Amicus Curiae Brief — Hibbs v. Winn

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4) | NOV 1 2 2003

No. 02-1809 Riss) ai it ©

IN THE

Supreme Court of the United States

J. ELLIOT HIBBS, in his official capacity as

Director of the Arizona Department of Revenue,

Petitioner,

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

BRIEF OF THE HONORABLE TRENT FRANKS,

THE ARIZONA CHRISTIAN SCHOOL TUITION

ORGANIZATION, AND THE CENTER FOR

ARIZONA POLICY AS AMICI CURIAE

IN SUPPORT OF PETITIONER

BENJAMIN W. BULL*

GARY S. MCCALEB

JOSHUA W. CARDEN

ELIZABETH A. MURRAY

ALLIANCE DEFENSE FUND

15333 N. Pima Rd., Ste. 165

Scottsdale, AZ 85260

(480) 444-0020

(480) 444-0028 (fax)

*Counsel of Record

TABLE OF CONTENTS

TABLE OF AU TRBORIT IES .cccccsccsccscsscosscssscssscccsossscssscssoses iil

INTEREST OF AMICIIN THIS CASE .........:ccccccessessesseeseees ]

SUMMARY OF THE ARGUMENT............:cccscsesssessesseesseees 2

RATTOIINS ccnceresssesssssecessanssenncescsnestasnesssnsnnsamnesnnmesnsinserts 4

I. THE NINTH CIRCUIT HAS CREATED A

NOVEL, NARROW, BRIGHT-LINE TEST: THE

“MONEY IN, MONEY OUT” THEORY OF

JURISDICTION UNDER THE TAX

SURE G BIOS PAST cccccscsssssssssssessssenansnscescessosssonsacenees 4

II. PRINCIPLES OF COMITY BAR FEDERAL

COURT INTERFERENCE IN A_ STATE

TAXATION SCHED ..cccccccoscsssescssssncescsssncsscsosssosees 7

A. Throughout Its History, This Court Has

Recognized Principles of Comity between

Federal and State Courts ......ccccccccccsscscsssescsecssoooes 7

B. This Court Applies Principles of Comity in the

Context of State Tax Systems .............scssseeeeeees 9

C. Appellate Courts Have Correctly Applied

Principles of Comity in the Context of State

TE FIED cncccensssesermrecmssnenemanmeemmmsenenssane 10

D. This Court Should Apply Principles of Comity

in This Case Because There is an Adequate

Remedy in State Court ..............cccscesscsssesesreeseees 12

Il. THE TAX INJUNCTION ACT DEPRIVES THE

DISTRICT COURT OF SUBJECT MATTER

JURISDICTION IN THIS CASE ...........ccccceseeseseeees 14

A. The Plain Language of the Tax Injunction Act

Bars Federal Court Jurisdiction in this Case......14

1. The term “assessment” encompasses

2. Arizona has already provided a “plain,

speedy and efficient remedy” within the

ORES OF TRO ACE ..0000cccccccccccccsscccssedssoccsercce 16

B. The Purpose and Legislative History of the

1. The Purpose of the Tax Injunction Act

Supports a Broad Interpretation of the Act ..19

2. The Tax Injunction Act’s legislative

history conflicts with the Ninth Circuit’s

ee ee 26

PETE IEE acncendccusacasessnsessevsesessesesncennnezessnassssessnndpesnencnes 28

iii

TABLE OF AUTHORITIES

Cases Page

Amarok Corp. v. State of Nev., Dept. of Taxation,

935 F.2d 1068 (9th Cir. 1991)............cscccsccssceessessseeseeees 17

Ark. v. Farm Credit Servs. of Cent. Ark.,

So 9, 15, 19, 20, 21

Ashton v. Cory,

780 F.2d 816 (9th Cir. 1986)............cccccceeeeeeeeees 16, 17, 24

Bland v. McHann,

463 F.2d 21 (Sth Cir. 1972), cert. denied, 410 U.S.

ee ccncssnannesanscsnmsasesnmsesmennsesemsesssnssnastnaseesesensnets 18

Blangeres v. Burlington N., Inc.,

te eG 25

Boise Artesian Hot & Cold Water Co. v. Boise City,

ee 8, 13

Bright v. Bechtel Petroleum, Inc.,

780 F.2d 766 (9th Cir. 1986)............ccccccscsseseeseeeeeees 11, 16

Brooks v. Sulphur Springs Valley Elec. Coop.,

951 F.2d 1050 (9th Cir. 1991), cert. denied, 503 U.S.

En 17

Cal. v. Grace Brethren Church,

gO 21, 26

Colonial Pipeline Co. v. Collins,

Fs |b: of OD | errr 22

Comenout v. State of Wash.,

meds by, le 8 25, 26

Covell v. Heyman,

Se eee BO a cenrerensssnssnenemepennmmeunemmnnneen 7,8

Dillon v. State of Mont.,

634 F.2d 463 (9th Cir. 1980)............cccesceeseeeeeees 22, 23, 25

Ex parte Young,

209 U.S. 123 (1908)..........sscrsrersesssnsssensensenceneenenees 19, 20

Fair Assessment in Real Estate, Ass'n, Inc. v. McNary,

454 U.S. 100 (1981) 0.0.0.0... ccccseeeeeeeeeee 12, 13, 19, 20, 26

Forgan v. Bainbridge,

PO Ue CE ED GE enemies 7

Great Lakes Dredge & Dock Co. v. Huffman,

Fe ae BO Ga cnenseemeeeeeet 9

Hawaiian Tel. Co. v. State Dept. of Labor and Indus.

Relations,

GS ee ey cca rnnnrrenmeneesnsememen 11

Hilton v. Guyot,

RE > WE GD erememennsennnnemenememmmmnaten 7

In re Gillis,

836 F.2d 1001 (6th Cir. 1988)... eceeeeeeeee 10, 21, 22

Inhabitants of Montclair Township v. Ramsdell,

SG ee OF CD cetemesmemmmtmmenmenemmenmnes 15

Jefferson County v. Acker,

Fe Cle ED QP ceceenesnsvmesscnsscsemmanssesnaneaseenesacenacenns 21

—

Jerron West, Inc. v. State of Cal., State Bd. of

Equalization,

129 F.3d 1334 (9th Cir. 1997), cert. denied, 525 U.S.

a cnenennsmnssesstememennntinemmenmmneses 11, 17, 25

Kotterman v. Killian,

972 P.2d 606 (Ariz. 1999), cert. denied, 528 U.S.

921, cert. also denied by Rhodes v. Killian, 528 U.S.

