The tax injunction act and federal jurisdiction: reasoning from the underlying goals of federalism and comity.

Author:Fautsch, David

States routinely contest federal jurisdiction when a state tax is challenged in federal district court on federal constitutional grounds. States argue that the Tax Injunction Act, 28 U.S.C. [section] 1341 (2006), bars jurisdiction and, even if the Tax Injunction Act does not apply, the principals of federalism and comity require abstention. The United States Supreme Court has not squarely addressed the scope of federalism and comity in relation to the Tax Injunction Act, and federal courts of appeal are split. In the Fourth and Tenth Circuits, federalism and comity require federal district courts to abstain even where the Tax Injunction Act permits jurisdiction. In the First, Sixth, and Seventh Circuits, however, federalism and comity reach no further than the Tax Injunction Act.

This Note (I) discusses the circuit split, (2) provides a framework for analyzing the federal judiciary' s role in constitutional litigation involving state interests, and (3) resolves the circuit split by arguing that federalism concerns do not justify abstention and that comity concerns, in extreme cases, may justify abstention.

INTRODUCTION I. THE HISTORY OF [section] 1341 AND CONFLICTING JUDICIAL INTERPRETATIONS A. The Tax Injunction Act, Fair Assessment, and Hibbs 1. Congress Designed the Tax Injunction Act to Address Federalism and Comity Concerns 2. The Supreme Court Opened the Door for Conflicting Interpretations of the Tax Injunction Act in Fair Assessment and Hibbs B. Disagreement Between the Circuits II. COURTS MUST EXAMINE THE UNDERLYING GOALS OF FEDERALISM AND COMITY A. An Unsatisfactory Resolution: Courts on Both Sides of the Circuit Split Should Examine the Underlying Goals of Federalism and Comity B. Reasoning From the Underlying Goals of Federalism and Comity 1. Federalism Does Not Justify Abstention 2. In Extreme Cases, Comity May Justify Abstention CONCLUSION "The history of American freedom is, in no small measure, the history of procedure."

--Justice Felix Frankfurter (1)


The forum in which a case is heard, federal or state court, can significantly affect the outcome of litigation, (2) and litigants often fight hard to obtain their preferred forum. (3) Plaintiffs raising constitutional law claims, in particular, often choose between state and federal court based on their perception of which court will be most receptive to their claims. (4) The stakes are high in the fight over whether a state or federal court has jurisdiction, because the first court system to hear the case will likely be the last. (5) Justice Frankfurter's recognition that freedom and procedure are deeply intertwined is, therefore, especially true for plaintiffs raising constitutional claims--determining whether a state or federal court has jurisdiction is a crucial decision that can have far-reaching ramifications. (6)

Suits involving the constitutionality of state tax schemes exemplify the procedural battle over whether the appropriate court of first instance is state or federal. Assume, for example, that a state decides that families who send their children to private schools should not pay the full price for a public school system that they are not using. This hypothetical state, therefore, enacts legislation to provide a tax credit for parents who send their children to private schools. (7) The tax credit allows families to deduct a portion of the expense of sending their children to private school, but the absolute most that a single family can avoid paying in taxes is $2000. Each family's exact tax savings is determined by a formula that takes into account the number of children attending school, the cost of the private school, and the cost of public education in that family's particular community.

The legislative history and public debate around the new tax-credit program does not reveal an invidious purpose to discriminate against any protected class. Nor is there any evidence of intent to create or maintain racial segregation. (8) The state has done substantial planning to forecast tax revenues, and it claims that the quality of public education will not diminish. According to the state, the decrease in tax revenue will be offset by the decrease in students attending public schools.

