Direct Marketing Association v. Brohl

FILED
United States Court of Appeals
PUBLISH Tenth Circuit

UNITED STATES COURT OF APPEALS August 20, 2013

Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court

DIRECT MARKETING ASSOCIATION,

Plaintiff - Appellee,

v. No. 12-1175

BARBARA BROHL, in her capacity as
Executive Director, Colorado Department
of Revenue,

Defendant – Appellant,

and

MULTISTATE TAX COMMISSION,

Amicus – Curiae.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. NO. 1:10-CV-01546-REB-CBS)

Melanie J. Snyder, Deputy Attorney General (John W. Suthers, Attorney General;
Daniel D. Domenico, Solicitor General; Stephanie Lindquist Scoville, Senior Assistant
Attorney General; and Grant T. Sullivan, Assistant Attorney General, with her on the
briefs), Denver, Colorado, appearing for Appellant.

George S. Isaacson (Matthew P. Schaefer with him on the briefs), Brann & Isaacson,
Lewiston, Maine, appearing for Appellee.

Sheldon Laskin, Counsel, and Shirley Sicilian, General Counsel, Washington, D.C., filed
an amicus curiae brief on behalf of Multistate Tax Commission.
Before BRISCOE, Chief Judge, GORSUCH and MATHESON, Circuit Judges.

MATHESON, Circuit Judge.

This appeal arises from Colorado’s efforts to collect sales and use taxes during the

expansion of e-commerce.

Appellant Barbara Brohl, Executive Director of the Colorado Department of

Revenue (the “Department”), appeals from an order enjoining the enforcement of state

notice and reporting requirements imposed on retailers who do not collect taxes on sales

to Colorado purchasers (“non-collecting retailers”). Most, if not all, of these non-

collecting retailers sell products to Colorado purchasers by mail or online.

Appellee Direct Marketing Association (“DMA”)—a group of businesses and

organizations that market products via catalogs, advertisements, broadcast media, and the

Internet—urges us to uphold the district court’s determination that Colorado’s notice and

reporting obligations are unconstitutional. The district court concluded that Colorado’s

requirements for non-collecting retailers discriminated against and placed undue burdens

on interstate commerce, in violation of the Commerce Clause of the United States

Constitution. It therefore entered a permanent injunction prohibiting enforcement of the

state requirements.

The issue in this appeal is whether Colorado’s notice and reporting obligations for

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non-collecting retailers violate the Commerce Clause. However, we do not reach that

merits question. Because the Tax Injunction Act, 28 U.S.C. § 1341, deprived the district

court of jurisdiction to enjoin Colorado’s tax collection effort, we remand to the district

court to dismiss DMA’s Commerce Clause claims.

I. BACKGROUND

A. Colorado’s Sales and Use Taxes

Colorado imposes a 2.9 percent tax on the sale of tangible goods within the state.

Colo. Rev. Stat. §§ 39-26-104(1)(a), -106(1)(a)(II). Retailers with a physical presence in

the state are required by law to collect sales tax from purchasers1 and remit it to the

Department. Id. § 39-26-105, -106(2)(a). The sales tax statute imposes additional duties

on Colorado retailers such as recordkeeping, id. § 39-26-116, and penalties for deficient

remittance of sales tax, id. § 39-26-115.

If Colorado purchasers have not paid sales tax on tangible goods—as occurs in

some online and mail-order purchases from retailers with no in-state physical presence—

they must pay a 2.9 percent use tax “for the privilege of storing, using, or consuming” the

goods in Colorado. Id. § 39-26-202(1)(b). The use tax complements the sales tax and is

designed to “prevent[] consumers of retail products from purchasing out of state in order

to avoid paying a Colorado sales tax.” Walgreen Co. v. Charnes, 819 P.2d 1039, 1043

(Colo. 1991) (en banc); see also Halliburton Oil Well Cementing Co. v. Reily, 373 U.S.

1
We use the terms “purchasers,” “consumers,” and “customers” interchangeably.

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64, 66 (1963) (“[T]he purpose of . . . a sales-use tax scheme is to make all tangible

property used or consumed in [a] State subject to a uniform tax burden irrespective of

whether it is acquired within the State.”).

Although Colorado’s sales and use taxes have equivalent rates, they are collected

differently. Whereas retailers with a physical presence in the state must collect and remit

sales tax to the Department, the onus is on the purchaser to report and pay use tax. See

J.A. Tobin Const. Co. v. Weed, 407 P.2d 350, 353 (Colo. 1965) (en banc). This

difference results from the Supreme Court’s bright-line rule in Quill Corp. v. North

Dakota, 504 U.S. 298 (1992). In Quill, the Court reaffirmed that it is unconstitutional

under the “negative” or “dormant” aspect of the Commerce Clause for a state to require a

retailer with no in-state physical presence to collect the state’s sales or use taxes. Id. at

315-18 (reaffirming Commerce Clause holding in National Bellas Hess, Inc. v.

Department of Revenue of Illinois, 386 U.S. 753 (1967)). Because Quill prohibits

Colorado from forcing retailers with no in-state physical presence to collect and remit

taxes on sales to Colorado consumers, the state requires its residents to report and pay use

taxes to the Department with their income tax returns. See Colo. Rev. Stat. § 39-26-

204(1)(b). The failure to report and pay use tax is a criminal offense. Id. § 39-26-206;

id. § 39-21-118.

Nonetheless, use tax collection is elusive. Most Colorado residents do not report

or remit use tax despite the legal obligation to do so. A 2010 report submitted as part of

this litigation estimated that Colorado state and local governments would lose $172.7
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million in 2012 because of residents’ failure to pay use tax on e-commerce purchases

from out-of-state, non-collecting retailers.

B. Notice and Reporting Requirements

To increase use tax collection, in 2010 the Colorado legislature enacted statutory

requirements for non-collecting retailers.2 The statute and its implementing regulations

impose three principal obligations on non-collecting retailers whose gross sales in

Colorado exceed $100,000: they must (1) provide transactional notices to Colorado

purchasers, (2) send annual purchase summaries to Colorado customers, and (3) annually

report Colorado purchaser information to the Department.

