American Trucking Associations Inc v. Smith/Opinion of the Court

[p171] Justice O'Connor announced the judgment of the Court and delivered an opinion, in which the Chief Justice, Justice White, and Justice Kennedy join.

In this case we decide whether our decision in American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266 (1987), applies retroactively to taxation of highway use prior to the date of that decision.

I
In 1983 petitioners brought suit in the Chancery Court of Pulaski County, Arkansas, challenging the constitutionality of the newly enacted Arkansas Highway Use Equalization Tax Act (HUE), 1983 Ark. Gen. Acts, No. 685, Ark. Code Ann. §§ 27-35-204, 27-35-205 (1987) (formerly codified as Ark. Stat. Ann. §§ 75-817.2, 75-817.3 (Supp. 1985)), under the Commerce Clause of the Federal Constitution, Art. I, § 8, cl. 3. The HUE tax required trucks operating on Arkansas [p172] highways with a gross weight between 73,281 and 80,000 pounds to pay, alternatively, an annual flat tax of $175 or a tax of 5¢ per mile traveled in Arkansas or a trip permit fee of $8 per 100 miles. Effectively, HUE taxed only the first 3,500 miles of annual highway use by heavy trucks, that being the point at which it became advantageous to pay the flat tax of $175. Because trucks based in Arkansas were likely to travel many more miles on the State's highways than heavy trucks based out of the State, petitioners argued that HUE impermissibly discriminated against interstate commerce by imposing on out-of-state truckers greater per-mile costs than those imposed on in-state truckers. To remedy the alleged federal constitutional violation petitioners argued that Art. 16, § 13, of the Arkansas Constitution required the State to refund all HUE taxes petitioners had paid. See App. 12–13, 22–23 (filed Mar. 6, 1989).

Pending determination on the merits of their constitutional challenge, petitioners sought a preliminary injunction placing all HUE tax revenues in escrow to prevent those revenues from being deposited into the state treasury and being distributed to state agencies. The Chancery Court's denial of petitioners' motion for the preliminary injunction was affirmed on interlocutory appeal to the Arkansas Supreme Court. American Trucking Assns., Inc. v. Gray, 280 Ark. 258, 657 S.W.2d 207 (1983). After further proceedings, the Chancery Court upheld the constitutionality of HUE, and the State Supreme Court affirmed. American Trucking Assns., Inc. v. Gray, 288 Ark. 488, 707 S.W.2d 759 (1986). That court relied on our decisions in Capitol Greyhound Lines v. Brice, 339 U.S. 542 (1950), Aero Mayflower Transit Co. v. Board of Railroad Comm'rs of Mont., 332 U.S. 495 (1947), and Aero Mayflower Transit Co. v. Georgia Public Service Comm'n, 295 U.S. 285 (1935), to hold that the flat tax portion of HUE was neither excessive nor unreasonable and did not, therefore, violate the Commerce Clause. In so doing, the Arkansas Supreme Court explicitly rejected peti- [p173] tioners' argument that our decision in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), had overruled the Aero Mayflower line of cases.

Petitioners appealed the Arkansas Supreme Court decision to this Court, and we held the case pending our decision in Scheiner, which involved a similar constitutional challenge to two flat highway use taxes enacted by the Commonwealth of Pennsylvania. In Scheiner, decided June 23, 1987, the Court held that unapportioned flat taxes such as those imposed by Pennsylvania penalize travel within a free trade area among the States. The Court applied the "internal consistency" test, see Armco, Inc. v. Hardesty, 467 U.S. 638, 644 (1984), and concluded that "[i]f each State imposed flat taxes for the privilege of making commercial entrances into its territory, there is no conceivable doubt that commerce among the States would be deterred." 483 U.S., at 284. We recognized in Scheiner that Arkansas, appearing as amicus curiae in that case, was one of a number of States that had enacted flat highway use taxes. See id., at 285, n. 17; id., at 300–301 (O'Connor, J., dissenting). Accordingly, three days after deciding Scheiner, we vacated the judgment of the Arkansas Supreme Court in Gray and remanded that case for further consideration in light of Scheiner. American Trucking Assns., Inc. v. Gray, 483 U.S. 1014 (1987). On motion by petitioners, who sought to expedite their efforts in the state courts to obtain injunctive relief against further enforcement of the HUE tax, and pursuant to this Court's former Rule 52.2, Justice Blackmun shortened the time of issuance of our mandate to the Arkansas Supreme Court and ordered that the mandate issue on July 16, 1987.

Petitioners thereupon sought to enjoin further collection of the HUE tax or to order an escrow of the taxes to be collected pending reconsideration of Gray by the Arkansas Supreme Court. Motions seeking to accomplish this end were denied by that court, and petitioners returned here. In an opinion issued August 14, 1987, Justice Blackmun, acting [p174] as Circuit Justice, concluded there was a significant possibility that the Arkansas Supreme Court would find the HUE tax unconstitutional under Scheiner or, failing that, that this Court would note probable jurisdiction and strike down the HUE tax. American Trucking Assns., Inc. v. Gray, 483 U.S. 1306, 1309 (in chambers). He further concluded that, because "there is a substantial risk that [petitioners] will not be able to obtain a refund if the [HUE] tax ultimately is declared unconstitutional," ibid., petitioners would suffer "irreparable injury absent injunctive relief." Ibid. Justice Blackmun therefore ordered Arkansas to "escrow the HUE taxes to be collected, until a final decision on the merits in this case is reached." Id., at 1310.

On October 9, 1987, the Arkansas Legislature met in special session, repealed the HUE tax, and replaced it with a tax requiring heavy trucks to pay 2.5¢ per mile of travel on Arkansas highways. See Ark. Code Ann. §§ 27-35-204, 27-35-205 (1987). Subsequently, in an opinion delivered on March 14, 1988, the Arkansas Supreme Court reconsidered the HUE tax in light of Scheiner and ruled it unconstitutional. American Trucking Assns., Inc. v. Gray, 295 Ark. 43, 746 S.W.2d 377. The court, however, declined to order tax refunds to petitioners for all HUE taxes paid prior to Justice Blackmun's August 14, 1987, escrow order. The Arkansas Supreme Court reasoned that petitioners would be entitled to refunds of all their HUE tax payments only if that court were to apply our Scheiner decision retroactively. In order to determine whether it would so treat Scheiner, the State Supreme Court applied the three-factor test we enunciated in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971).

