Cite as: 509 U. S. 86 (1993)
Opinion of the Court
of state taxes imposed on federal retirement benefits in 1985, 1986, 1987, and 1988 for up to one year from the date of the final judicial resolution of whether Virginia must refund these taxes. Va. Code Ann. § 58.1-1823(b) (Supp. 1992).3
Petitioners, 421 federal civil service and military retirees, sought a refund of taxes "erroneously or improperly assessed" in violation of Davis' nondiscrimination principle. Va. Code Ann. § 58.1-1826 (1991). The trial court denied relief. Law No. CL891080 (Va. Cir. Ct., Mar. 12, 1990). Applying the factors set forth in Chevron Oil Co. v. Huson, supra, at 106-107,4 the court reasoned that "Davis decided an issue of first impression whose resolution was not clearly foreshadowed," that "prospective application of Davis will not retard its operation," and that "retroactive application would result in inequity, injustice and hardship." App. to Pet. for Cert. 20a.
The Supreme Court of Virginia affirmed. Harper v. Virginia Dept. of Taxation, 241 Va. 232, 401 S. E. 2d 868 (1991). It too concluded, after consulting Chevron and the plurality opinion in American Trucking Assns., Inc. v. Smith, 496 U. S. 167 (1990), that "the Davis decision is not to be applied retroactively." 241 Va., at 240, 401 S. E. 2d, at 873. The court also rejected petitioners' contention that "refunds
3 Applications for tax refunds generally must be made within three years of the assessment. Va. Code Ann. § 58.1-1825 (1991). As of the date we decided Davis, this statute of limitations would have barred all actions seeking refunds from taxes imposed before 1985.
4 "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, it has been stressed that '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 have weighed the inequity imposed by retroactive application . . . ." Chevron Oil Co. v. Huson, 404 U. S., at 106-107 (citations omitted).
91
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