Reply Brief — Hibbs v. Winn

No. 02-1809

—-

-- =

In The

Supreme Court of the Anited States

e

J. ELLIOTT HIBBS, in his official capacity as

Director of the Arizona Department of Revenue,

Petitioner,

v.

KATHLEEN M. WINN, Arizona taxpayer;

DIANE WOLFTHAL, Arizona taxpayer;

MAURICE WOLFTHAL, Arizona taxpayer;

LYNN HOFFMAN Arizona taxpayer,

Respondents.

.

On Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

S

PETITIONER’S REPLY ON THE MERITS

o

TERRY GODDARD

Attorney General of Arizona

MAry O’GRADY

Solicitor General

PAULA S. BICKETT

Chief Counsel, Civil Appeals

JOSEPH KANEFIELD*

Special Assistant Attorney General

1275 West Washington Street

Phoenix, Arizona 85007

(602) 542-8392

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

i

TABLE OF CONTENTS

. Page

ee GI Gay BI I ccvcccecesccccscevscccscsecnsseneneneses i

TIT callintetsiiimrneisissasacincesseenteinainemndaiessianione 1

I. The Plain Language of the Tax Injunction Act

Prohibits This Challenge to Arizona’s Tax

STINT -sticsdsieciupaiehlasiaditaumeaapiapdiniteiuadenesnmniabieedninemates 1

II. The Tax Injunction Act’s Legislative History

Neither Overrides Nor Conflicts with Its Plain

III. The Tax Injunction Act’s Plain-Language Mean-

ing Is Entirely Consistent with This Court's

Precedent and with Many Lower Court Deci-

IV. The Principles of Comity Bar Respondents’

Federal-Court Lawsuit Challenging Arizona’s

IEE cincmnictintsisencectpcinicnbacuniuieatiaiinséuaiiabiiasiiiansiaties 10

V. Congress and This Court Have Entrusted State

Courts to Decide Federal Constitutional Issues.... 14

I iencesticiinineninnisnnisennnndcsasaiitatasnadineiadinsenaasaiene 16

ii

TABLE OF AUTHORITIES

Page

CASES

ACLU v. Bridges, 334 F.3d 416 (5th Cir. 2003)............. 8,13

Alden v. Maine, 527 U.S. 706 (1999) 2.0.0.0... cccccceeeeeeeeees 15

Allen v. Wright, 468 U.S. 737 (1984) .0........ccccceeceeeeeeeeeeees 10

Aluminum Co. v. Deptt of Treasury, 522 F.2d 1120

EE IES ETE en cD Se 5

Arkansas v. Farm Credit Services, 520 U.S. 821

TIP REE Sea: TY Oe 5,6

California v. Grace Brethren Church, 457 U.S. 393

RS ORE SIRE a a eT 6, 7, 14, 15

Colonial Pipeline Co. v. Collins, 921 F.2d 237 (11th

UE nae! ee 9

Comm. for Public Education and Religious Liberty

v. Nyquist, 413 U.S. 756 (1973).............cscccccssseceeeereeees 7,8

Davis v. Mich. Dept of Treasury, 489 U.S. 803

a ieetsanin 4

De Buono v. NYSA-ILA Med. and Clinical Servs.

i esbeeeinien 8

Ex parte Young, 209 U.S. 123 (1908) ...............ccccccceesseeeeeees 5

Fair Assessment in Real Estate Ass’n, Inc. v.

