Let’s Make a Federal Case Out of It: Time to Revisit the Tax Injunction Act
There’s been no change in the TIA in more than 80 years—really

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Most state taxpayers would prefer to litigate state and local tax cases in federal courts. However, disputes over state and local taxes are almost always decided by state courts. Although litigation in state court may seem natural and obvious to most state tax professionals, it is somewhat odd given the general availability of concurrent jurisdiction that generally exists between state and federal courts. The limitations on federal court jurisdiction applicable to state and local tax cases in state courts can be traced back to 1937, when Congress enacted the Tax Injunction Act (TIA).

The TIA was enacted at a point in US history when there was little taxation of interstate commerce. Very few states imposed a sales tax or corporate income tax at the time, with the first general sales tax imposed by Mississippi in 1937. Furthermore, the national economy was much less interconnected than at present, in that the interstate highway system had not yet been created, commercial air travel was in its infancy, the first televisions would not appear in homes until the end of the 1940s, and the creation of the internet was decades away. Today, almost every state imposes both a sales tax and a corporate income tax, and countless interstate transactions take place every second due to the interconnected nature of the economy in the digital age.

That the TIA has not changed since 1937, despite the vast changes in the legal and business landscape, is a wonder. A modernization is long overdue. This article presents justifications for modernizing the TIA, including highlighting issues that the TIA has created and the legal and business changes that have taken place since 1937.

Background—What Is the TIA?

The TIA is a federal statute that provides that federal 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.”1 Although the TIA’s limitation of federal court jurisdiction for state and local tax cases is broad, there are exceptions. First, the TIA does not prevent federal jurisdictions in suits that do not seek to “enjoin, suspend or restrain the assessment, levy, or collection of a tax.” In 2015, the US Supreme Court held that this exception to the TIA permitted federal court jurisdiction in a challenge to Colorado’s use tax notice and reporting requirements in the highly publicized case DMA v. Brohl, because Colorado’s notice and reporting requirements at issue in that case preceded the “assessment” and “collection” of the tax.2

Additionally, the TIA does not apply to cases that involve “fees” rather than “taxes.” This distinction can be murky, because the text of the TIA provides no definitions. Consequently, much litigation has centered on whether a particular imposition is classified as a “tax” or a “fee” for purposes of the TIA.

Finally, there is an exception to the TIA’s limitation where there is no “plain, speedy, and efficient” remedy available in state court. Although this exception may appear to offer the promise of federal court jurisdiction for taxpayers who have been frustrated with long, drawn-out litigation in state courts, in practice this exception has been very narrowly construed. Generally, a state adversary may block a taxpayer’s quest for federal court jurisdiction so long as the state provides a taxpayer with a “full hearing and judicial determination” at which constitutional objections to the tax may be raised.3

Issues Created by the TIA

The TIA has led to unforeseen and unintended consequences in its eighty-plus years. Some of these issues result from the text of the TIA itself, whereas others derive from changes in the national economy and legal framework that have taken place in the ensuing years.

First, the distinction between what constitutes, for purposes of the TIA, a “tax” and a “fee” or other charge that is not barred from federal courts has spurred a whole category of litigation. This litigation, which often originates in federal court, creates unnecessary expenses for taxpayers and state governments. Furthermore, this distinction between taxes and other charges results in an arbitrary distinction separating which cases may be heard in federal court and which must be heard in state court. This arbitrary distinction also provides the potential for state legislatures to draft their statutes in a manner that purposefully avoids federal court jurisdiction.

Second, the TIA’s bar on federal court jurisdiction has created barriers to the uniform interpretation of the Constitution and federal laws imposing restrictions on state taxation. The US Constitution and federal laws, enacted pursuant to Congress’ authority to regulate interstate commerce, place significant limitations on state and local taxation. The increase in interstate commerce and state taxation thereof has led to an increase in the volume of state tax cases alleging a violation of these laws. The legislative history surrounding the passage of the TIA reflects a congressional belief that state tax cases do not involve questions of federal law.4 This antiquated portrayal of state tax controversies is no longer true where a question of federal law or the Constitution is front and center in the dispute.

Additionally, the increased state and local taxation of interstate business activities has led to controversies pitting the states against each other. In 2019, the State of Arizona sought original jurisdiction in the US Supreme Court in a case alleging that California’s taxation of its residents who are nonresident members of California LLCs and nonresident shareholders of California corporations violates the Due Process Clause and the Commerce Clause of the US Constitution.5 In another case from 2019, a Kentucky business brought suit in Kentucky state court challenging Ohio’s assessment of commercial activity tax against the business, claiming it had no connection to the state of Ohio.6 The Kentucky Supreme Court held that Ohio had sovereign immunity protecting it from suit in Kentucky state courts, citing the US Supreme Court’s 2019 decision in Franchise Tax Bd. v. Hyatt.7 In Hyatt, the US Supreme Court reversed long-standing precedent and held that the Constitution does not permit a state to be sued by a private party in the courts of another state without that state’s consent.

