ABRAMSON, Justice, dissenting.

This corporate tax case presents a rather straightforward question: how aggressively may the General Assembly legislate after-the-fact in an effort to retain tax monies which this Court has held were collected in contravention of state law? Whether the taxpayer is an individual citizen or a corporation, the answer to that question lies in the Due Process Clause of the Fourteenth Amendment to the United States Constitution which prohibits the taking of property without due process of law. Generally, a sovereign must provide "meaningful relief in the form of a refund of the invalidly collected taxes and, while there is some latitude to legislate tax law retroactively, that power must be exercised promptly for a legitimate purpose and for a modest period. The 2000 Kentucky General Assembly exceeded the bounds of due process when it passed H.B. 541 in an effort to undo entirely this Court's ruling over five years earlier in GTE v. Revenue Cabinet, 889 S.W.2d 788 (1994). Neither the complete ban of all outstanding tax refund claims associated with the GTE case nor the retroactive rewrite of state tax law to condone the retention of corporate taxes invalidly collected five to twelve years previously passes constitutional muster. By upholding these long after-the-fact revisions of our tax laws, the majority misconstrues the constitutional restraints. Accordingly, I respectfully dissent.

While a full understanding of this matter entails appreciation of various approaches to corporate tax which are addressed later, the basic facts can be simply stated. For sixteen years, from 1972 until 1988, any corporation which qualified as a so called "unitary business" was allowed to file Kentucky tax returns on a unitary or combined-reporting basis. In 1988, without any action on the part of our legislature, the Revenue Cabinet issued Revenue Policy 41P225, abruptly halting the right of virtually all corporate taxpayers to file the unitary returns which had been accepted for years. Faced with higher taxes as a result of the stroke of an administrator's pen, several taxpayers sued and ultimately prevailed before the Kentucky Supreme Court. In GTE v. Revenue Cabinet, supra, this Court concluded that the Cabinet's and taxpayers' longstanding reading of KRS 141.120 was a reasonable one and, under the doctrine of contemporaneous construction, that reading had become binding on the Cabinet unless and until the General Assembly expressed a contrary intent.

Taxpayers responded to GTE by filing amended returns on a unitary basis but, after processing and settling some of the refund claims, the Cabinet sought legislative intervention. A stop-gap measure delaying all refunds was passed in 1998 and then an attempted complete "clean up" of the situation obliterating all rights to refunds was passed by the 2000 General Assembly in the form of H.B. 541. That bill had two provisions dedicated to a single purpose. One provision withdrew from those corporate taxpayers who had filed amended unitary returns and were seeking refunds post- GTE the basic refund right codified in KRS 134.580 and ordinarily available to all taxpayers who have paid taxes later determined to be invalid. The second provision was an attempt to recast pre- GTE law and destroy the legal under-pinnings of the taxpayers' refund claims (and this Court's holding in GTE) by stating retroactively that indeed the position stated by the Cabinet in RP 41P225 had always been the law.

Our Court of Appeals invalidated H.B. 541 as a violation of the taxpayers' due process rights. On appeal, the Cabinet maintains that the appellate court's due process analysis was wrong and in any event the Commonwealth's sovereign immunity trumps the taxpayers' due process rights. The Commonwealth argues, in essence, that it can collect taxes in contravention of law, litigate and lose before this Court, and then assert sovereign immunity to retain tax monies this Court found were invalidly collected. The sovereign is powerful but it too must answer to the Constitution and, more specifically, it too is constrained by the due process protections afforded its citizens for otherwise that Clause would be rendered meaningless. H.B. 541 is unconstitutional and these tax-payers are entitled to pursue the meaningful remedy which is codified in KRS 134.580, grounded in the Due Process Clause and available to all taxpayers who have paid taxes subsequently deemed invalid.

RELEVANT BACKGROUND AND PROCEDURAI, HISTORY

Tax litigation is almost inevitably complex and this case is no exception. A brief discussion of the "unitary business concept" and its history in Kentucky tax law will provide context for the analysis that follows.

State Tax of Corporate Income — Apportionment.

Many corporations today engage in businesses that extend into more than one state and thus states wishing to tax these corporations' income are confronted with the problem of apportioning that income among themselves. Almost since the inception of income taxes, various methods of effecting that apportionment have been employed, but in 1966 our General Assembly adopted the method devised by the American Bar Association's Commission on Uniform State Laws and published as the Uniform Division of Income for Tax Purposes Act (UDITPA). See KRS 141.120. Under UDITPA, a multi-state enterprise's income is characterized as either business or non-business. The non-business income is allocated to the source state pursuant to various sourcing rules, while the business income — income arising from transactions and activity in the regular course of a trade or business — is apportioned among the states contributing to that income according to an apportionment formula based on the proportion of the enterprise's property, payroll, and sales in the taxing state compared with its total property, payroll, and sales. Although the General Assembly has since modified the apportionment formula to give additional weight to the sales factor, Kentucky's approach to apportionment is still essentially the formulary UDITPA approach adopted in 1966. KRS 141.120(8).

Determining the Apportionable Income.

Separate Accounting.