hs CIEE CREE, UII A UIIITITE Picancnsccisscnsconsensosssecssosssvenvesces 11

Fed. Election Comm’n v. NRA Political Victory

I scpusudonenneseccl 8

Great Lakes Dredge & Dock Co. v. Huffman, 319

SRE eee ee ene Cen ll

Griffin v. Prince Edward County School Bd., 377

RIS IS ee enn a OT

iil

TABLE OF AUTHORITIES -— Continued

Page

Idaho v. Coeur d’Alene Tribe, 521 U.S. 261 (1997) ..... 14, 15

In re Gillis, 836 F.2d 1001 (6th Cir. 1988).............:cccceeeeeee 9

Jefferson County v. Acker, 527 U.S. 423 (1999).......... 2, 3, 6

Kotterman v. Killian, 528 U.S. 921 (1999) ...........00.... 12, 15

Kotterman v. Killian, 972 P.2d 606 (Ariz. 1999)............... 12

Kraebel v. New York City Dep't of Hous. Pres. and

Dev., 959 F.2d 395 (2d Cir. 1992)..............ccccsccsssssseeeeseees 9

Louisiana v. McAdoo, 234 U.S. 627 (1914) ...... eee 10

Matthews v. Rodgers, 284 U.S. 521 (1932).............ccccccceees ll

Moskal v. United States, 498 U.S. 103 (1990)..............00000 5

Mueller v. Allen, 463 U.S. 388 (1983) ...........:ccccccceceeeeeeees 7,8

Nat'l Private Truck Council v. Okla. Tax Comm’n,

GES UB. GHB CRD cccevccvcccscessstsceccnseiivesennsaueuaanaaaneaa 5

Perez v. Ledesma, 401 U.S. 82 (1971) ............:ccccsssscessesesseees 6

Rhodes v. Killian, 528 U.S. 810 (1999)>............ccccceeeeeeeeees 12

Rosewell v. LaSalle Natl Bank, 450 U.S. 503 (1981).... 7, 14, 15

South Carolina v. Regan, 465 U.S. 367 (1984) ..........00000.. 10

Stone v. Powell, 428 U.S. 465 (1976) ...........ccccccccccceeeeeeeeees 15

Tully v. Griffin, 429 U.S. 68 (1976)............ccccccsesssssssssseseeees 6

United Statés Brewers Ass’n, Inc. v. Perez, 592 F.2d

BSED (Est Che, STDP occeccvcescesconcccsonssonssmnennninanaannannnannn 9

United States v. L.A. Tucker Truck Lines, Inc., 344

WEB. SB (REDD .<cccccccsscosonnssnnenesescenseaneniinennininnnnnnnnnnn 8

iv

TABLE OF AUTHORITIES -— Continued

Page

Will v. Mich. Dept of State Police, 491 U.S. 58

EEE SEES ae Oe aE 8

Wright v. Regan, 656 F.2d 820 (D.C. Cir. 1981) ................ 10

FEDERAL STATUTES

ee 1,2

TE 6

ARIZONA CONSTITUTION ;

teas 15

STATE STATUTES

a 15

ae 2

OTHER :

i ere cntrreeeeencesenesen 5,7

S.Rep. No. 1035, 75th Cong., Ist Sess. 102 (1937)............. 5

Webster's New Int'l Dictionary (2d ed. 1934)....................... 2

1

ARGUMENT

I. The Plain Language of the Tax Injunction Act

Prohibits This Challenge to Arizona’s Tax

Credit.

The Court can easily begin and end this case with the

plain language of the Tax Injunction Act. By its express

terms, the Act prohibits federal district courts from inter-

fering not only with the “collection” of state taxes, but also

with the “assessment” of such taxes. And the plain meaning

of the word “assessment” refers to the process of calculating

a taxpayer's ultimate tax liability — a process that includes

the state tax credit at issue here. See Pet. Br. at 12-14.

Respondents have no plausible argument to explain

why the term “assessment” in the Tax Injunction Act

should not be given its ordinary meaning. Their best effort

comes in the tentative suggestion that “liJf the term

‘assessment’ is to be applied [here] in the same way as it is

ordinarily applied to property taxes,” then “‘assessment’

... would appear” to apply to only above-the-line calcula-

tions of taxable income. Resp. Br. at 15-16. But “assess-

ment” as used in the Tax Injunction Act refers not to an

assessment of property or income, but to an “assessment of

... any tax.” 28 U.S.C. § 1341. Further, Congress should

be presumed to have used the term “assessment” in that

Act the same way it uses the term in other federal stat-

utes. As the Solicitor General details, “assessment” is used

consistently in the Internal Revenue Code to mean the

government's determination of a taxpayer's ultimate

liability. U.S. Amicus Br. at 11-12. Respondents do not

explain why Congress would have intended “assessment”

to have a different meaning in the Tax Injunction Act than

it has in other parts of the federal code, especially in the

Internal Revenue Code.