Under the first requirement, non-collecting retailers must “notify Colorado

purchasers that sales or use tax is due on certain purchases . . . and that the state of

Colorado requires the purchaser to file a sales or use tax return.” Colo. Rev. Stat. 39-21-

112(3.5)(c)(I). The notice must be included in every transaction with a Colorado

purchaser, 1 Colo. Code Regs. § 201-1:39-21-112.3.5(2)(a), and shall inform the

purchaser that (1) the retailer has not collected sales or use tax, (2) the purchase is not

exempt from Colorado sales or use tax, and (3) Colorado law requires the purchaser to

2
A “non-collecting retailer” is defined as “[a] retailer that . . . sells goods to
Colorado purchasers and that does not collect Colorado sales or use tax.” 1 Colo. Code
Regs. § 201-1:39-21-112.3.5(1)(a)(i). Non-collecting retailers who made less than
$100,000 in total gross sales in Colorado in the previous calendar year, and who
reasonably expect gross sales in the current calendar year to be less than $100,000, are
exempt from the notice and reporting obligations. Id. § 201-1:39-21-112.3.5(1)(a)(iii).

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file a sales or use tax return and to pay tax owed. Id. § 201-1:39-21-112.3.5(2)(b).3

According to the Department, the transactional notice “serves to educate consumers about

their state use tax liability with the aim of increasing voluntary compliance.” Aplt. Br. at

12.

Under the second requirement, non-collecting retailers must mail annual notices to

Colorado customers who purchased more than $500 in goods from them in the preceding

calendar year. 1 Colo. Code Regs. § 201-1:39-21-112.3.5(3)(a), (c). The summary must

be sent by January 31 of each year and the envelope containing it must be “prominently

marked with the words ‘Important tax document enclosed.’” Id. § 201-1:39-21-

112.3.5(3)(a)(i), (vi). The summary must inform Colorado consumers of purchase dates,

items bought, and the amount of each purchase made in the preceding calendar year. Id.

§ 201-1:39-21-112.3.5(3)(a)(ii). The annual summary tells purchasers they have a duty

to “file a sales or use tax return at the end of every year” in Colorado and must inform

customers that the retailer is required to report to the Department the customers’ total

purchase amounts from the preceding calendar year. Id. § 201-1:39-21-112.3.5(3)(a)(iii),

(iv). According to the Department, the annual summary “arms the consumer with

accurate information to facilitate reporting and paying the use tax.” Aplt. Br. at 13.

3
Non-collecting retailers may provide a more generalized notice if they are
required to comply with a similar practice in another state. Id. § 201-1:39-21-
112.3.5(2)(e). The transactional notice also may take the form of a prominent link during
an online purchase that states, “See important sales tax information regarding the tax you
may owe directly to your state.” Id. § 201-1:39-21-112.3.5(2)(d).

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 Third, non-collecting retailers must annually report information on Colorado

purchasers to the Department. Colo. Rev. Stat. § 39-21-112(3.5)(d)(II)(A). The annual

report shall include purchasers’ names, billing addresses, shipping addresses, and total

purchase amounts for the previous calendar year. 1 Colo. Code Regs. § 201-1:39-21-

112.3.5(4)(a). According to the Department, this customer information report “allows [it]

to pursue audit and collection actions against taxpayers who fail to pay the tax” and “is

designed to increase voluntary consumer compliance with state tax laws because

consumers know that a third party has reported their taxable activity to the taxing

authority.” Aplt. Br. at 13.

Non-collecting retailers who do not comply with any one of Colorado’s notice and

reporting obligations are subject to penalties. Colo. Rev. Stat. § 39-21-112(3.5)(c)(II),

(d)(III)(A)-(B). Alternatively, retailers may choose to collect and remit sales tax from

Colorado purchasers to forgo the notice and reporting obligations.

C. Procedural History

In June 2010, DMA sued the Department’s executive director,4 challenging the

constitutionality of Colorado’s notice and reporting requirements. Claims I and II of

DMA’s complaint alleged that Colorado’s statutory and regulatory obligations are

unconstitutional under the Commerce Clause because they (1) discriminate against

4
At the time, the executive director was Roxy Huber. Ms. Brohl was later
substituted as the defendant in this litigation.

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interstate commerce (“Discrimination Claim”), and (2) impose undue burdens on

interstate commerce (“Undue Burden Claim”).5

The district court granted DMA a preliminary injunction prohibiting the

enforcement of the notice and reporting requirements. The parties then agreed to an

expedited process for resolving the two Commerce Clause claims and filed cross-motions

for summary judgment on those claims.

On March 30, 2012, the district court granted DMA’s motion for summary

judgment and denied the Department’s motion for summary judgment. On the

Discrimination Claim, the court concluded that the notice and reporting requirements

facially discriminate against interstate commerce. It held these requirements are

unconstitutional because “[t]he record contains essentially no evidence to show that the

legitimate interests advanced by the [Department] cannot be served adequately by

reasonable nondiscriminatory alternatives.” Direct Mktg. Ass’n v. Huber, No. 10-CV-

01546-REB-CBS, 2012 WL 1079175, at *6 (D. Colo. Mar. 30, 2012).

On the Undue Burden Claim, the district court relied on Quill’s bright-line rule

that state governments cannot constitutionally require businesses without an in-state

physical presence to collect and remit sales or use taxes. The district court acknowledged

that Colorado’s notice and reporting requirements do not obligate out-of-state retailers to

5
DMA’s First Amended Complaint asserted six other claims under the United
States and Colorado Constitutions. The district court stayed these claims pending the
resolution of Claims I and II. Only Claims I and II are before this court on appeal.

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collect and remit taxes. But it reasoned that the notice and reporting requirements place

burdens on out-of-state retailers that “are inextricably related in kind and purpose to the

burdens condemned in Quill.” Id. at *8. These burdens, the district court concluded,

would unconstitutionally interfere with interstate commerce.

In the same order, the court entered a permanent injunction prohibiting

enforcement of the notice and reporting requirements. In granting injunctive relief, the

district court said DMA had achieved actual success on the merits because the court had

granted summary judgment on the Discrimination and Undue Burden Claims.

Because DMA’s non-Commerce Clause claims remained unresolved, the district

court said it would “address in a separate order the parties’ request that [it] certify this

order as a final judgment under Fed. R. Civ. P. 54(b),” from which the Department could

appeal. Id. at *11; see also 28 U.S.C. § 1291. However, the Department filed its notice

of appeal before the district court certified the order as final under Fed. R. Civ. P. 54(b).

We nevertheless may consider the Department’s appeal from the district court’s entry of

a permanent injunction under 28 U.S.C. § 1292(a)(1) (providing jurisdiction over

interlocutory orders granting injunctions).

II. DISCUSSION

The issue on appeal is whether Colorado’s notice and reporting requirements for

non-collecting retailers violate the dormant Commerce Clause. Before addressing that

issue, however, we must determine whether the Tax Injunction Act (“TIA”), 28 U.S.C.

