The Federal Tax Injunction Act (TIA), Section 1341 of Title 28, prohibits most state and local tax cases from being heard in federal court. Other than in the rare instances where the United States Supreme Court agrees to hear a constitutional challenge to a state or local tax, taxpayers have no recourse in federal courts.
Taxpayers engaged in interstate commerce face a growing history and pattern of discriminatory state taxation, resulting in due process and equal protection concerns under the Fourteenth Amendment and concerns regarding discrimination against interstate commerce under the Commerce Clause. With the Supreme Court’s recent decision in South Dakota v. Wayfair, states are increasingly emboldened to tax businesses that establish an “economic presence” in their state. As a result, taxpayers of all sizes engaged in interstate commerce now face the daunting burden of potentially having to litigate state tax issues in all 50 states and thousands of local jurisdictions, including jurisdictions where they have no physical presence. In addition, numerous federal laws impose restrictions on states’ taxing powers, including the Internet Tax Freedom Act (ITFA) and Public Law 86-272. Providing access to federal courts for disputes involving these federal laws will promote uniformity and prevent taxpayers from having to litigate the same issues in multiple states’ courts.
Providing taxpayers with greater access to federal courts will provide greater certainty and consistency and help to ensure that the states’ increasing taxation of taxpayers involved in interstate commerce does not unduly burden interstate and foreign commerce or violate taxpayers’ Fourteenth Amendment rights.
In recognition of these issues, we are forming a coalition of taxpayers – the FAIR Coalition (Fair Access to Interstate Remedies) to support federal legislation that would expand the exceptions to the TIA and provide federal court jurisdiction in certain state and local tax cases.
For more information about our efforts, and to get involved, please contact us.