2

Perhaps recognizing that “assessment” is only sensi-

bly read to refer to the process of determining ultimate tax

liability, Respondents now advance a new argument, one

not adopted below: even if the Arizona tax credit is a

component of an “assessment,” nothing about their fed-

eral-court challenge “enjoin{s], suspend{s} or restrain(s]”

that assessment. Resp. Br. at 16. That argument makes no

sense. Respondents’ own lawsuit requests that the district

court “enjoin” the State from applying its tax credit in

making “assessments” of state tax. Joint App. 15. If

Respondents are successful, then they will have “enjoined”

and “restrained” the State from making the “assessment

_.. under State law.” 28 U.S.C. § 1341; see also Webster's

New Int'l Dictionary 2125 (2d ed. 1934) (giving one defini-

tion of “restrain” as “to hold back from acting, proceeding,

or advancing, either by physical or moral force, or by any

interposing obstacle” as well as other consistent defini-

tions).’

Nor does Jefferson County v. Acker support Respon-

dents’ position that a suit to enjoin a tax credit does not

restrain the State’s assessment of taxes. 527 U.S. 423

(1999) (discussed in Resp. Br. at 15-16). Jefferson County

involved a county’s lawsuit to collect taxes from federal

' A taxpayer’s involvement in the assessment of income tax does

not eliminate the State’s involvement in the assessment process.

Although in most cases taxpayers initially determine their tax liability

by filling out and filing their tax forms, the State assures compliance by

checking the self-assessment. See Ariz. Rev. Stat. § 42-1108(A) (“the

department (of revenue} may examine any return ... to determine the

correct amount of tax”). Moreover, Respondents request the district

court to order Petitioner to disallow tax credits, which thus would

require the State to examine each self-assessment.

3

judges that the county filed in state court and the judges

removed to federal court. 527 U.S. at 423. In Jefferson

County, the Court applied the plain language of the Tax

Injunction Act and concluded that “a suit to collect a tax is

surely not brought to restrain state action, and therefore

does not fit the Act’s description of suits barred from

federal district court adjudication.” Jd. at 424. Here, in

contrast, Respondents’ lawsuit specifically requests the

district court to enjoin state action — that is, to enjoin the

State from applying its state tax credit law in making

assessments of state tax.

In essence, Respondents’ position is that the Tax

Injunction Act applies only when a federal-court action, if

successful, would deprive the state of tax revenue — that

is, when a suit seeks to enjoin the collection of state taxes.

Resp. Br. at 19-20. If Congress had wanted to enact that

statute, it would have been easy enough; it could have

deleted the words “assessment” and “levy” from the Tax

Injunction Act. But that is not what Congress did, and

Respondents cannot write the word “assessment” out of

the Tax Injunction Act.’ =

Respondents cannot make sense of the statutory

language in a manner that conforms to their position.

According to Respondents, the term “assessment” refers

only to above-the-line tax calculations, so that the statute

* Respondents wrongly argue that Petitioner attempts to rewrite

the Tax Injunction Act in asserting that Congress intended the Act to

prevent interference with state tax administration. Resp. Br. at 17.

Congress's intent is demonstrated by its use of the words “assessment,

levy and collection,” which encompasses all three major parts of the

state taxation system.

4

precludes challenges to tax deductions, but not to tax

credits like the one at issue here. See Resp. Br. at 16. But

a successful challenge to a tax deduction, like a challenge

to a tax credit, may have the result of increasing state

revenues — which under Respondents’ theory should take

it outside the scope of the Tax Injunction Act. And a

litigant challenging a tax credit as underinclusive may

seek expansion of the credit to other entities — or the court

may award that relief — so that Respondents’ own reading

of the Act would allow federal courts to adjudicate a

challenge that could deprive a State of tax revenue. In

short, it is impossible to reconcile Respondents’ policy

arguments about when federal-court interference with

state taxation should be prohibited with the actual lan-

guage of the Tax Injunction Act. That language controls,

and it is enough to dispose of this case.