§ 1341, precludes federal jurisdiction over DMA’s claims. We conclude that it does and
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do not reach the merits of this appeal.

A. Tax Injunction Act

The TIA provides that “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.” 28 U.S.C. § 1341. “The statute

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.” Rosewell v. LaSalle

Nat’l Bank, 450 U.S. 503, 522 (1981) (quotations omitted). It therefore serves as a

“broad jurisdictional barrier” that “limit[s] drastically federal district court jurisdiction to

interfere with so important a local concern as the collection of taxes.” Arkansas v. Farm

Credit Servs. of Cent. Ark., 520 U.S. 821, 825, 826 (1997). Because the TIA is a

jurisdictional limitation, we must determine whether it prohibits our consideration of this

appeal regardless of whether it was raised in the district court. See Oklahoma ex rel.

Okla. Tax Comm’n v. Int’l Registration Plan, Inc., 455 F.3d 1107, 1111 (10th Cir. 2006);

see also Folio v. City of Clarksburg, 134 F.3d 1211, 1214 (4th Cir. 1998) (“This statutory

provision is a jurisdictional bar that is not subject to waiver, and the federal courts are

duty-bound to investigate the application of the Tax Injunction Act regardless of whether

the parties raise it as an issue.”).

The TIA prohibits our jurisdiction if (1) DMA’s action seeks to “enjoin, suspend

or restrain the assessment, levy or collection of any tax under State law,” 28 U.S.C.

§ 1341, and (2) “a plain, speedy and efficient remedy may be had in the courts of such
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State,” id. We address these issues in turn.

1. Does DMA seek to enjoin, suspend, or restrain the assessment, levy or collection
of a state tax?

The TIA divests federal district courts of jurisdiction over actions that seek to

“enjoin, suspend or restrain the assessment, levy or collection of any tax under State

law.” 28 U.S.C. § 1341. This broad language prohibits federal courts from interfering

with state tax administration through injunctive relief, declaratory relief, or damages

awards. See California v. Grace Brethren Church, 457 U.S. 393, 407-08 (1982); Marcus

v. Kan. Dep’t of Revenue, 170 F.3d 1305, 1309 (10th Cir. 1999). The TIA “does not limit

any substantive rights to enjoin a state tax but requires only that they be enforced in a

state court rather than a federal court.” Empress Casino Joliet Corp. v. Balmoral Racing

Club, Inc., 651 F.3d 722, 725 (7th Cir. 2011).

In its brief, DMA argues the TIA does not preclude federal jurisdiction here

because DMA (1) is not a taxpayer seeking to avoid a tax, and (2) challenges notice and

reporting requirements, not a tax assessment.

a. Non-taxpayer lawsuits

DMA argues it is not a taxpayer seeking to avoid state taxes and thus the TIA does

not apply. Its argument rests on Hibbs v. Winn, 542 U.S. 88 (2004), where the Supreme

Court stated that the TIA is triggered when “state taxpayers seek federal-court orders

enabling them to avoid paying state taxes.” Id. at 107. Relying on our precedent

interpreting Hibbs, we disagree that the TIA applies only when taxpayers seek to avoid a

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state tax in federal court.

The plaintiffs in Hibbs were Arizona taxpayers who brought an Establishment

Clause challenge in federal court to a state tax credit for contributions to “school tuition

organizations.” Id. at 94-95. The plaintiffs did not challenge a tax imposed on them, but

a tax benefit to others. Id. at 108. The Supreme Court determined the TIA did not bar

such a lawsuit.

The Court observed that Congress enacted the TIA to “direct[] taxpayers to pursue

refund suits instead of attempting to restrain [state tax] collections” through federal

lawsuits. Id. at 104. “In short,” the Court said, “Congress trained its attention on

taxpayers who sought to avoid paying their tax bill by pursuing a challenge route other

than the one specified by the taxing authority.” Id. at 104-05.

Beyond this discussion of taxpayer lawsuits, the Hibbs Court explained that the

TIA applies to federal court relief that “would . . . operate[] to reduce the flow of state tax

revenue”—i.e., federal lawsuits that would inhibit state tax assessment, levy, or

collection. Id. at 106. According to the statute’s legislative history, Congress enacted the

TIA with “state-revenue-protective objectives,” including prohibiting “taxpayers, with

the aid of a federal injunction, from withholding large sums, thereby disrupting state

government finances.” Id. at 104; see also id. at 105 n.7 (“The TIA . . . proscribes

interference only with those aspects of state tax regimes that are needed to produce

revenue—i.e., assessment, levy, and collection.”). The Court noted that the Hibbs

plaintiffs did not challenge a state-revenue-producing measure—they sought to invalidate
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a tax credit the state gave to taxpayers—and that nothing in the TIA prohibited a third

party from challenging a state tax benefit in federal court. See id. at 107-08.

Although Hibbs states that the TIA applies to “cases in which state taxpayers seek

federal-court orders enabling them to avoid paying state taxes,” id. at 107, we have not

interpreted it as holding that the TIA applies only to taxpayer suits. For instance, in Hill

v. Kemp, 478 F.3d 1236 (10th Cir. 2007), we applied the TIA outside the context of a

taxpayer seeking to avoid taxes. In Hill, Oklahoma motorists and abortion-rights

supporters sought to enjoin Oklahoma’s statutory scheme for specialty vehicle license

plates. Id. at 1239. The plaintiffs argued that Oklahoma unconstitutionally discriminated

against their viewpoint by giving more favorable terms and conditions to drivers who

wanted specialty plates with anti-abortion messages. Id.

We agreed with the district court that the TIA barred the plaintiffs’ challenge

because Oklahoma’s specialty license plate scheme imposed revenue-generating charges,

which we viewed as taxes. Id. at 1244-45. To enjoin the “entire specialty plate regime

. . . or even to enjoin a portion of it,” we said, “would deny Oklahoma the use of

significant funds” used for a variety of state initiatives. Id. at 1247. Such a result “would

implicate exactly the sort of federalism problems the TIA was designed to ameliorate.”

Id.; see also Tully v. Griffin, Inc., 429 U.S. 68, 73 (1976) (“[T]he statute 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.”).

The plaintiffs in Hill argued that, under Hibbs, the TIA did not apply because they
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did not “challenge an assessment imposed on them, but rather assessments imposed on

and paid by other persons or entities”—i.e., they were not taxpayers trying to avoid a tax.

478 F.3d at 1249. We disagreed with this reading of Hibbs. We saw “[n]othing in the

language of the TIA indicat[ing] that our jurisdiction to hear challenges to state taxes can

be turned like a spigot, off when brought by taxpayers challenging their own liabilities

and on when brought by third parties challenging the liabilities of others.” Id.