First, the Arkansas court ruled that Scheiner established a new rule of law with respect to flat highway use taxes by overruling the Aero Mayflower line of cases. The Arkansas court concluded that it reasonably relied on those cases in originally upholding the HUE tax against petitioners' Commerce Clause challenge. Second, the court held that pro- [p175] spective application of Scheiner would effectuate the purpose of the Commerce Clause "to secure equal treatment for inter- and intrastate commerce and thus create an area of free trade among the states." 295 Ark., at 46, 746 S.W.2d, at 379. In this regard, the Arkansas Supreme Court relied heavily on the decision of the Washington Supreme Court denying tax refunds because of its determination that our decision in Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232 (1987), should not be applied retroactively. See National Can Corp. v. Department of Revenue, 109 Wash. 2d 878, 888, 749 P.2d 1286, 1291 (1988) (en banc) ("It is difficult to understand how retroactive application would encourage free trade among the states since whatever chill was imposed on interstate trade is in the past"), app. dism'd, 486 U.S. 1040 (1988). Third, the Arkansas Supreme Court held that it would be inequitable to order a total refund of HUE taxes already paid by petitioners into the state treasury. The court reasoned that because petitioners had driven their heavy trucks on Arkansas highways, a total refund would "allow them an unconscionable windfall far in excess of a fair recovery for the discrimination they may have suffered due to the tax. It would constitute unfair treatment of the Arkansas-based truckers who have paid the tax and seek no refund." 295 Ark., at 47, 746 S.W.2d, at 379. The Arkansas court determined, however, that HUE tax money paid into escrow after Justice Blackmun's August 14, 1987, order should be refunded to petitioners as that money, having not been placed into the state treasury, had not been spent or budgeted for future expenditure. Justice Hickman dissented, believing that petitioners were entitled to refunds from the date Scheiner was decided "or certainly no later than when we were asked, in July 1987, to place the funds in escrow." 295 Ark., at 47, 746 S.W.2d, at 379. On petition for rehearing, petitioners modified their remedial request and urged the Arkansas court to refund HUE taxes paid in [p176] excess of taxes petitioners would have paid had they been based in the State. The petition for rehearing was denied.

Petitioners thereupon sought a writ of certiorari from this Court. They presented the questions whether Scheiner should be applied retroactively and whether, even if the Scheiner decision is not retroactive, they are still entitled to refunds for taxes paid before we decided Scheiner for the tax year that began after the Scheiner decision or to refunds for taxes paid after the Scheiner decision but before Justice Blackmun's escrow order. We granted the petition for certiorari, 488 U.S. 954 (1988), and consolidated the case with No. 88–192, McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Dept. of Business Regulation of Fla., which we also decide today. See 496 U.S. 18. We now affirm in part, reverse in part, and remand for further consideration.

II
When we have held state taxes unconstitutional in the past it has been our practice to abstain from deciding the remedial effects of such a holding. While the relief provided by the State must be in accord with federal constitutional requirements, see McKesson, 496 U.S., at 36–43, 51–52, we have entrusted state courts with the initial duty of determining appropriate relief. See, e.g., Scheiner, 483 U.S., at 297–298; Tyler Pipe, supra, at 251–253; Williams v. Vermont, 472 U.S. 14, 28 (1985); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 276–277 (1984); Exxon Corp. v. Eagerton, 462 U.S. 176, 196–197 (1983). Our reasons for doing so have arisen from a perception based in considerations of federal-state comity:

"[T]his Court should not take it upon itself in this complex area of state tax structures to determine how to apply its holding:

These refund issues, which are essentially issues of remedy for the imposition of a tax that unconstitutionally discriminated against interstate commerce, were not addressed by the state courts. Also, the federal constitu- [p177] tional issues involved may well be intertwined with, or their consideration obviated by, issues of state law. Also, resolution of those issues, if required at all, may necessitate more of a record than so far has been made in this case. We are reluctant, therefore, to address them in the first instance. Tyler Pipe, supra, at 252, quoting Bacchus, supra, at 277.

In a case such as this, where a state court has addressed the refund issues, the same comity-based perception that has dictated abstention in the first instance requires that we carefully disentangle issues of federal law from those of state law and refrain from deciding anything apart from questions of federal law directly presented to us. By these means we avoid interpreting state laws with which we are generally unfamiliar and deciding additional questions of federal law unnecessarily. Cf. Michigan v. Long, 463 U.S. 1032, 1039–1042 (1983). In the present case, it is eminently clear that the "state court decision fairly appears to rest primarily on federal law, or to be interwoven with the federal law " Id., at 1040. Specifically, the Arkansas Supreme Court took the view that, whatever else Arkansas law might require, petitioners could not receive tax refunds if Scheiner is not retroactive under the test of Chevron Oil.

The determination whether a constitutional decision of this Court is retroactive—that is, whether the decision applies to conduct or events that occurred before the date of the decision—is a matter of federal law. When questions of state law are at issue, state courts generally have the authority to determine the retroactivity of their own decisions. See Great Northern R. Co. v. Sunburst Oil & Refining Co., 287 U.S. 358, 364 (1932) ("We think the federal constitution has no voice upon the subject [of whether a state court may decline to give its decisions retroactive effect]"). The retroactive applicability of a constitutional decision of this Court, however, "is every bit as much of a federal question as what particular federal constitutional provisions themselves mean, [p178] what they guarantee, and whether they have been denied." Chapman v. California, 386 U.S. 18, 21 (1967). In order to ensure the uniform application of decisions construing constitutional requirements and to prevent States from denying or curtailing federally protected rights, we have consistently required that state courts adhere to our retroactivity decisions. See, e.g., Michigan v. Payne, 412 U.S. 47 (1973) (holding that the state court erred in applying North Carolina v. Pearce, 395 U.S. 711 (1969), retroactively to invalidate a resentencing proceeding occurring prior to the date of the decision in Pearce); Arsenault v. Massachusetts, 393 U.S. 5 (1968) (holding that the state court erred in determining that White v. Maryland, 373 U.S. 59 (1963), requiring an accused to be represented by counsel during a preliminary hearing, did not apply retroactively to petitioner).

