ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT Court Below: 554 F.3d 1094
Historically, all Ohio natural gas consumers purchased gas from a local distribution company (LDC), the public utility serving their geographic area. Today, however, consumers in Ohio's major metropolitan areas can alternatively contract with independent marketers (IMs) that compete with LDCs for retail sales of natural gas. Respondents, mainly IMs offering to sell natural gas to Ohio consumers, sued petitioner Ohio Tax Commissioner (Commissioner) in federal court, alleging discriminatory taxation of IMs and their patrons in violation of the Commerce and Equal Protection Clauses. They sought declaratory and injunctive relief invalidating three tax exemptions Ohio grants exclusively to LDCs. The court initially held that respondents' suit was not blocked by the Tax Injunction Act (TIA), which prohibits lower federal courts from restraining "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. Nevertheless, the court dismissed the suit based on the more embracive comity doctrine, which restrains federal courts from entertaining claims that risk disrupting state tax administration, see Fair Assessment in Real Estate Assn., Inc. v. McNary, 454 U. S. 100. The Sixth Circuit agreed with the District Court's TIA holding, but reversed the court's comity ruling, and remanded for adjudication of the merits. A footnote in Hibbs v. Winn,
The opinion of the court was delivered by: Justice Ginsburg
This case presents the question whether a federal district court may entertain a complaint of allegedly discriminatory state taxation, framed as a request to increase a commercial competitor's tax burden. Relevant to our inquiry is the Tax Injunction Act (TIA or Act), 28 U. S. C. §1341, which prohibits lower federal courts from restraining "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." More embracive than the TIA, the comity doctrine applicable in state taxation cases restrains federal courts from entertaining claims for relief that risk disrupting state tax administration. See Fair Assessment in Real Estate Assn., Inc. v. McNary, 454 U. S. 100 (1981). The comity doctrine, we hold, requires that a claim of the kind here presented proceed originally in state court. In so ruling, we distinguish Hibbs v. Winn, 542 U. S. 88 (2004), in which the Court held that neither the TIA nor the comity doctrine barred a federal district court from adjudicating an Establishment Clause challenge to a state tax credit that allegedly funneled public funds to parochial schools.
Historically, all natural gas consumers in Ohio purchased gas from the public utility, known as a local distribution company (LDC), serving their geographic area. In addition to selling gas as a commodity, LDCs own and operate networks of distribution pipelines to transport and deliver gas to consumers. LDCs offer customers a single, bundled product comprising both gas and delivery.
Today, consumers in Ohio's major metropolitan areas can alternatively contract with an independent marketer (IM) that competes with LDCs for retail sales of natural gas. IMs do not own or operate distribution pipelines; they use LDCs' pipelines. When a customer goes with an IM, therefore, she purchases two "unbundled" products: gas (from the IM) and delivery (from the LDC).
Ohio treats LDCs and IMs differently for tax purposes. Relevant here, Ohio affords LDCs three tax exemptions that IMs do not receive. First, LDCs' natural gas sales are exempt from sales and use taxes. Ohio Rev. Code Ann. §5739.02(B)(7) (Lexis Supp. 2010); §§5739.021(E), .023(G), .026(F) (Lexis 2008); §§5741.02(C), .021(A), .022(A), .023(A) (Lexis 2008). LDCs owe instead a gross receipts excise tax, §5727.24, which is lower than the sales and use taxes IMs must collect. Second, LDCs are not subject to the commercial activities tax imposed on IMs' taxable gross receipts. §§5751.01(E)(2), .02 (Lexis Supp. 2010). Finally, Ohio law excludes inter-LDC natural gas sales from the gross receipts tax, which IMs must pay when they purchase gas from LDCs. §5727.33(B)(4) (Lexis 2008).
