465 U.S. 367 (1984), 94, Orig., South Carolina v. Regan

Docket Nº:No. 94, Orig.
Citation:465 U.S. 367, 104 S.Ct. 1107, 79 L.Ed.2d 372
Party Name:State of SOUTH CAROLINA, Plaintiff v. Donald T. REGAN, Secretary of the Treasury of the United States.
Case Date:February 22, 1984
Court:United States Supreme Court
 
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465 U.S. 367 (1984)

104 S.Ct. 1107, 79 L.Ed.2d 372

State of SOUTH CAROLINA, Plaintiff

v.

Donald T. REGAN, Secretary of the Treasury of the United States.

No. 94, Orig.

United States Supreme Court.

Feb. 22, 1984

Argued Oct. 5, 1983.

The State of South Carolina invoked original jurisdiction of the Supreme Court and asked leave to file complaint against the Secretary of the Treasury of the United States. The State sought injunction and other relief. The Supreme Court, Justice Brennan, held that: (1) Anti-Injunction Act was not intended to bar action where Congress has not provided plaintiff with alternative legal way to challenge validity of the tax; (2) State of South Carolina, since it would incur no tax liability, would be unable to utilize any statutory procedure to contest constitutionality of Tax Equity and Fiscal Responsibility Act provision requiring that registration-required obligations be issued in registered, rather than bearer, form to qualify for exemption and, accordingly, South Carolina's suit was not barred by Anti-Injunction Act; and (3) purposes of the Anti-Injunction Act as amended and circumstances of its enactment demonstrated that Congress did not intend the Act to apply where aggrieved party would be required to depend on mere possibility of persuading third party to assert his claims but, rather, Act was intended to apply only when Congress has provided alternative avenue for aggrieved party to litigate its claims on its own behalf.

Motion for leave to file complaint granted, and special master appointed.

Justice Blackmun filed opinion concurring in the judgment.

[104 S.Ct. 1108] Justice O'Connor filed opinion concurring in the judgment, in which opinion Justice Powell and Justice Rehnquist joined.

Justice Stevens filed opinion concurring in part and dissenting in part.

[104 S.Ct. 1108] Syllabus[*]

SYLLABUS

Section 103(a) of the Internal Revenue Code exempts from a taxpayer's gross income the interest earned on the obligations of any State. Section 103(a) was amended by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), § 310(b)(1) of which requires that "registration-required obligations" be issued in registered, rather than bearer, form to qualify for the § 103(a) exemption. If a registration-required obligation is issued in bearer, rather than registered, form, § 310(b)(1) provides that the interest is taxable. South Carolina asks leave to file a complaint against the Secretary of the Treasury, seeking injunctive and other relief on the ground that § 310(b)(1) is invalid as violative [104 S.Ct. 1109] of the Tenth Amendment and the doctrine of intergovernmental tax immunity. The Secretary argues that the action is barred by the Anti-Injunction Act, which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed."

Held: The motion for leave to file the complaint is granted.

Justice BRENNAN delivered the opinion of the Court with respect to Parts I and II, concluding that the Anti-Injunction Act does not bar the action. Pp. 1111 - 1115.

(a) The Act's purposes and the circumstances of its enactment indicate that the Act does not apply to actions brought by aggrieved parties, such as South Carolina, for whom Congress has not provided an alternative forum in which to litigate their claims. Here, if South Carolina issues bearer bonds, its bondholders, by virtue of § 310(b)(1) of TEFRA, will be liable for the tax on the interest earned on those bonds. South Carolina will incur no tax liability. Under these circumstances, the State will be unable to utilize any statutory procedure to contest the constitutionality of § 310(b)(1). Pp. 1111 - 1114.

(b) The indicia of congressional intent also demonstrate that Congress did not intend the Anti-Injunction Act to apply where an aggrieved party would be required to depend on the mere possibility of persuading a third party to assert his claims. The nature of the remedy proposed

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by the Secretary that the State may obtain judicial review of its claims by issuing bearer bonds and urging a purchaser of those bonds to bring a suit contesting the legality of § 310(b)(1), only buttresses the conclusion that the Act was not intended to apply to this kind of action. Reliance on such proposed remedy would create the risk that the Act would entirely deprive the State of any opportunity to obtain review of its claims. Pp. 1114 - 1115.

Justice BRENNAN, joined by Chief Justice BURGER, Justice WHITE, and Justice MARSHALL, concluded in Part III that since the manner in which a State may exercise its borrowing power is a question of vital importance to all States, it is appropriate for this Court to exercise its discretion in favor of hearing this case. But since the record is presently not sufficiently developed to permit the merits to be addressed, a Special Master will be appointed to develop the record. P. 1115.