Il. The Tax Injunction Act’s Legislative History

Neither Overrides Nor Conflicts with Its Plain

Language.

Respondents attempt to avoid the plain language of

the Tax Injunction Act by arguing that its legislative

history limits its scope to revenue-protection purposes and

therefore does not apply to challenges to state tax credits.

Resp. Br. 18-20. It is unnecessary to resort to legislative

history because the language of the Act is clear and

unambiguous. See Davis v. Mich. Dep't of Treasury, 489

U.S. 803, 808 n.3 (1989) (resort to legislative history unnec-

essary where statutory text is clear). Even if the Act’s legisla-

tive history were relevant, it does not support Respondents’

argument that Congress intended to limit its application to

lawsuits that stop state revenue collection. While Congress

sought, in part, to curtail efforts by out-of-state taxpayers to

5

avoid paying tax, this history does not limit the applica-

tion of the Tax Injunction Act to that situation. See Moskal

v. United States, 498 U.S. 103, 111 (1990) (“This Court has

never required that every permissible application of a

statute be expressly referred to in its legislative history.”)

Further, Respondents ignore other aspects of the Act’s

legislative history that show that Congress was also

concerned with federal-court challenges that interfered

with the States’ administration of the core sovereign

function of taxation.’ This Court has repeatedly noted this

as an important congressional purpose behind the Tax

Injunction Act. For example, in Arkansas v. Farm Credit

Services, the Court stated: -

Enactment of the Tax Injunction Act of 1937 re-

flects a congressional concern to confine federal

court intervention in state government, a concern

prominent after the Court’s ruling in Ex parte

Young, 209 U.S. 123 (1908), that the Eleventh

Amendment is not in all cases a bar to federal

court interference with individual! state officers

alleged to have acted in violation of federa! law

520 U.S. 821, 826-27 (1997): see also Nat! Private Truck

Council v. Okla. Tax Comm'n, 515 US S82 oo

* There are two additiona! reasons >«!

that are discussed in Aluminum ( >»

522 F.2d 1120, 1124 (6th Cir 197°

the added expense of litigating i» ‘h

financially unsound for the State ors

wealthy corporation's tax |iah

congestion in the federal courts |

controversies. Jd. (citing S Rep

(1987) and 81 Cong. Rec. 1416-17 14 F

6

(“the Tax Injunction Act may be best understood as but a

partial codification of the federal reluctance to interfere

with state taxation”); California v. Grace Brethren Church,

457 U.S. 393, 410 n.22 (1982) (“Congress worried not so

much about the form of relief available in the federal

courts, as about divesting the federal courts of jurisdiction

to interfere with state tax administration”); Tully v.

Griffin, 429 U.S. 68, 73 (1976) (the Tax Injunction Act “has

its roots in equity practice, in principles of federalism, and

in recognition of the imperative need of a State to adminis-

ter its own fiscal operations”); Perez v. Ledesma, 401 U.S.

82, 128 n.17 (1971) (Brennan, J., concurring in part and

dissenting in part) (reasons for the Tax Injunction Act

include that “federal constitutional issues are likely to

turn on questions of state tax law, which, like issues of

state regulatory law, are more properly heard in the state

courts”).

Respondents argue that the Court’s language inter-

preting the Tax Injunction Act to prohibit interference

with the state tax system is taken “out of context.” Resp.

Br. at 28. Although the Court’s Tax Injunction Act cases

have generally dealt with lawsuits that sought to interfere

with the State’s collection of taxes, the Court has never

suggested that the plain language of the statute should be

ignored in favor of a single purpose of the Act. To the

contrary, the Court has held that the “statutory text ‘is to

be enforced according to its terms’ and should be inter-

preted to advance ‘its purpose’ of ‘confin[ing| federal-court

intervention in state government.” Jefferson County, 527

U.S. at 433 (quoting Farm Credit Servs., 520 U.S. at 826-27).

The Tax Injunction Act’s federalism purpose is the

same purpose underlying the Johnson Act of 1934, 28

U.S.C. § 1342, which prohibits federal-court interference

with orders issued by state administrative agencies to

public utilities. See Grace Brethren, 457 U.S. at 410 n.22.