Although the Court has recently determined that new rules of criminal procedure must be applied retroactively to all cases pending on direct review or not yet final, see Griffith v. Kentucky, 479 U.S. 314, 328 (1987), retroactivity of decisions in the civil context "continues to be governed by the standard announced in [Chevron Oil]," id., at 322, n. 8; see also United States v. Johnson, 457 U.S. 537, 550, n. 12 (1982). In this case, the Arkansas Supreme Court decided that under Chevron Oil our decision in Scheiner need only apply prospectively. This decision presents a federal question: Did the Arkansas Supreme Court apply Chevron Oil correctly? As petitioners properly observed at oral argument, this is the only question before the Court in this case. Tr. of Oral Rearg. 7–10.

It is important to distinguish the question of retroactivity at issue in this case from the distinct remedial question at issue in McKesson, 496 U.S. 18: When taxpayers involuntarily pay a tax that is unconstitutional under existing precedents, to what relief are those affected taxpayers entitled as a matter of federal law? Our decision in McKesson indicates that federal law sets certain minimum requirements that States [p179] must meet but may exceed in providing appropriate relief. Because we decide that, in certain respects, the Arkansas Supreme Court misapplied Chevron Oil and, therefore, that our decision in Scheiner applies to some taxation of highway use pursuant to the HUE tax, we must remand this case to the Arkansas Supreme Court to determine appropriate relief in light of McKesson.

A
Using the Chevron Oil test, we consider first the application of Scheiner to taxation of highway use prior to June 23, 1987, the date we decided Scheiner, for the HUE tax year ending June 30, 1987. That test has three parts:

"First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed. Second, we must  weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation. Finally, we [must] weig[h] the inequity imposed by retroactive application, for where a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the injustice or hardship by a holding of nonretroactivity." 404 U.S., at 106–107 (citations and internal quotations omitted).

We think it obvious that Scheiner meets the first test of nonretroactivity. Both the majority and dissent in that case recognized that the Court's decision left very little of the Aero Mayflower line of precedents standing. As the majority observed, "the precedents upholding flat taxes can no longer support the broad proposition that every flat tax for the privilege of using a State's highways must be upheld even if it has a clearly discriminatory effect on commerce by [p180] reason of that commerce's interstate character." 483 U.S., at 296. These precedents retain vitality only when flat taxes "are the only practicable means of collecting revenues from users," ibid.—a situation no more present in Arkansas than it was in Pennsylvania. See also id., at 298 (O'Connor, J., dissenting) ("[T]he Court today directly overrules the holdings of" the Aero Mayflower precedents); id., at 304 (Scalia, J., dissenting). That the Court in Scheiner recognized that Complete Auto Transit "called into question the future vitality of earlier cases that had upheld facially neutral flat taxes," 483 U.S., at 295, does not alter our conclusion. As we observed last Term, "[i]f a precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the [lower courts] should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions." Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484 (1989). This is precisely what the State of Arkansas argued and what the Arkansas Supreme Court did in its original decision holding the HUE tax constitutional. Moreover, that court noted with reliance that we cited the Aero Mayflower cases with approval in Massachusetts v. United States, 435 U.S. 444, 463–464 (1978), one year after we decided Complete Auto Transit. 288 Ark., at 497, 707 S.W.2d, at 762–763. The Arkansas Supreme Court correctly concluded that Scheiner established a "new principle of law" by overruling those aspects of the Aero Mayflower cases on which the State of Arkansas relied in enacting and assessing the HUE tax.

The conclusion that Scheiner established a new principle of law in the area of our dormant Commerce Clause jurisprudence does not necessarily end the inquiry. See Florida v. Long, 487 U.S. 223, 230 (1988); ''Arizona Governing Comm. for Tax Deferred Annuity and Deferred Compensation Plans v. Norris'', 463 U.S. 1073, 1109–1110 (1983) (O'Connor, J., concurring). It is equally clear to us, however, that the pur- [p181] pose of the Commerce Clause does not dictate retroactive application of Scheiner and that equitable considerations tilt the balance toward nonretroactive application. We observed in Scheiner that the Commerce Clause by its own force created an area of trade free from interference by the States. 483 U.S., at 280, quoting Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 328 (1977). Petitioners argue that the retroactive application of Scheiner will tend to deter future free trade violations which the several States have strong parochial incentives to commit. As we have just discussed, however, the HUE tax was entirely consistent with the Aero Mayflower line of cases, and it is not the purpose of the Commerce Clause to prevent legitimate state taxation of interstate commerce. See Complete Auto Transit, 430 U.S., at 288.

Finally, under the third prong of the Chevron Oil test, we consider the equities of retroactive application of Scheiner. Our decision today in McKesson makes clear that once a State's tax statute is held invalid under the Commerce Clause, the State is obligated to provide relief consistent with federal due process principles. See 496 U.S., at 36–43. When the State comes under such a constitutional obligation, McKesson establishes that equitable considerations play only the most limited role in delineating the scope of that relief. 496 U.S., at 44–51. Of course, we had no occasion to consider the equities of retroactive application of new law in McKesson because that case involved only the application of settled Commerce Clause precedent. See 496 U.S., at 31, n. 15. In light of 's holding that a ruling that a tax is unconstitutionally discriminatory under the Commerce Clause places substantial obligations on the States to provide relief, the threshold determination whether a new decision should apply retroactively is a crucial one, requiring a hard look at whether retroactive application would be unjust. At this initial stage, the question is not whether equitable considerations outweigh the obligation to provide relief for a [p182] constitutional violation, cf. 496 U.S., at 44–45, 50, but whether there is a constitutional violation in the first place.

