Legal Seminar, Chicago, IL

Should Banks Sue Washington? (cont.)

• File Declaratory Judgment? Or File a Refund Suit After Tax is Paid in January 2020 (Tax Protest)?

• Declaratory Judgement: Limited case law and statute suggests that tax must be paid before contesting. • “Any person . . . having paid any tax . . . and feeling aggrieved by the amount of the tax may appeal to the superior court of Thurston county . . . . ”). • RCW 82.32.150 restates the payment requirement: “All taxes, penalties, and interest shall be paid in full before any action may be instituted in any court to contest all or any part of such taxes, penalties, or interest.” • Most Washington State tax cases are brought by a single taxpayer after it has been required to pay the tax. This statutory requirement is the reason, for example, why courts have held that tax actions in Washington State cannot be brought in the form of a class action lawsuit . Lacey Nursing Center v. Department of Revenue , 128 Wn.2d 40 (1995). • TracFone case • In 2007, TracFone, a wireless telephone service provider sought a partial summary judgment in the trial court finding that it was not responsible for collecting the Enhanced 911 tax. State argued that RCW 82.32.150 provided no basis for initiating suit, even on a constitutional claim, when there was no assessment. Appellate court never resolved issue and the case was rendered moot by change in the law. Tracfone Wireless, Inc. v. Washington State Department of Revenue , No. 43805-4-II (Wash. Ct. App. 2014). • However, plaintiffs successfully challenged a 2017 2.25 percent tax on total income above $250,000 for individuals and above $500,000 for married couples. Washington State law bans taxes on net income. Filed declaratory judgement action but State did not challenge standing on failure to pay the assessment. • File a Tax Protest After Tax is Paid in January 2020 • Each bank would have to file individually. But if one bank were successful, it would be relatively easy for subsequent banks to seek relief. Cheaper and quicker than declaratory relief route but also have to wait to file because tax must be paid first.

Should Banks Sue Washington? (cont.)

• National Bank Act Violation? • No! • Commerce Clause Violation? • For a state tax to be valid under the commerce clause it must satisfy four requirements set forth in Complete Auto Transit :

• (1) The tax must be applied to an activity that has a substantial nexus with the state;

• (2) The tax must be fairly apportioned to activities carried on by the taxpayer in the state;

• (3) The tax must not discriminate against interstate commerce; and

• (4) The tax must be fairly related to services provided by the state.

• Only the third and fourth requirements are at issue. The fourth requirement is almost never used to strike a tax. • Evidence of discrimination. • There are the things said by the legislators in enacting the provision. What evidence is there that the legislators intended to discriminate against big banks operating in interstate commerce and headquartered out of state? • In Great Atlantic & Pacific Tea Co. v. Grosjean , 301 U.S. 412 (1937), the U.S. Supreme Court upheld a Louisiana tax that imposed a higher tax on each Louisiana store depending upon how many total stores were under the same management everywhere.