Related to the problem of apportioning a multi-state enterprise's business income is the no less fundamental problem of defining the enterprise whose income is to be apportioned. The problem arises from the fact that many corporate enterprises are organized not as single corporations but as clusters or chains of related corporations. This fact has given rise to three primary taxing responses. One response is for the taxing state to ignore the larger enterprise and to treat each corporate component as a separate entity, taxing the entities with nexus in the state solely on the basis of their own individual incomes. This approach is known as the "separate entity" or "separate accounting" approach.

Combined Reporting.

Another approach is for the taxing state to treat the entire enterprise as in essence the entity to be taxed and to apply its apportionment formula to the entire group's combined income. This is the approach known as the "unitary-business/formula-apportionment" method or the "combined reporting" method. As one commentator has stated:

The purpose of combined reporting is to determine the income of a multistate taxpayer attributable to a given state. This is accomplished by applying the apportionment factors of the unitary business to the unitary group's business income. . . .

A combined report does not necessarily involve a single tax return for the group. Instead, it is the name given to a series of calculations by which a unitary business apportions its income on a geographic basis. In California, for example, each entity with nexus files its own return providing schedules reflecting the unitary activity. However, the [Franchise Tax Board] has adopted procedures under which some or all of the taxpayer-members of a unitary group may elect to file a group return.

Giles Sutton, "Comparison of Group Reporting Methods and Sourcing of Income," 9 St. 8s Loc. Tax Law. 29 (2004). A "unitary business" for this purpose is generally understood to be a multi-state, multi-corporate enterprise whose "operations conducted in one state benefit and are benefited by the operations conducted in another state or states. If its various parts are interdependent and of mutual benefit so as to form one integral business rather than several business entities, it is unitary." Pioneer Container Corporation v. Beshears, 235 Kan. 745, 684 P.2d 396, 399 (1984) (internal quotation marks omitted). Where the components of a multistate enterprise are integrated by sufficient unity of ownership, operation, and use, the unitary business concept has been applied. Edison California Stores v. McColgan, 30 Cal.2d 472, 183 P.2d 16 (1947); Armco Inc. v. Revenue Cabinet, 748 S.W.2d 372 (Ky. 1988). The United States Supreme Court has held that the unitary-business/formulary-apportionment approach to corporate income taxation passes constitutional muster provided that "at least some part of [the unitary business] is conducted in the state," that "there be some bond of ownership or control uniting the purported `unitary business,'" and that the out-of-State activities of the purported unitary business be related in some concrete way to the in-State activities.'" Container Corporation of America v. Franchise Tax Board, 463 U.S. 159, 166, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983). Indeed, at least in part because of its elevation of the enterprise's substance over its form, the U.S. Supreme Court has characterized the unitary business principle as "the linchpin of apportionability in the field of state income taxation." Mobil Oil Corporation, supra, 445 U.S. at 440, 100 S.Ct. 1223.

Consolidated Returns.

Kentucky's posture vis-à-vis combined reporting or the "unitary business concept" underlies the present controversy, but before turning to the specific facts of this case, a third legislative response to the taxing of multi-corporate enterprises deserves mention. Under federal tax law, an "affiliated group" of "includible corporations" may elect to file a "consolidated" return, i.e., a single return for the entire affiliated group. 26 U.S.C. §§ 1501- 1504. Sutton, "Comparison of Group Reporting Methods," supra. "Affiliation" for this purpose is not defined in terms of the member corporations' unified business, but solely in terms of ownership and control, generally including all inter-corporate connections where there is 80% or more of both ownership and control. Id. A consolidated return is not the same as a combined or unitary report:

A combined report is an accounting method whereby each member of a group carrying on a unitary business computes its individual taxable income by taking a portion of the combined net income of the group. A consolidated return is a taxing method whereby two corporations are treated as one taxpayer.

Caterpillar Tractor Co. v. Dept. of Rev., 289 Or. 895, 618 P.2d 1261, 1262-63 (1980).

Several states have adopted "consolidated return" provisions based on the federal model, and in 1996, the General Assembly amended KRS 141.200 by adding definitions of "affiliated group" and "consolidated return" that incorporate the corresponding federal definitions and by permitting affiliated groups to file consolidated returns, but only if the group consents to use consolidated status for eight years. Otherwise the 1996 version of KRS 141.200 requires separate entity reporting. The 1996 session of the General Assembly also amended KRS 141.120 by adding a provision expressly disavowing the "unitary business concept." The 1996 amendments have since been updated, and the provision disavowing the unitary business concept has been moved to KRS 141.200(15), but its basic reporting options remain in effect. Since 1996 it has been clear that the UDITPA-based apportionment provisions of KRS 141.120 apply to single corporations with income both within and without Kentucky and to "affiliated groups" of corporations with such multi-state income, but not to multi-corporate "unified businesses" under the "unitary business concept." Prior to 1996, however, the law in Kentucky was less clear, and it is that prior law which underlies this case.

Procedural History

1972-1988 — The Cabinet Accepts and Then Rejects Combined Reporting.