Respondents suggest that it is inappropriate to rely on the

legislative history of the Johnson Act to explain the Tax

Injunction Act. Resp. Br. at 17-18 n.10. But this Court

itself has looked to the Johnson Act as a guide for inter-

preting the Tax Injunction Act — which is hardly surpris-

ing, given the fact that Congress itself expressly relied on

the purpose underlying the Johnson Act when it enacted

the Tax Injunction Act. Grace Brethren, 457 U.S. at 410

n.22; Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 513-14

(1981) (“laJls Senator Bone made clear, ‘[mjost of the

arguments which were used in support of the Johnson Act

. apply in like manner’ to the Tax Injunction Act”)

(quoting 81 Cong. Rec. 1416 (1937)). Thus, Congress’s

reliance on the congressional purpose for enacting the

Johnson Act demonstrates that, in enacting the Tax

Injunction Act, it was concerned with federal interference

with a core sovereign function of state government as well

as interference with the State’s ability to collect revenue.

Ill. The Tax Injunction Act’s Plain-Language Mean-

ing Is Entirely Consistent with This Court’s

Precedent and with Many Lower Court Deci-

sions.

Apparently recognizing the weakness of their textual

and legislative history arguments, Respondents rely

heavily on decisions of this Court adjudicating the merits

of cases initiated in a federal district court that challenge

constitutional state tax credits or deductions: Committee

for Public Education and Religious Liberty v. Nyquist, 413

U.S. 756 (1973); Mueller v. Allen, 463 U.S. 388 (1983); and

Griffin v. Prince Edward County School Board, 377 U.S.

8

218 (1964). Resp. Br. at 21-23. Respondents acknowledge,

however, that the parties in these cases never raised the

Tax Injunction Act and that the Court did not discuss the

Act. It is well established that this Court does not consider

itself bound by prior sub silentio holdings “when a subse-

quent case finally brings the jurisdictional issue” before it.

Fed. Election Comm’n v. NRA Political Victory Fund, 513

U.S. 88, 97 (1994); see also Will v. Mich. Dept of State

Police, 491 U.S. 58, 63 n.4 (1989) (same); United States v.

L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 38 (1952)

(same). Moreover, the Tax Injunction Act allows federal

jurisdiction if there is no plain, speedy or efficient remedy

in the state courts. The Court may therefore presume that

the parties’ failure to raise the issue in Nyquist, Mueller,

and Griffin was due to the inadequacy of the state court

remedies. See De Buono v. NYSA-ILA Med. and Clinical

Servs. Fund, 520 U.S. 806, 810 n.5 (1997) (Court presumed

that lower court correctly determined that there was not

an adequate state remedy and therefore no bar under the

Tax Injunction Act given the State’s “active participation

in nearly four years of federal litigation with no com-

plaint about federal jurisdiction”). Therefore, Nyquist,

Mueller, and Griffin provide no assistance in determining

whether the Tax Injunction Act applies to state tax

credits.

Contrary to Respondents’ assertion, the plain-language

reading of the statute to cover challenges to tax credits

is not a novel one; or one that breaks with a line of lower

court authority. Many lower courts — including the district

court below — Rave held that challenges that may result in

“more” revenue for the State are barred by the Tax Injunc-

tion Act and principles of comity because such suits “re-

strain” or “enjoin” the “assessment” of tax. ACLU v. Bridges,

9

334 F.3d 416, 421-22 (5th Cir. 2003) (determining whether

an individual or organization qualifies for an exemption is

part of the “assessment” process and therefore a lawsuit

seeking invalidation of the exemption is barred by the Tax

Injunction Act); Kraebel v. New York City Dep't of Hous.

