Tax Exemptions for Local Gas Distributors Challenged

finally, at oral argument, the commissioner contended that if the plaintiffs' would have to substantially revise its tax code if their claims succeeded, and the comity and federalism because corporate taxes are allegedly passed directly to hibbs tells us the act is more straightforward: it applies only to "cases in which state and remand. chester, willcox & saxbe, columbus, ohio, for appellants. barton a. for the southern district of ohio at columbus. and shareholders."); harvey s. rosen, public finance, (mcgraw-hill/irwin, 6th ed. 2002); joseph e. assessment's language was broad: "[t]axpayers are barred by the principle of comity no. 08-3410 revenue." id. at 106. in line with the act's primary purpose of protecting state tax argument for three reasons. first, the issue was not briefed, so we cannot take judicial - act had barred claims, stating that the former "[a]ll involved plaintiffs who mounted via the challenged methods, and it had certified a defendant class of "all property constitutional challenges to tax benefits in a federal forum." id. at 108. and, as with shareholders bear the cost as a tax on equity capital. or, in what seems to be the modern directv, 513 f.3d at 127 (citing fair assessment, 454 u.s. at 110). to the fourth ohio, inc.) and interstate gas supply, inc. are retail natural gas suppliers who market taxes, and, if that future lawsuit succeeded, tax revenues would decrease. this argument the supreme court did not extensively analyze comity, it both affirmed the ninth circuit the flow of state tax revenue." hibbs, 542 u.s. at 106-07.3 i. from asserting § 1983 actions against the validity of state tax systems in federal courts" necessary. thus, the difference between this case and gillis concerns the degree to ii. determine whether comity and federalism preclude jurisdiction over state taxation act of congress ­ the tax injunction act ­ effectively superfluous, as its contours would seek would increase the state's tax revenue by eliminating some or all of the tax- 513 f.3d 119 (4th cir. 2008), which, in dismissing a § 1983 claim, rejected the idea that 2 hibbs." id. at 127-28. district court correctly recognized, the act does not prevent "third parties from pursing then likely all the previous supreme court decisions that did not even address the act enjoin the collection of state `tax revenue.'" bellsouth commc'ns, inc. v. farris, 542 would increase state tax revenues and that increase would allegedly be passed directly so long as "plain, adequate, and complete" state court remedies are available. id. at 114- hibbs, the taxpayers here are third-parties who do not "contest their own tax liability," iv. result in either a decrease or in an increase in state tax revenues should both be barred file name: 09a0036p.06 of their ohio customers, sued ohio's tax commissioner, richard levin. they alleged single kentucky citizen who owned taxable property and whose property was assessed taxation scheme. the act directs federal courts not to "enjoin, suspend or restrain the suggested intrusion into traditional matters of state taxation here is not significant the plaintiffs sued under the declaratory judgment act, 28 u.s.c. §§ 2201-02, that broad comity principles bar federal courts from hearing claims like the plaintiffs', boyce f. martin, jr., circuit judge. plaintiffs, in-state and out-of-state _________________ recommended for full-text publication no. 08-3410 commerce energy, et al. v. levin page 3 energy of ohio, inc., et al., financial aid to children who attended private schools. id. at 92-93. the supreme court because capital is mobile and it will flow to other investments that produce higher bar a claim under § 1983 which requires no scrutiny whatever of state tax assessment practices, such as indeed, we cannot resolve this case with abstract generalizations about because comity is prudential, we can make few generalizations about when it applies. natural gas from the local gas distributors. no. 07-00151--michael h. watson, district judge. upon this court's pre-hibbs decision, in re gillis, 836 f.2d 1001 (6th cir. 1988). yet, hibbs, 542 u.s. at 107 n.9.4 no. 08-3410 commerce energy, et al. v. levin page 11 - independent of its language, hibbs's logic also compels us to reject the approach lead to a decrease in state taxes, then a federal forum would be inappropriate. hibbs, 542 intrude upon traditional matters of state taxation in ohio. before: martin and mckeague, circuit judges; collier, chief district judge. otherwise significantly burden comity and federalism.6 to state tax systems that had no jurisdictional infirmities. id. at 111. just as with a broad who ends up footing this bill and in what proportion.5 federal courts of jurisdiction over all claims that might, after this or that happens, have to support the idea that comity and federalismprinciplesbarvastswathsofstate- responded by moving to dismiss these claims under fed. r. civ. p. 12(b)(1) for lack of x comity principle's applicability to suits bringing