As noted above, formulary apportionment of interstate income was early on associated with the unitary business concept and combined reporting. Thus, although UDITPA does not itself include reporting provisions, the General Assembly's 1966 adoption of the UDITPA apportionment scheme was perceived by the Revenue Cabinet and by the courts as an embrace or a confirmation of combined or unitary reporting in Kentucky. That perception was based not only on case law upholding the use of combined reporting together with formulary apportionment, for example Mobil Oil Corporation, supra, Butler Bros. v. McColgan, 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991 (1942) and Edison California Stores, Inc., supra, but also on the fact that UDITPA is designedly consistent with a combined-reporting regime. In particular, as originally enacted in Kentucky, the UDITPA scheme required that "[a]ll business income shall be apportioned" pursuant to the property, payroll, and sales factors mentioned above. KRS 141.120(9) (1966). The law defined "business income" as "income arising from transactions and activity in the regular course of a trade or business of the tax-payer." KRS 141.120(1)(a) (1966). But "taxpayer" was left undefined, and thus the state was free to include in its approach to "taxpayers" the unitary business concept and to require combined reports where appropriate if it so chose. Encouraging such an approach in Kentucky, aside from the tenor of the times, was the fact that even apart from UDITPA, Kentucky law recognized the notion of multi-corporate income accounting. KRS 141.205(1) (1966), for example, provided that

[t]he department may require any parent corporation or subsidiary corporation doing business within this state to file a consolidated return covering the entire operations of the parent corporation and its subsidiaries, whenever it finds that the inter-corporate transactions of the related group tend to reduce the net income of the corporation, or corporations, doing business within this state below the amount that would probably result if such corporation, or corporations, was not a member of the related group.

For these reasons, and perhaps others, in 1972 the Revenue Cabinet began allowing unitary businesses to file combined or unitary reports under KRS 141.120. In 1974, the General Assembly apparently endorsed this policy by amending KRS 141.205 to provide expressly for "combined" as well as "consolidated" returns: "The department may require either a consolidated return or a combined return from any or all corporations conducting intercorporate transactions whenever the department finds that such intercorporate transactions reduce taxable net income . . . below the amount which would result if the transactions were at arms-length." The Cabinet's combined-return policy continued, with the acquiescence of the General Assembly, until 1988. In September of that year, however, the Cabinet abruptly made an about face. Without any legislative changes in the tax laws, the Cabinet issued Revenue Policy 41P225, by which it purported to limit combined reporting to parent-subsidiary relationships in which the subsidiary was a mere "paper corporation with limited viable activities." The effect of this policy shift was essentially to halt the filing of combined reports in Kentucky.

GTE and Its Aftermath.

Protest was not long in coming. GTE, a New York corporation active in Kentucky that had filed combined reports uniting it with its subsidiaries, promptly challenged the legality of the new policy. In an opinion rendered on December 22, 1994, this Court invalidated RP 41P225 as inconsistent with the Cabinet's own long-standing interpretation of KRS 141.120. That interpretation was a reasonable statutory reading, the Court held, and so, under the doctrine of contemporaneous construction, that reading had become binding on the Cabinet until the General Assembly expressed a contrary intent. GTE, 889 S.W.2d at 792-93.

In the wake of GTE, the Cabinet proposed a regulation mandating combined reporting in Kentucky. Kathryn L. Moore, "Taxation," 86 Ky. L.J. 875, 877-81 (1997-98). Corporate opposition was intense, however, prompting the withdrawal of the proposed regulation and adoption instead of the 1996 amendments to KRS 141.120 and 141.200 discussed above, the amendments disavowing the "unitary business concept" and providing for voluntary, federal-style consolidated returns. Id.

In the meantime, several corporate groups, including the Appellees, that had been precluded from filing combined reports during the life of RP 41P225 responded to GTE by filing amended returns on a combined or unitary basis for some or all of the affected tax years. Alleging that their tax liability was reduced when calculated on the basis of a combined report, these corporate groups also sought tax refunds. The Cabinet initially processed and settled a few of these refund claims, but by late 1996 or early 1997 its estimate of the claims' worth had risen substantially, and at that point, apparently, the Cabinet ceased processing the claims and sought legislative intervention.

During its 1998 session the General Assembly enacted H.B. 321, which merely postponed the issue by providing that no post- GTE refund claims would be paid during the biennial budget period. That legislation expired in 2000. The 2000 session of the General Assembly then enacted H.B. 541, the legislation at issue here. As previously noted, H.B. 541 seeks to nullify Appellees' refund claims in two ways. First, it purports to withdraw retroactively in this small class of cases the refund remedy ordinarily available to taxpayers who pay taxes later determined to be invalid. Second, it purports to remove the legal basis of the Appellees' claims by retroactively validating RP 41P225.

The Court of Appeals held that the retroactive reach of H.B. 541 exceeds what the Due Process Clause allows. On appeal to this Court, the Cabinet challenges the Court of Appeals' reading of the due process issue and argues as well that in any event its sovereign immunity trumps Appellees' due process rights. But first, the Cabinet invites us to do some retroactive validating of RP 41P225 of our own by revisiting GTE. In their cross-motion for discretionary review, Appellees maintain that H.B. 541 is unconstitutional for reasons in addition to its due process infirmities, most notably equal protection concerns arising from the fact that some taxpayers' post- GTE refund claims were processed. These other concerns are significant and are given short shrift by the majority. Because I would affirm the Court of Appeals on the due process issues, however, I will not address those other claims.

