PHILIP DEMORANVILLE [Note 1] vs. COMMISSIONER OF REVENUE.

MARSHALL, C.J. The plaintiff, Philip DeMoranville, appeals from a decision of the Superior Court dismissing his challenge to the constitutionality of a State tax statute for failure to exhaust administrative remedies deemed "exclusive" by that act. St. 2005, c. 163, § 57B (f). In 2005, the Massachusetts Legislature

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enacted St. 2005, c. 163, §§ 57, 57A, 57B (abatement act), which authorizes the abatement -- without interest -- of capital gains taxes levied in 2002, later held unconstitutional. See Peterson v. Commissioner of Revenue, 441 Mass. 420 (2004) (Peterson I); Peterson v. Commissioner of Revenue, 444 Mass. 128 (2005) (Peterson II). On March 18, 2008, DeMoranville, on his own behalf and on behalf of others similarly situated, brought an action for declaratory relief in the Superior Court asserting that the Legislature's determination that no interest was to be paid on the refund of the unconstitutional capital gains taxes is itself unconstitutional, and that he has not been "fully compensated" for his payment of the wrongful taxes. [Note 2] He argues that he was in essence required to provide the Commonwealth "an interest-free loan" for the years in which taxpayers not subject to the increased tax rate had the opportunity to invest or otherwise use their funds. He further contends that his action for declaratory relief is proper because pursuit of administrative remedies would have been futile. A judge in the Superior Court allowed the Commissioner of Revenue's (commissioner's) motion to dismiss for failure to exhaust his administrative remedies. DeMoranville appealed, we granted his application for direct appellate review, and we now affirm.

1. Background. a. Statutory overview. This action is the third arising from the Legislature's taxation of capital gains in the revenue enhancement act of 2002 (2002 act). St. 2002, c. 186. In Peterson I, we held that § 32 of the 2002 act violated the uniformity requirement of art. 44 of the Amendments to the Massachusetts Constitution because it applied different tax rates to capital gains obtained within the same tax year. Peterson I, supra at 429. [Note 3] Specifically, the 2002 act provided that long-term capital gains realized on or after May 1, 2002, were taxed as

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ordinary income at 5.3 per cent, a rate higher than gains realized before May 1, 2002, which were subject to the prior taxation scheme. Id. at 421. See note 5, infra. The Legislature responded to Peterson I by enacting St. 2004, c. 149, §§ 413, 414 (2004 act). Peterson II, supra at 129. Section 414 of the 2004 act established January 1, 2002, as the effective date for the new capitals gains tax rate, thereby curing the infirmity caused by the effective date of May 1 set forth in the 2002 act. Section 413 of the 2004 act, however, directed that the commissioner "not adjust the tax liability stemming from capital gains realized between January 1, 2002, and April 30, 2003, for any taxpayer who already paid capital gains taxes at the prior rates." Id. at 129. In Peterson II, we held that the 2004 act was unconstitutional because, in light of § 413, the 2004 act was "virtually identical" to the 2002 act and suffered from the same constitutional infirmity. Id. at 132. We struck § 413 but concluded that it was severable from § 414, thereby retaining January 1, 2002, as the effective date as provided in § 414. Id. at 130. We acknowledged that it was "within the Legislature's power to amend the Act yet again, if it wishes, to set the effective date at January 1, 2003." Id. at 141.

The Legislature again responded, this time enacting the abatement act at issue here. See St. 2005 c. 163, §§ 57, 57A, 57B. Sections 57 and 57A repealed § 413 of the 2004 act, and changed the effective date of the new tax rate from January 1, 2002, to January 1, 2003. Most relevant to this case is § 57B, which addresses the remedy for those taxpayers who had paid long-term capital gains taxes at the higher rate in 2002. The relevant provisions are reproduced in the margin. [Note 4] In brief, § 57B provides that any taxpayer who overpaid capital gains

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taxes may apply for an abatement pursuant to the administrative procedures set forth generally for tax abatements in G. L. c. 62C, § 37. Id. at § 57B (a). The commissioner is to abate any such overpayments in four annual instalments, substantially equal in amount, without interest. Id. at § 57B (c) and (f). This provides the "exclusive" basis for relief stemming from the overpayment of the capital gains taxes in 2002. Id. at § 57B (f).

b. The plaintiff's action. DeMoranville alleges that, in June of 2002, he sold a business that he had owned since 1975. Because of the 2002 act, DeMoranville alleges that he was required to pay $182,101 in capital gains taxes that he would not have been required to pay prior to the 2002 act. [Note 5] Moreover, DeMoranville alleges that, because of the 2002 act, he paid higher taxes on

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the capital gains from that sale than similarly situated taxpayers who realized long-term capital gains in 2002 before the May 1 effective date. Following the enactment of the abatement act, DeMoranville applied for an abatement, which the commissioner allowed. Pursuant to the statute, DeMoranville received four substantially equal annual instalments of the refund. He received no interest. Importantly, he does not claim that he requested interest in his application for abatement, that the commissioner ruled on any such request, or that he pursued any other administrative channels to obtain interest on the overpayment. [Note 6]

2. Propriety of declaratory relief. We must first consider the appropriateness of declaratory relief. DeMoranville argues that the judge abused her discretion in dismissing his action for declaratory relief because pursuing the administrative remedies specified in the abatement act would have been futile and cause unnecessary expense and delay. We disagree.