Pres. and Dev., 959 F.2d 395, 400 (2d Cir. 1992) (holding

that the Tax Injunction Act barred taxpayer’s constitu-

tional challenge to a property tax exemption and abate-

ment scheme); Colonial Pipeline Co. v. Collins, 921 F.2d

1237, 1242 (11th Cir. 1991) (rejecting the suggestion that a

suit that could result in the increase in state tax collec-

tions was outside the scope of the Tax Injunction Act

because the “requested relief, if granted, . .. would clearly

conflict with the principle underlying the Tax Injunction

Act that the federal courts should generally avoid interfer-

ing with the sensitive and peculiarly local concerns sur-

rounding state taxation schemes”); Jn re Gillis, 836 F.2d

1001, 1005 (6th Cir. 1988) (although the court found it

unnecessary to reach the Tax Injunction Act because the

suit was barred by the principles of comity, it noted a suit

that seeks to enhance state revenues may nonetheless fall

within the Act’s ban because “the Act is not, by its own

language, limited to the collection of taxes”); United States

Brewers Ass'n, Inc. v. Perez, 592 F.2d 1212, 1215 (1st Cir.

1979) (“[AJn order of a federal court requiring Common-

wealth officials to collect taxes which its legislature has

not seen fit to impose on its citizens strikes us as a par-

ticularly inappropriate involvement in a state’s manage-

ment of its fiscal operations.”)

There are of course cases holding to the contrary —

most notably, the decision of the Ninth Circuit below. That

is presumably why this Court granted certiorari. But

Respondents’ suggestion that reversal of the Ninth Circuit

10

would run contrary to an “overwhelming body of authority

and uniform practice” is without basis.*

IV. The Principles of Comity Bar Respondents’

Federal-Court Lawsuit Challenging Arizona’s

Tax Credit.

Respondents attempt to narrow the principles of

comity in the same way they do the Tax Injunction Act,

insisting that those principles apply only when a tax law

challenge “would stop a state from collecting revenue.”

Resp. Br. 40. But as with the Tax Injunction Act, principles

of comity are far more expansive than Respondents would

like. Respondents’ argument ignores the crucial federalism

* Respondents also err in contending that judicial interpretations

of the Anti-Injunction Act support the Ninth Circuit’s interpretation of

the Tax Injunction Act. Contrary to Respondent’s suggestions, Resp. Br.

32-37, the principles supporting the Anti-Injunction Act are fully

present in cases where the requested relief would increase federal tax

collections. See, e.g., Louisiana v. McAdoo, 234 U.S. 627, 632 (1914)

(recognizing that action to compel a higher tariff would “disturb the

whole revenue system of the government.”) Moreover, most of the

lower-court decisions that Respondents relied on were reversed on other

grounds. See Resp. Br. 36 (acknowledging that two of the cases were

reversed on appeal); see also Wright v. Regan, 656 F.2d 820 (D.C. Cir.

1981), rev'd by Allen v. Wright, 468 U.S. 737 (1984), on standing

grounds. Finally, Respondents fail to recognize a crucial distinction

between the Anti-Injunction Act and the Tax Injunction Act. In most

cases brought by plaintiffs seeking to invalidate federal tax credits or

exemptions conferred on other taxpayers, there is no other avenue of

relief in federal court and the Anti-Injunction Act does not apply. South

Carolina v. Reagan, 465 U.S. 367, 378 (1984) (“Congress did not intend

the [Anti-Injunction] Act to apply to actions brought by aggrieved

parties for whom it has not provided an alternative remedy.”) By

contrast, it is undisputed in this case that Respondents have an

adequate remedy in state court.

11

underpinnings of the Court’s comity decisions and the

disruptive effect on state tax administration that is caused

by challenges to state tax credits. In Fair Assessment in

Real Estate Association, Inc. v. McNary, this Court noted

that the principles of comity predate the Tax Injunction Act,

and found that “the very maintenance of [a lawsuit] would

intrude on the enforcement of the state [tax] scheme.” 454

U.S. 100, 114 (1981). Thus, while revenue interference

clearly falls under the scope of comity, the broader federal-

ism purpose of that doctrine covers all matters that

disrupt a state tax system, including challenges to state

tax credits.

The common theme throughout this Court’s decisions

regarding comity is that state tax matters should be heard

in state court unless those remedies are not “plain, ade-

quate, and complete.” See Fair Assessment, 454 U.S. at

116; Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S.

