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Opinion of O'CONNOR, J.

496 U. S.

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, ante, p. 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

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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

Opinion of O'CONNOR, J.

496 U. S.

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

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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 ante, 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. Ante, 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 ante, at 31, n. 15. In light of McKesson'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

Opinion of O'CONNOR, J.

496 U. S.

constitutional violation, cf. ante, 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)," ante, 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, ante, 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

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