constitutional challenges to state tax it is people and not corporations in the abstract that bear tax burdens, they disagree on the seventh and ninth circuits have the more persuasive view. and, even every state-tax challenge, we also cannot make all-encompassing decrees regarding how wouldneverthelesssignificantly burdentraditional matters ofstatetaxationbecausethey companies benefit from certain tax exemptions and exclusions that they do not benefit called into question, including milliken v. bradley, 433 u.s. 267 (1977). hibbs loudly - pass directly to ohio consumers were correct, that would not alter our conclusion that at 107 n.4. revenues could theoretically decrease in the future because the natural gas distribution it thus yet there is a circuit split. the district court heavily relied on directv v. tolson, directive that comity strips jurisdiction "only when plaintiffs have sought district-court _________________ nontextual constitutional principles of comity and federalism. and though we federal action, as in fair assessment. when a plaintiff alleges that the never be dispositive so long as extant "comity principles" uniformly barred challenges in sum, impermissibly burden state taxation, and whether that cost is shared by shareholders, consumers, affirmed in toto a ninth circuit decision that ­ along with holding that the act did not pursuant to sixth circuit rule 206 their consumers. as a result, he argues that comity requires dismissal. we reject this stark/tuscarawas/wayne joint solid waste mgmt. dist., 166 f.3d 835, 837 (6th cir. significantly intrude upon traditional matters of state taxation such that dismissal is interests is located." gillis, 836 f.2d at 1008. by contrast, the plaintiffs here are two pipeline networks to deliver gas. while the plaintiff retail suppliers pay fees to use the other circuits disagree. the seventh circuit, for instance, has reconciled these animating these courts' disagreement with the fourth circuit are twin concerns. - * comity and federalismdid. this latter conclusion was incorrect, and we therefore reverse natural gas distributors are exempt from state and county sales and use taxes on their instead that the tax is borne by shareholders because supply and demand dictates that the have not. that ohio's tax scheme is discriminatory and thus unconstitutional under either the commerce clause or equal protection clause because four local natural gas distribution claims are ultimately successful, hundreds of thousands of ohio consumers might see - hubbard, office of the ohio attorney general, columbus, ohio, for subject matter jurisdiction. the court dismissed plaintiffs' complaint, reasoning that be four natural gas distributors and the only taxes affected would be a limited class of returns after taxes when a new tax is imposed because the imposition of new taxes or comity principles were decided incorrectly. see, e.g., missouri v. jenkins, 495 u.s. because they believed that the claims were barred by comity. winn v. killian, 321 f.3d no. 08-3410 commerce energy, et al. v. levin page 8 u.s. at 107 n.9. yet, the commissioner further argues that the plaintiffs' claims here or workers must be irrelevant. the inquiry is about magnitude; it's not a headcount. state tax collection or refund process is giving unfair benefits to someone else, then according to hibbs the act and comity are not in play. assessment, levy or collection of any tax under state law where a plain, speedy, and instead, colonial pipeline explained that it was not "impressed by colonial's contention that the impact is strained, to say the least. indeed, we recently rejected it: "the act does not strip federal-court relief, therefore, would have operated to reduce the flow of state tax appeal from the united states district court taxpayers seek" to "avoid paying state taxes" where success would "operate[] to reduce dismissal. in fact, two ninth circuit judges would have voted to rehear that case en banc b. opinion united states court of appeals stiglitz, economics of the public sector, (norton, 2d ed. 1988); william c. randolph, n emphatically reject the view that these principles broadly bar from federal court nearly supreme court, including milliken v. bradley, 433 u.s. 267 (1977), mueller v. allen, unconstitutional and enjoin their application. the defendant tax commissioner some economists have argued that out overruled gillis. yet both views are too extreme: gillis does not bar jurisdiction in preclude original federal-court jurisdiction only when plaintiffs have sought district- courts in the federal system, including the [supreme] court have entertained challenges tax commissioner. if plaintiffs' claims wereto succeed, the only entities affected would principle is "broader than the act itself, and its scope is not restricted by § 1341." valuation administrators of counties in which taxable property owned by coal, oil, or gas the second reason is that, in the context of whether a state tax challenge is barred in this case we reject an excessively expansive reading of the older cases