Specialized Abstention Statutes Flashcards
Tax Injunction Act
- prohibits lower federal courts from restraining “the assessment, levy, or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State”
Comity Doctrine
- generally compels federal courts to defer to state courts under certain circumstances out of respect for the states
- in taxation cases, restrains federal courts from entertaining claims for relief that risk disrupting state tax administration (more embracive than TIA)
- note that comity doctrine predates the TIA - perceived as a backdrop against which Congress legislated + outlasts its passage
Levin v. Commerce Energy - Question
- 2010
- whether a fed district court may entertain a complaint of allegedly discriminatory state taxation, framed as a request to increase a commercial competitor’s tax burden (argued violated Eq Prot)
Levin - Facts
- 2010
- Ohio treats local distribution companies (LDCs) and independent marketers (IMs) differently for tax purposes.
- Relevant here, Ohio affords LDCs three tax exemptions that IMs do not receive.
- pls = IMs -> sought declaratory and injunctive relief invalidating the three tax exemptions LDCs enjoy and ordering the Commissioner to stop “recognizing and/or enforcing” the exemptions.
Levin - Holding
- The comity doctrine, we hold, requires that a claim of the kind here presented proceed originally in state court. In so ruling, we distinguish Hibbs v. Winn, (2004), in which the Court held that neither the TIA nor the comity doctrine barred a federal district court from adjudicating an Establishment Clause challenge to a state tax credit that allegedly funneled public funds to parochial schools.
Levin - TIA Ruling + Reasoning
Court DIDN’T reach the TIA issue, but text reveals a bit about how it works
- under TIA, state taxpayers can’t institute actions to contest OWN liability for state taxes (these kinds of suits would otherwise deplete state coffers)
- BUT third parties not impeded by the TIA “from pursuing constitutional challenges to tax benefits in a federal forum.”
- so, suit here, would have been allowed purely under the TIA
Levin - Comity Ruling + Reasoning
- Under the comity doctrine, lawsuits alleging discriminatory state taxation must initially be brought in state courts
- if a certain thing is unconstitutional, up to states if want keep statute without that thing -> it’s a choice, fed courts can’t make it for them and just sever the unconstitutional thing/keep the rest
Here, fed court can say this is a very bad discrimination, but can’t decide rest of case: can’t say what state would want to do if it had to choose
- can only decide one way, where state gets more $ (can’t decide the other way b/c barrier of TIA
- better to give to the state, state will know better what to do w/ the statute if it is an equal protection violation
Levin - Factors Counseling in Favor of Comity As Compared to Hibbs
Individually don’t compel forbearance, but in combo they do
(1) Respondents seek federal-court review of commercial matters over which Ohio enjoys wide regulatory latitude; their suit does not involve any fundamental right or classification that attracts heightened judicial scrutiny.
(2) While respondents portray themselves as third-party challengers to an allegedly unconstitutional tax scheme, they are in fact seeking federal-court aid in an endeavor to improve their competitive position
(3) The Ohio courts are better positioned than their federal counterparts to correct any violation because they are more familiar with state legislative preferences and because the TIA does not constrain their remedial options.
Hibbs v. Win - Facts
- 2004
- AZ taxpayers sued in fed ct attacking state tax credit system in which they could pay scholarships to religious schools -> argued violates Establishment Clause
Hibbs - Holding
- Ginsburg Op
- neither the TIA nor the comity doctrine barred a federal district court from adjudicating an Establishment Clause challenge to a state tax credit that allegedly funneled public funds to parochial schools -> b/c wasn’t trying to interfere w/ state’s collection of tax/avoid paying taxes
Hibbs - TIA Debate
- Ginsburg majority held intention of the TIA was to prevent taxpayers from trying to avoid their state taxes through federal litigation
-> NOT designed to prevent ALL fed interference w/ state taxation - vs. Kennedy dissent (Rehnquist, Scalia, + Thomas join) all say point of TIA is protect state whole tax system, not just about levy/assessment/collection
Hibbs - Reasoning
- “Assessment” is the official recording of liability that triggers levy and collection efforts; third-party suits not seeking to stop the collection of a tax imposed on plaintiffs were outside Congress’ purview
- Nowhere does history announce a sweeping congressional direction to prevent federal-court interference with all aspects of state tax administration
- note that taxpayers aren’t lessening own liability or depleting state coffers (not threatening states w/ diminution of revenue)
- also pointed out courts had been granting injunctions on these kinds of cases for ages (there were discriminatory taxes all over the place + court struck them down)
Direct Marketing Association v. Brohl - Facts
- 2015
- states aren’t allowed to make retailers who lack physical presence in the state to collect sales taxes or use taxes
- SO, Colorado makes purchasers pay those taxes - you’re supposed to voluntarily report what you buy on the internet + then fill out a return and remit the taxes directly
- voluntary reporting not working so well though, so 2010, CO passes new leg imposing notice and reporting obs on noncollecting retailers whose gross sales in CO exceed $100,000 -> requires them to send certain notices to purchasers
Direct Marketing Assoc. - Ruling + Reasoning
- TIA is not keyed to all activities that may improve a State’s ability to assess and collect taxes; does not encompass enforcement of the notice and reporting requirements for noncollecting retailers in Colorado
-> not an assessment, levy, or collection of tax - took no position on whether comity doctrine would apply, since issue not raised
-> BUT did say “under this doctrine, federal courts refrain from interfering with the fiscal operations of the state governments in all cases where the federal rights of the persons could otherwise be preserved unimpaired”
Direct Marketing Assoc. - Significance
- textbook pointed to this as another ex of how SCOTUS has endorsed a non-statutory comity doctrine applicable to litigation that may interfere w/ state taxation and perhaps other policies integral to state government