Despite the state's claims, a class of plaintiffs seeks to invalidate the tax credit. The plaintiffs argue that public education is suffering--especially in minority communities--and that public education will become even worse if the state is allowed to continue this tax credit. The plaintiffs argue that the state tax credit violates the First Amendment's Establishment Clause (many of the private schools are religious) and the Fourteenth Amendment's Equal Protection Clause. The plaintiffs file a complaint against the state in the local federal district court. The state responds that the federal district court lacks jurisdiction by virtue of the Tax Injunction Act, 28 U.S.C. [section] 1341, (9) and, even if [section] 1341 does not apply, that notions of federalism and comity require the federal court to abstain. (10)

Section 1341 reads, "The district courts shall not enjoin, suspend or restrain 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." (11) Thus, if [section] 1341 applies, federal district courts do not have jurisdiction. (12) Regardless of [section] 1341, however, federal district courts may invoke federalism and comity to justify abstention when litigation involves sensitive state interests. (13) Federalism, which describes the balance of power between the states and the federal government, is sometimes simply articulated as "Our Federalism." (14) Comity, which describes the recognition that federal courts give to official acts of a state government, is often listed as a justification for abstention when a federal court judgment might create hostility between the state and the federal government. (15)

Supreme Court jurisprudence does not definitively resolve whether the federal district court should exercise jurisdiction or abstain. In Fair Assessment in Real Estate Association v. McNary, the Court held that the principle of comity required federal district courts to abstain from taxpayer suits brought under 42 U.S.C. [section] 1983 regardless of whether [section] 1341 applied. (16) Although the Court was asked to consider the effect of [section] 1341 in Fair Assessment, the Court specifically found that because "the principle of comity bars federal courts from granting damages relief in such cases, we do not decide whether [[section] 1341], standing alone, would require such a result." (17) In Hibbs v. Winn, the Court held that [section] 1341 permits jurisdiction where the relief requested by the plaintiff would result in an increase in the state's tax revenue. (18) The Hibbs Court did not address whether federalism or comity could require federal courts to abstain even when [section] 1341 permits jurisdiction. (19) Moreover, the three dissenters, led by Justice Kennedy, did not specifically argue that comity required abstention. (20) Thus, the Supreme Court has not addressed whether federalism or comity can require a federal court to abstain when [section] 1341 clearly permits federal jurisdiction.

The Supreme Court's failure to address the effect of federalism and comity in the context of [section] 1341 opened the door for conflict between the federal courts of appeal. (21) The Fourth and Tenth Circuits hold that federalism and comity reach beyond [section] 1341. Thus, in these Circuits, courts may abstain even in cases where Hibbs clearly indicates that [section] 1341 does not apply. The First, Sixth, and Seventh Circuits, on the other hand, hold that federalism and comity reach no further than [section] 1341. Thus, in these Circuits, if [section] 1341 does not bar jurisdiction, neither federalism nor comity is a justification for abstention.

Resolving this circuit split requires courts to answer the following question: where a plaintiff seeks relief from the federal courts for an allegedly unconstitutional state tax scheme, and [section] 1341 does not bar the plaintiff's claim, can general principles of federalism or comity still require federal courts to abstain? The resolution of this circuit split is important for at least two reasons. First, litigants and courts involved in suits challenging the constitutionality of state tax schemes need to know where the case properly belongs. If ambiguity persists, similarly situated litigants will be treated differently depending on where their case arises. That is to say, litigants in certain circuits will be required to litigate in state court while litigants in other circuits will be allowed to litigate in federal court. Second, the way this question is resolved has implications for how federal courts define and reason about their relationship to state courts. (22) Federal judges, scholars, and practitioners continually note that the limited jurisdiction of the federal judiciary is constantly evolving and not always articulated by bright line rules. (23) Where case law is not dispositive, as in these kinds of cases, judgments about the appropriate scope of federal judicial power are inevitable. (24) The appropriate resolution of this question is all the more important given that the Supreme Court recently granted certiorari to a case from the Sixth Circuit to consider the same issues addressed by this Note: (1) whether Hibbs narrowed the doctrine of comity applied in Fair Assessment, and (2) whether comity principles bar federal jurisdiction in the instant case.

This Note provides a framework for analyzing the federal judiciary's role in constitutional litigation involving sensitive state interests, and argues that federalism concerns do not justify abstention, and that comity concerns, in extreme cases, may justify abstention.

Part I discusses the history of [section] 1341...

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