We acknowledged that in Hibbs the Court “did point out that TIA cases typically

involve challenges brought by state taxpayers seeking to avoid their own state tax

liabilities.” Id. But we noted that some lower-court cases applied the TIA to suits by

third parties who sought to disrupt state tax collection and that the Hibbs Court did not

criticize these decisions. Id. at 1249 & n.11 (citing Valero Terrestrial Corp. v. Caffrey,

205 F.3d 130, 132 (4th Cir. 2000)). We interpreted Hibbs as holding that the “essential

problem with the defendant’s assertion that the TIA barred the suit . . . lay in the fact that

the plaintiff[s] . . . simply did not seek to enjoin the levy or collection of any tax . . . but

instead sought to challenge the provision of a tax credit.” Id. at 1249. The upshot of

Hibbs, we said, is that “giving away a tax credit is a very different thing than assessing,

levying or collecting a tax.” Id. at 1249. The nature of the plaintiff was not the “essential

and dispositive distinction under the Supreme Court’s teaching in Hibbs.” Id.

Accordingly, we have not interpreted Hibbs as holding that the TIA applies only

when taxpayers seek to avoid a state tax. Rather, the key question is whether the

plaintiff’s lawsuit seeks to prevent “the State from exercising its sovereign power to
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collect . . . revenues.” Id.6 This interpretation adheres to Hibbs’s instruction that the

primary purpose of the TIA is to “shield[] state tax collections from federal-court

restraints.” 542 U.S. at 104; see also Ashton v. Cory, 780 F.2d 816, 822 (9th Cir. 1986)

(“The Supreme Court has repeatedly stated that the principal purpose of the Tax

Injunction Act was to curtail federal court interference with state revenue collection

procedures.”).

Contrary to DMA’s position, it cannot avoid the TIA merely because it is not a

taxpayer challenging tax payment.

b. Notice and reporting obligations

DMA next argues that it seeks to avoid notice and reporting obligations, not a tax.

It insists that “[t]he fact that such obligations relate to use tax owed by Colorado

consumers does not bring the DMA’s suit . . . under the umbrella of the TIA as a suit

seeking to enjoin the collection of a state tax.” Aplee. Br. at 4.

But the TIA bars more than suits that would enjoin tax collection. It also prohibits

federal lawsuits that would “restrain the . . . collection” of a state tax. 28 U.S.C. § 1341

(emphasis added). The issue is whether DMA’s attack on Colorado’s notice and

6
In Hill, we stated that “our understanding of Hibbs accords with the views
expressed by the Fifth Circuit.” 478 F.3d at 1249 n.12. We cited Henderson v. Stalder,
407 F.3d 351 (5th Cir. 2005). In Henderson, the Fifth Circuit explained that “Hibbs
opened the federal courthouse doors slightly notwithstanding the limits of the TIA, but it
did so only where (1) a third party (not the taxpayer) files suit, and (2) the suit’s success
will enrich, not deplete, the government entity’s coffers.” Id. at 359 (emphasis added).
In other words, if a non-taxpayer challenges a tax measure but its challenge would
deplete state revenues, Hibbs does not prevent the TIA’s application.

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reporting obligations would “restrain” Colorado’s tax collection.

i. Suits that restrain tax collection

In enacting the TIA, Congress chose to prohibit three forms of interference with

state tax collection: “enjoin[ing], suspend[ing], or restrain[ing.]” Id. Its use of the

disjunctive “or” suggests each term has a distinct meaning. See Garcia v. United States,

469 U.S. 70, 73 (1984) (“Canons of construction indicate that terms connected in the

disjunctive . . . be given separate meanings.”). The terms “enjoin” and “suspend” suggest

entirely arresting tax collection, but “restrain” has a broader ordinary meaning. See Smith

v. United States, 508 U.S. 223, 228 (1993) (“When a word is not defined by statute, we

normally construe it in accord with its ordinary or natural meaning.”).

Under most definitions, “restrain” means to limit, restrict, or hold back. See

Webster’s Third New International Dictionary 1936 (1976) (defining “restrain” as “to

limit or restrict . . . a particular action or course” and “to moderate or limit the force,

effect, development, or full exercise of”); American Heritage Dictionary of the English

Language 1497 (2011) (defining “restrain” as “[t]o hold back or keep in check”); see also

Black’s Law Dictionary 1429 (9th ed. 2009) (defining “restraint” as “[c]onfinement,

abridgment, or limitation”). We accept this ordinary meaning of “restrain,” cognizant of

the Supreme Court’s instruction that the TIA is a broad jurisdictional prohibition. See

Farm Credit Servs., 520 U.S. at 825; Rosewell, 450 U.S. at 524; Moe v. Confederated

Salish and Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 470 (1976); see also

Brooks v. Nance, 801 F.2d 1237, 1239 (10th Cir. 1986); Gasparo v. City of New York, 16
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F. Supp. 2d 198, 216 (E.D.N.Y. 1998) (The TIA “has not been narrowly construed, but

rather constitutes a broad restriction on federal court jurisdiction.” (quotations omitted)).

A lawsuit seeking to enjoin state laws enacted to ensure compliance with and

increase use tax collection, like DMA’s challenge here, would “restrain” state tax

collection. Such a lawsuit, if successful, would limit, restrict, or hold back the state’s

chosen method of enforcing its tax laws and generating revenue. Federalism concerns,

which the TIA seeks to avoid, arise not only when a state tax is challenged in federal

court, but also when the means for collecting a state tax are targeted there. The TIA’s use

of the term “restrain” allows federal courts to weed out lawsuits, such as DMA’s, that

attempt to undermine state tax collection.

Although DMA does not directly challenge a tax, it contests the way Colorado

wishes to collect use tax. This court has said that the TIA “cannot be avoided by an

attack on the administration of a tax as opposed to the validity of the tax itself.” Brooks,

801 F.2d at 1239. In making this statement, we agreed with Czajkowski v. Illinois, 460 F.

Supp. 1265 (N.D. Ill. 1977), which applied the TIA to a challenge to state cigarette tax

enforcement, even though it was “arguable that plaintiffs [were] only seeking to enjoin

the state from using unconstitutional methods and procedures to collect the taxes, rather

than the collection of taxes itself.” Id. at 1272.

