A District Court in Pennsylvania remanded an action holding that the doctrine of comity applicable to state taxation cases restrains federal courts from entertaining claims for relief that risk disrupting state tax administration.
When the plaintiff purchased two cans of shaving gel with a “buy one, get one” (“BOGO”) coupon, the defendant charged him sales tax on the original per item purchase price of both items instead of deducting the amount of the BOGO discount. Thus, feeling robbed of the 21 cents allegedly charged in excess by defendant, the plaintiff brought an action seeking declaratory and injunctive relief and monetary damages. The plaintiff asserted that the Pennsylvania Tax Regulation required the defendant to deduct the amount of the coupon from the taxable portion of the purchase price before assessing Sales Tax, and that the defendant should have thus, charged him Sales Tax on the price of one can, instead of the price of two cans. The plaintiff asserted claims of conversion and misappropriation, breach of constructive trust, unjust enrichment, and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.
The defendant removed the action from the Allegheny County Court of Common Pleas to the District Court asserting CAFA jurisdiction. On the plaintiff’s motion, the District Court remanded the action on grounds of comity.
The District Court observed that statutes conferring federal jurisdiction, should be read with sensitivity to federal-state relations and wise judicial administration. The Tax Injunction Act (“TIA”) and its attendant principles of comity also counsel such sensitivity in deciding whether exercising federal jurisdiction over an action is appropriate, and provides that 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. Further, the District Court noted that, under the more embracive doctrine of comity applicable to state taxation cases, federal courts are restrained from entertaining claims for relief that risk disrupting state tax administration.
In Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 298 (1943) the Supreme Court stated that interference with state internal economy and administration is inseparable from assaults in the federal courts on the validity of state taxation, and necessarily attends injunctions, interlocutory or final, restraining collection of state taxes. Further, the Supreme Court opined that these considerations have persuaded federal courts of equity to deny relief to the taxpayer-especially where the state, acting within its constitutional authority, has set up its own adequate procedure for securing to the taxpayer the recovery of an illegally exacted tax.
Here, the District Court noted that to rule on the merits of this case, it would have to make, albeit indirectly, a ruling as to the legitimacy of the revenue collection practices of a state entity. The District Court opined that such interference with state tax administration was inseparable from assaults in federal court on the validity of state taxation, as stated by the Supreme Court in Great Lakes.
This action did not involve any federally protected fundamental right or classification for the benefit of either party that invited heightened judicial scrutiny. The action instead focused on how Sales Tax was to be collected and remitted under state law in BOGO coupon situations. Further, none of the claims asserted by the plaintiff contemplated the assertion of a federal right, or a defense based on federal law, and none could not be addressed in state court.
The District Court opined that Pennsylvania courts were better positioned than it to ascertain and then correct any violation of state tax collection laws because they were presumably more familiar with the administration of Pennsylvania Tax Regulations, and were wholly unburdened by the TIA’s limitations in fashioning proper and complete remedies, which in turn counseled deference to the state adjudicative processes.
Accordingly, the District Court observed that it could not retain jurisdiction over a case that would require it to determine the proper interpretation of the applicable state tax regulation before ruling on the merits, and that it was obvious that challenges to the methods and procedures of state tax collection may do no less damage to a state tax system than would a head-on attack on the legitimacy of an assessment.
Accordingly, the District Court remanded the action to the state court.