TAX INJUNCTION ACT

Issues

Does the Tax Injunction Act prohibit federal courts from hearing cases where a tax-exempt, out-of-state entity brings suit to challenge an in-state law that does not impose a tax on the exempt entity but does impose notice and reporting requirements?

Court below

United States Court of Appeals for the Tenth Circuit

The Supreme Court’s decision in this case will determine whether the Tax Injunction Act (“TIA”) prevents federal court review of the notice and reporting requirements imposed on tax-exempt entities through the Colorado Collection Act. The Direct Marketing Association argues that neither the TIA’s language nor Congress’s intent when writing the TIA support the proposition that the TIA bars federal court jurisdiction when a tax-exempt entity challenges a statute that imposes notice and reporting obligations on the entity but does not create an actual tax liability. Brohl counters that the TIA protects the notice and reporting obligations from federal review because those functions are essential to facilitate the collection of the use tax. The resolution of this case will implicate the role that federal courts have over state taxation matters.

Questions as Framed for the Court by the Parties

Whether the TIA bars federal court jurisdiction over a suit brought by non-taxpayers to enjoin the informational notice and reporting requirements of a state law that neither imposes a tax, nor requires the collection of a tax, but serves only as a secondary aspect of state tax administration?

Colorado requires that all retailers pay a 2.9 percent tax on the sale of all tangible goods within the state. Direct Marketing Ass’n v. Brohl, 735 F.3d 904, 906 (10th Cir. 2013). The Commerce Clause and the Supreme Court’s decision in Quill Corp. v.

Written by

mduke

eflores

Edited by

olopez

Additional Resources

Kelvin Adkins-Heljeson: U.S. Supreme Court to Hear Appeal in Colorado “Amazon Tax” Case, Thomson Reuters (July 3, 2014).
Lawrence Hurley: U.S. top court takes up challenge to Colorado sales tax law, Reuters (July 1, 2014).

Submit for publication

Read more about Direct Marketing Association v. Brohl

Levin v. Commerce Energy, Inc.

Issues

Does a federal court have jurisdiction to entertain a lawsuit that seeks to enjoin a state tax credit based on the Commerce Clause and the Equal Protection Clause?

Court below

United States Court of Appeals for the Sixth Circuit

Respondent, Commerce Energy, Inc., sued the Ohio Tax Commissioner, Petitioner, Richard Levin, alleging Ohio's tax scheme violates the Commerce Clause and the Equal Protection Clause of the U.S. Constitution. Commerce contends that four Ohio companies benefit from certain tax exemptions that Commerce is not eligible for as an out-of-state company. Levin argues that the Tax Injunction Act and principles of comity bar Commerce's suit from proceeding in a federal court. Commerce counters that a federal court has jurisdiction to hear their suit. In this case, the U.S. Supreme Court will clarify the scope of the federal judiciary's authority to hear lawsuits regarding state tax law.

Questions as Framed for the Court by the Parties

1. Did the Court’s decision in Hibbs v. Winn, 542 U.S. 88 (2004), which addressed the scope of the Tax Injunction Act’s bar against federal cases seeking to enjoin the assessment and collection of state taxes, eliminate or narrow the doctrine of comity, which more broadly precludes federal jurisdiction over cases that intrude on the administration of state taxation?

2. Do either comity principles or the Tax Injunction Act bar federal jurisdiction over a case in which taxpayers allege, on equal protection and dormant Commerce Clause grounds, that their tax assessments are discriminatory relative to other taxpayers’ assessments?

Respondents, Commerce Energy, Inc., a California corporation, and Interstate Gas Supply Inc., an Ohio corporation (collectively “Commerce”), sell and market natural gas to consumers in Ohio. See Commerce Energy, Inc. v. Levin, 554 F.3d 1094, 1096 (2009).