[1] The first question posed by this appeal is whether the rule of Davis is to be applied retroactively. If it is not applied retroactively the defendants are not liable for refunds to the plaintiffs for taxes paid before Davis was decided on 28 March 1989 on federal pensions or military pay. It is a federal question as to whether the rule is to be applied retroactively. The United States Supreme Court has recognized that in some cases it would be inequitable to apply newly announced rules retroactively if prior to the enunciation of the rules parties had reasonably relied on certain principles in ordering their affairs. In such a case the rule is not applied retroactively.
In Chevron Oil Co. v. Huson, 404 U.S. 97, 30 L.Ed.2d 296 (1971), the United States Supreme Court held that a rule should *582not be applied retroactively and said that in making this determination three factors should be considered as follows:
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, for “[w]here 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.”
Id. at 106-107, 30 L.Ed.2d at 306.
In applying Chevron to this case we are helped by decisions in Virginia and South Carolina as well as an opinion by the United States Court of Appeals for the Fourth Circuit. Harper v. Virginia Dept. of Taxation, 241 Va. 232, 401 S.E.2d 868 (1991); Bass v. State, 302 S.C. 250, 395 S.E.2d 171 (1990); Swanson v. Powers, No. 90-1110, filed 25 June 1991. In fact situations very similar to the facts of this case the highest courts of Virginia and South Carolina held that Davis should not be applied retroactively. In Swanson some of the plaintiffs in this case brought a class action against the defendant Powers under 42 U.S.C. § 1983 seeking to hold her personally liable for the $140,000,000.00 they claimed they had overpaid in taxes. The Fourth Circuit Court of Appeals ordered that the case against the defendant Powers be dismissed on the ground she could not reasonably have foreseen the decision in Davis and was immune from being sued.
We examine initially the first prong of Chevron. Davis did not overrule a case but it was a case of first impression. The question then is whether its resolution was clearly foreshadowed. The exemption of state employees from taxation of their pensions had been in effect since 1941. This taxing scheme had received no challenge in court from anyone prior to the decision in Davis. Twenty-three states, including North Carolina, had similar plans. If the decision of Davis had been clearly foreshadowed we do not *583believe so many states would have adopted such plans. The Fourth Circuit Court of Appeals said “how the intergovernmental tax immunity doctrine and 4 U.S.C. § 111 applied to North Carolina’s revenue statutes was anything but clearly established prior to Davis." We agree with the highest courts in Virginia and South Carolina as well as the Fourth Circuit Court of Appeals that the decision of Davis was not clearly foreshadowed. This satisfies the first prong of Chevron.
As to the second prong of Chevron the General Assembly has repealed the provisions of our tax system at which Davis was aimed. The retroactive application of Davis will have no effect on the operation of the principle which Davis would advance. The second prong of Chevron is satisfied.
As to the third prong of Chevron we can take judicial notice of the fact that this State is in dire financial straits. The refunds of taxes, as asked by the plaintiffs, will cost the State approximately $140,000,000.00. This would require a further increase in taxes or a further cut in services by the State. We believe the State acted reasonably under the law as it was then understood when it exempted the benefits of state pensioners from income tax and it excluded part of the pay of National Guardsmen. It would be inequitable to require the State to refund the taxes paid by federal pensioners and military personnel. This satisfies the third prong of Davis.
The plaintiffs contend that James B. Beam Co. v. Georgia, No. 89-680, filed 20 June 1991, and American Trucking Assns. v. Smith, — U.S. —, 110 L.Ed.2d 148 (1990), require that Davis be applied retroactively. Beam involved an action for the refund of taxes paid on alcoholic beverages to the State of Georgia. The United States Supreme Court had held that a similar Hawaiian tax statute violated the Commerce Clause of the United States Constitution. Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 82 L.Ed.2d 200 (1984). The United States Supreme Court held in Beam that the rule of Bacchus should be applied retroactively. In a plurality opinion Justice Souter said that because the judgment in Bacchus applied retroactively in that case, stare decisis required that it be so applied in all similar cases. For this reason Chevron did not apply in Beam. The rule of Chevron was not otherwise altered by Justice Souter’s opinion and four other Justices affirmed their belief in the viability of the rule of Chevron.
*584This case is distinguishable from Beam in that the Court in Davis did not pass on the question of retroactivity. Michigan conceded that a refund was appropriate and the United States Supreme Court was not faced with the question of the retroactivity of the rule. In order for a case to be precedent for another case the court in the first case must pass on the issue presented in the second case. United States v. L. A. Tucker Truck Lines, Inc., 344 U.S. 33, 97 L.Ed. 54 (1952); United States v. Mitchell, 271 U.S. 9, 70 L.Ed. 799 (1926). The question of retroactivity was not determined in Davis and it may be determined in this case.