Eee cncnssvnnsinensenpesntmstannidimanmeentinmieins 1, 6, 18, 28

Kotterman v. Killian,

re 27

Mandel v. Hutchinson,

494 F.2d 364 (9th Cir. 1974)...........cccccccceeeeeeeeees 18, 24, 25

Matthews v. Rodgers,

ns Se cccremnsstesneenenemenineemenametel 8,9

McCulloch v. Maryland,

1 Cs SIE icesperensmencsepenmennmsnmmeanl 4

Miller v. City of Los Angeles,

755 F.2d 1390 (9th Cir. 1985), cert. denied, 474 U.S.

eee era cinntiaseneniansnnomesenmempantinmsemmmmmees 11

Moe v. Confederated Salish and Kootenai Tribes of

Flathead Reservation,

Ss CEE ictrninnnainernnentnenmeninaesemegnes 21

Mudge v. U.S.,

308 F.3d 1220 (Fed. Cir. 2002)...........cccccscsssccesssseseeseees 15

New State Ice Co. v. Liebmann,

a aT insnrsinnsectentncennencninennenmnasemmnetemmnensnieiel 2

Patel v. City of San Bernardino,

Ae 11,17

Pennoyer v. Neff,

ee Oi cnerncnsrneseniinnesenemennmemsasionsmiennegnaninenns 7

Perez v. Ledesma,

SD Cs Ce te crcnsnerensnnsenenmmnemnnmminenemmnmen 24

Poer and Co. v. Counties of Alameda,

725 F.2d 1234 (9th Cir. 1984)..0.......ccccceeeees 11, 16, 22, 23

Prentis v. Atlantic Coast Line Co.,

ee ee incenmmnnentinmmen 8

Rosewell v. LaSalle Nat’l Bank,

450 U.S. 503 (1981), reh’g denied, 451 U.S. 1011

Ie nenccemsscimmemnnamnmagpionmmmmnaniets 16, 17, 19, 20, 28

Singer Sewing Mach. Co. of N.J. v. Benedict,

es Se ee erereremeeemmmens 13

State Tax Comm'n v. Anderson Dev. Corp.,

574 P.2d 43 (Ariz. Ct. App. 1997), review denied......... 10

Steel Co. v. Citizens for a Better Env’t,

Se ee Pccntrrtnnsenensenneneeeennmennenennemneen 5

Tully v. Griffin, Inc.,

I es CC Pe crenssevensorscertnnmemmmmeemsnemmernes 10, 19, 20

U.S. v. Lopez,

Fe es RD crreneseneeeememmesemnemmemmnmeennn 2

U.S. v. Menasche,

es Se ee nserttanernnnsnscemmemeennemeneenees 15

a are

Vii

U.S. Brewers Ass'n, Inc. v. Perez, 592 F.2d 1212 (lst

Cir. 1979), cert. denied, 444 U.S. 833 (1979).......... 10, 11

Valley Forge Christian Coll. v. Ams. United for

Separation of Church and State, Inc.,

SO Ts ae Ga erccnnssemcsnenncemmenmmmmmenne 6

Winn v. Killian,

307 F.3d 1011 (9th Cir. 2002).............. 5, 9, 12, 15, 18, 27

Winn v. Killian,

Se Fe OO Ce Ge, BR ccrrerrencnssensenscssemeneensenes 14, 18

Younger v. Harris,

Ge Cae BF Gar Oe cerenecemnsemmernsnnemmnne 9,12

Zelman v. Simmons-Harris,

SD GD, Ga Ge ro scnsnsnenszsnascsnseranscnnszresssnnsemserssseneneed 6

Statutes

BD UII, © GGD cccnsnmmssssnssssscsenenmsscesessremnmesseeel 4, 14, 21

AGERE GS. GOR, G BF cccesersssrmmennne 1, 16

Secondary Authorities

Black's Law Dictionary (6th ed. 1990) ...........ccccecsseseseeeeeees 15

eg ee 27

SEE, GRR. Di, BED Ce crcrensetenccessceseenmeene 27

The Oxford English Dictionary (1961) ..........cceseeseeeeeeees 15

Bae, Ce ee cercnsenenseeenseennemscemenmen 27

Webster’s Third New International Dictionary (1981)........ 15

INTEREST OF AMICI IN THIS CASE’

The Honorable Trent Franks — Representative Franks

authored the bill that became ARIZ. REV. STAT. § 43-1089,

after his tenure as an Arizona legislator. Section 43-1089,

which is at issue in this case, allows taxpayers to reduce their

state tax liability by claiming a credit for amounts they have

donated to a school tuition organization. An avid supporter

of educational choice, Congressman Franks is currently

introducing similar legislation at the federal level.

The Arizona Christian School Tuition Organization

(ACSTO) - ACSTO is the second largest recipient of the

funds that Arizona taxpayers privately and independently

choose to donate under ARIZ. REV. STAT. § 43-1089. School

tuition organizations are non-profit corporations that collect

funds, evaluate applications, and award scholarships to

deserving students who wish to attend private schools. As

one of these organizations, ACSTO’s interest in this case is

self-evident.

The Center for Arizona Policy (CAP) — CAP was

established in 1995 as a non-profit organization dedicated to

strengthening Arizona families through policy and education.

CAP accomplishes this by actively educating Arizonans on

educational choice, religious freedom, parenting, and other

issues. CAP strongly supports educational choice and

worked with Congressman Franks in the enactment process

of ARIZ. REV. STAT. § 43-1089. CAP also filed an amicus

brief in defense of the statute in Kotterman v. Killian, 972

P.2d 606 (Ariz. 1999).

' All parties have consented to the submission of this brief through

letters filed with the Clerk of the Court. Amici state that no portion of this

brief was authored by counsel for a party and that no person or entity

other than amici or their counsel made a monetary contribution to the

preparation or submission of this brief.

Amici believe that this case presents the classic

opportunity for the federal courts to exercise comity and

recognize the inherent dignity and value of the state branch

of our dual legal system. “In this circumstance, the theory

and utility of our federalism are revealed, for the States may

perform their role as laboratories for experimentation to

devise various solutions where the best solution is far from

clear.” U.S. v. Lopez, 514 U.S. 549, 581 (1995) (Kennedy, J.

concurring) (citing New State Ice Co. v. Liebmann, 285 U.S.

262, 311 (1932) (Brandeis, J., dissenting)). In seeking the

“best solution” to advance its important interest in improving

education, Arizona has successfully experimented with its

scheme of assessment, levy, and collection of taxes by

including a tax credit —- one of many — whereby Arizona

taxpayers may reduce their State tax liability by claiming a

tax credit for capped amounts they have paid to a “school

tuition organization.”

SUMMARY OF THE ARGUMENT

Arizona has decided to advance certain fiscal and policy

goals through an enacted tuition tax credit, which is part of

its larger taxation scheme. The statute at issue has already

withstood constitutional challenge in prior state court

litigation, but Respondents seek to challenge the statute in

federal court. This Court should bar this action.

Federal court interference in state taxation schemes has

long been disfavored. Even without the Tax Injunction Act,

principles of comity bar subject matter jurisdiction in this

case. The panel ignored the scope of comity and the Act to

conclude that federal court jurisdiction was proper. To reach

this conclusion, the court exchanged well-established

principles of comity and the text of the Act for a novel

“money in, money out” bright-line test. This new test is

based on one question: “Will the state receive more money if

the suit is allowed?” Employing this test, the panel examined

the merits of the case, assumed a positive answer, and

declared the Act and comity were inapplicable. This

approach conflicts with this Court’s precedent: jurisdiction is

a threshold question to be answered before reaching the

merits.