Plaintiffs-respondents Commerce Energy, Inc., a California corporation, and Interstate Gas Supply, Inc., an Ohio company, are IMs that market and sell natural gas to Ohio consumers. Plaintiff-respondent Gregory Slone is an Ohio citizen who has purchased natural gas from Interstate Gas Supply since 1999. Alleging discriminatory taxation of IMs and their patrons in violation of the Commerce and Equal Protection Clauses, Complaint ¶¶35--39, App. 11--13, respondents sued Richard A. Levin, Tax Commissioner of Ohio (Commissioner), in the U. S. District Court for the Southern District of Ohio. Invoking that court's federal-question jurisdiction under 28 U. S. C. §1331, Complaint ¶6, App. 3, respondents sought declaratory and injunctive relief invalidating the three tax exemptions LDCs enjoy and ordering the Commissioner to stop "recognizing and/or enforcing" the exemptions. Id., at 20--21. Respondents named the Commissioner as sole defendant; they did not extend the litigation to include the LDCs whose tax burden their suit aimed to increase.*fn1
The District Court granted the Commissioner's motion to dismiss the complaint. The TIA did not block the suit, the District Court initially held, because respondents, like the plaintiffs in Hibbs, were "third-parties challenging the constitutionality of [another's] tax benefit," and their requested relief "would not disrupt the flow of tax revenue" to the State. App. to Pet. for Cert. 24a.
Nevertheless, the District Court "decline[d] to exercise jurisdiction" as a matter of comity. Id., at 32a. Ohio's Legislature, the District Court observed, chose to provide the challenged tax exemptions to LDCs. Respondents requested relief that would "requir[e] Ohio to collect taxes which its legislature has not seen fit to impose." Ibid. (internal quotation marks omitted). Such relief, the court said, would draw federal judges into "a particularly inappropriate involvement in a state's management of its fiscal operations." Ibid. (internal quotation marks omitted). A state court, the District Court recognized, could extend the exemptions to IMs, but the TIA proscribed this revenuereducing relief in federal court. "Where there would be two possible remedies," the Court concluded, a federal court should not "impose its own judgment on the state legislature mandating which remedy is appropriate." Ibid.
The U. S. Court of Appeals for the Sixth Circuit reversed. 554 F. 3d 1094 (2009). While agreeing that the TIA did not bar respondents' suit, the Sixth Circuit rejected the District Court's comity ruling. A footnote in Hibbs, the Court of Appeals believed, foreclosed the District Court's "expansive reading" of this Court's comity precedents. 554 F. 3d, at 1098. The footnote stated that the Court "has relied upon 'principles of comity' to preclude original federal-court jurisdiction only when plaintiffs have sought district-court aid in order to arrest or countermand state tax collection." Hibbs, 542 U. S., at 107, n. 9 (citation omitted). A broad view of the comity cases, the Sixth Circuit feared, would render the TIA "effectively superfluous," and would "sub silentio overrule a series of important cases" presenting challenges to state tax measures. 554 F. 3d, at 1099, 1102 (citing Milliken v. Bradley, 433 U. S. 267 (1977); Mueller v. Allen, 463 U. S. 388 (1983)); 554 F. 3d, at 1099--1100.
In so ruling, the Sixth Circuit agreed with the Seventh and Ninth Circuits, which had similarly read Hibbs to rein in the comity doctrine, see Levy v. Pappas, 510 F. 3d 755 (CA7 2007); Wilbur v. Locke, 423 F. 3d 1101 (CA9 2005), and it disagreed with the Fourth Circuit, which had concluded that Hibbs left comity doctrine untouched, see DIRECTV, Inc. v. Tolson, 513 F. 3d 119 (2008). Noting that respondents "challenge[d] only a few limited exemptions," and satisfied, therefore, that "[respondents'] success would not significantly intrude upon traditional matters of state taxation," the Sixth Circuit remanded the case for adjudication of the merits. 554 F. 3d, at 1102.
After unsuccessfully moving for rehearing en banc, App. to Pet. for Cert. 1a--2a, the Commissioner petitioned for certiorari. By then, the First Circuit had joined the Sixth, Seventh, and Ninth Circuits in holding that Hibbs sharply limited the scope of the comity bar. Coors Brewing Co. v. Méndez-Torres, 562 F. 3d 3 (2009). We granted the ...