We acknowledge that DMA’s suit is unlike TIA cases in which a plaintiff asks a

federal court to invalidate and enjoin a state tax. Even if DMA’s constitutional attack on

the notice and reporting obligations were successful, Colorado consumers would still owe
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use taxes by law. But the state-chosen method to secure those taxes would be

compromised, curbing Colorado’s ability to collect revenue. The inquiry under the TIA

is whether DMA’s lawsuit would restrain state tax collection. Although DMA’s lawsuit

differs from the prototypical TIA case, its potential to restrain tax collection triggers the

jurisdictional bar.

DMA suggests that the obligations imposed on non-collecting retailers merely

“relate to use tax owed by Colorado consumers.” Aplee. Br. at 4. We disagree with

DMA’s characterization and attempt to distance the notice and reporting obligations from

the collection of a state tax. Colorado enacted the notice and reporting obligations to

increase taxpayers’ compliance with use tax laws and thereby increase use tax collection.

Even the title of the bill that later became law reflects its tax collection purpose: “An Act

Concerning the Collection of Sales and Use Taxes on Sales Made by Out-of-State

Retailers.” Id. at 5 (emphasis added). One of the challenged requirements, the annual

customer information reports sent to the Department, would aid the Department’s

auditing of taxpayers, a significant tax collection mechanism. Indeed, the tax collection

goal of the notice and reporting requirements is apparent because out-of-state retailers

who voluntarily collect tax on Colorado purchases are exempt.

The purposes of the TIA apply both to a lawsuit that would directly enjoin a tax

and one that would enjoin a procedure required by the state’s tax statutes and regulations

that aims to enforce and increase tax collection. Either action interferes with state

revenue collection and falls within the “traditional heartland of TIA cases” that dismiss
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federal lawsuits to protect state coffers. Hill, 478 F.3d at 1250; see also Brooks, 801 F.2d

at 1239 (the TIA “cannot be avoided by an attack on the administration of a tax as

opposed to the validity of the tax itself”); Jerron W., Inc. v. State of Cal., State Bd. of

Equalization,129 F.3d 1334, 1337 (9th Cir. 1997) (applying the TIA to an action seeking

to enjoin a hearing and administrative proceedings that were integral to the state’s sales

tax assessment and collection scheme).

Other courts have applied the TIA to attacks on tax collection methods, rather than

taxes themselves. In Gass v. County of Allegheny, 371 F.3d 134 (3d Cir. 2004), the Third

Circuit held that the TIA barred a lawsuit challenging a state tax appeals procedure.

Although the appellant argued that its lawsuit did not affect the state’s ability to collect

tax, the appellate court concluded that the “appeal process is directed to the . . . ultimate

goal and responsibility of determining the proper amount of tax to assess” and thus fell

within the TIA. Id. at 136.

Similarly, the Ninth Circuit has applied the TIA to bar a suit that would have

prohibited disclosure of tax information to state taxing authorities. Blangeres v.

Burlington N., Inc., 872 F.2d 327, 328 (9th Cir. 1989) (per curiam). The lawsuit sought

to withhold “earnings records and other tax-related information to the Idaho and Montana

taxing authorities.” Id. As here, the taxpayer would have continued to owe tax, but the

states would have been deprived of the means to calculate and collect it. The Ninth

Circuit said, “[t]he fact that the injunction would restrain assessment indirectly rather

than directly does not make the [TIA] inapplicable.” Id.; see also RTC Commercial
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Assets Trust 1995-NP3-1 v. Phoenix Bond & Indem. Co., 169 F.3d 448, 454 (7th Cir.

1999) (“[T]he TIA withdraws federal jurisdiction even over actions that would indirectly

restrain the assessment, levy, or collection of taxes.”). The Ninth Circuit has since

explained that whether the TIA applies depends on “the effect of federal litigation on the

state’s ability to collect revenues, and will only bar the adjudication of a federal

constitutional claim in federal court if a judgment for the plaintiffs will hamper a state’s

ability to raise revenue.” Winn v. Killian, 307 F.3d 1011, 1017 (9th Cir. 2002), aff’d sub

nom. Hibbs, 542 U.S. 88. We have little problem concluding that DMA’s lawsuit would

hamper Colorado’s ability to raise revenue.

ii. DMA’s additional arguments

DMA responds that the Supreme Court has cautioned that the TIA is not a

“sweeping congressional direction to prevent federal-court interference with all aspects of

state tax administration.” Hibbs, 542 U.S. at 105. We have acknowledged this point, see

Chamber of Commerce v. Edmondson, 594 F.3d 742, 761 (10th Cir. 2010), and continue

to do so here. But in making this pronouncement, the Supreme Court was distinguishing

between federal lawsuits that would not curb state revenue collection, and therefore

would not fall within the TIA, and “[f]ederal-court relief [that] . . . [would] reduce the

flow of state tax revenue,” and thus trigger the TIA. Hibbs, 542 U.S. at 106. DMA’s

Commerce Clause claims fall within the latter category.

DMA also cites two federal circuit court cases to argue that our interpretation of

the TIA is overly broad: United Parcel Service Inc. v. Flores-Galarza (“UPS”), 318 F.3d
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323, 330-32 (1st Cir. 2003), and Wells v. Malloy, 510 F.2d 74, 77 (2d Cir. 1975).

In UPS, the First Circuit addressed whether the Butler Act, a close relative of the

TIA, deprived it of jurisdiction over a challenge to Puerto Rico’s interstate package

delivery scheme. The Butler Act provides that “[n]o suit for the purpose of restraining

the assessment or collection of any tax imposed by the laws of Puerto Rico shall be

maintained in the United States District Court for the District of Puerto Rico.” 48 U.S.C.

§ 872. UPS challenged Puerto Rico’s statutory scheme prohibiting an interstate carrier

from delivering a package unless the recipient presented a certificate of excise tax

payment. See UPS, 318 F.3d at 326. Alternatively, interstate carriers could prepay

excise tax and seek reimbursement from package recipients, but this option imposed

expensive and burdensome statutory and regulatory obligations. Id.

The First Circuit determined the Butler Act did not bar UPS’s action. It reasoned

that “UPS sought to enjoin only those provisions . . . that prohibit or interfere with the

delivery of packages. UPS did not challenge the amount or validity of the excise tax, nor

the authority of the Secretary to assess or collect it.” Id. at 330-31. The court also said

that Puerto Rico’s package “delivery ban targets third parties instead of those who owe

the tax.” Id. at 331. It found that Puerto Rico’s laws produced excise tax revenue

“indirectly through a more general use of coercive power” and did not create “a system of

tax collection within the meaning of the Butler Act.” Id. (quotations omitted).

Even if UPS counsels against applying the TIA here, we decline to follow it.

