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Tax Injunction Act Barred Suit in District Court

A suit by a contractor seeking a declaratory judgment that its leasehold interest on government land was exempt from local property taxation was dismissed for lack of subject matter jurisdiction by the Court of Appeals for the Seventh Circuit because, pursuant to the Tax Injunction Act, a plain, speedy, and efficient remedy was available in state court. The matter arose from the government's lease, under the Military Housing Privatization Initiative, of two parcels of land located on an Air Force base. The contractor, which agreed to construct, operate, and maintain rental housing on the base, argued its interest was not subject to property taxes assessed by the local county government. The contractor appealed a federal district court ruling holding the TIA divested the court of subject matter jurisdiction. The TIA provides that "district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under [s]tate law where a plain, speedy and efficient remedy may be had in the courts of such [s]tate" (28 USC 1341). Accordingly, the TIA divests district courts of subject matter jurisdiction in "cases in which state taxpayers seek federal-court orders enabling them to avoid paying state taxes."
Not "Onerous"

A party who seeks to surmount the TIA's jurisdictional bar bears the burden of demonstrating the insufficiency of the remedy available in the state court system. The contractor argued the state court remedy was not efficient because it required it to pursue two separate administrative challenges --the exemption application and the valuation protest. However, the requirements at issue here were "a far cry from the onerousness and inefficiency "inherent in the available remedies addressed in the case cited by the contractor. Importantly, the contractor would not have to litigate the same claims in the valuation proceeding as in the exemption one. While a remedy that would allow the contractor to assert its exemption and valuation challenges to a tax assessment in one proceeding would be more efficient, the TIA is not so exacting that it requires a state remedy to be the best one conceivable. Moreover, state law clearly indicated that taxpayers would be able to litigate their constitutional and other federal-law challenges to state tax matters in the state's administrative and judicial system. (Scott Air Force Base Properties, LLC v. County of St. Clair, Illinois, CA-7, 52 CCF 79,027 )


(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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