Principles of comity require federal courts to refrain from

interfering in state matters where an adequate remedy exists

at state law. “Our Federalism” mandates this approach

because of the concurrent jurisdiction shared by the federal

and state systems. Comity applies specifically in the context

of state taxation. Respondents have not shown the lack of an

adequate state remedy — but simply an adverse state court

decision. There is no constitutional imperative for federal

courts to second guess state court decisions.

Furthermore, Congress has explicitly barred federal court

interference in this case by enacting the Tax Injunction Act.

This Court has interpreted the Act to foreclose federal court

injunctive and declaratory relief in the “assessment,

collection, and levy” of state taxes whenever there is a

“plain, speedy, and efficient” remedy to be had in state court.

Arizona’s tax credit is part of the state’s broad taxation

scheme and qualifies as an “assessment” under the Act’s

plain language. In this case, the Ninth Circuit ignored the

Act’s text, the Act’s purpose and legislative history, this

Court’s precedent, other appellate precedent, and even its

own precedent to reach its desired conclusion. The panel’s

erroneous decision narrows the Act, the definition of

“assessment,” and principles of comity beyond recognition.

The Act, broad principles of comity, and the consistent

precedent of this Court and appellate courts all dictate one

conclusion: federal subject matter jurisdiction is barred in

this case. There is no reason for federal court interference in

the delicate scheme of taxation that Arizona has chosen to

advance its fiscal and policy goals. This Court should reverse

the panel decision below.

ARGUMENT

This case addresses the delicate balance between the

federal and state governments in the context of Arizona’s tax

laws. Here, principles of comity and the Tax Injunction Act

are bars to federal court jurisdiction. These bars are premised

on our system of dual sovereigns: the national and state

governments:

That the power of taxation is one of vital importance;

that it is retained by the States; that it is not abridged by

the grant of a similar power to the government of the

Union; that it is to be concurrently exercised by the two

governments: are truths which have never been denied.

McCulloch v. Md., 4 Wheat. 316, 425 (1819).

THE NINTH CIRCUIT HAS CREATED A NOVEL,

NARROW, BRIGHT-LINE TEST: THE “MONEY IN,

MONEY OUT” THEORY OF JURISDICTION UNDER

THE TAX INJUNCTION ACT.

“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.” Tax Injunction Act, 28 U.S.C. § 1341.

Though this Court and other circuits have interpreted the

Act, and its underlying principles of comity, as a broad

jurisdictional bar, the Ninth Circuit has not followed suit.

Instead, the panel below created a bright-line “money in,

money out” test, which essentially asks one question: “Will

more money come into state coffers if the plaintiffs prevail

in the lawsuit?” If the answer is “yes,” then, according to the

Ninth Circuit, federal jurisdiction is proper. On the other

hand, if money “goes out” from the treasury, jurisdiction is

declined. This test ignores broad, longstanding principles of

comity and the Tax Injunction Act’s explicit removal of

federal court jurisdiction. See Parts II and III, infra.

Furthermore, the court’s reasoning is circular.

The circle began with the court examining the facially

neutral Arizona taxation law for its effect on the state

coffers. Winn v. Killian, 307 F.3d 1011, 1013 (9th Cir.

2002). In the next arc, the court noted that funds flowing

through school tuition organizations to individual students

may ultimately benefit religious organizations. Jd. at 1014. In

the third arc, the court posited that, if “the STO tax scheme

were to be struck down on Establishment Clause grounds,

Arizona’s ability to raise revenue . . . would be enhanced.”

Id. at 1017. In the final arc, the court concludes that, because

striking down the law would increase state revenue, this suit

does not interfere with tax collection and, thus, is not barred

by the Tax Injunction Act. Jd. at 1018 (“the relief requested .

. . would result in the state’s receiving more funds that could

be used for the public benefit”). The fallacious circle is

complete: jurisdiction is obtained by examining the merits

and assuming a result which would confer jurisdiction — a

loose approach to jurisdiction fer which this Court has

previously chastised the Ninth Circuit. See Steel Co. v.

Citizens for a Better Env’t, 523 U.S. 83, 94 (1998); and see

id. at 101-102 (“For a court to pronounce upon the meaning

or the constitutionality of a state or federal law when it has

no jurisdiction to do so is, by very definition, for a court to

act ultra vires.”).”

Respondents are clearly disappointed with the Anzona

Supreme Court decision that upheld the constitutionality of

the tax credit challenged here. Kotterman v. Killian, 972 P.2d

606, 625 (Ariz. 1999), cert. denied, 528 U.S. 921, cert. also

denied by Rhodes v. Killian, 528 U.S. 810 (1999) (“We hold

that the tuition tax credit is a neutral adjustment mechanism

for equalizing tax burdens and encouraging educational

expenditures. Petitioners have failed to demonstrate that it

violates either the Federal or the Arizona Constitution.”).

Despite state court litigation in a virtually identical case,

Respondents seek another bite at the jurisprudential apple in

federal court. That bite is forbidden by principles of comity

and the Tax Injunction Act. Amici urge this Court to reject

the Ninth Circuit’s bright-line test, its myopic reading of the

Tax Injunction Act, and its disregard of the important

underlying principles of comity.

? The Ninth Circuit’s novel approach to the Tax Injunction Act

coincidentally arose from an Establishment Clause challenge by plaintiffs

seeking to enjoin the director of revenue from “diverting” funds to

religious organizations. Under these facts, it is very unlikely that

plaintiffs have standing to sue, even if the court had jurisdiction. See

Valley Forge Christian Coll. v. Ams. United for Separation of Church

and State, Inc., 454 U.S. 464, 472 (1982) (Article II requires actual or

threatened injury, fairly traceable to the challenged action, which is likely

to be redressed by a favorable decision); and see Zelman v. Simmons-

Harris, 536 U.S. 639, 655 (2002) (“[N]o reasonable observer would

think a neutral program of private choice, where state aid reaches

religious schools solely as a result of the numerous independent decisions

of private individuals, carries with it the imprimatur of government

endorsement.”). It is difficult to see how Arizona's director of revenue 15

“diverting funds” to religious schools in alleged violation of the

Establishment Clause when the choice is left to individual taxpayers, and

the director has absolutely no say in the decision. Indeed, the Arizona

Supreme Court has already properly decided the matter. Kotterman v.

Killian, 972 P.2d 606, 625 (Ariz. 1999), cert. denied, 528 U.S. 921, cert.

also denied by Rhodes v. Killian, 528 U.S. 810 (1999).

Il.

PRINCIPLES OF COMITY BAR FEDERAL

COURT INTERFERENCE IN A STATE TAXATION

SCHEME

A. Throughout Its History, This Court Has Recognized

Principles of Comity between Federai and State

Courts.