A careful consideration of the equities persuades us that Scheiner should not apply retroactively. Unlike McKesson, where the State enacted a tax scheme that "was virtually identical to the Hawaii scheme invalidated in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)," 496 U.S., at 46, and thus the State could "hardly claim surprise at the Florida courts' invalidation of the scheme," ibid., here the State promulgated and implemented its tax scheme in reliance on the Aero Mayflower precedents of this Court. In light of these precedents, legislators would have good reason to suppose that enactment of the HUE tax would not violate their oath to uphold the United States Constitution, and the State Supreme Court would have every reason to consider itself bound by those precedents to uphold the tax against a constitutional challenge. Similarly, state tax collection authorities would have been justified in relying on state enactments valid under then-current precedents of this Court, particularly where, as here, the enactments were upheld by the State's highest court.

Where a State can easily foresee the invalidation of its tax statutes, its reliance interests may merit little concern, see McKesson, 496 U.S., at 44–46, 50. By contrast, because the State cannot be expected to foresee that a decision of this Court would overturn established precedents, the inequity of unsettling actions taken in reliance on those precedents is apparent. Although at this point the burden that the retroactive application of Scheiner would place on Arkansas cannot be precisely determined, it is clear that the invalidation of the State's HUE tax would have potentially disruptive consequences for the State and its citizens. A refund, if required by state or federal law, could deplete the state treasury, thus threatening the State's current operations and future plans. Presumably, under McKesson, the State would be required to calculate and refund that portion of the tax that would be [p183] found under Scheiner to discriminate against interstate commerce, with the attendant potentially significant administrative costs that would entail. As McKesson makes clear, the State could also attempt to provide relief by retroactively increasing taxes on the favored taxpayers to cure any violation. But this too would entail substantial administrative costs and could at some point run into independent constitutional restrictions. See 496 U.S., at 40, n. 23 ("[B]eyond some temporal point the retroactive imposition of a significant tax burden may be 'so harsh and oppressive as to transgress the constitutional limitation). Moreover, such an approach would unfairly penalize favored taxpayers for the State's failure to foresee that this Court would overrule established precedent. Although in the future States may be able to protect their fiscal stability by imposing procedural requirements on taxpayer actions, see McKesson, 496 U.S., at 45, 50, such prospective safeguards do not affect the inequities of retroactive application of Scheiner. Nor can Arkansas be faulted for continuing to rely on its statute after its highest state court upheld the constitutionality of the tax.

In sum, we conclude that applying Scheiner retroactively would "produce substantial inequitable results." Chevron Oil, 404 U.S., at 107. The invalidation of the HUE tax has the potential for severely burdening the State's operations. That burden may be largely irrelevant when a State violates constitutional norms well established under existing precedent. See McKesson. But we think it unjust to impose this burden when the State relied on valid, existing precedent in enacting and implementing its tax. Accordingly, we conclude that Scheiner does not apply to HUE taxation for highway use prior to June 23, 1987, for the HUE tax year ending June 30, 1987.

[p184] The dissent suggests that federal courts should weigh equitable considerations only in determining the scope of relief a federal court should award. This is precisely backwards. As previously discussed, McKesson makes plain that equitable considerations are of limited significance once a constitutional violation is found. As the dissent's analysis ultimately makes clear, see, e.g., post, at 218–219, n. 8, 224, its suggested approach would effectively eliminate consideration of the equities entirely in a case such as this, when the judicial decision invalidating the State's taxation scheme represented a clear break from prior precedent. This is inconsistent with our nonretroactivity doctrine and would work real and inequitable hardships in many cases.

Petitioners further argue that the equities always favor applying decisions retroactively when those decisions would burden only a governmental entity. They rely on Owen v. City of Independence, 445 U.S. 622, 651 (1980), for the proposition that local governments should not be permitted to "disavow liability for the injury [they have] begotten." Owen is not applicable to our considerations here. That case only addressed the question whether Congress intended a municipality to have good faith immunity from actions brought under 42 U.S.C. § 1983. Our decision in Owen simply construed that statute through a consideration of its legislative history and the immunity traditionally accorded municipalities in 1871, when the forerunner of § 1983 was enacted. 445 U.S., at 635–650. Our delineation of the scope of liability under a statute designed to permit suit against governmental entities and officials provides little guidance for determining the fairest way to apply our own decisions. Indeed, [p185] the policy concerns involved are quite distinct. In Owen, we discerned that according municipalities a special immunity from liability for violations of constitutional rights would not best serve the goals of § 1983, even if those rights had not been clearly established when the violation occurred. Such a determination merely makes municipalities, like private individuals, responsible for anticipating developments in the law. We noted that such liability would motivate each of the city's elected officials to "consider whether his decision comports with constitutional mandates and weigh the risk that a violation might result in an award of damages from the public treasury." Id., at 656. This analysis does not apply when a decision clearly breaks with precedent, a type of departure which, by definition, public officials could not anticipate nor have any responsibility to anticipate. See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S., at 485.

In determining whether a decision should be applied retroactively, this Court has consistently given great weight to the reliance interests of all parties affected by changes in the law. See, e.g., Cipriano v. City of Houma, 395 U.S. 701, 706 (1969) ("Significant hardships would be imposed on cities, bondholders, and other connected with municipal utilities if our decision today were given full retroactive effect"). To the extent that retrospective application of a decision burdens a government's ability to plan or carry out its programs, the application injures all of the government's constituents. These concerns have long informed the Court's retroactivity decisions. The Court has used the technique of prospective overruling (accompanied by a stay of judgment) to avoid disabling Congress' bankruptcy scheme, see, e.g., Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 88 (1982), and has refused to invalidate retrospectively the administrative actions and decisions of the Federal Election Commission, see Buckley v. Valeo, 424 U.S. 1, 142–143 (1976). The Court has also declined to provide [p186] retrospective remedies which would substantially disrupt governmental programs and functions. See, e.g., Lemon v. Kurtzman, 411 U.S. 192, 209 (1973) (Lemon II) ("[S]tate officials and those with whom they deal are entitled to rely on a presumptively valid state statute, enacted in good faith and by no means plainly unlawful") (plurality opinion); see also Reynolds v. Sims, 377 U.S. 533, 585 (1964) ("[U]nder certain circumstances, such as where an impending election is imminent and a State's election machinery is already in progress, equitable considerations might justify a court in withholding the granting of immediately effective relief in a legislative apportionment case, even though the existing apportionment scheme was found invalid"); Allen v. ''State Bd. of Elections'', 393 U.S. 544 (1969). The retrospective invalidation of a state tax that had been lawful under then-current precedents of this Court threatens a similar disruption of governmental operations. Therefore, our refusal here to retroactively invalidate legislation that was lawful when enacted is in accord with our previous determinations of how best to give effect to new constitutional decisions.