plaintiffs commerce energy, inc. (which does business as commerce energy of hibbs court did not extensively address comity, it is hard to square that decision with revenue, the hibbs court interpreted "assessment" to mean only the "recording of pertinent question is whether the claims and requested relief fall within that sweep. proportion not only by consumers and shareholders, but also by workers. this is taxation where the act would not. fair assessment in real estate ass'n, inc. v. mcnary, u.s. 388 (1983)). this same logic applies to comity. if the tax commissioner is correct pipeline "held that a taxpayer's suit seeking a court-ordered redistribution of georgia's ad valorem tax richard a. levin, in his official capacity as the honorable curtis l. collier, chief united states district judge for the eastern district of against the tax breaks challenged here would not impermissibly burden state taxation. federal litigation to avoid paying state taxes (or to gain a refund of such taxes). in fact, the fair assessment court did not purport to go as far as the fourth circuit interpreted. tax."). _________________ - plaintiff gregory slone is an ohio citizen who no. 08-3410 commerce energy, et al. v. levin page 6 (aspen publishers, 3d ed. 2007) ("the burden of [corporate taxes] is normally shared between consumers explained: district court's conclusion that the tax injunction act does not bar plaintiffs' claims. requesting that the district court declare these exclusions and exemptions instead, our holding is narrow: the plaintiffs here challenge only a few limited international burdens of the corporate tax, congressional budget office working paper chance of an increase. hibbs did anything to limit an expansive reading of fair assessment because the comity is some theoretical chance revenues might decrease due to a hypothetical future lawsuit; 1 for the sixth circuit in plaintiffs' complaint are true. which the claims and relief requested would intrude upon a state's power to organize, and would sub silentio overrule a series of important cases from the lower courts and 12(b)(1) for lack of subject matter jurisdiction. am. landfill, inc. v. 911, 913-14 (2003) (kleinfeld, j., dissenting, joined by o'scannlain, j.). yet, though that comity guts federal jurisdiction only when plaintiffs try to thwart tax collection. the authorities are mixed. see, e.g., richard a. posner, economic analysis of law 706 exists," id. at 1009, it also indicated that it was simply on all fours with fair assessment, passed on to prices are spread among all consumers, yet that cost might still be quite small in the assessment's core holding ­ stated that it has "relied upon `principles of comity' . . . to moorings." id. at 107. this case and it may be reconciled with hibbs. decided and filed: february 4, 2009 state tax collection" and observed that the plaintiffs before it sought "no such relief." seems to be that plaintiffs' challenges automatically create an impermissible burden on in full and stated that its opinion doing so was not inconsistent with comity principles. is that we must not thrust ourselves into the middle of this economic debate by blindly to tax credits authorized by state law, without conceiving of § 1341 as a jurisdictional columbus, ohio, for appellee. on brief: stephen c. fitch, gerhardt a. gosnell ii, 423 f.3d at 1110 (quoting hibbs, 542 u.s. at 107 n.9). - there had brought an establishment clause challenge to income tax credits that provided the plaintiffs' claims are not barred by comity concerns. the commissioner's argument corporate tax, n.y.times, june 1, 2008 ("the ultimate payers of the corporate tax are those individuals enough to trigger comity to bar jurisdiction. laws under 42 u.s.c. § 1983. although the question presented was narrow, fair should not intrude into the state tax system . . . [a]s long as an adequate state remedy retail natural gas suppliers that market and sell natural gas to ohio consumers and one 1999). defendant-appellee. the district court's expansive reading of fair assessment. nevertheless, in hibbs, the supreme court ­ without disapproving of fair available at http://www.cbo.gov/doc.cfm?index=7503; gregory n. mankiw, the problem with the 2005), took at face value hibbs's admonitionthatcomity principles preclude jurisdiction injunction act, 28 u.s.c. § 1341, did not bar plaintiffs' claims, general principles of the fair assessment court noted that it "need[ed] not decide . . . whether the comity spoken of would also consumers. these companies, unlike the plaintiffs, also own and operate distribution render an act of congress entirely superfluous, would ignore the supreme court's seek federal-court orders enabling them to avoid paying state taxes." id. at 107. as the 1 more importantly, the hibbs court stated that barring the claims before it would 454 u.s. 100, 102, 108 (1981). in fair assessment, the supreme court addressed the principles of comity and federalism will always apply; they are merely principles. to the tax was imposed, and so any increase in prices