Much of UPS’s reasoning conflicts with our own binding case law. For instance, UPS
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found it important that the plaintiff did “not challenge the amount or validity of the excise

tax,” id. at 330-31, but we have said the TIA “cannot be avoided by an attack on the

administration of a tax as opposed to the validity of the tax itself.” Brooks, 801 F.2d at

1239. The UPS court also declined to apply the Butler Act because Puerto Rico’s laws

targeted third parties, not taxpayers. But, as discussed above, we recognized in Hill that

the TIA can apply to third-party lawsuits that enjoin, suspend, or restrain tax collection.

See 478 F.3d at 1249. Indeed, much of the reasoning in UPS would have counseled

against applying the TIA to the license plate lawsuit in Hill.

DMA also cites Wells v. Malloy, 510 F.2d 74, 77 (2d Cir. 1975) (Friendly, J.). In

Wells, the plaintiff sought to enjoin a Vermont provision that required suspension of his

driver’s license for failure to pay motor vehicle taxes. Id. at 76. The plaintiff did not

dispute owing taxes. Id. The district court determined the TIA barred the action, but the

Second Circuit disagreed.

The court concluded the plaintiff was not seeking to restrain the collection of a

tax. It said, “‘Collection,’ of course, could be read broadly to include anything that a

state has determined to be a likely method of securing payment.” Id. at 77. But the court

interpreted “collection” to mean “methods similar to assessment and levy . . . that would

produce money or other property directly, rather than indirectly through a more general

use of coercive power.” Id.

Like Wells, we do not interpret the TIA as applying to any action challenging a

state law that could possibly secure tax payment. But here DMA challenges laws enacted
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to notify consumers of their duty to pay use tax and to garner information on consumer

purchases to ensure tax compliance through audits. Its lawsuit targets measures that

attempt to ensure tax compliance in the first instance, not sanctions imposed after a

taxpayer has admittedly refused to pay taxes. Colorado’s laws are not a reactive and

punitive “general use of coercive power” to entice tax payment from individuals who

admittedly refuse to pay, and we therefore do not think Wells applies here.

Finally, we mention one recent development. After oral argument in this case, this

court considered the application of the Anti-Injunction Act (“AIA”), 26 U.S.C. § 7421, in

Hobby Lobby Stores, Inc. v. Sebelius, -- F.3d --, 2013 WL 3216103 (10th Cir. June 27,

2013) (en banc). Using somewhat similar language to the TIA, the AIA states that “no

suit for the purpose of restraining the assessment or collection of any tax shall be

maintained in any court by any person, whether or not such person is the person against

whom such tax was assessed.” 26 U.S.C. § 7421(a). Whereas the TIA protects state tax

measures, the AIA “protects the [federal] Government’s ability to collect a consistent

stream of revenue, by barring litigation to enjoin or otherwise obstruct the collection of

taxes.” Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2582 (2012).

In Hobby Lobby, two corporations challenged a federal requirement that they

provide employees with health insurance coverage for certain contraceptive methods.

2013 WL 3216103 at *1. Failure to comply with the federal requirement exposed the

corporations to a “tax” under 26 U.S.C. § 4980. Id. at *7. We considered whether the

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AIA barred the corporations’ action because their suit might enjoin a tax on them for

non-compliance with the health care coverage requirement.

We explained that the corporations were “not seeking to enjoin the collection of

taxes or the execution of any IRS regulation; they [were] seeking to enjoin the

enforcement, by whatever method, of one HHS regulation” regarding contraceptive

coverage. Id.; see also id. (“[T]he corporations’ suit is not challenging the IRS’s ability

to collect taxes.”). The “tax [was] just one of many collateral consequences” of non-

compliance with the federal contraceptive-coverage requirement. Id. Moreover, “[t]he

statutory scheme ma[de] clear that the tax at issue [was] no more than a penalty for

violating regulations . . . and the AIA does not apply to the exaction of a purely

regulatory tax.” Id. at *8 (quotations omitted).7

Our position in this appeal is consistent with the analysis in Hobby Lobby. The

corporations in Hobby Lobby challenged a health insurance regulation and a possible

penalty for failing to comply with that regulation. To the extent that the penalty

7
In using the term “regulatory tax,” the Hobby Lobby court appears to have drawn
a distinction between a “classic tax [that] sustains the essential flow of revenue to the
government,” Marcus v. Kan. Dep’t of Rev., 170 F.3d 1305, 1311 (10th Cir. 1999)
(quotations omitted), and a penalty that “rais[es] money to help defray an agency’s
regulatory expenses,” id., or serves “punitive purposes,” Valero Terrestrial Corp. v.
Caffrey, 205 F.3d 130, 134 (4th Cir. 2000). See also Hoeper v. Tax Comm’n of Wis., 284
U.S. 206, 217 (1931) (distinguishing between a “revenue measure[]” and a law
“imposing regulatory taxes”); Hager v. City of W. Peoria, 84 F.3d 865, 870-71 (7th Cir.
1996) (analyzing whether the TIA barred a challenge to a permit fee, and stating that
“[r]ather than a question solely of where the money goes, the issue is why the money is
taken”); Robertson v. United States, 582 F.2d 1126, 1128 (7th Cir. 1978) (distinguishing
between “regulatory taxes” and “revenue-raising taxes”).

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constituted a “tax” under the AIA, an issue that this court seemed to doubt in Hobby

Lobby, it was a “more general use of coercive power,” Wells, 510 F.2d at 77, and fell

outside the bounds of the AIA.

Here, DMA challenges notice and reporting requirements in Colorado’s sales and

use tax statutory scheme. These requirements are not a coercive use of power or punitive

in nature—they are the state’s chosen means of enforcing use tax collection in the first

instance. And the state’s use tax is indisputably a “tax” under the TIA. The revenue-

generating, non-punitive purpose of the notice and reporting obligations places them

squarely within the TIA’s protection.

* * *

DMA’s action seeks to restrain the collection of sales and use taxes in Colorado.

The state’s notice and reporting obligations, while not taxes themselves, were enacted

with the sole purpose of increasing use tax collection. Indeed, the obligations for non-

collecting retailers are a substitute for requiring these same retailers to collect sales and

use taxes at the point of sale, an approach the Colorado legislature deemed foreclosed by

the Supreme Court’s decision in Quill. Having determined that DMA’s action falls

within the TIA’s prohibition on federal lawsuits that would “enjoin, suspend or restrain

the assessment, levy or collection of any tax under State law,” 28 U.S.C. § 1341, we

proceed to the statute’s second element.