American Trucking dealt with the constitutionality of taxes imposed on trucks by the State of Arkansas. In a plurality opinion the United States Supreme Court held that pursuant to the rule of Chevron, American Trucking Assns. v. Scheiner, 483 U.S. 266, 97 L.Ed.2d 226 (1987), which held unconstitutional a similar tax by the State of Pennsylvania should not be given retroactive effect. Four justices dissented. In the dissenting opinion it was said that the Arkansas taxpayers were entitled to have the statute imposing the tax held to be unconstitutional. They said that the remedies to be granted depended on state law which had to comply with the United States Constitution. One justice concurred in an opinion which was not favorable to the application of the Chevron rule.
We might conclude from American Trucking that a majority of the Supreme Court is moving away from the nonretroactive application of constitutional decisions. We do not believe we should so conclude. In Beam the Court had an opportunity to say that the rule of Chevron should no longer be applied in civil cases and declined to do so. We do not believe we should anticipate a change in the law by the United States Supreme Court, but should adhere to the opinions as they are now written. We believe we have done so.
We are aware that the United States Supreme Court has vacated the judgments in the Virginia and South Carolina cases of Harper and Bass and remanded for further consideration in light of Beam. We believe Beam is clearly distinguishable from this case.
[2] The plaintiffs argue that the defendants did not plead the Chevron rule as an affirmative defense and did not argue it in the superior court. For these reasons, say the plaintiffs, the defendants cannot ask this Court to apply the rule.
*585An affirmative defense normally consists of new matter which the pleader contends will avoid the adverse party’s claim regardless of whether the facts alleged by the adverse party may be proved. N.C.G.S. § 1A-1, Rule 8(c) (1990). Roberts v. Heffner, 51 N.C. App. 646, 277 S.E.2d 446 (1981). It may be that rather than new matter constituting an affirmative defense the rule of Chevron is simply a part of the body of law governing the determination as to whether the plaintiffs are entitled to a refund.
We do not have to determine whether the rule of Chevron must be pled as an affirmative defense. If it is necessary the defendants did so in their ninth defense which was as follows:
Retrospective relief is inappropriate for the reason that the acts complained of were performed in conformity with law as it then existed and the funds sought to be recovered were expended in the performance of governmental functions for the benefit of the citizens of this State, including plaintiffs.
By pleading no retroactive relief under Davis the defendants invoked the rule of Chevron.
The plaintiffs, relying on River Birch Associates v. City of Raleigh, 326 N.C. 100, 388 S.E.2d 538 (1990), State v. Madric, 328 N.C. 223, 400 S.E.2d 31 (1991), and Greene v. Spivey, 236 N.C. 435, 73 S.E.2d 488 (1953), also say that the defendants did not argue the rule of Chevron in the superior court and for that reason cannot argue it on appeal. If the rule of Chevron is part of the law governing the right of plaintiffs to a refund and not new matter which must be pled as an affirmative defense the defendants argued it to the superior court when they argued the plaintiffs were not entitled to a refund. If it is new matter which must be pled the defendants sufficiently alerted the superior court to this new matter by their ninth defense.
[3] The plaintiffs also argue that the defendants have waived the right not to apply Davis retroactively because refunds have been made to some federal pensioners. They say that by intentionally making some refunds they have waived the right to assert the Chevron defense on appeal. N.C. Const, art. V, § 2(1) provides:
The power of taxation shall be exercised in a just and equitable manner, for public purposes only, and shall never be surrendered, suspended, or contracted away.
*586It is very difficult under this section for the State to waive its right to collect taxes. In Henderson v. Gill, Comr. of Revenue, 229 N.C. 313, 49 S.E.2d 754 (1948), an agent of the Revenue Department advised the taxpayer how sales taxes were to be reported for the sale of floral products. The taxpayer reported his taxes as he had been advised to do by the agent. The taxpayer was assessed for additional taxes. He asserted that the State was estopped from claiming these additional taxes because he had relied on the agent’s instruction and had not collected sales taxes from customers as he could have done if he had been properly instructed by the agent. This Court held that the State was not estopped. We said, “the State cannot, by the conduct of its agents be estopped from collecting taxes lawfully imposed and remaining unpaid.” Id. at 316, 49 S.E.2d at 756.
We hold that the State has not waived its right to refuse a refund of these taxes.
[4] The plaintiffs argue that regardless of whether the Chevron test is applied they are entitled to refunds under our statutes that allow them to sue for refunds. A refund under our statutes might be appropriate if the taxes were improperly collected. If Davis is applied only prospectively under Chevron the taxes were properly collected and no refund is due under our statutes or otherwise.
We have held that Davis does not apply retroactively. For that reason the plaintiffs are not entitled to refunds and we do not consider the question of whether this case was properly held to be a class action. We also do not consider what remedies would be available to the plaintiffs in the event Davis should be held to apply retroactively and whether such remedies comply with due process of law. See McKesson v. Division of Alc. Bev., — U.S. —, 110 L.Ed.2d 17 (1990).
For the reasons stated in this opinion we reverse and remand to the Superior Court of Wake County for the entry of a judgment dismissing the action.
Reversed and remanded.