Comity requires tax discrimination claims to be heard in state court
Below, Stanford Law School’s Annasara Purcell recaps Tuesday’s ruling in Levin v. Commerce Energy, No. 09-223. Josh Branson of Harvard Law School previewed and recapped oral argument in March; his commentary is available here and here.
On Tuesday, the Supreme Court issued its opinion in Levin v. Commerce Energy (No. 09-223), holding unanimously that principles of comity prohibit federal courts from entertaining complaints of discriminatory state taxation even when the relief sought is an increase in a competitor's tax burden. In so doing, the Court reversed the decision of the Sixth Circuit, which had held that comity barred federal district courts from hearing only those cases in which the plaintiffs sought a reduction in their own tax burdens.
In an opinion by Justice Ginsburg that was joined by five other Justices, the Court began by reviewing its long history of encouraging lower-court restraint when state tax systems are implicated, noting that the ability to tax is a central state function which lies at the heart of comity principles. The Court then rejected the argument, made by the plaintiffs and accepted by the Sixth Circuit, that its decision in Hibbs v. Winn (2004) allowed federal courts to consider challenges to state taxes as long as the plaintiffs do not seek a reduction of their own tax burdens. The Court explained that the reach of Hibbs was far more modest: it had endorsed federal adjudication only when the plaintiff's tax burden was not an issue at all "“ as in that case, in which the plaintiffs alleged an Establishment Clause violation. By contrast, even if the particular relief sought by the plaintiffs in this case was the increase of a competitor's tax burden rather than a reduction of their own, the allegedly unequal tax treatment was, the Court reasoned, at the heart of the dispute.
After deeming Hibbs inapposite, the Court went on to conclude that principles of comity prohibit federal courts from hearing cases such as this one. First, it observed that even if the plaintiffs could prove a violation of the Equal Protection Clause, they would be entitled only to equal treatment, with no constitutional guidance as to how to achieve such equality and no entitlement to the particular remedy that they had sought in their pleadings. Although comity would preclude federal courts from deciding on an appropriate remedy, federal courts would also lack the authority to remand the case to state courts for those courts to determine a remedy. Leaving the lower courts to remedy the problem would be particularly troubling, the Court noted, because even if it were the least intrusive way to remedy the violation, the TIA prohibits them from simply lowering the plaintiff's tax burden. As a result, the Court emphasized, district courts would instead be required to "reshape the relevant provisions of Ohio's tax code." Such concerns, in the Court's view, "counsel that [district courts] refrain from taking up cases of this genre, so long as state courts are equipped fairly to adjudicate them."
Finally, the Court concluded that because comity principles precluded district courts from entertaining cases such as this one, it did not need to decide whether the suit was also barred under the Tax Injunction Act.
Justice Kennedy joined the opinion of the Court but filed a very brief concurrence in which he expressed doubt as to the Court's rationale in Hibbs.
In an opinion joined by Justice Scalia, Justice Thomas concurred only in the judgment. Although he agreed that principles of comity required the dismissal of the case, in his view the Court should have dismissed the case for lack of jurisdiction under the TIA. Because the TIA strips federal courts of all jurisdiction to interfere with tax collection, he reasoned, and because the Equal Protection Clause does not distinguish between lowering or raising burdens to achieve equality, interpreting the TIA to allow the suit at bar would reduce it to a mere pleading formality.