Principles of comity (originally known as “the comity of

nations”) guide the relationship between dual sovereigns.

Hilton v. Guyot, 159 U.S. 113, 163 (1895). The comity of

nations is the “extent to which the law of one nation, as put

in force within its territory, whether by executive order, by

legislative act, or by judicial decree, shall be allowed to

operate within the dominion of another nation.” /d.

Principles of comity also guide relationships between: 1) the

United States and foreign nations, Hilton, 159 U.S. at 163, 2)

a state with another state, Forgan v. Bainbridge, 274 P. 155,

158 (Ariz. 1928), and 3) the United States and a state, Covell

v. Heyman, 111 U.S. 176, 182 (1884). In cases involving

international law, comity is neither an “absolute obligation,”

nor “mere courtesy and goodwill”; it is the “recognition

which one nation allows within its territory to the legislative,

executive, or judicial acts of another nation.” Hilton, 159

U.S. 113, 163-64 (1895). “It is the voluntary act of the nation

by which it is offered, and is inadmissible when contrary to

its policy, or prejudicial to its interests.” Jd. at 165.

In comparison, “states of the Union are considered as

foreign nations, and separate sovereignties,” except as

otherwise qualified by the Federal Constitution. Forgan, 274

P. at 158 (citing Pennoyer v. Neff, 95 U.S. 714 (1877))

Thus, principles of comity have much greater import within

our federalist system of government, than in the international

context: “[Comity] between state courts and those of the

United States . . . is a principle of right and of law, and

therefore of necessity. It leaves nothing to discretion or mere

convenience.” Covell, 111 U.S. at 182.

Courts continued to observe rules of comity as

“principle[s] of right and of law” into the twentieth century.

See Matthews v. Rodgers, 284 U.S. 521, 525 (1932) (“The

scrupulous regard for the rightful independence of state

governments . . . and a proper reluctance to interfere by

injunction with their fiscal operations, require that such relief

should be denied in every case where the asserted federal

right may be preserved without it.”); Boise Artesian Hot &

Cold Water Co. v. Boise City, 213 U.S. 276, 282 (1909)

(“{[A] proper reluctance to interfere by prevention with the

fiscal operations of the state governments has caused [this

Court] to refrain from so doing in all cases where the Federal

rights of the persons could otherwise be preserved

unimpaired.”); Prentis v. Atlantic Coast Line Co., 211 U.S.

210, 237 (1908) (“[A]s applied to Federal interference with

state acts, the observance of this rule of comity should be

regarded as an obligation.”’).

Justice Black gave perhaps the most stirring modern

restatement of comity in:

[Tjhe notion of “comity,” that is, a proper respect for

state functions, a recognition of the fact that the entire

country is made up of a Union of separate state

governments, and a continuance of the belief that the

National Government will fare best if the States and their

institutions are left free to perform their separate

functions in their separate ways. This, perhaps for lack of

a better and clearer way to describe it, is referred to by

many as “Our Federalism,” and one familiar with the

- —<—

profound debates that ushered our Federal Constitution

‘into existence is bound to respect those who remain loyal

to the ideals and dreams of “Our Federalism.”

Younger v. Harris, 401 U.S. 37, 44 (1971).

Thus, “Our Federalism” requires the consistent and

continued application of comity to prevent erosion of the

delicate balance between the state governments’ general

powers and the federal government’s enumerated powers. In

this case, comity weighs heavily in favor of declining federal

jurisdiction.

B. This Court Applies Principles of Comity in the

Context of State Tax Systems.

This Court has acknowledged that “[t]he power to tax is

basic to the power of the State to exist.” Ark. v. Farm Credit

Servs. of Cent. Ark., 520 U.S. 821, 826 (1997). Because of

this high level of importance, “[t]he States’ interest in the

integrity of-their own processes is of particular moment

respecting questions of state taxation.” /d.

Unlike the Ninth Circuit’s decision below, Winn v.

Killian, 307 F.3d 1011 (9th Cir. 2002), this Court has never

limited the application of comity to suits seeking to restrain

the collection of a tax. Rather, this Court has a “scrupulous

regard for the rightful independence of state governments

which should at all times actuate the federal courts, and a

proper reluctance to interfere by injunction with their fiscal

operations.” Matthews, 284 U.S. at 525. This restraint on

interference with state “fiscal operations” is but one part of

the comity afforded the “internal economy and

administration” and the general “domestic policy of the

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

U.S. 293, 298 (1943) (noting that Congress had approved the

practice of comity through enactment of the Tax Injunction

Act); see also State Tax Comm'n v. Anderson Dev. Corp.,

574 P.2d 43, 46-47 (Ariz. Ct. App. 1997) (legislation effects

domestic policy via tax incentives), review denied.

C. Appellate Courts Have Correctly Applied Principles

of Comity in the Context of State Tax Systems.

Lower appellate courts have joined this Court in

recognizing that principles of comity prohibit federal court

interference in state tax matters.

The Sixth Circuit stated that “the scope of federal court

deference based on principles of comity is substantially

broader than that required under the Tax Injunction Act.” /n

re Gillis, 836 F.2d 1001, 1006 (6th Cir. 1988). The Gillis

court concluded, “{E]}ven if the facts of a state tax matter do

not technically fit within the language of § 1341, the federal

courts should restrain from interfering in the state

proceedings.” /d. at 1005.

The First Circuit used principles of comity to bar an

attempted federal court challenge to a Puerto Rican tax. U.S.

Brewers Ass'n, Inc. v. Perez, 592 F.2d 1212, 1214 (Ist Cir.

1979), cert. denied, 444 U.S. 833 (1979); and see id. at 1215

(“Sound equity practice and a concern for interests of

federalism” barred relief). The Perez court based its decision

on the considerations of equity practice, principles of

federalism, and “the imperative need of a State to administer

is own fiscal operations.” /d. (quoting Tully v. Griffin, 429

U.S. 68, 73 (1976)). In addition, the Perez court noted:

[A]n order of a federal court requiring Commonwealth

officials to collect taxes which its legislature has not seen

fit to impose on its citizens strikes us as a particularly

ee eee ——

aepnestiing ge EE” a a ee ee

inappropriate involvement in a state’s management of its

fiscal operations.

/d. The case at bar also presents a request for a federal order

requiring Arizona to collect taxes “which its legislature has

not seen fit to impose.” /d. This is precisely the scenario

where comity should bar federal jurisdiction.

The novel “money in, money out” test is all the more

noxious in light of the Ninth Circuit’s earlier — proper -

application of comity to deny jurisdiction in a case brought,

like the instant case, under 42 U.S.C. § 1983. Patel v. City of

San Bernardino, 310 F.3d 1138, 1142 (9th Cir. 2002).’

There, the court broadly interpreted the Tax Injunction Act

by stating: “we will not carve out a new exception [to the

Act] here, particularly one that would offend principles of

comity by encouraging bifurcated litigation between state

and federal courts.” /d. This bifurcated litigation is precisely

what Petitioner properly seeks to avoid in this case.