ANALYSIS

I. H.B. 541 Unconstitutionally Withdraws The Remedy For An Illegal Tax.

Section 1 of H.B. 541 amended KRS 141.200 in pertinent part by adding the following two provisions, now codified, respectively, as KRS 141.200(17) and 141.200(18):

No claim for refund or credit of a tax overpayment for any taxable year ending on or before December 31, 1995, made by an amended return or any other method after December 22, 1994, and based on a change from any initially filed separate return or returns to a combined return under the unitary business concept or to a consolidated return, shall be effective or recognized for any purpose.

No corporation or group of corporations shall be allowed to file a combined return under the unitary business concept or a consolidated return for any taxable year ending before December 31, 1995, unless on or before December 22, 1994, the corporation or group of corporations filed an initial or amended return under the unitary business concept or consolidated return for a taxable year ending before December 22, 1994.

The first provision, KRS 141.200(17), pertains to the remedy available to corporate taxpayers post- GTE. As the parties note, in a case such as this one where the tax has not been challenged on constitutional grounds, KRS 134.580 is the applicable remedy statute. That statute provides in pertinent part that

[w]hen money has been paid into the State Treasury in payment of any state taxes, except ad valorem taxes, whether payment was made voluntarily or involuntarily, the appropriate agency shall authorize refunds to the person who paid the tax, . . . of any overpayment of tax and any payment where no tax was due.

KRS 134.580(2). The Court of Appeals held, and I agree, that the Due Process Clause prohibits the General Assembly from withdrawing this remedy as KRS 141.200(17) purports to do.

A. The Due Process Clause Mandates A Meaningful Remedy When Taxes Are Collected in Contravention of Applicable Law.

The Due Process Clause of the Fourteenth Amendment to the United States Constitution provides that no state may "deprive any person of life, liberty, or property, without due process of law." The essence of this guarantee is that citizens must be given an opportunity, at a meaningful time and in a meaningful manner, to challenge the legality of the government's impositions. Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). Payment of a tax constitutes a deprivation of property, and the United States Supreme Court has held that to satisfy the requirements of the Due Process Clause, the taxing jurisdiction, the state in this case, must provide either pre-deprivation or postdeprivation procedural safeguards. McKesson Corporation v. Division of Alcoholic Beverages and Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990). Furthermore, where the state, as did Kentucky at the time these taxes were collected, requires or encourages its citizens to rely upon a postdeprivation refund action, that action "must provide taxpayers with, not only a fair opportunity to challenge the accuracy and legal validity of their tax obligation, but also a clear and certain remedy,' . . . for any erroneous or unlawful tax collection to ensure that the opportunity to contest the tax is a meaningful one." Id. at 39, 110 S.Ct. 2238 (quoting from Atchison, T. S.F.R. Co. v. O'Connor, 223 U.S. 280, 32 S.Ct. 216, 56 L.Ed. 436 (1912)). The state may not, moreover, "`hold[ing] out what plainly appears to be a "clear and certain" postdeprivation remedy and then declare, only after the disputed taxes have been paid, that no such remedy exists.'" Newsweek, Inc. v. Florida Department of Revenue, 522 U.S. 442, 444, 118 S.Ct. 904, 139 L.Ed.2d 888 (1998) (quoting from Reich v. Collins, 513 U.S. 106, 108, 115 S.Ct. 547, 130 L.Ed.2d 454 (1994)). This, of course, is precisely what KRS 141.200(17) purports to do, and accordingly the Court of Appeals correctly determined that that statute violates the Due Process Clause.

B. The Due Process Guarantee Is Not Limited To Unconstitutional Taxes.

Against this conclusion, the Cabinet raises two arguments. It contends first that under McKesson, supra, the due process guarantee is only implicated by tax statutes ultimately found unconstitutional. While it is true that McKesson involved a tax invalidated under the Commerce Clause and thus the Court's discussion is sometimes couched in constitutional terms, the due process principle involved — that a taxpayer may not be deprived of his or her property without a meaningful opportunity to challenge the legality of the deprivation — clearly applies regardless of the ground for challenging the tax, whether federal constitution or, as here, state statute. Indeed McKesson, supra, cites earlier United States Supreme Court cases where due process mandated the refund of taxes collected, not in violation of the Constitution, but in violation of federal laws. See, e.g., Ward v. Bd. of County Comm'rs of Love County, Okl, 253 U.S. 17, 40 S.Ct. 419, 64 L.Ed. 751 (1920) (taxes assessed in violation of federal treaty). More recently, the Supreme Court itself has noted that McKesson "and the long line of cases upon which McKesson depends, . . . stand for the proposition that a denial by a state court of a recovery of taxes exacted in violation of the laws or Constitution of the United States by compulsion is itself in contravention of the Fourteenth Amendment.'" Reich, 513 U.S. at 109, 115 S.Ct. 547. McKesson, thus, is not limited to deprivations which violate the U.S. Constitution, nor, indeed, should it be confined to those in violation of federal law. A tax exacted in violation of state law, no less than one in violation of federal law, raises the exact same due process concerns and requires the same meaningful procedural safeguards.