Beginning in late 2020, New Hampshire initiated litigation against Massachusetts over Massachusetts’ taxation of New Hampshire residents who work for a Massachusetts employer but who have been working from a New Hampshire home due to the COVID-19 pandemic. New Hampshire has filed suit in the US Supreme Court under the Court’s original jurisdiction, claiming that Massachusetts unconstitutionally seeks to tax New Hampshire residents in violation of the Due Process Clause and the Commerce Clause of the US Constitution.8 Fourteen other states have filed amicus briefs supporting New Hampshire. Federal court jurisdiction is thus necessary to resolve these disputes between the states with regard to certain tax controversies.

Finally, courts have so narrowly interpreted the “plain, speedy, and efficient” exception to the TIA that it very rarely applies. Despite state court litigation of tax matters that can drag on for over a decade, with numerous procedural hoops that taxpayers must jump through, federal courts seldom find that a plain, speedy, and efficient remedy does not exist in state court. The courts have whittled down this exception to the TIA so that it applies only in cases where the state court does not provide the taxpayer with a “full hearing and judicial determination” in which the taxpayer “may raise any and all constitutional objections to the tax.”9 Due to the narrow interpretation of this exception to the TIA, taxpayers who are faced with cases that stretch on for a decade or longer in state courts are afforded little relief by the current “plain, speedy, and efficient” standard provided by the TIA. Worse yet, this exception provides no relief to taxpayers who must jump through hoops to adhere to state procedures that require litigation in state courts that are ignored by appellate courts.10 Clearly this plain, speedy, and efficient remedy exception to the TIA does not provide taxpayers with an opportunity to bring their cases in federal court even when the state court proceedings are anything but plain, speedy, or efficient.

Why Now?

Congress has enacted numerous federal laws limiting the states’ ability to tax interstate commerce in the decades following enactment of the TIA. In 1959, for example, Congress enacted Public Law 86-272,11 which prohibits states from imposing a net income tax on a taxpayer where the taxpayer’s only in-state activity is the solicitation of orders of tangible personal property. In 1998, Congress enacted the Internet Tax Freedom Act to prevent state and local governments from taxing internet access or imposing multiple or discriminatory taxes on electronic commerce. Other federal laws enacted in the last eighty-plus years since the TIA’s passage include prohibitions or restrictions on state taxation of railroads, motor carriers, air travel, income of employees of motor and rail carriers, and retirement income of nonresidents, to name just a few. While some of these federal laws provide for federal court jurisdiction notwithstanding the TIA, most do not. Many state and local tax controversies involve the interpretation and application of these federal laws, yet taxpayers are forced to litigate most of these cases in state courts, leading to inconsistent rulings.

Congress also drastically altered the legal playing field. In 1988 Congress put an end to mandatory Supreme Court review of state court decisions that found a federal law to be invalid or otherwise holding state laws valid against a challenge under federal law. Prior to this change, many landmark state tax cases were decided by the US Supreme Court under mandatory jurisdiction. Now these cases must go through the same certiorari process as other cases seeking Supreme Court review. The Supreme Court has granted certiorari for about one percent of cases in recent years, and observers have noted that the Supreme Court has been particularly reluctant to grant certiorari in cases involving state taxes. Thus, although taxpayers may have been able to rely on the fact that a federal court would ultimately review their state tax cases at the time when the TIA was passed, this is no longer the case. Given the extremely low percentage of cases that are granted certiorari by the Supreme Court, it is the inverse now—states are confident that state tax decisions will not be subject to review by a federal court.

Congress has recognized the importance of providing federal court jurisdiction for certain state tax cases. Congress’ grants of federal court jurisdiction generally have been provided for industries which by their nature involve interstate commerce. A prominent example of federal court jurisdiction is the Railroad Revitalization and Regulatory Reform Act (the 4-R Act), which among other things prohibits discriminatory state taxation against railroads and provides for federal court jurisdiction in cases alleging such discrimination.12 Other federal statutes where Congress has provided for federal court jurisdiction for state tax disputes include those governing motor carriers and wireless telecommunications providers. In addition, Congress has considered adding exceptions to the TIA in relation to certain federal laws limiting state taxation of interstate commerce. The time has now come to open federal court jurisdiction to a wider group of taxpayers who are challenging an imposition of state or local tax based on a question of federal or constitutional law.

The Importance of a Federal Forum for State and Local Tax Controversies

As noted above, the lack of federal court jurisdiction and the unlikely prospect of Supreme Court review of state court decisions creates a number of issues for taxpayers. First, the current situation leads to inconsistent rulings from state courts interpreting federal law and the US Constitution. Additionally, taxpayers are forced to comply with state procedural requirements, often resulting in unreasonable delays. Furthermore, a federal forum would lessen the burden on out-of-state small businesses and individual taxpayers who must travel to the taxing state to bring suit rather than bringing suit in a venue in their home state.