2. Does DMA have a plain, speedy, and efficient remedy in Colorado?

For the TIA to apply, DMA must also have a “plain, speedy and efficient remedy
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. . . in the courts of [Colorado].” 28 U.S.C. § 1341. This part of the TIA requires that

Colorado law offer a “full hearing and judicial determination” on its claims. See

Rosewell, 450 U.S. at 514 (quotations omitted). We must be convinced that Colorado

law provides DMA with sufficient process to challenge the notice and reporting

requirements. See Hill, 478 F.3d at 1253-54.

As previously discussed, Congress intended for the TIA to impose a “broad

jurisdictional barrier” that “limit[s] drastically federal district court jurisdiction to

interfere with so important a local concern as the collection of taxes.” Farm Credit

Servs., 520 U.S. at 825; see also Grace Brethren Church, 457 U.S. at 413. The TIA’s

“plain, speedy and efficient remedy” provision is therefore interpreted “narrowly” to “be

faithful to [this] congressional intent.” Id. Our narrow inquiry asks only whether the

“state-court remedy . . . meets certain minimal procedural criteria.” Rosewell, 450 U.S.

at 512; see also Colonial Pipeline Co. v. Morgan, 474 F.3d 211, 218 (6th Cir. 2007)

(“The plain, speedy and efficient remedy contemplated by [the Tax Injunction Act]

merely requires that the state provide certain minimal procedural protections against

illegal tax collection.” (quotations omitted)). The TIA does not require that the state

provide the best or speediest remedy. See Rosewell, 450 U.S. at 520; Alnoa G. Corp. v.

City of Houston, Tex., 563 F.2d 769, 772 (5th Cir. 1977). And “the likelihood of [a]

plaintiff’s success in the state court is not a factor . . . when determining whether the

jurisdictional prohibition of [the TIA] applies.” Cities Serv. Gas Co. v. Okla. Tax

Comm’n, 656 F.2d 584, 586 (10th Cir. 1981).
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 DMA does not challenge the process available to it in Colorado. Colorado state

courts can and do grant relief in cases challenging the constitutionality of tax measures.

See Riverton Produce Co. v. State, 871 P.2d 1213, 1230 (Colo. 1994) (en banc). Further,

Colorado courts have considered Commerce Clause challenges involving taxes. See Gen.

Motors Corp. v. City & Cnty. of Denver, 990 P.2d 59, 73 (Colo. 1999) (en banc); People

v. Boles, 280 P.3d 55, 62-63 (Colo. App. 2011). Circuit courts have routinely said that

such available process in state court satisfies the TIA’s “plain, speedy and efficient

remedy” element. See, e.g., Washington v. Linebarger, Goggan, Blair, Pena & Sampson,

LLP, 338 F.3d 442, 444-45 (5th Cir. 2003) (availability of a state tax protest provision

“or a state declaratory action” was an adequate remedy); Folio v. City of Clarksburg, W.

Va., 134 F.3d 1211, 1215 (4th Cir. 1998) (declaratory relief available in state court);

Smith v. Travis Cnty. Educ. Dist., 968 F.2d 453, 456 (5th Cir. 1992) (remedy available in

state court); Burris v. City of Little Rock, 941 F.2d 717, 721 (8th Cir. 1991) (“[Plaintiffs]

could also have obtained a declaratory judgment under Ark.Code Ann. § 16-111-103.

Federal constitutional claims may, of course, be raised in state court.”); Long Island

Lighting Co. v. Town of Brookhaven, 889 F.2d 428, 431 (2d Cir. 1989) (declaratory

judgment available under New York law); Ashton v. Cory, 780 F.2d 816, 819-20 (9th Cir.

1986) (plaintiff had no plain state refund remedy, but had already “assert[ed] its claims in

the California courts,” which “afford[ed] the required full hearing and judicial

determination of its preemption claims”); Sipe v. Amerada Hess Corp., 689 F.2d 396, 405

(3d Cir. 1982) (in personam proceeding could be maintained in state court).
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 We are hesitant, however, to stop our analysis there. The Supreme Court in Hibbs

suggested that the TIA does not refer to general process available in state court. The

Court said that a “plain, speedy and efficient remedy” under 28 U.S.C. § 1341 is “not one

designed for the universe of plaintiffs who sue the State. Rather, it [is] a remedy

tailormade for taxpayers.” 542 U.S. at 107. It then cited to decisions in which taxpayers

were allowed to protest taxes in state court after first seeking a refund under state

administrative law. Although the Hibbs Court was not deciding any issue specifically

dealing with the “plain, speedy and efficient remedy” language of the TIA, its brief

discussion suggests that the statutory language may contemplate something more than the

general availability of a remedy to “the universe of plaintiffs who sue the State.”8

As discussed earlier, in Hill v. Kemp, this court determined that the TIA may bar

third-party non-taxpayer lawsuits, despite the Hibbs Court’s discussion of taxpayer

8
Despite this language in Hibbs, the Seventh Circuit, sitting en banc, recently
determined that the TIA applied where a plain, speedy, and efficient remedy was
available generally in state court. In Empress Casino Joliet Corp. v. Balmoral Racing
Club, Inc., 651 F.3d 722 (7th Cir. 2011) (Posner, J.) (en banc), casinos challenged in
federal court Illinois statutes requiring them to deposit a portion of their revenues in a
state fund for racetracks. Id. at 725. The casinos, alleging a RICO violation, asked the
federal court to impose “a constructive trust in their favor on the money received by the
racetracks.” Id. After determining that the action “would thwart the tax as surely as an
injunction against its collection,” id. at 726, the court briefly addressed the TIA’s “plain,
speedy and efficient remedy” language. It determined that there was such a remedy
because “the casinos [could] ask an Illinois state court to impose a constructive trust on
the tax receipts.” Id. at 734. In other words, the casinos could do in state court what they
sought to do in federal court.
This post-Hibbs opinion supports applying the TIA here, where state court process
is available to DMA.

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lawsuits. 478 F.3d at 1249 (“Nothing in the language of the TIA indicates that our

jurisdiction to hear challenges to state taxes can be turned like a spigot, off when brought

by taxpayers challenging their own liabilities and on when brought by third parties

challenging the liabilities of others.”). In Hill, the plaintiffs had a “plain, speedy and

efficient” remedy in state court because Oklahoma tax statutes provided “a general right

to protest taxes before the Tax Commission,” as well as a right of action to remedy

grievances for any state tax law that is contrary to federal law or the Constitution. Id. at

1253-54 (citing 68 Okla. Stat. §§ 201 et seq. and id. § 226). Oklahoma law also

specifically allowed for declaratory relief against unlawful taxes. Id. at 1254 (citing 12

Okla. Stat. § 1397).