"As a general rule, where an administrative procedure is available, we require a party seeking declaratory relief first to exhaust the opportunities for an administrative remedy." Space Bldg. Corp. v. Commissioner of Revenue, 413 Mass. 445, 448 (1992). Despite the fact that we are "generally reluctant to waive" this requirement, DiStefano v. Commissioner of Revenue, 394 Mass. 315, 320 (1985), we have held in tax cases that a declaratory action is "not ousted merely by the fact that the taxpayer has an administrative path to relief," and that "a judge in such a case may still exercise a discretion as to whether the action should be entertained." Id. at 319, quoting S.J. Groves & Sons v. State Tax Comm'n, 372 Mass. 140, 142 (1977). Unless the administrative remedy is "seriously inadequate," it should not be displaced by an action for a declaration. Sydney v. Commissioner of Corps. & Taxation, 371 Mass. 289, 294 (1976). Factors weighing in favor of maintaining a declaratory action

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include "that the issue is important or novel or recurrent; that the decision will have public significance, affecting the interests of many besides the immediate litigants; or that the case reduces to an issue of law without dispute as to the facts." Id. at 295.

The parties here primarily dispute whether the administrative remedies specified in the statute were "seriously inadequate." [Note 7] The abatement act provides that taxpayers aggrieved by overpayment of capital gains tax in 2002 are to follow the procedures set forth in G. L. c. 62C, § 37, which provides that a taxpayer must first "apply in writing to the commissioner . . . for an abatement. The commissioner may abate the tax if she "finds that the tax is excessive in amount or illegal." Id. If the request is denied, the taxpayer may appeal to the Appellate Tax Board (board), which hears the matter de novo and issues written findings. See G. L. c. 62C, § 39; G. L. c. 58A, § 13; Space Bldg. Corp. v. Commissioner of Revenue, supra at 451. [Note 8] The

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board may adjudicate disputes over interest. See Fleet Nat'l Bank v. Commissioner of Revenue, 448 Mass. 441, 446-447 (2007).

DeMoranville argues that bringing his case before the commissioner and the board would have been futile because neither has the authority to declare a statute unconstitutional. He contends that the authority of the commissioner and the board is limited by the language of the abatement act, which explicitly prohibits the commissioner from paying interest to taxpayers who paid the 2002 capital gains taxes later held unconstitutional. His view of the board is unduly constrained and inconsistent with our cases. The board previously has addressed constitutional claims and has ordered abatement on constitutional grounds, despite contrary statutory provisions, orders that we have upheld. See, e.g., Lily Transp. Corp. v. Assessors of Medford, 427 Mass. 228, 229 (1998) (affirming board's decision that assessment of motor vehicle excise tax did not violate taxpayer's constitutional rights); Commissioner of Revenue v. Lonstein, 406 Mass. 92, 92-93 (1989) (affirming board's decision that taxation scheme for interest from savings deposits violated art. 44).

We recently addressed the scope of authority of the board in Duarte v. Commissioner of Revenue, 451 Mass. 399 (2008), after the board invalidated a regulation promulgated by the commissioner as both inconsistent with the underlying statute and "constitutionally deficient." Id. at 406. We held that the board "lacks authority to declare regulations promulgated by the commissioner to be facially 'invalid and of no legal effect,' although it may find that their application in a case before it is violative of due process or inconsistent with the statutory purpose." Id. at 408. DeMoranville relies on Duarte to support his claim that the board could not have declared the abatement act unconstitutional for failure to provide interest. Even if the board could not have declared the abatement act facially unconstitutional, it could have declared the statute unconstitutional or "illegal," G. L. c. 62C, § 37, as applied to DeMoranville, and could have awarded him interest. See Duarte v. Commissioner of Revenue, supra. Accordingly, we agree with the judge in the Superior Court that the administrative remedies provided by the abatement act were not seriously inadequate.

DeMoranville further argues that, even if the board has authority

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to award him interest, his case is appropriate for declaratory relief because this case involves an important, novel, and potentially recurrent issue, noting that we have not addressed for more than a century whether a taxpayer is entitled to interest on payment of an unconstitutional tax. See Boott Cotton Mills v. Lowell, 159 Mass. 383, 386 (1893). We cannot say, however, that the judge abused her discretion in evaluating these factors. The judge noted that the issues presented are "certainly important" and "may be novel," [Note 9] but she also reasoned that the issues "arise from a special act of the legislature that affects a particular group of taxpayers with respect to taxes paid for a single type of income in a single year." She therefore concluded that the issues were not sufficiently recurrent or of sufficient public importance to merit declaratory relief in the light of the adequate

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administrative remedies proscribed -- and made "exclusive" -- by the Legislature. There was no abuse of discretion. [Note 10]

Judgment affirmed.