B
Before and after the date of our Scheiner decision, some petitioners paid HUE taxes for the tax year beginning July 1, 1987. The Arkansas Supreme Court ruled that the State's collection of these payments was constitutional until the date of Justice Blackmun's escrow order. It therefore declined to order refunds for any 1987–1988 HUE taxes not paid into escrow. Petitioners argue that they are entitled to refunds of these payments even if Scheiner is not to be applied retroactively because these HUE tax payments were made to secure the privilege of driving heavy trucks on Arkansas highways between July 1, 1987, and June 30, 1988. Petitioners argue that the question whether Scheiner applies to the collection of 1987–1988 HUE taxes should depend on the "occurrence of the taxed transaction or the enjoyment of the taxed [p187] benefit, not the remittance of the tax." Brief for Petitioners 47 (filed Jan. 18, 1989). Otherwise, petitioners contend, similarly situated 1987–1988 HUE taxpayers will receive different remedies depending solely and fortuitously on the date the individual taxpayers remitted the tax. We agree.

It is, of course, a fundamental tenet of our retroactivity doctrine that the prospective application of a new principle of law begins on the date of the decision announcing the principle. See, e.g., Florida v. Long, 487 U.S., at 237–238; Norris, 463 U.S., at 1111 (O'Connor, J., concurring); Lemon II, supra; Chevron Oil, 404 U.S., at 99; Phoenix v. Kolodziejski, 399 U.S. 204, 214 (1970). This tenet of retroactivity, however, does not define the conduct to which Scheiner prospectively applies: Does it apply to the flat taxing of highway use or to the collection of taxes for highway use after the date of that decision? We think it apparent that Scheiner applies to the flat taxation of highway use after the date of that decision. This is true regardless of when the taxes for such use were actually collected. If Arkansas had collected HUE-like taxes for highway use occurring before the required tax payment date, a prospective decision of this Court that such taxes were unconstitutional would not preclude the State from collecting, after the date of that decision, taxes for highway use that occurred before the decision was announced. The very same principle applies where, as here, the converse is true. Because we hold Scheiner to apply only prospectively, flat highway taxation was permissible for highway use that occurred before the date of our decision but not after. A contrary rule would give States a perverse incentive to collect taxes far in advance of the occurrence of the taxable transaction. It would also penalize States that do not immediately collect taxes, but nevertheless plan their operations on the assumption that they will ultimately collect taxes that have accrued. In this case, the taxpayer is advantaged in the sense that certain of its tax payments were made under an unconstitutional statute and [p188] remedies may be in order; in the hypothetical converse case, the State is advantaged in the sense that it may continue to collect taxes after the date of our decision finding its tax to be prospectively unconstitutional. In both cases, as petitioners correctly note, the critical event for prospectivity is "the occurrence of the underlying transaction, and not the payment of money therefor " Brief for Petitioners 47 (filed Jan. 18, 1989). Cf. Lemon II, supra.

Thus petitioners are correct that those HUE taxes paid to the State for the 1987–1988 tax year, regardless of whether they were paid before or after we announced Scheiner, are not protected by the conclusion that Scheiner applies only prospectively. In this regard, the Arkansas Supreme Court's holding that petitioners were not entitled to refunds for the 1987–1988 HUE taxes they paid arose from a misapplication of Chevron Oil. From the face of the State Supreme Court's opinion we can discern no reason apart from this misapprehension of the force of Chevron Oil that caused it to deny petitioners' request for 1987–1988 HUE tax refunds. Accordingly, this aspect of the Arkansas Supreme Court's opinion must be reversed.

III
The dissent claims that our decision today treats the petitioners in this case less favorably than the taxpayers in Scheiner, post, at 211–212, and challenges our retroactivity doctrine as fundamentally inequitable. The dissent asserts that not only does judicial integrity require the Court to apply new decisions to all cases pending on direct review, but also that we have consistently followed this practice in civil cases raising constitutional claims. Post, at 212–218. The dissent further insists that Chevron Oil does not enunciate principles of retroactivity; rather, it is merely an exercise of our remedial powers. Post, at 219–224. As we explain below, these arguments miss the mark. First, as we today resolve an issue not considered in Scheiner, we have neither [p189] unfairly favored the litigants in Scheiner nor disfavored the litigants before us now. Second, a review of our decisions shows that we have consistently applied the retroactivity doctrine enunciated in Chevron Oil rather than the approach suggested by the dissent. The dissent's recharacterization of our precedents disregards both the theoretical underpinnings of the Chevron Oil doctrine and the concerns that led the Court to develop and retain this doctrine. Third, contrary to the dissent's assertion, the Court has never equated its retroactivity principles with remedial principles. Finally, the different functions of our retroactivity doctrine in the criminal and civil spheres lead us to reject the dissent's invitation to abandon our nonretroactivity doctrine in the civil arena as we did in the criminal arena.

The dissent's claim that today's decision is unjust because it treats the taxpayers in this case differently from the taxpayers in Scheiner, post, at 211–212, is unpersuasive. The taxpayers in Scheiner challenged a state court's ruling on the constitutionality of certain tax statutes; the taxpayers in this case challenge a state court's ruling on the nonretroactivity of a decision of this Court. This Court has done nothing more than resolve the separate issues raised by each case.

In Scheiner, the Court reversed the judgment of the Supreme Court of Pennsylvania which had upheld the constitutionality of two Pennsylvania tax statutes. After we "decided the constitutional issue presented to us," 483 U.S., at 298, we then remanded the case to the Pennsylvania Supreme Court "to consider whether our ruling should be applied retroactively and to decide other remedial issues." Id., at 297. We did not decide any issues of retroactivity or relief; nor did our decision guarantee the taxpayers that the state court would retroactively apply the Court's decision or provide any particular relief. On remand of Scheiner, the Pennsylvania Supreme Court was free to consider the issue of retroactivity just as the Arkansas state court did in this case.

