Diversified Ingredients, Inc. Plaintiff- Appellant
Joseph W. Testa, Ohio State Tax Commissioner Defendant-Appellee
Submitted: January 12, 2017
from United States District Court for the Eastern District of
Missouri - St. Louis
LOKEN, BEAM, and BENTON, Circuit Judges.
preliminary proposed audit, the Ohio Department of Taxation
assessed Diversified Ingredients, Inc.
("Diversified"), a Missouri corporation, as owing
$561, 448.00 in unpaid tax, penalties, and interest under
Ohio's Commercial Activity Tax ("CAT").
Diversified commenced this action in the Eastern District of
Missouri against Joseph W. Testa, the Ohio State Tax
Commissioner, seeking a declaratory judgment that the
Interstate Income Act, 15 U.S.C. § 381, deprives Ohio of
jurisdiction to assess and collect the CAT on
Diversified's sales of goods manufactured and shipped
from outside Ohio to locations in Ohio, and an order
enjoining the State Tax Commissioner from asserting that
jurisdiction. Diversified appeals the district
court order dismissing the action as barred by
the Tax Injunction Act, 28 U.S.C. § 1341, and by
long-standing principles of comity that "restrain
federal courts from entertaining claims for relief that risk
disrupting state tax administration." Levin v.
Commerce Energy, Inc., 560 U.S. 413, 424 (2010).
Reviewing the dismissal for lack of subject matter
jurisdiction de novo, we affirm. See Dakota,
Minn., & E.R.R. v. Schieffer, 711 F.3d 878, 880 (8th
Ohio CAT is an annual tax on "the privilege of doing
business in this state." See Ohio Rev. Code
§ 5751.02(A); Beaver Excavating Co. v. Testa,
983 N.E.2d 1317, 1324 (2012). The CAT is imposed on
"gross receipts sitused to this state, " §
5751.01(G). Gross receipts are sitused to Ohio "if the
property is received in this state by the purchaser, "
§ 5751.033(e). Subject to exclusions, "'gross
receipts' means the total amount realized by a person,
without deduction for the cost of goods sold or other
expenses incurred, that contributes to the production of
gross income, " § 5751.01(F). The exclusions
include "[a]ny receipts for which the tax imposed by
this chapter is prohibited by the constitution or laws of the
United States or the constitution of this state, "
sells commodities such as pet food ingredients to customers
located outside of Ohio and uses for-hire motor carriers to
ship these commodities to destinations directed by the
customer. The contracts are negotiated and executed outside
Ohio. Diversified has no employees located in Ohio and is not
registered to do business in Ohio. At issue are
Diversified's sales to customers who direct the delivery
of Diversified products to manufacturing plants in Ohio.
Although the Interstate Income Act ("IIA") limits
state taxation of "net income, " 15 U.S.C. §
381, and the CAT is imposed on a corporation's gross
receipts, Diversified claims that the IIA divests Ohio of
jurisdiction to assess the CAT against Diversified's
out-of-state sales that are delivered to its customers in
to Supreme Court decisions that rejected constitutional
challenges to the imposition of state income taxes on the
income of out-of-state corporations, Congress passed the IIA
to establish a minimum standard for imposing net income taxes
based on solicitation of interstate sales. See Wis. Dept.
of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214,
220-23 (1992). Specifically, 15 U.S.C. § 381 provides in
No State, or political subdivision thereof, shall have power
to impose . . . a net income tax on the income derived within
such State by any person from interstate commerce if the only
business activities within such State by or on behalf of such
person during such taxable year are either, or both, of the
(1) the solicitation of orders by such
person, or his representative, in such State for sales of
tangible personal property, which orders are sent outside the
State for approval or rejection, and, if approved, are filled
by shipment or delivery from a point outside the State; and
(2) the solicitation of orders by such
person, or his representative, in such State in the name of
or for the benefit of a prospective customer of such person,
if orders by such customer to such person to enable such
customer to fill orders resulting from such solicitation are
orders described in paragraph (1).
district court declined to rule on whether the IIA strips
Ohio of authority to impose the CAT based on the Diversified
transactions at issue. Instead, the court held that the Tax
Injunction Act ("TIA") deprived it of subject
matter jurisdiction to entertain this action. Diversified
Ingredients, Inc. v. Testa, 2016 WL 2932160 (E.D. Mo.
May 19, 2016). We agree.
provides: "The 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." 28 U.S.C.
§ 1341. Congress enacted the TIA to "transfer
jurisdiction . . . to the state courts" to grant
injunctive relief that could interfere with the State's
power to assess, levy, and collect taxes. Rosewell v.
LaSalle Nat. Bank, 450 U.S. 503, 515 n.19 (1981);
see Tully v. Griffin, Inc., 429 U.S. 68, 73 (1976).
As originally enacted, the statute provided that "no
district court shall have jurisdiction of any suit to enjoin,
suspend, or restrain . . . ." Act of Aug. 21, 1937, 50
Stat. 738, codified at 28 U.S.C. § 41(1) (1940 ed.).
Though the explicit reference to jurisdiction was removed in
the 1948 United States Code revisions, the Supreme Court has
continued to refer to the TIA as limiting subject matter
jurisdiction. See Direct Marketing Ass'n v.
Brohl, 135 S.Ct. 1124, 1133-34 (2015); Levin,
560 U.S. at 429 n.10 & 433 (Thomas, J., concurring);
Ark. v. Farm Credit Servs. of Central Ark., 520 U.S.
821, 825-26 (1997); Cal. v. Grace Brethren Church,
457 U.S. 393, 408 (1982) (TIA strips district courts of
jurisdiction to award declaratory relief). Thus, the district
court properly decided this issue of law in ruling on
Testa's Rule 12(b)(1) motion to dismiss for lack of
subject matter jurisdiction.
primary contention is that the district court erred in
failing to determine whether the IIA bars Ohio from imposing
the CAT on Diversified's out-of-state sales because
federal courts have exclusive jurisdiction to interpret and
enforce the IIA's "federally conferred tax
immunity." It is true that the TIA has been held not to
preclude the grant of federal equitable relief to a party
suing under a federal statute that conferred original or
exclusive jurisdiction on the federal courts. See Moe v.
Confederated Salish & Kootenai Tribes of Flathead
Reservation, 425 U.S. 463, 472 (1976) (Indian tribe
suing under 28 U.S.C. § 1362); City Vending of
Muskogee, Inc. v. Okla. Tax Comm'n, 898 F.2d 122,
123 (10th Cir. 1990) (Bankruptcy Code exception to the TIA);
Se. Pa. Transp. Auth. v. Pa. Pub. Utility
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