The case now before the court radically narrows comity:

“comity . . . prevent[s] interference with the states’ collection

* Patel is but one of many prior examples where the Ninth Circuit

broadly applied comity to bar federal jurisdiction. See, e.g., Jerron West,

Inc. v. State of Cal., State Bd. of Equalization, 129 F.3d 1334, 1338 (9th

Cir. 1997) (“the principle of comity alone would bar federal courts from

granting damages relief in state tax cases”); Bright v. Bechtel Petroleum,

Inc., 780 F.2d 766, 771 (9th Cir. 1986) (“the principle of comity

generally bars challenges to the validity of state tax systems in federal

court"); Poer and Co. v. Counties of Alameda, 725 F.2d 1234, 1236 (9th

Cir. 1984) (Tax Injunction Act and principle of comity barred action);

Miller v. City of Los Angeles, 755 F.2d 1390 (9th Cir. 1985) (“Taxpayers

are barred by the principle of comity from asserting section 1983 actions

against the validity of state tax systems in federal court.”), cert. denied,

474 U.S. 995 (1985); Hawaiian Tel. Co. v. State Dept. of Labor and

Indus. Relations, 691 F.2d 905, 910 (9th Cir. 1982) (“We also note that

action. ).

of revenue.” Winn, 307 F.3d at 1019. This deflated version

of comity is not the robust, respectful principle applied by

this Court, other appellate courts, and even the Ninth Circuit

itself in prior decisions. Justice Black reminds us of comity’s

broad scope:

What the concept does represent is a system in which

there is sensitivity to the legitimate interests of both State

and National Governments, and in which the National

Government, anxious though it may be to vindicate and

protect federal rights and federal interests, always

endeavors to do so in ways that will not unduly interfere

with the legitimate activities of the States. It should never

be forgotten that this slogan, “Our Federalism,” born in

the early struggling days of our Union of States, occupies

a highly important place in our Nation's history and its

future. ,

Younger, 401 U.S. at 44-45.

Additional support for following principles of comity in

this case is gained by realizing that there is an adequate

remedy in state court.

D. This Court Should Apply Principles of Comity in This

Case Because There is an Adequate Remedy in State

Court.

As a practical matter, the existence of a “plain, speedy

and efficient remedy” in state court is what makes comity a

just and useful way to regulate access to federal courts. As

this Court has noted, “Prior to enactment of § 1341, virtually

all federal cases challenging state taxation sought equitable

relief.” Fair Assessment in Real Estate, Ass'n, Inc. v.

McNary, 454 U.S. 100, 107 (1981). Therefore, courts were

guided by the principle that equitable relief is not available

. eh remem se

ms ee = -

“in any case where a plain, adequate, and complete remedy

may be had at law.” Singer Sewing Mach. Co. of N.J. v.

Benedict, 229 U.S. 481, 484 (1913).* This Court has

explained:

Such restraint was particularly appropriate because of the

delicate balance between the federal authority and state

governments, and the concomitant respect that should be

accorded state tax laws in federal court.

Fair Assessment, 454 U.S. at 108.

Courts have uniformly held that “the illegality or

unconstitutionality of a state or municipal tax or imposition

is not of itself a ground for equitable relief in the courts of

the United States.” Singer Sewing, 229 U.S. at 485. This

long-standing rule indicates the confidence of federal courts

that state courts are able to preserve, unimpaired, the federal

rights of United States citizens. Boise Artesian, 213 U.S. at

281-82.

In this case, the adequate remedy at state law allows

comity to bar federal court jurisdiction. As Circuit Judge

Kleinfeld noted below:

The district court did just what the law requires... .

Arizona provides a means to challenge its tax code and

allows parties to raise federal constitutional challenges to

its provisions. Indeed, this very tax credit was challenged

on constitutional grounds throughout the Arizona courts.

The Arizona Supreme Court provided a thoughtful and

“ There is no significant difference between remedies that are “plain,

speedy and efficient,” as used in the Act, and remedies that are “plain,

adequate, and complete,” as used in explaining the doctrine of equitable

restraint. Fair Assessment, 454 U.S. at 116 n.8.

scholarly opinion on the merits of the constitutionality of

the tax credit at issue in this case.

Winn v. Killian, 321 F.3d 911, 914 (9th Cir. 2003)

(Kleinfield, J., dissenting from denial of rehearing en banc).

The principles of comity that characterize our dual

system have long been recognized by this Court and lower

federal courts. Therefore, this Court should reverse the Ninth

Circuit and hold that principles of comity deprive the federal

district court of subject matter jurisdiction in this case.

Il.

THE TAX INJUNCTION ACT DEPRIVES THE

DISTRICT COURT OF SUBJECT MATTER

JURISDICTION IN THIS CASE

By enacting the Tax Injunction Act, Congress saw fit to

apply the broad principles of comity specifically to protect

the states’ ability to manage their respective tax systems.

A. The Plain Language of the Tax Injunction Act Bars

Federal Court Jurisdiction in this Case.

1. The term “assessment” encompasses Arizona’s tax

credit.

“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.” Tax Injunction Act, 28 U.S.C. § 1341.

The plain language of the statute bars federal jurisdiction in

this case.

—

Under standard rules of interpretation, this Court must

give effect, if possible, to every clause and word of [the]

statute.”” U.S. v. Menasche, 348 U.S. 528, 538-39 (1955)

(quoting /nhabitants of Montclair Township v. Ramsdell, 107

U.S. 147, 152 (1883)); see also Mudge v. U.S., 308 F.3d

1220, 1228 (Fed. Cir. 2002). The Act specifically uses

“assessment,” “collection,” and “levy.” Each of these words

has a separate meaning that must be given its full import.

Menasche, 348 U.S. at 538-39.

see

In spite of this Court’s warning that “federal courts must

guard against interpretations of the Tax Injunction Act which

might defeat its purpose and text,” Farm Credit Servs., 520

U.S. at 827, the panel below narrowly defined the term

“assessment” within the Act as: “to estimate officially the

value of (property, income, etc.) as a basis for taxation,” and

“to impose a tax or other charge on.” Winn, 307 F.3d at

1015. Such reliance on a dictionary is scarcely dispositive

when other, equally weighty definitions give a meaning that

is congruent with case law. See, e.g., Webster’s Third New

International Dictionary 131 (1981) (“assessment” means

“the entire plan or scheme fixed upon for charging or

taxing”); Black’s Law Dictionary 116-17 (6th ed. 1990)

(“assessment” means “determining the share of a tax to be

paid by each of many persons”); The Oxford English

Dictionary 506 (1961) (“assessment” means “[t]he scheme

of charge or taxation so adjusted”).