[p190] As the Arkansas Supreme Court has already passed on the question whether the Arkansas tax statutes are unconstitutional, that issue is not before us. Petitioners' claim here involves the second, distinct issue of the retroactivity of Scheiner. In the civil arena, we have generally considered the question of retroactivity to be a separate problem, one that need not be resolved in the law-changing decision itself. See, e.g., Consolidated Foods Corp. v. Unger, 456 U.S. 1002, 1003 (1982) (Blackmun, J., concurring) (Court properly vacated and remanded a case for consideration in light of Kremer v. Chemical Construction Corp., 456 U.S. 461 (1982), but on remand, "respondent will be free to argue that Kremer should not apply retroactively"); Simpson v. Union Oil Co. of Cal., 377 U.S. 13, 24–25 (1964) (reserving the question whether prospective-only application of the rule announced in that opinion might be warranted). Thus, we had no obligation to consider the retroactivity of Scheiner in that case. Today we consider and resolve that issue, which has been properly raised and presented in this case.

The dissent's claim that this Court has consistently applied new decisions retroactively to civil cases which are pending on direct review is an inaccurate characterization of our cases. In fact, it is little more than a proposal that we sub silentio overrule Chevron Oil. The theory of retroactivity identified by the dissent was formulated in Justice Harlan's concurrence in United States v. Estate of Donnelly, 397 U.S. 286, 295–297 (1970). Post, at 214–215. Justice Harlan urged the Court to adopt a rule that a new decision would always apply to parties in cases pending on direct review unless "the transaction is beyond challenge either because the statute of limitations has run or the rights of the parties have been fixed by litigation and have become res judicata." 397 U.S., at 296. Presumably, this rule of retroactivity would also constrain the lower courts. See Griffith v. Kentucky, 479 U.S., at 323 ("As a practical matter, of course, we cannot hear each case pending on direct review and apply the [p191] new rule. But we fulfill our judicial responsibility by instructing the lower courts to apply the new rule retroactively to cases not yet final"). If the dissent's approach had prevailed in the civil arena, no retroactivity question would ever arise: A court would only have to determine whether a case was properly before it and, if so, apply current law. However, a review of our civil decisions reveals that this Court has followed a different approach in determining when to apply decisions prospectively only.

The principles underlying the Court's civil retroactivity doctrine can be distilled from both criminal and civil cases considering this issue. When the Court concludes that a law-changing decision should not be applied retroactively, its decision is usually based on its perception that such application would have a harsh and disruptive effect on those who relied on prior law. See, e.g., Chevron Oil, 404 U.S., at 107. In order to protect such reliance interests, the Court first identifies and defines the operative conduct or events that would be affected by the new decision. Lower courts considering the applicability of the new decision to pending cases are then instructed as follows: If the operative conduct or events occurred before the law-changing decision, a court should apply the law prevailing at the time of the conduct. If the operative conduct or events occurred after the decision, so that any reliance on old precedent would be unjustified, a court should apply the new law. See generally Schaefer, The Control of "Sunbursts": Techniques of Prospective Overruling, 42 N.Y.U. L. Rev. 631 (1967) (describing this technique).

The Court expressly relied on this doctrine in a criminal case, Jenkins v. Delaware, 395 U.S. 213 (1969). As the Court observed, a number of decisions prior to Jenkins had declined to apply a new rule retroactively when the "point of initial reliance," that is, "the point at which law enforcement officials relied upon practices not yet proscribed," id., at 218–219, n. 7, occurred prior to the date of the law- [p192] changing decision. See, e.g., Halliday v. United States, 394 U.S. 831, 831 (1969) (new rule not applicable to guilty pleas accepted before date of law-changing decision); Desist v. United States, 394 U.S. 244, 254 (1969) (new rule not applicable to electronic surveillances conducted before date of law-changing decision); Fuller v. Alaska, 393 U.S. 80 (1968) (new rule not applicable to tainted evidence introduced before date of law-changing decision). Jenkins concluded that focusing attention on the element of reliance in making nonretroactivity decisions was "more consistent with the fundamental justification for not applying newly enunciated constitutional principles retroactively." 395 U.S., at 219, n. 7, quoting Schaefer, supra, at 646.

The Court has relied on the same reasoning in the civil arena. In decisions invalidating state election provisions, the Court has focused on the conduct or events that should not be invalidated by its law-changing decisions. In Cipriano v. City of Houma, 395 U.S. 701 (1969), for example, the Court struck down Louisiana's provisions for bond-authorization elections as violative of the Equal Protection Clause. However, to avoid frustrating the expectations of parties who relied on prior law, the Court held that courts should not invalidate a State's election or bonds if the bond authorization process had been completed, i.e., if the election had not been timely challenged under state law and the bonds were ready to be issued, before the date of the decision in Cipriano. See id., at 706 ("[W]e will apply our decision in this case prospectively. That is, we will apply it only where, under state law, the time for challenging the election result has not expired, or in cases brought within the time specified by state law for challenging the election and which are not yet final. Thus, the decision will not apply where the authorization to issue the securities is legally complete on the date of this decision" (emphasis added)). Although the Court looked to the state limitations period to determine when the authorization process was complete, the Court did not hold that this period [p193] should be adopted as a time bar for raising equal protection challenges to state elections in federal court. Rather, the Court only held that bonds ready for issuance prior to the date of Cipriano could not be invalidated under the rule established in that decision. Similarly, in Phoenix v. Kolodziejski, 399 U.S., at 213–215, the Court held that its ruling that the state election laws at issue were unconstitutional should not be applied retroactively where the bond authorization process had been completed prior to the date of the Court's decision. See id., at 214 ("[O]ur decision in this case will apply only to authorizations for general obligations bonds that are not final as of June 23, 1970, the date of this decision"). See also Hill v. Stone, 421 U.S. 289, 301–302 (1975) (holding that the law-changing decision should not apply where the authorization to issue securities became final prior to the date of the decision).