C. Sovereign Immunity Does Not Trump The Due Process Guarantee.

The Cabinet also contends that KRS 134.580, the refund statute quoted above, effects a waiver of the state's sovereign immunity and that the General Assembly is free to withdraw that waiver and to reassert the state's immunity at any time and to any extent it deems appropriate. KRS 141.200(17) is merely, the Cabinet argues, a limited reassertion of immunity, which, the Cabinet insists, trumps Appellees' rights under the Due Process Clause. In the case just cited, however, Reich, supra, the Supreme Court noted that the Due Process guarantee applies notwithstanding "the sovereign immunity States traditionally enjoy in their own courts." Id. at 110, 115 S.Ct. 547. Five years later, in Alden v. Maine, 527 U.S. 706, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999), the Supreme Court reviewed at length the constitutional and pre-constitutional bases of the states' immunity and held that Congress had no power to require waivers of that immunity. The Court distinguished Reich, however, and noted that the state's obligation in that case to provide the tax refund remedy it had held out to its citizens was not subject to sovereign immunity because it was an obligation arising from the Constitution.

In Reich v. Collins, we held that, despite its immunity from suit in federal court, a State which holds out what plainly appears to be "a clear and certain" postdeprivation remedy for taxes collected in violation of federal law may not declare, after disputed taxes have been paid in reliance on this remedy, that the remedy does not in fact exist. This case arose in the context of tax-refund litigation, where a State may deprive a taxpayer of all other means of challenging the validity of its tax laws by holding out what appears to be a "clear and certain" post-deprivation remedy. In this context, due process requires the State to provide the remedy it has promised. The obligation arises from the Constitution itself; Reich does not speak to the power of Congress to subject States to suits in their own courts.

527 U.S. at 740, 119 S.Ct. 2240 (citations omitted, emphasis supplied). Since Alden, several courts have noted that that case

specifically preserved Reich's promise of a state-court remedy, noting, "The obligation arises from the Constitution itself, . . . ." Thus, where the Constitution requires a particular remedy, such as through the Due Process Clause for the tax monies at issue in Reich, or through the Takings Clause as indicated in First English [Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 107 S.Ct. 2378, 96 L.Ed.2d 250 (1987)], the state is required to provide that remedy in its own courts, notwithstanding sovereign immunity.

DLX, Inc. v. Kentucky, 381 F.3d 511, 528 (6th Cir. 2004) (quoting from Reich). See, e.g. Seven Up Pete Venture v. Schweitzer, 523 F.3d 948 (9th Cir. 2008); Manning v. Mining and Minerals Division of the Energy, Minerals, and Natural Resources Department, 140 N.M. 528, 144 P.3d 87 (2006). I agree that this is the import of Reich and Alden, and conclude, therefore, that KRS 141.200(17) cannot be upheld even if construed as an assertion of the state's sovereign immunity. The Due Process Clause requires a meaningful remedy where taxes have been collected in violation of law and the taxing authority, in this case the Commonwealth, cannot invoke sovereign immunity to relieve itself of that constitutional obligation.

II. The Taxes At Issue Here May Not Be Imposed Retroactively.

Even if the Due Process Clause requires that invalid taxes be remedied, if the taxes at issue in this case were valid in the first place, then of course Appellees' refund claims would evaporate. KRS 141.200(18) seeks to bring about that very result by validating, in effect imposing, taxes after the fact consistent with the position of RP 41P225. The statute purports to retroactively disavow the "unitary business concept" upon which Appellees' amended returns are based, and thus effectively resurrect RP 41P225, the regulation this Court struck down in GTE. The Court of Appeals ruled that while some retroactive tax legislation is allowed, the retroactive reach of KRS 141.200(18), which encompasses tax years some five to twelve years before its July 2000 enactment, exceeds what is allowed under the Due Process Clause. The Cabinet maintains that the Court of Appeals read the Due Process Clause too strictly. I disagree.

A. The Retroactive Reach Of H.B. 541 Is Unreasonable And So Violates The Due Process Clause.

The Supreme Court addressed the issue of retroactive tax legislation in United States v. Carlton, 512 U.S. 26, 114 S.Ct. 2018, 129 L.Ed.2d 22 (1994). Carlton involved an estate tax provision originally enacted in October 1986 which provided for a deduction when an estate sold stock to an employee stock-ownership plan (ESOP). In December 1986, Carlton, the executor of an estate, used estate funds to purchase stock which he then resold to an ESOP for the express purpose of claiming the estate tax deduction. A week after Carlton filed the estate tax return, the Internal Revenue Service announced that it would seek "clarifying legislation" because the deduction had been intended only for estates where the stock in question was owned by the decedent "immediately before death." Approximately a year, after Carlton's stock transactions, Congress amended 26 U.S.C. § 2057 so that it expressly applied only where the decedent had owned the stock at death. The amendment was made retroactive to the date of the original October 1986 enactment. In upholding the amendment the Supreme Court noted that tax legislation is frequently made to apply retroactively, to transactions completed earlier in the year of enactment or even in the year prior to enactment. The Court explained that

[t]he due process standard to be applied to tax statutes with retroactive effect, therefore, is the same as that generally applicable to retroactive economic legislation: "Provided that the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches. . . . To be sure, . . . retroactive legislation does have to meet a burden not faced by legislation that has only future effects. . . . The retroactive aspects of legislation, as well as the prospective aspects, must meet the test of due process, and the justifications for the latter may not suffice for the former'. . . . But that burden is met simply by showing that the retroactive application of the legislation is itself justified by rational legislative purpose."

