Levin, Tax Commissioner of Ohio v. Commerce Energy, Inc.
From ScotusWiki
Argued March 22, 2010. Decided June 1, 2010.
Authorship: Josh Branson of Harvard Law School and Annasara Purcell of Stanford Law School
Docket: 09-223
Issue: Does either the Tax Injunction Act, 28 U.S.C. § 1341, or comity principles bar federal court jurisdiction over a case alleging federal equal protection and dormant commerce clause claims when the plaintiffs do not challenge their own tax assessment and the relief sought is directed to specific tax exemptions or exclusions applicable to only four other taxpayers?
Contents |
Briefs and Documents
Decision
REVERSED AND REMANDED in a 9-0 decision with an opinion written by Justice Ginsburg. Justice Kennedy filed a concurring opinion. Justice Thomas filed an opinion concurring in the judgment, joined by Justice Scalia. Justice Alito filed an opinion concurring in the judgment.
Oral Argument
Transcript (March 22, 2010)
Merits Briefs
- Brief for Petitioner Richard Levin
- Brief for Respondent Commerce Energy, Inc., et al.
- Supplemental Brief for Respondent Commerce Energy, Inc., et al.
Amicus Briefs
- Brief for the States of Illinois, Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming and The District of Columbia in Support of Petitioner
- Brief for the Multistate Tax Commission in Support of Petitioner
- Brief for the Council on State Taxation in Support of Respondent
Certiorari-Stage Documents
- Opinion below (6th Circuit)
- Petition for certiorari
- Brief in opposition
- Petitioner’s reply
- Amicus brief for 29 states
Opinion Recap
Annasara Purcell originally wrote the following for SCOTUSblog:
On June 1, 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.
Oral Argument Recap
Josh Branson originally wrote the following for SCOTUSblog:
At oral argument in Levin v. Commerce Energy, the Court debated the scope of federal jurisdiction over challenges to state tax credits. In particular, it focused on the mechanics of the suppliers’ lawsuit and the extent to which the relief sought by the suppliers paralleled that sought in Hibbs.
Justice Breyer began by pressing Ohio’s Solicitor General, Benjamin Mizer, on the issue of standing, asserting that he had been unable to find any cases conferring standing upon businesses to challenge their competitors’ tax treatment. But Mr. Mizer displayed little interest in exploiting Justice Breyer’s doubts about the suppliers’ standing, quickly shifting the discussion to the scope of the comity doctrine as applied to state tax litigation.
On that point, the Justices seemed particularly interested in the similarity between the suppliers’ claim and that litigated in Hibbs. Justice Ginsburg in particular seemed to believe that both the complexity of the state law at issue and the intrusiveness of the proposed remedy distinguished the suppliers’ claim from those at issue in Hibbs. On the other hand, Justice Alito countered that the remedy sought in Hibbs may have been deceptively complicated, and that it too might have required significant federal interpretation of state law. Mr. Mizer also emphasized the complexity of the suppliers’ proposed remedy; an injunction striking down the Ohio tax credit, he argued, would in effect force Ohio to overhaul its tax code. But Justice Scalia found that point unpersuasive because, in his view, the comity doctrine at issue pertained only to tax collection, not general state regulation.
Arguing on behalf of the suppliers, Mr. Stephen Fitch responded that the suppliers’ suit would require only minor interpretations of state law and minimal intrusion upon Ohio’s tax scheme. After pressing Mr. Fitch about the suppliers’ standing (Mr. Fitch countered that the issue had not been raised below), Justice Breyer focused on the suppliers’ request for “all other appropriate relief.” Several of the Justices wondered if the suppliers’ lawsuit would ultimately require a judicial injunction barring unequal tax collection from the suppliers themselves—a form of relief definitively barred by the Tax Injunction Act.
During Mr. Mizer’s rebuttal, Justice Scalia questioned whether Ohio’s motion to dismiss under Rule 12(b)(1), for lack of subject-matter jurisdiction, was appropriate given the equitable nature of the comity doctrine. Finally, Justice Breyer pressed again on the possible scope of the ultimate remedy, expressing concern that a ruling for the suppliers would provide firms with an incentive to regularly sue their competitors for tax evasion.
Pre-Argument Articles
Argument Preview
Josh Branson originally wrote the following for SCOTUSblog:
Two sources of law restrict federal courts’ jurisdiction over challenges to state tax law. First, the Tax Injunction Act (“TIA”), 28 U.S.C. § 1341, precludes federal courts from enjoining the “assessment, levy or collection” of any state tax when there is an adequate state remedy. Second, jurisdiction may be limited by the doctrine of comity, but the precise contours of those limits are less than clear. Nearly thirty years ago, in Fair Assessment in Real Estate Association, Inc. v. McNary (1981), the Supreme Court affirmed that the comity bar operates independently of the TIA and that it applies to at least some cases to which the TIA does not clearly apply – for example, in Fair Assessment itself, a claim for damages.
