Facts
- Arizona enacted an income-tax credit for contributions to nonprofit “school tuition organizations” (STOs) that award scholarships for students attending private elementary or secondary schools.
- The statute restricted STOs from designating schools that discriminate on certain nonreligious grounds, but did not prohibit STOs from designating schools that provide religious instruction or apply religion-based admissions preferences.
- Arizona taxpayers sued the state revenue director under 42 U.S.C. § 1983, alleging the credit had the purpose and effect of advancing religion in violation of the Establishment Clause.
- Plaintiffs sought declaratory and injunctive relief preventing operation of the credit; they did not seek a refund, reduction of their own taxes, or relief from any tax obligation imposed on them.
Issues
- Whether the Tax Injunction Act (TIA), 28 U.S.C. § 1341, bars federal jurisdiction over a taxpayer suit seeking to enjoin a state income-tax credit on Establishment Clause grounds.
- If the TIA does not apply, whether principles of comity nonetheless require federal courts to decline jurisdiction over the challenge.
Decision
- The Supreme Court affirmed the court of appeals and held federal jurisdiction was not barred.
- The TIA did not apply because the suit did not seek to “enjoin, suspend or restrain” the “assessment, levy or collection” of any state tax from the plaintiffs; it challenged a third-party tax credit and would not impede tax collection.
- The Court rejected dismissal on comity grounds because the requested relief did not threaten the State’s ability to raise revenue and would not require ongoing federal control of state tax administration.
- The Court did not decide the merits of the Establishment Clause claim and remanded for further proceedings.
Legal Principles
- The TIA is targeted at suits that would block or impede state tax collection, particularly taxpayer actions aimed at avoiding or reducing their own tax obligations through federal litigation.
- A federal suit challenging a state tax credit, brought by plaintiffs who do not contest their own tax liability and do not seek to halt tax collection from themselves, falls outside the TIA’s core prohibition.
- Comity may justify federal restraint in state-tax disputes, but it does not require dismissal where the suit does not disrupt revenue collection or demand continuous federal oversight of state tax machinery.
- Jurisdictional resolution under the TIA and comity is distinct from adjudicating the underlying constitutional validity of the challenged tax provision.
Conclusion
The Court held that neither the Tax Injunction Act nor comity barred federal-court jurisdiction over an Establishment Clause challenge to Arizona’s income-tax credit for contributions to school tuition organizations, leaving the constitutional merits for remand.