This “dictionary war” is wholly unnecessary because

defining “assessment” as “scheme of taxation” is consistent

with the Act’s plain language as interpreted by the Ninth

Circuit’s cases before Winn v. Killian. For example, Poer

and Co. v. Counties of Alameda held, “By its plain language,

* Under the actual text of the Act, as applied to this case, only the

interpretation of “assessment” is at issue, not that of “collection” or

“levy.”

the Act deprives federal district courts of subject matter

jurisdiction over actions for injunctive relief from state

taxation schemes.” 725 F.2d 1234, 1235 (9th Cir. 1984)

(emphasis added); Bright v. Bechtel Petroleum, Inc., 780

F.2d 766, 771 (9th Cir. 1986) (same). Indeed, the Ninth

Circuit has interpreted the “expansive language of the Act”

as an indication that Congress was not exclusively concerned

with foreign corporations using diversity jurisdiction to bleed

state coffers, but, rather, to protect the “independent

functioning of state tax systems.” Ashton v. Cory, 780 F.2d

816, 822-23 (9th Cir. 1986).

The narrow definition of “assessment” used below is

unsupported by the language of the Act, as interpreted by

this Court and by prior Ninth Circuit decisions. Therefore,

this Court should hold that Respondents’ suit is barred by the

Tax Injunction Act because ARIZ. REV. STAT. § 43-1089 is

properly understood as “assessment” under Arizona’s

scheme of taxation. This understanding of the plain text is

confirmed by the Act’s purpose and legislative history.

2. Arizona has already provided a “plain, speedy

and efficient remedy” within the meaning of the

Act.

The Tax Injunction Act bars federal court jurisdiction

where there is a “plain, speedy and efficient remedy”

available in state court. “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-court procedures were ‘plain,

speedy and efficient’ and final review of the substantive

federal claim could be obtained in this Court.” Rosewell v.

LaSalle Nat’l Bank, 450 U.S. 503, 515 n.19 (1981), reh'g

denied, 451 U.S. 1011 (1981).

PMP La

eRe SS ge

As this Court has stated: “The overall purpose of the Tax

Injunction Act is consistent with the view that the ‘plain,

speedy and efficient remedy’ exception to the Act’s

prohibition was only designed to require that the state

remedy satisfy certain procedural criteria.” /d. at 522

(construing the Act’s “plain, speedy and efficient remedy”

exception).

In Rosewell, this Court held that a “plain” remedy is one

that is not “uncertain” or “unclear.” Jd. at 517. For a remedy

to be “speedy,” the matter “must not entail significantly

greater delay than a corresponding procedure in federal

court.” Brooks v. Sulphur Springs Valley Elec. Coop., 951

F.2d 1050, 1055 (9th Cir. 1991) (citing Rosewell, 450 U.S. at

519-21), cert. denied, 503 U.S. 938 (1992). An “efficient”

remedy is one that does not require “ineffectual activity or an

unnecessary expenditure of time or energy.” Rosewell, 450

U.S. at 518.

The Ninth Circuit has agreed with the interpretation of

“plain, speedy and efficient remedy” that was given in

Rosewell: “that the taxpayer be afforded a full hearing and

judicial determination in the state courts of any and all

federal or constitutional objections to the disputed state tax.”

Ashton, 780 F.2d at 819 (citing Rosewell).°

Furthermore, according to the Ninth Circuit, an

“adequate” state remedy under the Act, “need not necessarily

® The Ninth Circuit has articulated the adequacy of state court

remedies on numerous occasions. See, e.g., Patel, 310 F.3d at 1140

(“This statute prohibits both declaratory and injunctive relief in state tax

disputes as long as the taxpayer has an adequate remedy in state court.”’);

Jerron West, Inc., 129 F.3d at 1337 (“The only exception [to the Act] is

where a state does not provide the Taxpayers with an adequate state

remedy.”); Amarok Corp. v. State of Nev., Dept. of Taxation, 935 F.2d

1068, 1069 (9th Cir. 1991) (action in federal court is barred by the Act if

the state provides a remedy that is “plain, speedy and efficient”).

be ‘the best remedy available or even equal to or better than

the remedy which might be available in the federal courts.’”

Mandel v. Hutchinson, 494 F.2d 364, 367 (9th Cir. 1974)

(citing Bland v. McHann, 463 F.2d 21, 29 (Sth Cir. 1972),

cert. denied, 410 U.S. 966 (1973)). While the Ninth Circuit

trumpeted its role as “guardians of the people’s federal

rights” in its decision below, Winn, 307 F.3d at 1017, Circuit

Judge Kleinfeld reminded us that:

State judges take the same oath to uphold the federal

Constitution that we do, and like us are subject to federal

Supreme Court review. . . . The implication of the

panel’s remark about “the federal courts’ role as

‘guardians of the people’s federal rights”” seems to be

that we are the only such guardians, or that we are

guardians of the Platonic sort. We are not. There is no

excuse for relitigating the constitutionality of Arizona’s

tuition tax credit in federal court.

Winn, 321 F.3d at 912 (Kleinfeld, J., dissenting from denial

of rehearing en banc).

Here, no one has argued that the state remedy is

inadequate, or that it is not a “plain, speedy and efficient

remedy.” The issues have already been litigated to

conclusion in the Arizona Supreme Court, and this Court has

declined to review that decision. Kotterman, 972 P.2d at 606,

cert. denied, 528 U.S. at 921, cert. also denied by Rhodes,

528 U.S. at 810. Therefore, the Respondents cannot

challenge the state court remedy as inadequate — just

“unwanted.” The issues should not be relitigated in federal

court merely because Respondents are unhappy with state

court decisions.

In addition to textual support for Petitioner’s position, the

purpose and legislative history of the Act prevent federal

court jurisdiction in this case.

B. The Purpose and Legislative History of the Tax

Injunction Act Belie the Ninth Circuit’s Narrow

Interpretation.

1. The Purpose of the Tax Injunction Act Supports a

Broad Interpretation of the Act

“(T]he principal motivating force behind the Act” was

the “recognition of the imperative need of a State fo

administer its own fiscal operations.” Rosewell, 450 U.S. at

522 (quoting Tully v. Griffin, Inc., 429 U.S. 68, 73 (1976)).

In addition, this Court has held that the Act, “and the

decisions of this Court which preceded it, reflect the

fundamental principle of comity between federal courts and

state governments that is essential to ‘Our Federalism,’

particularly in the area of state taxation.” Fair Assessment,

454 U.S. at 103.

The historical context of the Act illuminates the Act’s

purpose. This Court abrogated Eleventh Amendment

immunity by allowing federal courts to enjoin state officials

in their official capacities. Ex parte Young, 209 U.S. 123,

167 (1908). The Act was passed in response to the

“congressional hostility to federal injunctions issued against

state officials in the aftermath of this Court’s decision in Ex

parte Young,” Rosewell, 450 U.S. at 522 n.28; see also Farm

Credit Servs., 520 U.S. at 826-27. (“Enactment of the Tax

Injunction Act of 1937 reflects a congressional concern to

confine federal court intervention in state government.”).’ By

” Indeed; Justice Harlan’s dissent in Ex parte Young foreshadowed

the arrival of the Tax Injunction Act:

codifying the “decent respect” due the states, Congress

restored part of the immunity removed by Ex parte Young

and “recognized that the autonomy and fiscal stability of the

States survive best when state tax systems are not subject to

scrutiny in federal courts.” Fair Assessment, 454 U.S. at 102-

103.