Id. at 30-31, 114 S.Ct. 2018, (quoting from Pension Benefit Guaranty Corporation v. R.A. Gray Co., 467 U.S. 717, 733, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984)). The 1987 estate tax amendment passed that test, the Carlton Court held, because

[f]irst, Congress' purpose in enacting the amendment was neither illegitimate nor arbitrary. Congress acted to correct what it reasonably viewed as a mistake in the original 1986 provision that would have created a significant and unanticipated revenue loss. There is no plausible contention that Congress acted with an improper motive, as by targeting estate representatives such as Carlton after deliberately inducing them to engage in ESOP transactions. Congress, of course, might have chosen to make up the unanticipated revenue loss through general prospective taxation, but that choice would have burdened equally "innocent" taxpayers. Instead, it decided to prevent the loss by denying the deduction to those who had made purely tax-motivated stock transfers. We cannot say that its decision was unreasonable.

Second, Congress acted promptly and established only a modest period of retroactivity. This Court noted in United States v. Darusmont, 449 U.S. at 296 [ 101 S.Ct. 549], that Congress "almost without exception" has given general revenue statutes effective dates prior to the dates of actual enactment. This "customary congressional practice" generally has been "confined to short and limited periods required by the practicalities of producing national legislation." Id. at 296-297 [ 101 S.Ct. 549]. In Welch v. Henry, 305 U.S. 134, 59 S.Ct. 121, 83 L.Ed. 87, [] (1938), the Court' upheld a Wisconsin income tax adopted in 1935 on dividends received in 1983. The Court stated that the "`recent transactions'" to which a tax law may be retroactively applied "must be taken to include the receipt of income during the year of the legislative session preceding that of its enactment." Id. at 150 [ 59 S.Ct. 121]. Here, the actual retroactive effect of the 1987 amendment extended for a period only slightly greater than one year. Moreover, the amendment was proposed by the IRS in January 1987 and by Congress in February 1987, within a few months of § 2057's original enactment.

Id. at 32-33, 114 S.Ct. 2018 (emphasis supplied). "Recent transactions," then, may be retroactively taxed, provided that the retroactive application of the statute is itself a reasonable means of furthering a legitimate state purpose. Although the Carlton Court refrained from defining "recent transactions" beyond noting that they would include transactions "during the year of the legislative session preceding that of [the retroactive statute's] enactment," the Court's discussion indicates that the length of the retroactivity period is an important factor bearing on the reasonableness of the legislation and that a period much in excess of the one upheld in Welch (two years) would raise serious due process concerns.

The Cabinet tries to downplay the prompt legislative response and the limited period of retroactivity in Carlton, insisting that neither of those factors is part of the due process analysis, an analysis which should focus solely on whether there is a legitimate legislative purpose. Given the Commonwealth's delay of over five years in responding to the GTE decision and the long retroactive reach of H.B. 541, it is understandable that the Cabinet would want to minimize these aspects. Unfortunately, a fair reading of Carlton does not bear out that position. Central to the Carlton decision was the recognition that Congress had not disturbed long-standing transactions because, as Justice O'Connor noted in her concurring opinion, "[t]he governmental interest in revising the tax laws must at some point give way to the taxpayer's interest in finality and repose." 512 U.S. at 37-38, 114 S.Ct. 2018.

Here, KRS 141.200(18) offends Carlton's timeliness standard in two ways. First, the statute was not passed promptly but rather five and one-half years after GTE. Second, it reaches back from its effective date of July 2000 to income received while RP 41P225 was in effect, from September 1988 until December 1994, a retroactivity period from five-and-a-half years to twelve years. I agree with the Court of Appeals that the state's interest in avoiding the financial consequences of refunds is an inadequate justification for belated legislation with such a long retroactivity period. If the state had carte blanc simply to impose retroactive taxes to avoid costly refund claims, then the refund remedy would be rendered uncertain if not entirely meaningless, a result that is clearly unreasonable, and in violation of Carlton's due process standard.

The Cabinet offers two cases in support of its position that retroactive tax legislation can reach back for an extended period of time, perhaps indefinitely, and still satisfy due process. Neither case supports the unlimited power which the Cabinet attributes to a taxing authority.

In Montana Rail Link, Inc. v. United States, 76 F.3d 991 (9th Cir. 1996), a railroad had made tax payments based on the less favorable reading of an ambiguous statute, a provision of the Railroad Retirement Tax Act, which is the functional equivalent of the Social Security Act for railroad employers. In short, the railroad had mistakenly overpaid. The railroad later sought refunds for 1987 and 1988 based on a more favorable reading suggested by the Railroad Retirement Board. In 1989, while the refund claims were pending, Congress amended the RRTA to resolve the ambiguity in favor of the higher tax and made the amendment retroactive so as to apply to the entire period of the statute's ambiguity, from 1983 through 1989. The amendment thus nullified any refund claims based on the ambiguity. The Ninth Circuit held that the retroactive aspect of the amendment satisfied Carlton's rational basis requirement because a shorter retroactive period would have severely decreased the benefits of some retired railroad workers. Significantly, the Montana Rail Court distinguished this situation from cases such as Reich, supra, where refund claims were based on taxes found to be illegal:

At no point did MRL [the railroad] pay any tax barred by the Constitution or federal law. The constitutionality and legality of the RRTA is not in dispute, and MRL does not challenge the legitimacy of taxing 401(k) contributions per se. MRL erroneously equates its mistaken overpayment of taxes with the government's "unlawful," "improper" and "erroneous" collection of taxes. Contrary to MRL's assertion, the IRS did not violate any federal law by accepting MRL's overpayment. Seeking a refund for one's own voluntary overpayment of a lawful tax is not the same as pursuing a remedy for payment of an illegal tax.