would decrease demand; thus, "only when plaintiffs have sought district-court aid in order to arrest or countermand third and finally, even if the commissioner's theory that any tax burden would heard in federal court. this would bar any and all federal challenges, inconsistent with state law). we have no choice but to respect these supreme court judgments. california v. grace brethren church, 457 u.s. 393, 396 (1982). in hibbs v. winn, 542 exemptions that apply to only these four entities. and so it is not foreseeable that ohio v. barrier." id. at 93. the court sharply distinguished such cases from those in which the voiced this concern: "in a procession of cases not rationally distinguishable from this the tax commissioner replies that if plaintiffs are successful then state tax commerce energy, inc. dba commerce argued: december 10, 2008 retail natural gas suppliers and a natural gas purchaser and the sole defendant is the ohio liability" of the taxpayer, and thus the act applies only to "cases in which state taxpayers act did not bar plaintiffs' challenges to the constitutionality of ohio's natural gas their taxes rise because in-state natural gas companies would pass any tax increase to reducing the assessments on colonial's own property." 921 f.2d at 1242 n.8 (first emphasis added, second cases in this area are "not fairly cut loose from their secure, state-revenue-protective id. at 92, and success on their claims would not reduce state tax income: the relief they tax challenges, the tax commissioner and the district court both cite and heavily rely aggregate. indeed, in our above analysis we already determined that plaintiffs' requested relief would not, one, no justice or member of the bar of this court ever raised a § 1341 objection that, and sell natural gas to ohio consumers.1 flight, the workers become less productive and therefore earn lower wages. the point fromfederal court by principles of comity and federalism, the commissioner's argument exemptions that affect four specific entities, and their success would not significantly by principles of comity and federalism such that nary a state tax challenge could be according to the petitioner in this case, should have caused us to order dismissal of the no. 08-3410 commerce energy, et al. v. levin page 7 conduct, and administer its tax scheme. in gillis, the plaintiffs went too far; here, they u.s. at 109 n.11. yet the commissioner improperly reads "might" to mean any hypothetical chance. no. 08-3410 commerce energy, et al. v. levin page 5 argued: stephen c. fitch, chester, willcox & saxbe, columbus, ohio, for 6 that retail suppliers pay. according to plaintiffs, ohio law also excludes these local and thus the above analysis reconciling hibbs with fair assessment applies equally to discussing comity as urged upon us by the commissioner because that reading would f.3d 499, 503-04 (6th cir. 2008) (emphasis in original). it is thus not enough that there no. 08-3410 commerce energy, et al. v. levin page 4 * for the above reasons, we reverse the district court and remand for further system, which might have reduced plaintiff's tax bill, implicated § 1341's jurisdictional bar." hibbs, 542 when a plaintiff alleges that the state tax collection or refund process is notice of so complex an ipse dixit from the commissioner. while economists agree that action for want of jurisdiction." hibbs, 542 u.s. at 111-12 (citing mueller v. allen, 463 no. 08-3410 commerce energy, et al. v. levin page 10 appellants. barton a. hubbard, office of the ohio attorney general, no. 08-3410 commerce energy, et al. v. levin page 9 natural gas sales and instead pay a gross receipts excise tax that is lower than the taxes emphasis in original). here, the chance of a decrease of state tax revenues is far less than "equal" to the the first issue is whether the district court properly ruled that the tax injunction prices of the underlying products must have already been set to maximize profits before iii. reducing exemptions and exclusions. deprives federal courts of jurisdiction to hear certain challenges to state tax schemes. circuit, the comity principle's breadth "was simply not before the supreme court in for a corporation or if you buy goods and services from a corporation, you pay part of the corporate . . . have been inconsistent with a series of prior supreme court cases reviewing challenges u.s. 88 (2004), the supreme court clarified the act's scope and reach. the plaintiffs distributors fromgross receipts taxes that the plaintiffs are subject to when they purchase to state taxation. in recognizing this, the hibbs court warned lower courts that prior ohio tax commissioner, purchases natural gas from these retail suppliers. the plaintiff gas suppliers compete no. 08-3410 commerce energy, et al. v. levin page 2 in gillis, the district court broadly certified a plaintiff class consisting of every hibbs, 542 u.s. at 107-08 & n.9. d. comity and federalism barred plaintiffs' claims. these principles reflect a "scrupulous general principles of comity and federalism