293, 297 (1943); Matthews v. Rodgers, 284 U.S. 521, 525-26

(1932) (“the mere illegality or unconstitutionality of a state

or municipal tax is not in itself a ground for equitable

relief in the courts of the United States”).° Consequently,

the issue is not whether a state tax challenge will increase

or decrease revenue to a State, as Respondents contend, but

rather whether the state court system provides an adequate

remedy for the challenger. There is no dispute that the

Arizona courts clearly provide such a remedy. Resp. Br. 11

* In Fair Assessment, the Court noted that there is no significant

difference between remedies that are “plain, adequate, and complete,”

as that phrase has been used in articulating the doctrine of equitable

restraint based on notions of comity, and those that are “plain, speedy

and efficient” as used in the Tax Injunction Act. Jd. at 116 n.8.

12

n.7. Thus, the district court correctly dismissed the Respon-

dents’ suit under the principles of comity.

Respondents also wrongly argue that their lawsuit

seeking a federal court order enjoining the state tax credit

will not disrupt Arizona’s tax administration. A federal-

court ruling that is inconsistent with the Arizona Supreme

Court’s decision in Kotterman v. Killian, 972 P.2d 606

(Ariz.), cert. denied, 528 U.S. 921 (1999) and cert. denied

sub nom. Rhodes v. Killian, 528 U.S. 810 (1999), would be

highly disruptive. First, if Petitioner complies with a federal-

court order enjoining him from allowing the tax credit for

contributions to school tuition organizations (STOs) that

contribute to religious schools, Arizona taxpayers who

nevertheless contributed to such STOs could file a refund

action in state court and that court must follow Arizona

Supreme Court precedent. Second, Respondents are wrong

that Kotterman did not include taxpayers who sought to

use the tax credit as parties. Taxpayers who intended to

take the Arizona private school tuition credit intervened in

the Kotterman lawsuit. See Pet. for Writ of Cert. Kotter-

man v. Killian, 528 U.S. 921 (1999) (No. 98-1716). There-

fore, allowing Respondents to pursue relief in federal court

creates a very real possibility that the Arizona Depart-

ment of Revenue will have to deal with inconsistent

adjudications.

The relief that Respondents seek is also inherently

disruptive because it could result in a court order prohibit-

ing the State from allowing tax credits for contributions to

STOs that give to religious schools, but permitting tax

credits to STOs that give to non-religious schools. This

relief would create new and onerous administrative

burdens on the Arizona Department of Revenue to deter-

mine what type of schools the different student tuition

13

organizations support through their scholarship programs.

This relief would also prevent the State from determining

conclusively which taxpayers are eligible for the tax credit

and which are not until this litigation and any appeals are

ended. Respondents’ assumption that a lawsuit interferes

with the State’s tax administration only if, in the end, the

State loses revenue ignores the fact that any change in tax

law affects tax administration.

Although Respondents acknoWledge that the State

may remedy an unconstitutional credit in a way that

decreases revenues, they inexplicably claim that this does

not implicate the revenue-protection purpose of the comity.

principle. Resp. Br. at 44-45. The parties to lawsuits

challenging tax provisions cannot predict the final remedy

that will be ordered by the court or adopted by the Legisla-

ture. Cf. Bridges, 334 F.3d at 421 (noting that “it is not

necessarily true that declaring exemptions unconstitu-

tional will result in the State collecting more taxes”). For

example, the Arizona Legislature could, in response to a

decision striking down the credit as it applies to religious

schools, expand the credit by allowing student tuition

organizations to distribute monies to public schools.

Because Respondents’ lawsuit interferes with Ari-

zona’s assessment of state taxes and requests relief that is

disruptive to Arizona’s tax administration, the Court

should affirm the district court’s dismissal based on the

principles of comity.

14

V. Congress and This Court Have Entrusted

State Courts to Decide Federal Constitutional

Issues.

