The US Supreme Court [official website; JURIST news archive] on Tuesday ruled [opinion, PDF] unanimously in Levin v. Commerce Energy [Cornell LII backgrounder; JURIST report] that federal courts lack original jurisdiction over state tax claims based on discrimination. The court held that, under the comity doctrine, a taxpayer's complaint of allegedly discriminatory state taxation, even when framed as a request to increase a competitor's tax burden, must proceed originally in state court. Writing for the court, Justice Ruth Bader Ginsburg stated that the court's 2004 ruling in Hibbs v. Winn [text] did not limit comity's compass. The court differentiated Hibbs from Levin, stating that Hibbs dealt with unconstitutional state taxation practices in general, while Levin is focused on discriminatory taxation that affects a specific group of people. Ginsburg went on to say that Hibbs was a "poor fit for comity," which is more applicable to cases such as Levin:
Comity, in sum, serves to ensure that "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." A confluence of factors in this case, absent in Hibbs, leads us to conclude that the comity doctrine controls here. First, respondents seek federal court review of commercial matters over which Ohio enjoys wide regulatory latitude; their suit does not involve any fundamental right or classification that attracts heightened judicial scrutiny. Second, while respondents portray themselves as third-party challengers to an allegedly unconstitutional tax scheme, they are in fact seeking federal court aid in an endeavor to improve their competitive position. Third, the Ohio courts are better positioned than their federal counterparts to correct any violation because they are more familiar with state legislative preferences and because the TIA does not constrain their remedial options. Individually, these considerations may not compel forbearance on the part of federal district courts; in combination, however, they demand deference to the state adjudicative process.The court also concluded that because the comity doctrine justifies dismissal of the federal court action, it was not necessary to decide whether the suit would be blocked by the Tax Injunction Act (TIA) [text], which provides that a district court "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." Justice Anthony Kennedy filed a concurring opinion, and Justice Thomas filed an opinion concurring in the judgment, joined by Justice Antonin Scalia. Justice Samuel Alito filed an additional opinion concurring in the judgment.
The ruling stemmed from discriminatory tax practices in Ohio where Commerce Energy, a California-based retail natural gas supplier, was required to pay additional taxes from which local distribution companies were exempt. Commerce alleged that the local companies benefit from discriminatory tax exemptions because it gave them a competitive advantage over retail suppliers. Under Ohio law, Commerce must pay local distributors a fee to use their pipelines and must pay three different taxes on the natural gas services they