Thus, in Hill, the plaintiffs could seek a remedy under specific state tax laws. This

was consistent with Hibbs in that these remedies were not available to the universe of

plaintiffs suing the state. Accordingly, we address whether Colorado’s tax laws similarly

provide a more specific remedy to DMA: How can DMA or the remote retailers it

represents challenge Colorado’s statutory scheme outside of filing an action in state court

for injunctive or declaratory relief?

DMA complains that Colorado’s laws force remote retailers to choose between

obeying the notice and reporting requirements and remitting sales tax to the Department.

Aplee. Br. at 46-47. Much like a taxpayer who seeks to challenge a state tax but must

first pay the tax and seek a refund under state law, a remote retailer could choose to remit

sales tax and then seek a refund. Colo. Rev. Stat. § 39-26-703(2.5)(a) allows retailers to
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“file any claim for refund with the executive director of the department of revenue.”

(Emphasis added).9 In pursuing the refund, the retailer could argue that Colorado laws

unconstitutionally coerce it to choose between collecting a sales tax and complying with

the notice and reporting requirements, the same Commerce Clause argument it brings

here. See Aplee. Br. at 46-47 (“[T]he State of Colorado seeks to compel retailers who

have declined to collect Colorado sales tax voluntarily[] to give[]up their constitutional

rights not to collect such taxes. Although the [Department] argues that the retailer’s

decision in the face of such coercion is a ‘choice,’ the Constitution precludes such

oppressive and discriminatory measures against interstate commerce.” (citation omitted)).

The director then would “promptly examine such claim and . . . make a refund or allow a

credit to any [retailer] who establishes that such [retailer] overpaid the tax due.” Colo.

Rev. Stat. § 39-26-703(2.5)(a). If the retailer is “aggrieved at the final decision,” it may

seek review in the state district courts. Id. § 39-26-703(4).

Another remedy for a remote retailer is to challenge any penalties it incurs for

failing to comply with the notice and reporting obligations. See, e.g., id. § 39-21-

9
If a retailer chooses to pay sales tax rather than comply with the notice and
reporting requirement, the retailer is “liable and responsible for the payment” of sales tax
of 2.9 percent, payable monthly by submitting a return to the Department. Colo. Rev.
Stat. § 39-26-105(1)(a). If the retailer does not collect the tax from purchasers, but still
pays the 2.9 percent as required by law, the refund claim would be on the retailer’s
behalf. See id. § 39-26-703(2.5)(a) (executive director is to determine whether the
vendor overpaid tax). If the retailer collects sales tax from purchasers and remits it to the
Department, it can bring a refund claim on behalf of the purchasers if the retailer
complies with certain requirements. Id. § 39-26-703(2.5)(b).

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112(3.5)(c)(II), (d)(III)(A)-(B) (providing for penalties). Under Colo. Rev. Stat § 39-21-

103, a taxpayer may dispute a tax owed to the Department after receiving a notice of

deficiency and may request a hearing. Although this provision discusses tax deficiencies,

it also contemplates disputes involving penalties owed to the Department. See id. § 39-

21-103(8)(c). This provision also contemplates the taxpayer and the executive director

agreeing that “a question of law arising under the United States or Colorado

constitutions” is implicated in the dispute, bypassing a hearing, and going “directly to the

district court.” Id. § 39-21-103(4.5).10

We are satisfied that Colorado provides avenues for remote retailers to challenge

the scheme allegedly forcing them to choose between collecting sales tax and complying

with the notice and reporting requirements. Colorado’s administrative remedies provide

for hearings and appeals to state court, as well as ultimate review in the United States

Supreme Court. See Rosewell, 450 U.S. at 514 (a plain, speedy, and efficient remedy

exists if a “full hearing and judicial determination” is available and the party “may raise

any and all constitutional objections to the tax”); see also Colonial Pipeline, 474 F.3d at

218 (“State procedures that call for an appeal to a state court from an administrative

decision meet these minimal criteria.” (quotations omitted)). Whether DMA or a remote

retailer it represents files a similar lawsuit in state court seeking injunctive and

10
This provision applies to “taxpayers.” Colorado law defines “taxpayer” as “a
person against whom a deficiency is being asserted, whether or not he has paid any of the
tax in issue prior thereto.” Colo. Rev. Stat. § 39-21-101(4). A “person” includes
business entities such as retailers. Id. § 39-21-101(3).

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declaratory relief, or whether it follows Colorado’s administrative tax procedures, a plain,

speedy, and efficient remedy is available in Colorado.

III. CONCLUSION

The TIA divested the district court of jurisdiction over DMA’s Commerce Clause

claims, and we therefore have no jurisdiction to reach the merits of this appeal.11 We

remand for the district court to dismiss DMA’s Commerce Clause claims for lack of

jurisdiction, dissolve the permanent injunction entered against the Department, and take

further appropriate action consistent with this opinion.

11
Although we remand to dismiss DMA’s claims pursuant to the TIA, we note
that the doctrine of comity also militates in favor of dismissal. See Brooks, 801 F.2d at
1240-41 (“Though we find that section 1341 deprived the federal district courts of
subject-matter jurisdiction in this action, we conclude that the doctrine of comity also
provides a basis for arriving at the same conclusion.”). Even in cases where the TIA may
not apply, “principles of federal equity may nevertheless counsel the withholding of
relief.” Rosewell, 450 U.S. at 525-26 n. 33 (1981). As the Supreme Court stated in Levin
v. Commerce Energy, Inc., 130 S. Ct. 2323 (2010), the comity doctrine is “[m]ore
embracive than the TIA” and “restrains federal courts from entertaining claims for relief
that risk disrupting state tax administration.” Id. at 2328. This reluctance to interfere
with taxation out of deference for state governance can even extend to lawsuits seeking to
enjoin state tax benefits to others, where the TIA may not apply. See id. at 2332
(clarifying Hibbs as relying on the TIA and concluding that comity can extend further to
preclude federal jurisdiction).
In Levin, the Court discussed three factors that “compel[led] forbearance on the
part of federal district courts” with respect to a Commerce Clause and equal protection
challenge to Ohio’s taxation scheme: (1) the state enjoyed great freedom in tax
classifications, as opposed to more suspect classifications; (2) the plaintiffs sought to
improve their competitive position; and (3) the state courts were not as constrained in
fashioning a remedy. Id. at 2336. Similar considerations control here and “demand
deference to the state adjudicative process.” Id.

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