In 2004, in Hibbs v. Winn, the Supreme Court held that the TIA’s jurisdictional bar applies only to cases in which plaintiffs are seeking “to avoid paying state taxes”; thus, the TIA does not preclude constitutional challenges by “third party” plaintiffs to state tax benefits. In its decision in Hibbs, the Court mentioned comity only in a footnote: citing Fair Assessment, it noted that it had “relied upon ‘principles of comity’” to preclude federal jurisdiction “only when plaintiffs have sought district-court aid in order to arrest or countermand state tax collection.”
Six years after Hibbs, in No. 09-223, Levin v. Commerce Energy, to be argued on March 22, the Court will consider whether either comity or the TIA itself precludes federal courts from considering a taxpayer challenge to a competitor’s allegedly unfairly favorable tax treatment.
The case arises from a challenge to Ohio’s tax laws by two retail natural gas suppliers, as well as a customer of one supplier. For tax purposes, Ohio distinguishes between, on the one hand, retail suppliers – who sell gas to consumers but must also pay fees to use local distribution pipelines – and, on the other hand, competing local distributors – who own the pipelines and thus can both supply the gas and deliver it. The retail suppliers (who are respondents at the Court) allege that Ohio’s tax scheme allows the distributors to pay lower taxes than they do, in violation of both the Equal Protection and Dormant Commerce Clauses.
The State of Ohio (represented in the suit by Tax Commissioner Richard Levin) countered that both the TIA and principles of comity precluded federal jurisdiction. The district court agreed with the State in part. It held that because the suppliers were not seeking to reduce their own tax burden, but were instead challenging the tax on the distributors, the TIA did not preclude jurisdiction. The district court did, however, agree with the State that principles of comity barred the federal suit, and it granted the State’s motion to dismiss.
On appeal, the Sixth Circuit reversed. Although it agreed with the district court that the TIA did not bar the suppliers’ suit, it held that comity also did not preclude federal jurisdiction. In particular, it held that the comity rule, like the TIA, bars federal suits only when the plaintiffs are seeking to thwart state tax collection. It reasoned first that a sweeping interpretation of the comity principle cannot be squared with the narrower interpretation embraced by the Court in its footnote in Hibbs. Second, it concluded, the State’s view of comity would render the TIA essentially superfluous.
The State filed a petition for certiorari that emphasized a division among the courts of appeals regarding the proper interpretation of the principles of comity after the Court’s decision in Hibbs. The Court granted certiorari on November 2, 2009.
In its opening brief on the merits, the State focuses on the importance and long pedigree of the comity doctrine, arguing that the Court has repeatedly emphasized the vital federalism interests protected by the principle of equitable restraint in state taxation cases. Those interests are at stake in this case, the State continues, because any inquiry into whether Ohio’s tax regime is unconstitutionally discriminatory would require a federal court to construe several complicated and technical provisions of the Ohio tax code. Moreover, providing the suppliers with a remedy would require a significant overhaul of Ohio’s natural gas tax laws, one result of which might be to ultimately decrease tax revenues. This point is echoed in the amicus brief filed by forty-four states, who insist that state courts are better suited to adjudicate constitutional challenges to state tax laws.
Turning to the rationales underlying the Sixth Circuit’s holding, the State argues that the Supreme Court was unlikely to have tacitly overruled both Fair Assessment and the long line of precedent broadly applying the comity principle in a mere footnote in Hibbs. Nor, the State continues, is the TIA superfluous if it is read as a partial codification of background principles of comity; indeed, the Court’s previous cases have emphasized that comity principles do extend in some cases beyond the reach of the TIA.
Finally, the State argues, even if Hibbs did limit comity to the scope of the TIA, the TIA itself bars jurisdiction in this case. The suppliers’ attack on the allegedly preferential treatment provided to distributors effectively challenges the suppliers’ own tax burden and distinguishes them from the neutral third-party plaintiffs whose Establishment Clause challenges were allowed proceed in Hibbs.
In their brief on the merits, the suppliers counter that Hibbs forecloses the State’s arguments. In particular, they argue, Hibbs is consistent with Fair Assessment and the Court’s other cases extending comity principles beyond the TIA, as Hibbs in no way prohibits the application of those principles to preclude jurisdiction over claims for damages, which are not covered by the TIA. Instead, both Hibbs and the older cases reflect that federal courts will find jurisdiction to be barred by comity principles only when plaintiffs are seeking to curtail state tax collection. Moreover, the suppliers contest the State’s characterization of the footnote in Hibbs, arguing that because comity was debated both in the briefs and at oral argument in that case, the Court’s limited interpretation of the comity principle was a well-considered part of its holding.
The suppliers further argue that jurisdiction should not turn on a speculative inquiry into the effect that a claim will have on state tax policy, reasoning that such a subjective standard would contradict the Court’s preference for clear and predictable jurisdictional rules. And in any event, the suppliers continue, federal adjudication in this case would not unduly impinge on state sovereignty; the suppliers seek a limited remedy—an injunction against enforcement of a tax credit—that would allow state authorities to retain discretion regarding how to recast Ohio’s tax law so as to comport with the Constitution.
Finally, the suppliers argue that the TIA does not apply to cases challenging tax credits, and that neither the TIA’s text nor Hibbs provides a basis for the State’s distinction between plaintiffs motivated by economic competition and other “neutral” third-party plaintiffs.