King v. Campbell County, 217 S.W.3d 862 (Ky.App. 2006) involved KRS 68.1971 a statute authorizing counties to collect occupational license fees. Although a 1986 amendment to the statute required counties to give taxpayers a credit for city license fees they had paid, Campbell and Kenton Counties maintained that the amendment did not apply to them. Both had adopted occupational license fees in 1978 when the statute required the issue to be placed on the ballot for voter approval and when counties were permitted, but not required, to give taxpayers credit for their city occupational license fees. Only Campbell and Kenton Counties had passed occupational license fees under this older statutory procedure. The Court of Appeals agreed with the counties' interpretation that the amended statute did not require them to give county taxpayers tax credits for city occupational license fees. However, in City of Covington v. Kenton County, 149 S.W.3d 358 (Ky. 2004), this Court decided that the amendment did apply to Kenton (and implicitly Campbell too) and thus exposed the county to potentially devastating refund claims for the withheld credits. Almost immediately, in March 2005, the General Assembly amended KRS 68.197 to clarify that Campbell and Kenton Counties were not subject to the city fee credit. The legislation was made retroactive so as to abrogate the City of Covington decision and to nullify refund claims based upon it. In King the Court of Appeals rejected Campbell County taxpayer challenges to the retroactive legislation. The Court found that the General Assembly had acted promptly, consistent with Carlton, to further the legitimate legislative purpose of avoiding severe disruption of county finances and, that the unanticipated City of Covington decision had not interfered with "settled expectations" on the part of Campbell County taxpayers, who had acquiesced in the counties' interpretation of the ambiguous statute for years.

Unlike the amendment in Carlton, however, which withdrew an unambiguous deduction and deliberately undermined reasonable taxpayer reliance, House Bill 400 does not withdraw a provision upon which taxpayers have relied, but seeks to clarify the license fee credit provision in the wake of our Supreme Court's City of Covington decision. The Campbell County taxpayers could have sought refunds in 1986, when Campbell County first raised its license fee rates following the 1986 amendment to KRS 68.197. For all these years, however, the taxpayers acquiesced in the County's interpretation of that statute, an interpretation that this Court found reasonable, but the Supreme Court rejected. If there are "settled expectations" in this case, they are the County's, not the taxpayers. The taxpayers' expectations arose only with the Supreme Court's City of Covington decision in November 2004, and within a few short months, in March 2005, long before those expectations could be deemed "settled" or "vested," the General Assembly had acted to revise the law and to shield Campbell and Kenton Counties from what it believed could be the devastating consequences of the Supreme Court's decision. In these circumstances-where the General Assembly has not attempted to withdraw legislation upon which taxpayers have relied in structuring their affairs, but has promptly sought to foreclose refunds as the result of an unanticipated judicial interpretation of a constitutionally valid tax provision — the retroactive provisions of House Bill 400 do not run afoul of the timeliness concerns expressed by the United States Supreme Court in Carlton.

217 S.W.3d at 870.

The Cabinet understandably focuses on King as an example of judicial validation of retroactive tax legislation stretching back for a period well in excess of the modest periods addressed in Carlton. King is admittedly more akin to the situation before this Court than the mistaken overpayments in Montana Rail but there are crucial differences in Bang and this case which bear strongly on the due process analysis.

Campbell and Kenton Counties were the taxing authorities in King and City of Covington but their taxing authority was constrained by state statute. The counties construed the rather ambiguous statute (which significantly was not of their own making) as inapplicable to them and this construction, as noted above, was acquiesced in by county taxpayers for many years. The reasonableness and good faith of that particular construction, which relieved Campbell and Kenton of the obligation to credit county taxpayers for city occupational fees, was underscored by the fact that the Court of Appeals upheld it. When City of Covington was decided, as the Court of Appeals noted, it was an "unanticipated judicial interpretation" of a valid tax. In other words, the counties had interpreted the ambiguous statute passed by the General Assembly in a consistent, plausible way but this Court ultimately found that the taxpayers who eventually had begun to question the interpretation and who had brought suit to obtain the credits were, in fact, correct. Within four months of that decision, the General Assembly passed a statute that clarified its "original intention" that the tax credit did not apply to "those counties where a license fee has been authorized by a public question approved by the voters." In short, the interpretation consistently followed by Campbell and Kenton Counties had been the legislative intent all along.

