“Error” and “Mistake” Do Not Embrace Intentional Dishonesty

The Supreme Court of Alabama, on a writ of certiorari, and answering questions of first impression, held that the words “error” and “mistake” in a tax statute do not embrace intentional dishonesty. Ex parte HealthSouth Corp., 1060296 (Ala. Aug. 24, 2007). The court also decided that equity prevented a dishonest taxpayer from seeking a refund.

The taxpayer for several years intentionally listed fictitious assets on its tax returns, and paid the attendant tax. The taxpayer later amended its returns and sought a refund for the amounts it had overpaid as a result of claiming the fictitious property. The tax assessor, and then the Probate Court, both denied the refund. The Court of Civil Appeals affirmed this denial. The latter court held that Ala. Code § 40-10-160, providing for refunds based upon “mistake” or “error,” did not authorize refunds where overpayment resulted from the taxpayer’s intentionally false statements. The taxpayer then sought certiorari review in the Supreme Court of Alabama.

The state’s high court upheld the denials. Before it, the court said, was an issue of first impression:

whether the term ‘error’ has a meaning different from the term ‘mistake,’ [and] specifically whether the former term is broad enough to encompass intentional dishonest conduct . . . .

The taxpayer insisted that the word “error” could embrace intentional dishonesty, and that refunds could thus be given for such “errors.” The Supreme Court of Alabama disagreed. It reviewed how the words “error” and “mistake” had been used in Alabama law dating from 1873. While recognizing that “parsed” and “nuanced definitions” could be given, it agreed with the Court of Civil Appeals that, “an intentional misrepresentation is not included in the plain meaning of either word.” “The settled meaning of the terms ‘error’ and ‘mistake,’” the court wrote, “is not consistent with intentional dishonest acts.”

The court also “noted”—in a passage that is almost certainly dicta—that rules of construction did not require the words to be given discrete meanings. Statutes occasionally use synonymous terms “for clarity or emphasis,” the court explained, a drafting choice that “is clearly within the prerogative of the Legislature.”

Finally, in another question of first impression — though one of narrower application, and so perhaps of less general interest — the court held that the taxing authority had the right to assess taxes on the property listed on the taxpayer’s returns, even though those assets did not in truth exist. This discussion centered on notions of equity. The taxpayer essentially “requested the probate court to invoke its equity jurisdiction to grant the refund petitions.” But the taxpayer had not come to equity with clean hands. Equity thus did not compel the taxing authority to give a refund. Indeed, authority cited by the court argued that the taxing authority “not only may, but should, assert equitable defenses to deny refunds of taxes paid on fraudulently inflated” assets.

The judgment of the Court of Civil Appeals was affirmed.