As this Court has noted, the Act’s authors were

concerned with the practice of out-of-state corporations

bringing diversity suits to delay “payment of state taxes

during the pendency of federal litigation while in-state

citizens would have to pay first and then litigate in state

courts.” Rosewell, 450 U.S. at 522 n.29. The Rosewell Court

recognized, however, that “the expansive language of the

statute belies the notion that Congress was concerned

exclusively with this problem.” Jd.

This Court has noted that Congress did not legislate in a

vacuum - the Act was “motivated in large part by comity

concerns,” and “the principle of comity which predated the

Act was not restricted by its passage.” Fair Assessment, 454

U.S. at 110. The Act “has its roots in equity practice, in

principles of federalism, and in recognition of the imperative

need of a State to administer its own fiscal operations.”

Tully, 429 U.S. at 73. Against this backdrop of comity, the

Court has properly “interpreted and applied the Tax

Injunction Act as a ‘jurisdiction rule’ and a ‘broad

jurisdictional barrier.”” Farm Credit Servs., 520 U.S. at 825

Too little consequence has been attached to the fact that the courts of

the states are under an obligation equally strong with that resting

upon the courts of the Union to respect and enforce the provisions of

the Federal Constitution as the supreme law of the land, and to guard

rights secured or guaranteed by that instrument. We must assume--a

decent respect for the states requires us to assume--that the state

courts will enforce every right secured by the Constitution.

209 U.S. at 176 (Harlan, J., dissenting).

—

~ -

——— ro

(quoting Moe v. Confederated Salish and Kootenai Tribes of

Flathead Reservation, 425 U.S. 463, 470 (1976)).

In California v. Grace Brethren Church, this Court stated -

that “Congress’ intent in enacting the Tax Injunction Act was

to prevent federal-court interference with the assessment and

collection of state taxes.” 457 U.S. 393, 411 (1982).

Respondents would conflate both terms into a single

administrative function — the collection of taxes. This

limitation on the Act contradicts this Court’s observation that

the Act’s scope extends beyond the mere collection of taxes.

Farm Credit Servs., 520 U.S. at 823.-

Respondents below relied on Jefferson County v. Acker,

527 U.S. 423 (1999), to support their incorrect interpretation

of the text of the Act. Appellants’ Brief at 14. Respondents’

reliance is misplaced. The Tax Injunction Act bars suits

restraining “assessment, levy or collection” of state taxes. 28

U.S.C. § 1341. However, Jefferson County involved a suit by

a county to collect occupational taxes from federal judges.

527 U.S. at 427. This Court held the county’s suit was not

barred by the Act because it was “not brought to restrain

state action.” Jd. at 433-34. At the same time, this Court

reaffirmed the principle that the Act’s “statutory text ‘is to be

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

advance ‘its purpose’ of ‘confin{ing] federal-court

intervention in state government.”” Jd. at 433 (citing Farm

Credit Servs., 520 U.S. at 826-27). By its very terms, the Act

did not apply. Thus, Jefferson County is inapposite to this

suit brought by taxpayers to restrain state action.

Several appellate courts have properly realized the broad

purpose of the Act. The Sixth Circuit has directly held that

that the Tax Injunction Act bars federal court jurisdiction in

actions that not only interfere with the collection of taxes,

but also the assessment and levy of taxes. Gillis, 836 F.2d at

1005. The Gillis court reasoned, ““While admittedly the great

majority of cases present plaintiffs seeking to enjoin the

collection of taxes, and certainly the most direct threat to the

state fisc is presented when the collection of taxes is

enjoined, still the Act is not, by its own imi

the collection of taxes.” Jd. (emphasis added). In reaching

this decision, the Sixth Circuit relied on Grace Brethren and

noted that the language should be interpreted to accomplish

this principal purpose. Jd.

In Colonial Pipeline Co. v. Collins, the Eleventh Circuit

also held that the Act should be interpreted according to its

purpose. 921 F.2d 1237, 1242 (11th Cir. 1991). The court

stated:

In assessing whether a complainant’s claim runs afoul of

the Tax Injunction Act, we must look not only at whether

the literal terms of the statute are implicated, but also at

whether the requested relief requires such an exercise of

federal judicial power as to collide with the broad

purposes of the act.

Id.

Ironically, until this case, the Ninth Circuit treated the

Act in a similar fashion. In Poer and Co. v. Counties of

Alameda, the Ninth Circuit held that the Act barred federal

court jurisdiction, although the language of the Act did not

cover the action. 725 F.2d at 1236. The Ninth Circuit stated

that “the efficacy of the Act’s jurisdictional bar could be

readily circumvented if the federal courts exercised

jurisdiction over tax refund actions.” Jd. Because the

“operation of the Tax Injunction Act would be frustrated,”

the court prohibited federal court jurisdiction over tax refund

actions. Jd. The court relied on its earlier decision, Dillon v.

State of Montana, 634 F.2d 463 (9th Cir. 1980), in which the

—-_--—-~ ————

Ninth Circuit held that the Act “is meant to be a broad

jurisdictional impediment to federal court interference with

the administration of state tax systems.” Poer, 725 F.2d. at

1236. In Dillon, the Ninth Circuit looked to the action’s

“practical effect on state fiscal operations,” and held that the

Act barred federal court jurisdiction because it “discern[ed]

no significant distinction between the intrusiveness” of the

action requested and those “undoubtedly forbidden by §

1341.” 634 F.2d at 466. There can be no doubt that

Respondents are asking for “intrusion” into Arizona’s

complex tax administration system that implements a variety

of state goals via tax deductions, tax credits, surcharges,

penalties, etc.

The clearest statement of the Ninth Circuit’s

interpretation of the Act is worth quoting at some length:

We do not think the primary purpose of the Tax

Injunction Act was to remedy the inequitable financial

advantage enjoyed by foreign corporations in state tax

matters. . . . It is true that Congress was concerned about

the financial drain on state resources resulting from

foreign corporations withholding large sums of money

pending the outcome of protracted tax litigation in the

federal courts. However, had Congress enacted the Tax

Injunction Act solely to address this inequity, it could

have limited the Act’s jurisdictional bar to federal

diversity actions. . . . The Court has long recognized the

dangers inherent in disrupting the administration of state

tax systems, and the corresponding need for federal court

restraint when deciding cases that will affect these

delicate state operations. The Court’s reluctance to

interfere with the assessment and collection of state taxes

was evident long before the enactment of the Tax

Injunction Act. . . . The independent functioning of state

tax systems, which the Tax Injunction Act sought to

safeguard, would be undermined by allowing federal

district courts to exercise jurisdiction over actions such

as [this]. Given the congressional concern for state fiscal

autonomy, we do not believe Congress intended such a

result.

Ashton, 780 F.2d at 822-23 (citations omitted).

