TEI Files Amicus Brief with the U.S. Supreme Court in Washington's Hambleton Retroactivity Case

On July 6, 2015, TEI filed an amicus brief supporting the taxpayer's petition for writ of certiorari in Hambleton v. Washington Department of Revenue, No. 14-1436. Hambleton challenges the Washington Legislature's eight-year retroactive amendment of Washington's estate tax. The Washington Legislature enacted the amendment in response to the Washington Supreme Court's decision in Estate of Bracken, 290 P.3d 99 (Wash. 2012), which held that Washington's governing statutes excluded federally-elected qualified terminable interest property ("QTIP") assets from Washington taxable estates. The amendment was prospective and retroactive, except for cases in which a final judgment has been entered. Thus, the retroactive amendment had the effect of overruling the court's decision in Estate of Bracken for all similarly situated taxpayers whose cases were stayed pending the outcome of Estate of Bracken.

Following the U.S. Supreme Court's decision in United States v. Carlton, 512 U.S. 26 (1994), state courts have taken one of two approaches to evaluate retroactive tax legislation. The first approach interprets Carlton as establishing a two-pronged test to determine whether retroactive tax legislation is "supported by a legitimate legislative purpose furthered by rational means" by considering (1) whether the legislative purpose is "arbitrary" or "illegitimate" and (2) whether the legislature acted "promptly" and established a "modest" period of retroactivity. See Carlton, 512 U.S. at 30-33. The second approach, adopted by the Washington Supreme Court in Hambleton, posits that retroactive tax legislation is constitutional if the legislature had a legitimate purpose for the retroactive amendment and the retroactive period was rationally related to that purpose. By conflating Carlton's analysis in this manner, courts undertaking the second approach have held that retroactive tax legislation is constitutional even if the period of retroactivity exceeds any reasonable interpretation of "modest." Several states, Washington and Michigan in particular, have seized upon this apparent opportunity to overrule taxpayer-favorable decisions with retroactive legislation.

TEI's brief urges the U.S. Supreme Court to grant the taxpayers’ petition for a writ of certiorari to resolve the significant differences among State courts applying Carlton and to prevent State legislatures from overturning judicial decisions with legislation employing long retroactive periods. Lengthy retroactivity periods create great uncertainty for taxpayers, eliminate reasonable reliance upon the laws as written and undermine taxpayers’ efforts to plan accordingly. This practice is contrary to principles governing sound tax policy and administration and raises other concerns, such as the existence of a clear and certain remedy, equal treatment of similarly-situated taxpayers, and the authority of the legislative branch to override the judicial branch. The Court's intervention is necessary to clarify the proper test for retroactive tax legislation and stem this abusive legislative practice.

On October 13, 2015, the U.S. Supreme Court denied Hambleton's petition for writ of certiorari.