Justice BLACKMUN concluded that because the suit is not one "for the purpose of restraining the assessment or collection of any tax," the Anti-Injunction Act is no bar to South Carolina's ability to bring the suit in another court. Nevertheless, because the issue presented is substantial and of concern to a number of States, and because prompt resolution of the issue in this Court will benefit all concerned, the grant of leave to file is a proper exercise of the Court's discretion. P. 1117.

Justice O'CONNOR, joined by Justice POWELL and Justice REHNQUIST, concluded that, although great deference is due the congressional policy against premature judicial interference with federal taxes, it is proper to exercise this Court's original jurisdiction where South Carolina has demonstrated injury of "serious magnitude" and that it has no adequate alternative forum in which to raise its unique claims. Pp. 1126 - 1127.

COUNSEL

Huger Sinkler argued the cause for plaintiff. With him on the briefs wereKaren LeCraft Henderson, T. Travis

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Medlock, Attorney General of South Carolina, C. Tolbert Goolsby, Jr., Chief Deputy Attorney General, and David C. Eckstrom and Grady L. Patterson III, Assistant Attorneys General.

Susan Lee Voss, Assistant Attorney General of Texas, argued the cause for the State of Texas et al. as amici curiae. With her on the brief were Jim Mattox, Attorney General of Texas, David R. Richards, Executive Assistant Attorney General, and Robert T. Lewis and Michael Cafiso, Assistant Attorneys General, and the Attorneys General for their respective States as follows: Norman C. Gorsuch of Alaska, Robert K. Corbin of Arizona, Michael J. Bowers of Georgia,Linley E. Pearson of Indiana, Thomas J. Miller of Iowa, William J. Guste, Jr., of Louisiana, Stephen H. Sachs of Maryland, William A. Allain of Mississippi,John D. Ashcroft of Missouri, Michael T. Greely of Montana, Brian McKay of Nevada, Gregory H. Smith of New Hampshire, Rufus L. Edmisten of North Carolina,Robert Wefald of North Dakota, Anthony Celebrezze of Ohio, Michael K. Turpin of Oklahoma, LeRoy S. Zimmerman of Pennsylvania, Dennis J. Roberts II of Rhode Island, William L. Leech, Jr., of Tennessee, John J. Easton, Jr., of Vermont,Gerald L. Baliles of Virginia, Bronson C. La Follette of Wisconsin, and Archie G. McClintock of Wyoming.

Deputy Solicitor General Claiborne argued the cause for defendant. With him on the briefs were Solicitor General Lee, Assistant Attorney General Archer, Stuart A. Smith, Michael L. Paup, and Ernest J. Brown.*

* Briefs of amici curiae were filed for the City of Baltimore et al. byBenjamin Brown, J. Lamar Shelley, John W. Witt, Roger F. Cutler, Roy D. Bates, George Agnost, Robert J. Alfton, Mark Aronchick, James K. Baker, James P. McGuire, Clifford D. Pierce, Jr., William H. Taube, William I. Thornton, Jr., Henry W. Underhill, Jr., and Charles S. Rhyne; and for the National Association of Counties et al. by Lawrence R. Velvel and Dennis A. Dutterer.

Huger Sinkler, Charleston, S.C., for plaintiff.

Susan Lee Voss, Austin, Tex., for state of Tex. et al. as amici curiae.

Louis F. Claiborne, Washingtom, D.C., for defendant.

OPINION

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Justice BRENNAN delivered the opinion of the Court. [d]

[104 S.Ct. 1110] South Carolina invokes the Court's original jurisdiction1 and asks leave to file a complaint against Donald T. Regan, the Secretary of the Treasury of the United States. The state seeks an injunction and other relief, on the ground that § 310(b)(1) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub.L. No. 97-248, 96 Stat. 596, is constitutionally invalid as violative of the Tenth Amendment and the doctrine of intergovernmental tax immunity.

The Secretary objects to the motion on the ground that the Anti-Injunction Act, 26 U.S.C. § 7421(a), bars this action2 and, alternatively, that the Court should exercise its discretion to deny leave to file. We are not persuaded that either is a ground for denying the motion, and therefore grant the motion for leave to file the complaint.

I

Section 103(a) of the Internal Revenue Code (I.R.C.) exempts from a taxpayer's gross income the interest earned on the obligations of any State. 3 In 1982, however, as part of

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TEFRA, Congress amended § 103 to restrict the types of bonds that qualify for the tax exemption granted by that section. Specifically, § 310(b)(1) of TEFRA requires that certain obligations, termed "registration-required obligations," be issued in registered,4 rather than bearer, form to qualify for the § 103(a) exemption. 5 For purposes of § 310(b)(1)...

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