Examining the cases where the Ninth Circuit has barred

claims on the remote fringe of a state taxation scheme

highlights the panel decision’s departure from the proper

interpretation of the Act and its purpose in this case. For

example, the Ninth Circuit held that the Act barred a

constitutional challenge to a state constitution’s provision

limiting a veterans’ property tax exemption to residents.

Mandel, 494 F.2d at 367. The Ninth Circuit noted, “[T]he

strong public policy of federal noninterference with state

taxation schemes has been statutorily embodied” in the Act.

Id. at 366. The court recognized that the ability to avoid

payment by filing in federal court “would pose a grave threat

to the operation of a fiscal system of a state.” Jd. at 365.

Moreover, the Ninth Circuit reasoned, “[T]he allowance of

an immediate federal remedy would ignore traditional

doctrine foreclosing such relief until after the alternative

remedies at law have been demonstrated to be inadequate.”

Id. at 365-66. The court looked to Perez v. Ledesma, 401

U.S. 82, 128 n.17 (1971), in which Justice Brennan

explained:

The special reasons justifying the policy of federal non-

interference with state tax collection are obvious. The

procedures for mass assessment and collection of state

taxes and for administration and adjudication of

taxpayers’ disputes with tax officials are generally

complex and necessarily designed to operate according to

established rules.

Mandel, 494 F.2d at 366. In Mandel, the Ninth Circuit held

that the Act barred federal court jurisdiction because the tax

exemption in that case must fall somewhere under

“assessment and collection of state taxes” and

“administration” of the state taxation scheme. /d. at 366-67.

Likewise, the tax credit in this case also falls within

“assessment” and the administration of the state taxation

scheme, so the Act prohibits federal court jurisdiction. So,

too, Arizona's tax credit is one of the “established rules” that

is part and parcel of the state’s complex procedures for

assessing and collecting taxes.

The Ninth Circuit has also held that the Act prohibits

federal court jurisdiction where there is an indirect restraint

on the assessment of taxes. Blangeres v. Burlington N., Inc.,

872 F.2d 327, 328 (9th Cir. 1989). In Blangeres, the court

stated that the requested injunction would preclude states

“from taxing Burlington Northern employees because the

states would be unable to obtain the information necessary

for assessment.” Jd. According to the court, the injunction

would “restrain assessment” of state taxes, so “[t]he fact that

the injunction would restrain assessment indirectly rather

than directly does not make the Tax Injunction Act

inapplicable.” Jd.

In Comenout v. State of Washington, 722 F.2d 574 (9th

Cir. 1983), the Ninth Circuit reinforced its view that the Act

serves as a “broad jurisdictional impediment.” See also

Jerron West, Inc. v. State of Cal., State Bd. of Equalization,

129 F.3d 1334, 1338 (9th Cir. 1997), cert. denied, 525 U.S.

819 (1998); Dillon, 634 F.2d at 466. The Comenout court

held that the Act not only barred federal court jurisdiction

over a challenge of state excise taxes, but also barred claims

against state agents and local police, who were enforcing the

tax laws. 722 F.2d at 577-78. The court held that the Act

barred claims of unlawful arrest, assault, damages for lost

business, recovery of confiscated goods, and an injunction to

prevent the state from entering property. Jd. The Ninth

Circuit held that the Act deprived the court of jurisdiction

because maintenance of the suit “would interfere with the

enforcement of the state tax scheme.” Jd. at 578. Because the

Ninth Circuit has held that claims outside the state’s taxation

scheme were barred by the Act, surely the Act also bars

claims concerning tax credits that are within the state’s

taxation scheme.

The overwhelming theme throughout these cases is the

extremely broad scope of the Tax Injunction Act. In contrast,

the Ninth Circuit has ignored the scope of the Act to reach its

narrow interpretation, which is inconsistent with comity, this

Court’s and other circuits’ jurisprudence, and even its own

prior holdings. The Ninth Circuit also erred in its reading of

the Act’s legislative history.

2. The Tax Injunction Act’s legislative history

conflicts with the Ninth Circuit’s decision.

One of the reasons this Court has interpreted the

language of the Act broadly is because “[nJeither the

legislative history of the Act nor that of its precursor, 28

U.S.C. § 1342, suggests that Congress intended that federal-

court deference in state tax matters be limited to the actions

enumerated in those sections.” Fair Assessment, 454 U.S. at

110. For example, this Court interpreted the Act to bar both

injunctive and declaratory relief in state tax cases - even

though the Act itself is silent regarding declaratory relief.

Grace Brethren Church, 457 U.S. at 408.

The Ninth Circuit and Respondents clearly wish that the

Act’s text referred only to the “collection” of taxes. As the

Act also explicitly refers to “assessment,” the Ninth Circuit

selectively read the Act’s legislative history to conclude

erroneously that “there would be no violation of the purposes

or policy underlying the Tax Injunction Act” if Respondents’

suit continues in district court. Winn, 307 F.3d at 1016. In the

Ninth Circuit’s view, the only possible reason to refuse

jurisdiction is if the federal lawsuit threatened to drain the

state coffers. Jd. at 1017. This mechanical threshold is

completely at odds with the Act’s legislative history.

Certainly the legislative history encompasses the idea

that the Act prohibits interference with the collection of

taxes. See S. REP. No. 1035, at 1-2 (1937); H.R. REP. No.

1503, at 2 (1937). However, to end the inquiry at that point is

to ignore not only the language, but also the evident

philosophy of federalism that the Act embodies: that the Act

is designed to allow state courts to decide questions of state

tax law without federal court interference. 81 CONG. REC.

1,417 (1937) (statement of Senator Bone) (“Why not. . . [let]

the State courts settle State controversies and confine Federal

courts to the settlement of Federal questions?”) The

legislative history notes that Congress believed it a sufficient

“safety valve” for this Court to have the final say in

correcting any misinterpretations by a state supreme court. S.

REP. No. 1035, at 2 (1937) (“An appeal to the Supreme

Court of the United States is available.”); H.R. REP. No.

1503, at 2 (1937) (same); 81 CONG. REC. 1,417 (1937)

(statement of Senator Bone) (“[The Act] does not take away

any jurisdiction of the Supreme Court.”).* The Act's

legislative history clearly supports non-interference by the

federal judiciary in this case.

* In denying certiorari, this Court has already declined to look

for any error with the Arizona Supreme Court’s reasoning. See

Kotterman, 528 U.S. at 921.

CONCLUSION

Federal courts should refrain from interfering in

Arizona’s fiscal interests, its social and economic goals for

providing the tax credit, and its taxation scheme.

“Deductions and credits are legitimate tools by which

government can ameliorate the tax burden’ while

implementing social and economic goals.” Kotterman, 972

P.2d at 613. Arizona should be free to pursue its “imperative

need . . . to administer its own fiscal operations.” Rosewell,

450 U.S. at 522. This Court should reverse the Ninth Circuit

and hold that comity and the Act deprive the district court of

subject matter jurisdiction.

Respectfully submitted,