Whitwell v. Wal-Mart Stores, Inc., 2009 WL 2601259, *1+ (S.D.Ill. Aug 21, 2009) (NO. CIV. 09-513-GPM) 

In this case, the Illinois District Court remanded the action to state court holding that the Tax Injunction Act of 1937 and principles of comity barred the district court’s subject-matter jurisdiction under CAFA.

John Whitwell brought class action in state court to recover unrefunded sales taxes that he paid to Wal-Mart Stores, for merchandise that he later returned to the retailer.  Asserting a claim for breach of contract against Wal-Mart, Whitwell proposed a nation wide class. After Wal-Mart timely removed the action to the District Court, the court, sua sponte reviewed the subject-matter jurisdiction.

Although the action met CAFA’s jurisdictional requirements, the Court found that Tax Injunction Act of 1937, 28 U.S.C. § 1341, and principles of comity barred jurisdiction.

Specifically, under § 1341 the lower federal courts have no jurisdiction to hear suits that seek to declare illegal, enjoin, or rescind methods of state tax collection. 

In addition, in view of the “strong preference” of the federal courts that issues of state taxation be litigated in state courts rather than in federal courts, the Seventh Circuit, in Alcan Aluminum Ltd. v. Oregon Dep’t of Revenue, 724 F.2d 1294, 1298 (7th Cir. 1984), instructed that the principle of comity militates in favor of a stringent standard of justiciability in cases that threaten to interfere with state taxes. The Court noted that it is upon taxation that the several states chiefly rely to obtain the means to carry on their respective governments, and it is of the utmost importance to all of them that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public. 

Laying down the guidelines as to the kinds of disputes regarding state taxes that lie outside the jurisdiction of federal district courts, the Supreme Court, in Hibbs v. Winn, 542 U.S. 88, 101, 107 (2004), stated that the Tax Injunction Act applies only to “cases in which state taxpayers seek federal-court orders enabling them to avoid paying state taxes.”

The Court noted that in this action to recover unrefunded sales taxes paid to Wal-Mart, the complaint alleged that Whitwell purchased a DVD player at a Wal-Mart store in Collinsville, Illinois for the total price of $214.04 including $16.04 sales tax.  Later, Whitwell returned the DVD player at a Wal-Mart store in Glen Carbon, Illinois, where he received a refund of $211.56 –$2.48 less from what he had paid, reflecting the fact that sales taxes in Glen Carbon were slightly lower than in Collinsville.  The Court noted that difference of $2.48 was due to variations among local sales taxes.  Thus, the Court stated that this was a case in which persons who had been assessed liability for state taxes within the meaning of Hibbs were challenging that assessment.  The Court remarked that Whitwell and the class members were seeking to avoid paying state taxes or, more specifically, to gain a refund of such taxes, and success on the claims asserted in the complaint would operate to reduce the flow of state tax revenue.  Thus, the Court concluded that this case triggered the concerns about litigation in federal court to obstruct the collection of state taxes.

Next, the Court addressed whether there was a remedy in state court for the claims asserted in this case that is “plain, adequate, and complete” for purposes of comity”—an identical standard the Supreme Court explained in Fair Assessment in Real Estate Ass’n, Inc. v. McNary, 454 U.S. 100, 116 (1981). Rosewell v. LaSalle Nat’l Bank, 450 U.S. 503, 518 (1981) explained that a state has furnished a plain, speedy, and efficient remedy where “a full hearing and judicial determination of the controversy is assured.”  

Applying the Rosewell standard, the Court found that Whitwell had a state remedy, in the form of an action in the Madison County circuit court (where this case originally was filed), that was certain and thus plain.  To evaluate whether Whitwell’s state remedy was speedy, the Court verified the available statistical data and found the average time of disposition of a civil action at law worth more than $50,000 in the Madison County court was thirty-three months—nine months longer than the District Court.  The Court, however, relying on Rosewell, concluded that this did not mean that the state remedy was not speedy.

Finally, the Court noted that the Madison County court has concurrent jurisdiction of the breach of contract claims asserted in this case.  Thus, the Court found that the state remedy in this case was efficient.

Accordingly, the District Court concluded that as Whitwell and the class members had a plain, speedy, and efficient remedy in Illinois state court, principles of comity divested the Court of jurisdiction to entertain this suit interfering with the collection of state taxes.