Cendant Corp. & Subsidiaries v. Department of Revenue

Judge CONNELLY

specially concurring.

Cendant's claim rests on the premise that state taxing authorities have a constitutional obligation, rooted in due process, to provide affirmative notice of potentially favorable tax code strategies. The majority opinion accepts this premise but concludes the Colorado Department of Revenue (DOR) provided sufficient notice to satisfy due process. Because I would reject the premise, I concur in the result but not in the majority's reasoning.

Tax codes are notoriously abstruse. An eminent judge who authored many landmark tax opinions onee described the federal code as a "fantastic labyrinth[ ]," and confessed its words "merely dance before my eyes in a meaningless procession: cross-reference to cross-reference, exception upon exception-couched in abstract terms that offer no handle to seize hold of." Learned Hand, Eulogy of Thomas Walter Swan, 57 Yale L.J. 167, 169 (1947); see also Trantina v. United States, 512 F.3d 567, 570 (9th Cir.2008) (referring to "the labyrinth of the federal tax *1111code"); Branum v. Commissioner, 17 F.3d 805, 808 (5th Cir.1994) ("This case takes us through the intricate labyrinth that is our Tax Code.").

The Supreme Court has written: "The proliferation of statutes and regulations has sometimes made it difficult for the average citizen to know and comprehend the extent of the duties and obligations imposed by the tax laws." Cheek v. United States, 498 U.S. 192, 199-200, 111 S.Ct 604, 112 L.Ed.2d 617 (1991). Given "the complexity of the tax laws," Congress has provided "special treatment of criminal tax offenses" by displacing "the common law presum{[ption] that every person knew the law." Id. at 199-200, 111 S.Ct. 604. To be criminally liable, a taxpayer subjectively must have known of and intentionally violated a tax code obligation. Id. at 200-04, 111 S.Ct. 604.

Because this case does not involve criminal or even civil tax penalties, it should be resolved by applying the common-law presumption, id. at 199, 111 S.Ct. 604, that Cendant knew its tax filing options. I respectfully submit the majority opinion begins by asking the wrong question. Asking "what Cendant knew and when it knew it" would be appropriate in a eriminal tax case. but has no place here. Cf. United States v. Harris, 942 F.2d 1125, 1181-85 (7th Cir.1991) (tax code provisions may support civil liability yet be "too uncertain" for criminal liability); United States v. Mallas, 762 F.2d 361, 8364-65 (4th Cir.1985) (recognizing difficulty of "translating" tax provisions "into language the common world will understand" but holding "without that fair warning" government is limited to civil rather than criminal enforcement of tax code); United States v. Critzer, 498 F.2d 1160, 1168-64 (4th Cir.1974) (a "pioneering interpretation of tax liability" under "vague or highly debatable" tax code provisions must occur in a civil rather than erimi-nal proceeding).

There is no due process requirement, either substantive or procedural, for DOR to inform Cendant of its right to file a "combined-consolidated" tax return. Cendant concedes, as it must to claim entitlement to file such a return, that such returns are allowed by Colorado statutes and regulations. Its complaint that DOR should have done a better job of publicizing or explaining this option to corporate taxpayers has no constitutional grounding.

This case involves no fundamental rights that could give rise to substantive due process protections. Cf. Lawrence v. Texas, 539 U.S. 558, 128 S.Ct. 2472, 156 L.Ed.2d 508 (2008) (substantive due process precludes state from outlawing consensual sodomy by adult males in privacy of home); Troxel v. Granwville, 530 U.S. 57, 120 S.Ct. 2054, 147 L.Ed.2d 49 (2000) (substantive due process protects "the fundamental right of parents to make decisions concerning the care, custody, and control of their children"). Nor does it involve any penalty that could trigger substantive due process protections. Cf. State Farm Mutual Automobile Insurance Co. v. Compbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2008) (discussing constitutional limits on punitive damages). Finally, while Cendant has multi-state operations, it does not challenge Colorado's taxing authority on this ground. Cf. MeadWestvaco Corp. v. Illinois Department of Revenue, 553 U.S. 16, 128 S.Ct. 1498, 170 L.Ed.2d 404 (2008) (discussing substantive constitutional limits on taxation of out-of-state corporate income).

There likewise is no colorable claim that Cendant had a procedural due process right to better notice of its tax filing options. The Colorado case relied on by the majority involved whether criminal liability could be imposed for violating administrative rules precluding prison "contraband" where the rules provided inadequate notice of what constituted contraband. People v. Holmes, 959 P.2d 406 (Colo.1998). The majority also cites unreported out-of-state cases for the proposition that "secret laws" violate due process. Whatever this might mean in another context, it does not help Cendant. The relevant Colorado statutes and regulations indisputably were validly promulgated and published; in other words, they were not "secret."

Cendant accordingly had no right, constitutional or otherwise, to change its tax status after the time for doing so had passed. It may have first realized after this deadline that there was an alternative, potentially more advantageous way to have filed its re*1112turn. But DOR was entitled to enforce its filing deadlines, which serve the necessary interest of bringing finality to tax years. There was no basis to estop DOR from enforcing those deadlines and to require it to accept Cendant's untimely tax return amendment.