The Court's practice of focusing on the operative conduct or events is implicit in our other retroactivity decisions. In England v. ''Louisiana Bd. of Medical Examiners'', 375 U.S. 411 (1964), the Court established a new rule that a party remitted to the state courts by a district court's abstention order could not subsequently return to the district court if he had voluntarily litigated his federal claims in state court. The Court did not apply this rule to the case pending before it, because the individuals there had relied on prior law in litigating their federal claims in state court. Id., at 422. In Allen v. ''State Bd. of Elections, 393 U.S., at 571–572, the Court declined to set aside elections conducted pursuant to invalid election laws, as the operative event—the elections—had been valid under law preceding the decision in Allen''. When considering the retroactive applicability of decisions newly defining statutes of limitations, the Court has focused on the action taken in reliance on the old limitation period—usually, the filing of an action. Where a litigant filed a claim that would have been timely under the prior limitation period, the Court has held that the new statute of [p194] limitations would not bar his suit. See Saint Francis College v. Al-Khazraji, 481 U.S. 604, 608–609 (1987); Chevron Oil, 404 U.S., at 107–109.

As these cases indicate, the Court has not followed the dissent's approach in the civil sphere. In none of the cases discussed above did the Court indicate that the critical factor for determining the retroactive applicability of a decision was the time when principles of res judicata or a time bar precluded further litigation. Rather, the Court's retroactivity doctrine obliged courts to apply old law to litigants before them if the operative conduct or events had occurred prior to the new decision. In this case, we merely apply these well-established principles of civil retroactivity. Here, we define the operative conduct as Arkansas' flat taxation of highway use in reliance on this Court's pre-Scheiner cases. Supra, at 186–187. We then decline to apply Scheiner retroactively to invalidate taxation on highway use prior to the date of that decision.

In striving to recharacterize our precedents, the dissent makes the error of equating a decision not to apply a rule retroactively with the judicial choice of a remedy. Post, at 219–220. As the Court makes plain in McKesson, there is an important difference. Once a constitutional decision applies and renders a state tax invalid, due process, not equitable considerations, will generally dictate the scope of relief offered. Nor do this Court's retroactivity decisions, whether in the civil or criminal sphere, support the dissent's assertion that our retroactivity doctrine is a remedial principle. Indeed, Lemon II, 411 U.S. 192 (1973), specifically recognized that the Court's principles of retroactivity were helpful, but not controlling, in deciding the scope of a federal remedy:

"Those guidelines [expressed in Linkletter v. Walker, 381 U.S. 618 (1965) for applying our retroactivity doctrine] are helpful, but the problem of Linkletter and its progeny is not precisely the same as that now before us. Here, we are not considering whether we will apply a new constitutional rule of criminal law in reviewing judg- [p195] ments of conviction obtained under a prior standard; the problem of the instant case is essentially one relating to the appropriate scope of federal equitable remedies, a problem arising from enforcement of a state statute during the period before it had been declared unconstitutional. True, the temporal scope of the injunction has brought the parties back to this Court, and their dispute calls into play values not unlike those underlying Linkletter and its progeny. But however we state the issue, the fact remains that we are asked to reexamine the District Court's evaluation of the proper means of implementing an equitable decree." Id., at 199–200 (opinion of Burger, C.J.) (citation omitted).

While application of the principles of retroactivity may have remedial effects, they are not themselves remedial principles. Any judicial decision will affect the relief available to one of the parties before the court; even an evidentiary ruling may have some remedial effect. However, rules regarding retroactivity, like decisions regarding the mechanics of procedure, are distinct from remedial decisions which govern what a court "may do for the plaintiff and conversely what it can do to the defendant." K. York, J. Bauman, & D. Rendleman, Remedies 1 (4th ed. 1985); see also D. Dobbs, Law of Remedies 3 (1973) ("The substantive questions whether the plaintiff has any right or the defendant has any duty, and if so what it is, are very different questions from the remedial questions whether this remedy or that is preferred, and what the measure of the remedy is"). A decision defining the operative conduct or events that will be adjudicated under old law does not, in itself, specify an appropriate remedy.

Especially in light of today's holding in McKesson, the dissent's view that the doctrine of civil retroactivity is a remedial principle would surprise the many commentators, ap- [p196] pellate courts, see Note, Confusion in Federal Courts: Application of the Chevron Test in Retroactive-Prospective Decisions, 1985 U. Ill. L. Rev. 117, 128–136, and state courts that have considered Chevron Oil to be exactly what this Court has always understood it to be: a doctrine or set of rules for determining when past precedent should be applied to a case before the court. As such, Chevron Oil is better understood as part of the doctrine of stare decisis, rather than as part of the law of remedies. This is how nonretroactivity was first characterized by Justice Cardozo in Great Northern R. Co. v. Sunburst Oil & Refining Co., 287 U.S. 358 (1932). Considering a state court's power to apply its own decisions prospectively only, Justice Cardozo asserted:

"We have no occasion to consider whether this division in time of the effects of a decision is a sound or an unsound application of the doctrine of stare decisis as known to the common law. Sound or unsound, there is involved in it no denial of a right protected by the federal constitution A state in defining the limits of adherence to precedent may make a choice for itself between the principle of forward operation and that of relation backward. It may say that decisions of its highest court, though later overruled, are law none the less for intermediate transactions." Id., at 364.

See also United States v. Estate of Donnelly, 397 U.S., at 295 (Harlan, J., concurring). In those relatively rare circumstances where established precedent is overruled, the doctrine of nonretroactivity allows a court to adhere to past precedent in a limited number of cases, in order to avoid "jolting the expectations of parties to a transaction." Ibid. See also Justice Scalia's opinion, concurring in the judgment, post, at 204–205. Although Justice Scalia declines [p197] to rely on our doctrine of nonretroactivity, his understanding of stare decisis leads him to conclude that a judge who disagrees with a decision overruling prior precedent must vote to uphold the validity of "action taken [in reliance on that precedent] before the overruling occurred." Post, at 205. As Justice Cardozo discerned, prospective overruling allows courts to respect the principle of stare decisis even when they are impelled to change the law in light of new understanding.

