Think You’re Having A Bad Day?

Consider this thought: for the last several decades, you have not been paying sales tax on food, because the state exempts food sales from the tax. Okay, that is not an earth shattering thought. However, imagine that the legislature has determined that exempting food from the sales tax is not good tax policy, that it is no longer affordable by the state, or that the products manufactured by food companies should bear the same tax burden as all other manufactured products. The reason why the change occurred does not really matter but now you know that you are liable for sales tax on food. Okay, now you’re having a bad day. You do not like that result, but it is fair notice of your tax responsibilities into the future. You budget accordingly and go on with life.

But could your day get any worse? This is beyond our imagination, but what if the legislature not only eliminated your sales tax exemption on food for the future, but it also did so retroactively? You now owe sales tax on the food that you have been buying for the last four years! That’s a really bad day. “What?” you stammer. “Impossible!” you proclaim. Can this be true in America?

You can settle down, because the sales tax exemption on food is safe for the time being, but the alarming truth is that this scenario may well happen to certain taxpayers in this state with regard to a deduction for bunker fuel sold to ocean-going vessel operators (and raising the risk that it could happen in other contexts as well).

For nearly 24 years, everyone, including the Department of Revenue, thought that the tax law granted oil refiners a tax deduction for bunker fuel sold to ocean-going vessel operators. In 2009, the legislature adopted, and the governor signed a retroactive “clarification,” denying a taxpayer a refund of the tax imposed on the denied deduction that the Department of Revenue had allowed other taxpayers to enjoy.[1] Some representatives and senators unsuccessfully tried to limit the amendment to prospective application.[2] Not only was a particular taxpayer retroactively denied the deduction, but the amendment also created a tax liability that the other refiners did not think they had based on the previous 24 years of tax law.