The same theme permeates Respondents’ brief and

the briefs of their amici: regardless of the Tax Injunction

Act language, the Court should construe it (as well as

principles of comity) narrowly because otherwise States

will be able to “effectuatie) unconstitutional policies

through tax credits,” without any meaningful judicial

check. Resp. Br. at 47. In their opinion, state courts cannot

be trusted to correct federal constitutional violations,

which will remain unremedied unless federal! district court

review is authorized. See, e.g., Br. of Americans United for

Separation of Church and State at 13-15. This argument

blatantly ignores the very principles of federalism that are

fundamental to the Tax Injunction Act and the principles

of comity. See Idaho v. Coeur d'Alene Tribe, 521 U.S. 261,

275 (1997) (“A doctrine based on the inherent inadequacy

of state forums would run counter to basic principles of

federalism.”).

By enacting the Tax Injunction Act, Congress has

squarely rejected the notion that only federal district

courts are capable of deciding federal constitutional issues.

See Rosewell, 450 U.S. at 515 n.19 (noting that the Tax

Injunction Act “embodied Congress’ decision to transfer

jurisdiction over a class of substantive federal claims from

the federal district courts to the state courts, as long as

state procedures were ‘plain, speedy and efficient’ and

final review of the substantive claims could be obtained in

this Court”); Grace Brethren, 457 U.S. at 416-17 (“Carving

out a special exception for taxpayers raising First

Amendment claims would undermine significantly Con-

gress’ primary purpose ‘to limit drastically federal district

15

court jurisdiction to interfere with so important a local

concern as the collection of taxes.’”) (quoting Roseweil, 450

U.S. at 522).

This Court has also repeatedly recognized that state

courts have a constitutional obligation to uphold federal | .w

and has expressed its confidence in their ability to do so.

Coeur d'Alene Tribe, 521 U.S. at 275; see also Grace Brethren,

457 U.S. 417 n.37 (rejecting appellees’ argument “to the extent

that it assumes that the state courts will not protect their

constitutional rights”); Alden v. Maine, 527 U.S. 706, 755

(1999) (Court is “unwilling to assume the States will refuse to

honor the Constitution or obey the binding laws of the United

States”); Stone v. Powell, 428 U.S. 465, 494 n.35 (1976) (same).

Indeed, Arizona state judges and officers take an oath to

uphold the federal constitution. Ariz. Const. art. VI, § 26

(judges); Ariz. Rev. Stat. § 38-231 (officers). -

In addition, the Court has recognized that both the

Tax Injunction Act and the principles of comity have

safeguards that protect federal rights. See Grace Brethren,

457 U.S. at 415 n.31. Under the Tax Injunction Act,

litigants are entitled to federal-court relief if the state

court remedy is not “plain, speedy and efficient.” And,

under the principles of comity, litigants are entitled to

seek relief in federal court if the state-court remedy is not

“plain, adequate and complete.” Here, Respondents have

never contended that their remedy at state law was

defective. Indeed, the Arizona Supreme Court took original

jurisdiction in Kotterman to resolve the constitutional

challenge to the tax credit at issue here and this Court

denied review of that decision. Respondents’ disagreement

with the result in Kotterman is hardly a sufficient basis to

avoid the Tax Injunction Act and principles of comity.

16

Finally, Respondents fail to address one of the most

important safeguards in the Tax Injunction Act: this

Court’s review of federal issues arising out of state court

proceedings. Again, there is no reason to presume that the

sound judgment of state officials and review by state

courts will not be sufficient to prevent the parade of

horribles hypothesized by Respondents and their amici.

But should that parade materialize, there is also no reason

to assume that this Court will be unwilling or unable to

protect federal constitutional rights. Respondents’ con-

cerns are entirely unwarranted and should not be the

basis for overriding Congress’s decision to prevent federal

district court interference with the assessment of state

taxes.

°

CONCLUSION

For the foregoing reasons, this Court should reverse

the decision of the Court of Appeals for the Ninth Circuit

and affirm the district court’s dismissal of this matter.

Respectfully submitted,

TERRY GODDARD

Attorney General of Arizona

Mary O’GRADY

Solicitor General

PAULA S. BICKETT

Chief Counsel, Civil Appeals

JOSEPH KANEFIELD*

Special Assistant Attorney General

1275 West Washington Street

Phoenix, Arizona 85007

(602) 542-8392

*Counsel of Record