The Tax Lawyer
Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.


A (Federal) Civil Action: When the Tax Injunction Act and Comity Bar Federal Court Jurisdiction

Michael Pih

In Commerce Energy, Inc. v. Levin, the U.S. Court of Appeals for the Sixth Circuit was presented with two related questions: (1) did the Tax Injunc­tion Act (TIA) bar plaintiffs’ challenge to the constitutionality of provi­sions of Ohio’s tax code granting certain exemptions to in-state natural gas distributors, and (2) alternatively, did “general principles of comity and fed­eralism” bar the plaintiffs’ claims? The trial court dismissed the plaintiffs’ suit for lack of subject matter jurisdiction, finding that while the TIA did not bar the plaintiffs’ claims, general principles of comity justified dismissal.

The Sixth Circuit affirmed the district court’s holding that the TIA did not bar the plaintiffs’ suit, but concluded that the district court erred in dismiss­ing the plaintiffs’ suit on comity grounds, remanding the case for further proceedings.

In spite of broad language in earlier U.S. Supreme Court cases, the Sixth Circuit found that the Court’s most recent decision in Hibbs v. Winn pro­vided a narrower construction as to when principles of comity and federalism bar federal court jurisdiction: where “plaintiffs have sought district-court aid in order to arrest or countermand state tax collection.” Consequently, the Sixth Circuit found that comity did not bar the plaintiffs’ claims because the plaintiffs did not seek to impede or stop state tax collection.

As a general matter, the issues presented before the Sixth Circuit raise important federalism considerations and the question as to when extent fed­eral courts should defer to state courts to adjudicate challenges to state tax jurisprudence on the matter, the Sixth Circuit drew a clear distinction between cases that would be barred under either the TIA or comity and those that would not. In so doing, it joined several other circuits, including the First, Seventh, and Ninth Circuits, in recognizing the limitations of the comity doctrine as articulated in Hibbs.

The Supreme Court, however, recently delivered its opinion reversing the Sixth Circuit decision. It noted that the holding in Hibbs was a narrow one that stands for the proposition that comity is inapplicable in cases under the Establishment Clause. Here, the Supreme Court noted that the plaintiffs were essentially challenging their own tax liability as discriminatory under either the Equal Protection or the dormant Commerce Clause.

This Note argues that the Sixth Circuit’s decision in Commerce Energy correctly applied the principles outlined in the Supreme Court’s decision in Hibbs, and that the Supreme Court’s recent reversal effectively counsels against federal court jurisdiction in nearly all challenges to state tax law. Spe­cifically, it contends that neither the TIA nor principles of comity and feder­alism preclude adjudication of the plaintiffs’ claims in federal district courts. The purpose of the TIA is to strip federal jurisdiction where a taxpayer seeks to avoid paying taxes, thereby reducing tax revenues. In Commerce Energy, the requested relief would have actually increased tax revenues, which renders the application of the TIA inappropriate. Finally, principles of comity and federalism do not bar federal court relief; an opposite result would limit the scope of the TIA and abrogate congressional intent to define the jurisdic­tional scope of judicial review of state tax law.

Part I provides an overview of the judicial doctrine of comity, an introduc­tion to the TIA, and a summary of the case law leading up to the contro­versy in Commerce Energy. Part II discusses the procedural history and the Sixth Circuit opinion in Commerce Energy. Part III presents an analysis of the court’s decision and provides the rationale as to why neither the TIA nor the comity doctrine precludes federal court jurisdiction in the instant case. It also argues that the Supreme Court’s recent decision did little to clarify the scope of the comity doctrine and instead compounds what was a plain standard articulated in Hibbs.

Published by
Section of Taxation,
American Bar Association
in Collaboration with the
Georgetown University Law Center

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