barred their claims. plaintiffs appeal. claims, courts must determine whether the relief requested in the pleadings would also challenge ohio tax provisions that exclude sales of natural gas between local notwithstanding the act, the district court went on to rule that principles of singling her out for unjust treatment, then the act and comity bar the from, despite their similar situations. but the district court granted the commissioner's regard for the rightful independence of state governments which should at all times 5 distribution pipelines owned by the local gas distribution companies, the four local a. revenue." levy v. pappas, 510 f.3d 755, 761 (7th cir. 2007) (quotations omitted). levy any injunctions that compelled or led inevitably to the collection of state taxes would be v. (2006) ("[d]omestic labor bears slightly more than 70 percent of the burden of the corporate income tax."), appellee. red herring because, even if true, it tells us nothing about the magnitude of the cost or burden ­ all costs (11th cir.1991), which the hibbs court distinguished from the case before it by stating that colonial principles of comity and federalism sweep somewhat more broadly than the act, the this court reviews de novo the dismissal of a complaint under fed. r. civ. p. bar plaintiffs' claims ­ had specifically addressed and rejected comity as grounds for - efficient remedy may be had in the courts of such state." 28 u.s.c. § 1341.2 no. 08-3410 commerce energy, et al. v. levin page 12 463 u.s. 388 (1983), and possibly even hibbs itself. that is unacceptable. but, though , of its requested relief would act only to increase the valuation and assessment of currently undervalued taxes may not, as a class, be heard in federal court so long as doing so would not for support, the commissioner also cites colonial pipeline co. v. collins, 921 f.2d 1237, 1243 we therefore affirm the first, a sweeping reading of fair assessment runs squarely against hibbs's instruction our comity discussion above. proceedings. distributorsfromcommercialactivitiestaxesontaxable gross receipts. finally, plaintiffs > to ohio's consumers. in other words, the commissioner contends that claims that would though gillis broadly warned that "principles of comity dictate that a federal court lowers an activity's expected after-tax return. with less capital stock due to this capital consumers pay all corporate taxes in the form of higher prices. others have argued thus, a possible injunction actuate the federal courts" and thus they sometimes bar federal challenges to state some negative impact on local revenues; it strips jurisdiction over claims seeking to c. second, an unduly broad view of comity would render an 4 property. . . . [i]mplementation of its requested relief could also have the equally likely alternative of court has never intimated that challenges to discriminatory personal or consumption companies could possibly file a future lawsuit seeking to enjoin the imposition of other it felt was untouched by hibbs, while the plaintiffs argue that hibbs undermined or flat- 16. moreover, the fact that some tax costs might affect "hundreds of thousands of consumers" is a reading of the act, if a broad reading of comity forbade the relief requested here, then aid in order to arrest or countermand state tax collection," hibbs, 542 u.s. at 107 n.9, the parties agree that there is an adequate state-court remedy available. id. at 762. similarly, the ninth circuit, in wilbur v. locke, 423 f.3d 1101 (9th cir. is "heads i win, tails you lose." both parties agree that if plaintiffs' success were sure to endorsed by the district court and the fourth circuit. in hibbs, the supreme court consumers. but the fact that it might burden consumers cannot be enough: the supreme tennessee, sitting by designation. motion to dismiss for lack of subject matter jurisdiction, reasoning that, while the tax 33, 57 (1990) (ordering state to collect taxes in amounts exceeding the ceiling set by 3 with local natural gas distribution companies who market and sell gas to ohio who have some stake in the company on which the tax is levied. if you own corporate equities, if you work court aid in order to arrest or countermand state tax collection." hibbs, 542 u.s. at 107 counsel - a facial attack on tax laws colorably claimed to be discriminatory as to race." fair assessment, 454 u.s. n.9 (emphasis added) (citing fair assessment, 454 u.s. at 107-08). thus, while the taxation scheme because hibbs "restrict[s] comity to cases that could tie up rightful tax cases by holding that fair assessment cannot bar each and every challenge to a state's trend, yet other economists argue that the corporate tax burden is shared in some accepting the commissioner's theory. held that the act did not bar jurisdiction, and observed that for "near a half century, plaintiffs-appellants, because this case arises on a motion to dismiss, this court must assume that all facts asserted gillis. and below, the district court gave gillis its broadest conceivable reading, which _________________