March 3, 2015
United States Supreme Court
Interprets Tax Injunction Act in
Direct Marketing Association v. Brohl
On March 3, 2015, the
United States Supreme
Court overturned the Tenth Circuit Court
of Appeals’ decision in Direct Marketing Association v. Brohl. The Supreme Court held that the Tax
Injunction Act (“TIA”), which bars federal courts from restraining the assessment, levy, or collection of
state taxes, did not divest the federal district court of jurisdiction to decide whether Colorado’s use
tax reporting provisions violate the Commerce Clause of the United States Constitution.
- The Supreme Court’s holding does not open up the floodgates to litigate state tax cases in federal
court. The Supreme Court narrowly interpreted the TIA to rule that Colorado’s unique use tax reporting
requirements are not covered by the TIA because the “TIA is not keyed to all activities that may improve
a State’s ability to assess and collect taxes.” Even where the TIA may not apply, the comity and abstention
doctrines may independently bar state tax actions from federal court.
- The Supreme Court did not reach the comity issue raised by the Tenth Circuit. The Supreme Court
remanded the case to the Tenth Circuit to determine if Colorado may assert comity as a defense.
While the Tenth Circuit opinion stated that the doctrine of comity “also militates in favor of
dismissal,” Colorado failed to raise it. The Supreme Court stated that the comity doctrine is not
jurisdictional, which may mean that by failing to raise it in the lower court, Colorado waived comity
as a defense.
- Colorado has been enjoined from enforcing the use tax reporting requirements in a separate action
filed by the Direct Marketing Association (“DMA”) in Colorado state court. The Supreme Court did not
reach the question of whether DMA had a plain, speedy and efficient remedy in state court. Interestingly,
the comity doctrine has a similar rubric—plain, complete and adequate remedy. Query whether the federal
courts will abstain and allow the state case to proceed. The injunction issued by the Colorado state
court suggests an adequate remedy may be available in state court.
- Justice Kennedy’s concurrence is noteworthy. He urges the Supreme Court to reconsider the Court’s
holding in Quill that a seller must have an in-state physical presence before the state may require
the seller to collect use tax. While that issue was not before the Supreme Court, Justice Kennedy left
little doubt about his view of Quill’s physical presence standard.
For a discussion of the Tenth Circuit Court of Appeals’ decision, please see
United States Supreme Court to Review Direct
Marketing, part of our
July 2014 State & Local Tax Bulletin.
For further information please contact
Jeffrey M. Vesely,
Kerne H. O. Matsubara,
Michael J. Cataldo, or
Paul T. Casas
(each in San Francisco).
Quick Takes contain short summaries and highlights of
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