In proposing that we extend the retroactivity doctrine recently adopted in the criminal sphere to our civil cases, the dissent assumes that the Court's reasons for adopting a per se rule of retroactivity in Griffith v. Kentucky, 479 U.S. 314 (1987), are equally applicable in the civil context. But there are important distinctions between the retroactive application of civil and criminal decisions that make the Griffith rationale far less compelling in the civil sphere.

In adopting a per se rule of retroactivity for criminal cases, Griffith relied on what, in essence, was a single justification: that it was unfair to apply different rules of criminal procedure to two defendants whose cases were pending on direct review at the same time. See id., at 322–323. In expounding this theory, the Court did not explain why the pendency of a defendant's case on direct review was the critical factor for determining the applicability of new decisions. It is at least arguable, as JUSTICE WHITE pointed out in dissent, that the speed at which cases proceed through the criminal justice system should not be the key factor for determining whether "otherwise identically situated defendants may be subject to different constitutional rules." Id., at 331 (internal quotation marks omitted). Nor did the Court consider whether the reliance interests of law enforcement officials would make the retroactive application of new decisions inequitable, although this factor had been a key consideration in prior cases. See, e.g., Jenkins v. Delaware, 395 U.S., at 220; Stovall v. Denno, 388 U.S. 293, 299–301 (1967). In focusing solely on the pendency of a case before the court [p198] rather than on the reliance interests of either the defendant or the government, Griffith implicitly rejected the rationale of our prior retroactivity doctrine: that new decisions should not be applied retroactively so as to frustrate the expectations of parties who had justifiably relied on prior law.

The Court's analysis in Griffith must be understood in context. During the period in which much of our retroactivity doctrine evolved, most of the Court's new rules of criminal procedure had expanded the protections available to criminal defendants. See generally Beytagh, supra, n. 2. Therefore, whenever the Court determined that retroactive application of a new rule would be inequitable, the Court was, in effect, according the government's reliance interests more weight than the defendant's interests in receiving the benefit of the rule. See, e.g., United States v. United States Coin & Currency, 401 U.S. 715, 726 (1971) (Brennan, J., concurring) ("[W]hen a new procedural rule has cast no substantial doubt upon the reliability of determinations of guilt in criminal cases, we have denied the rule retroactive effect where a contrary decision would 'impose a substantial burden upon the  judicial system ) (quoting Williams v. United States, 401 U.S. 646, 664 (1971)). 's adoption of a per se rule of retroactivity can thus be understood as a rejection of this approach in favor of providing expanded procedural protections to criminal defendants. Under this new theory, any defendant whose conviction had not yet become final should be given the benefit of a new decision regardless of the additional burden this might place on law enforcement authorities.

There are no analogous reasons for adopting a per se rule of retroactivity in the civil context. Either party before a court may benefit from the application of the Chevron Oil rule. New decisions are not likely to favor civil defendants over civil plaintiffs; nor is there any policy reason for protecting one class of litigants over another. Moreover, even a party who is deprived of the full retroactive benefit of a new [p199] decision may receive some relief. In this case, for example, petitioners are benefited by the prospective invalidation of the Arkansas tax and a ruling that Scheiner is applicable to taxation of highway use after the date of decision in that case. The criminal defendant, on the other hand, is generally interested in only one remedy: the reversal of his conviction. The prospective invalidation of a rule relied on in securing his conviction will not assist the criminal defendant in any way. Nor does 's criticism that nonretroactivity gives the benefit of a new rule to a "chance beneficiary" but then "permit[s] a stream of similar cases subsequently to flow by unaffected by that new rule," 479 U.S., at 323 (citation omitted), have force in the civil context. Although the dissent echoes this criticism, post, at 211–212, it may fairly be aimed only at those cases in which the Court reversed the conviction of the defendant in the law-changing decision and later determined that the rule would not be applicable retroactively, see, e.g., Desist v. United States, 394 U.S., at 254–255, n. 24; Stovall v. Denno, supra, 388 U.S., at 300–301. The dissent has failed to cite a single civil case in which comparable inequitable treatment has occurred. In this case, for example, the Court did not provide a benefit to the litigants in Scheiner that was denied the petitioners here. See supra, at 188–190. Contrary to the dissent's assertions, post, at 211–212, our use of the civil retroactivity principles does not result in the unequal treatment of similarly situated litigants. As Chevron Oil makes clear, the purpose of the doctrine is to avoid injustice or hardship to civil litigants who have justifiably relied on prior law. 404 U.S., at 107 (quoting Cipriano v. City of Houma, 395 U.S., at 706). In light of this aim, two parties are similarly situated if both relied on the old law before the date of the law-changing decision. A litigant who has not relied on the old law is not similarly situated in a relevant way to one who has, regardless of whether both cases are pending on direct review.

As 's rationale is unpersuasive in the civil context, we see no reason to abandon the Chevron Oil test. The Con- [p200] stitution does not prohibit the application of decisions prospectively only, see, e.g., Solem v. Stumes, 465 U.S. 638, 642 (1984); Williams v. United States, supra, 401 U.S., at 651 (opinion of WHITE, J.); nor has this Court ever held that nonretroactivity violates the Article III requirement that this Court adjudicate only cases or controversies. Compare Stovall v. Denno, 388 U.S. at 301, with Linkletter v. Walker, 381 U.S., at 622, n. 3, and Desist v. United States, supra, 394 U.S., at 256 (Douglas, J., dissenting). The utility of our retroactivity doctrine in cushioning the sometimes inequitable and disruptive effects of law-changing decisions is clear. The "inequities" the dissent alleges are caused by the doctrine are illusory. For these reasons, we decline the dissent's invitation to abandon our longstanding precedent.

Accordingly, in all respects apart from its disposition of 1987–1988 HUE tax payments, we affirm the judgment of the Arkansas Supreme Court.

We are not, however, in a position to determine precisely the nature and extent of the relief to which petitioners are entitled for their 1987–1988 HUE tax payments. That determination, as we have already observed, lies with the state courts in the first instance. We therefore reverse and remand this aspect of the case to the Arkansas Supreme Court in order to permit it to determine the appropriate relief, not inconsistent with our decision today in McKesson, for petitioners' payment of 1987–1988 HUE taxes whether made before or after the date of our Scheiner decision.

So ordered.