In addition, the current status quo under the TIA has led to a number of troubling decisions by state courts. In one such example, the Kentucky Supreme Court upheld the five-year retroactive application of a statutory amendment passed in response to a Kentucky Supreme Court decision that permitted a corporate taxpayer to file combined returns.13 This retroactive application of the statutory amendment had been challenged by a group of related corporations as violating the Due Process Clause. In another case involving retroactivity, the Washington Supreme Court upheld retroactive law changes dating back twenty-seven years against a Due Process Clause challenge, in part because the amendment prevented “large and devastating revenue losses” and removed “preferential tax treatment for out-of-state businesses.”14 In a case involving the Commerce Clause and the Foreign Commerce Clause of the US Constitution, the Utah Supreme Court upheld the constitutionality of Utah’s tax scheme granting a credit against taxes paid to other states but not against taxes paid to other governments.15 In its decision, the Utah Supreme Court held that individuals, unlike corporations, are not protected from discriminatory state taxation under the dormant Foreign Commerce Clause. In each of the above cases the state court decisions centered on the interpretation of federal law, and the US Supreme Court denied certiorari review in each of the cases.


There are many compelling reasons for modernizing the TIA due to the changes in the legal and business environments since the TIA’s enactment over eighty years ago. In fact, states themselves have often sought federal court jurisdiction in state tax cases, as we have seen most recently in the dispute between New Hampshire and Massachusetts regarding the taxation of New Hampshire residents working from home during the COVID-19 pandemic. States and localities are willing and ready to litigate tax matters in federal courts when it is in their best interest. Taxpayers should also be provided with the opportunity to choose a federal forum in which to have their cases heard.

A call to modernize the TIA does not necessarily mean a complete repeal of the bar on federal court jurisdiction for state and local tax disputes. A modernization of the TIA should target those cases where there is a compelling reason for federal court jurisdiction. Cases involving a question of federal law or a constitutional challenge, for example, would clearly benefit from federal court jurisdiction. Additionally, suits by out-of-state taxpayers, particularly small businesses and individuals, are also prime candidates for federal court jurisdiction, including permitting out-of-state small businesses or individuals to bring suit in the district in which they are located rather than requiring them to bring suit in a court located in the taxing state.

Jeffrey Friedman and Todd Lard are partners at Eversheds Sutherland (US) LLP in Washington, D.C., and Justin Brown is an associate at the firm’s Atlanta office.


  1. 28 U.S. Code, Section 1341.
  2. Direct Marketing Ass’n v. Brohl, 575 U.S. 1 (2015) (reversing the decision of the Tenth Circuit, which held that the TIA deprived the federal district court of jurisdiction in the suit).
  3. The Seventh Circuit recently issued a rare win to a group of taxpayers under this exception. In its ruling, the Seventh Circuit noted that “this is the rare case in which taxpayers lack an adequate state-court remedy.” The court based its decision on the county’s concession that Illinois’ rules regarding procedure for tax objections did not permit the taxpayers to raise their constitutional claims in Illinois state courts. F. Moore & Assocs., Inc. v. Pappas, 948 F.3d 889 (7th Cir. 2020), cert. denied, 141 S.Ct. 866 (2020).
  4. 81 Congressional Record 1416-1417 (1937) (“[T]here is no Federal question involved. There is a dispute arising under a State statute or law of other origin and nothing more”).
  5. Arizona v. California, 140 S.Ct. 684, No. 22O150 (motion for leave to file bill of complaint denied February 24, 2020).
  6. Ohio v. Great Lakes Minerals, LLC, 597 S.W.3d 169 (Ky. 2019), denied, 141 S.Ct. 358 (2020). A similar suit brought by a Missouri company in federal court was dismissed for lack of subject matter jurisdiction based on the TIA. Diversified Ingredients, Inc. v. Testa, 846 F.3d 994 (8th Cir. 2017).
  7. 139 S.Ct. 1485 (2019).
  8. New Hampshire v. Massachusetts, 22O154 (motion for leave to file bill of complaint filed October 19, 2020).
  9. Rosewell v. LaSalle Nat’l Bank, 450 U.S. 503, 515-16 n.19 (1981).
  10. See, for example, Comptroller of Treasury v. Johns Hopkins Univ., 973 A.2d 256 (Md. 2009). In Maryland, taxpayers are required to appeal final determinations of the Maryland Tax Court—an administrative agency—to a state circuit court before appealing to the Maryland Court of Special Appeals. However, the Court of Special Appeals will “look through” the circuit court decision and review the decision of the Tax Court, not the circuit court, effectively rendering the process of litigating in the circuit court meaningless.
  11. 15 U.S. Code, Section 382.
  12. 49 U.S. Code, Section 11501(b), (c).
  13. Dep’t of Revenue v. Johnson Controls, 296 S.W.3d 392 (Ky. 2009), denied, 560 U.S. 935 (2010).
  14. Dot Foods Inc. v. Wash. Dep’t of Revenue, 372 P.3d 747 (Wash. 2016); denied, 137 S.Ct. 2156 (2017).
  15. Steiner v. Utah State Tax Comm’n, 449 P.3d 189 (Utah 2019), denied, 140 S.Ct. 1114 (2020).

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