the disputed taxes have been paid, that no such remedy exists." Applying this rationale, the Supreme Court in Newsweek vacated the Florida court's judgment and remanded it, with instructions for the court to render an opinion consistent with Reich.

As the states seek to ensure adequate flows of cash into their coffers, tension arises between the temptation to limit the availability of post-deprivation remedies and the desire to maintain a pro-business environment. Under the Supreme Court precedent, states are free to fashion remedial schemes that deny refunds of taxes after payment by providing a dear and certain pre-deprivation procedure for challenging the imposition of potentially unconstitutional or unlawfuI taxes. This option is often unattractive to the states, because the failure to provide a post-deprivation refund mechanism is viewed as taxpayer-unfriendly by the business community, Short of fashioning such exclusive remedies, however, states are left with no option other than to provide constitutionally adequate postdeprivation remedies that remain available to taxpayers once a tax has been declared invalid.