This case presents a decidedly different scenario. Here, the Cabinet, with the General Assembly's acquiescence, had long construed KRS 141.120 and 141.200 as allowing combined reporting. Only in 1988, without any change in a settled law, did the Cabinet purport to adopt a different construction. In GTE this Court held that the Cabinet was not free to say that the statutes meant one thing one day and then the next day to say that they meant something entirely different. Its original reading of those statutes was reasonable, had not been corrected by the General Assembly, and thus was binding. Clearly King did not involve the taxing authority suddenly and unilaterally reinterpreting an unchanged tax law to the taxpayers' detriment. Moreover, while King arose from "an unanticipated judicial interpretation," GTE could not possibly have been unanticipated. Taxpayers challenged the Cabinet's about-face in RP 41P225 promptly and GTE was a return to the precise reading. of the statute that the Cabinet itself had engaged in for sixteen years.

Given the long-standing, consistent interpretation of KRS 141.120 to allow combined reporting, KRS 141.200(18) cannot be deemed merely to abrogate GTE and to clarify what the law had always been. Like the estate tax amendment in Carlton, KRS 141.200(18) is an attempt to alter the tax law retroactively, but unlike, the amendment in Carlton it purports to apply the change not just to recent transactions but to transactions (the receipt of income) in tax years from five years to twelve years earlier. Although I recognize the General Assembly's desire to spare the state's budget from the significant refund claims springing from the Cabinet's unauthorized 1988 rereading of KRS 141.120 and 141.200, I agree with the Court of Appeals that this five-year plus backward reach, particularly on these facts, exceeds what the Supreme Court has indicated) is reasonable under the Due Process Clause and thus cannot be upheld. Simply put, difficult economic consequences can never justify disregarding citizens' due process rights.

B. GTE Was Not Wrongly Decided.

Finally, if the General Assembly could not retroactively ratify RP 41P225 more than five years after GTE, the Cabinet urges this Court to do so itself by revisiting and overruling our decision in GTE. GTE was wrongly decided, the Cabinet insists, because notwithstanding its own sixteen-year policy of permitting combined reports, KRS Chapter 141 in fact precluded such reports at all times, and thus RP, 41P225 embodied an accurate construction of the law. The Cabinet's invitation to indulge in such revisionism should be rejected, not simply because of stare decisis, but because GTE was right.

The Cabinet focuses first on KRS' 141.200(1). From before 1966, when the General Assembly adopted UDITPA, until the amendments of 1996, that statute provided that "[e]very corporation doing business in this state, except those exempt from taxation under KRS 141.040, shall make a return stating specifically the items of income and the items claimed as deductions allowed by this chapter. Corporations that are affiliated must each make a separate return." In that time-frame, the General Assembly had not defined either "affiliated" or "corporations that are affiliated," and without some definition the second sentence is ambiguous, It can mean either "each corporation within an affiliation must file a separate return," or "each corporate affiliation must file a separate return." For years, as noted, the Cabinet had in effect applied the second reading and, understanding "affiliated" to include "unitary" corporations, had permitted combined reports. In GTE, we held that the Cabinet's settled reading was not unreasonable and thus could not be abandoned merely to suit its own change of policy. Such a change would need to come from the General Assembly. The Cabinet insists that its prior reading of the statute was not reasonable, and that we erred by holding that it was. This disingenuous argument does not provide a sufficient reason to revisit GTE. The fact remains that for sixteen years, with the apparent blessing of the General Assembly, the Cabinet construed KRS 141.200 to permit combined reports. That settled construction cannot be undone by the Cabinet merely because an ambiguous phrase might initially have been read a different way. This Court did not err in GTE by so holding.

The Cabinet also contends that statutory uses of the term "corporation," are couched in the singular and thus imply a legislative intent that only separate corporations be taxed. In general, however, statutory singulars are understood as referring as well to plurals. KRS 446.020. As noted above, moreover, combined reporting does not involve disregarding separate corporate entities to produce one comprehensive return but rather is an accounting method by which each corporation in a unitary business accounts for its respective share of the unitary entity's income. See Sutton, "Comparison of Group Reporting Methods," supra. In conjunction with formulary apportionment, combined reporting allows for determination of that portion of the unitary business's income attributable to the taxing state. Id. That the statutes refer to "corporation" in the singular, therefore, does not suggest that combined reports had been ruled out. Indeed, also as noted above, KRS 141.205 expressly required "combined returns" in certain circumstances, a clear indication that the General Assembly did not intend to preclude them.

Nor was combined reporting ruled out by the fact that prior to GTE the calculation of taxable income in Kentucky began with gross income as determined for federal tax purposes. Combined reporting merely considers together the duly calculated incomes of unitary corporations. It did not require a calculation of income at odds with the statutory definitions, as clearly indicated, by KRS 141.205's provision for combined reports. Again, then, the Cabinet has not shown that its own reading of the statutes from 1972 until 1988 was unreasonable or contrary to then-plain intent, and thus GTE correctly held that that reading was not to be cast aside without legislative direction.

CONCLUSION

In sum, I agree with the Court of Appeals that both KRS 141.200(17) and 141.200(18) violate the Due Process Clause and so may not be enforced. KRS 141.200(17) unlawfully withdraws the remedy the state is obliged to provide for illegally collected taxes, and KRS 141.200(18) retroactively imposes a tax beyond the period the Supreme Court has indicated is reasonable. Accordingly, I would affirm the May 5, 2006 Opinion of the Court of Appeals and so respectfully dissent from the majority's contrary ruling.

CUNNINGHAM, J., joins.