916 F.2d 1451 (9th Cir. 1990), 89-15716, Direct Marketing Ass'n, Inc. v. Bennett

Docket Nº:89-15716.
Citation:916 F.2d 1451
Party Name:DIRECT MARKETING ASSOCIATION, INC., Plaintiff-Appellant, v. William M. BENNETT; Conway H. Collis; Ernest J. Dronenburg, Jr.; Paul Carpenter; Gray Davis; Cindy Rambo; John Gibbs; Lucian Khan; Shiela J. Gustin, Defendants-Appellees.
Case Date:October 23, 1990
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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916 F.2d 1451 (9th Cir. 1990)



William M. BENNETT; Conway H. Collis; Ernest J.

Dronenburg, Jr.; Paul Carpenter; Gray Davis;

Cindy Rambo; John Gibbs; Lucian Khan;

Shiela J. Gustin, Defendants-Appellees.

No. 89-15716.

United States Court of Appeals, Ninth Circuit

October 23, 1990

Argued and Submitted July 17, 1990.

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George S. Isaacson and Martin I. Eisenstein, Brann & Isaacson, Lewiston, Maine; John A. Mendez, Downey, Brand, Seymour & Rohwer, Sacramento, Cal., for plaintiff-appellant.

Steven J. Green, Deputy Atty. Gen. of the State of Cal., Sacramento, Cal., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of California.

Before CHOY, WIGGINS and LEAVY, Circuit Judges.

CHOY, Circuit Judge:

Direct Marketing Association (DMA) appeals the district court's dismissal of its action against various members of the California State Board of Equalization. The district court held that the Tax Injunction Act barred federal jurisdiction over DMA's action. We reverse.


Plaintiff-appellant DMA is a trade association whose members are engaged in direct mail advertising and marketing of products. DMA states that a majority of its members are mail order houses located outside of California that accept orders for products by mail or telephone and ship the products to customers.

Defendants are individual members of the California Board of Equalization, which is responsible for enforcing California's sales and use tax law.

In 1987, the State of California amended a portion of its sales and use tax law to require interstate mail order retailers to collect use tax from their California customers. The Board has demanded that many of DMA's members located outside of California who sell products to California residents by use of credit cards issued by California financial institutions register as retailers engaged in business in California under section 6203(f) of the California Revenue and Taxation Code. 1 California

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requires registered retailers to pay a use tax collected from every person purchasing an item for storage, use, or consumption in the state unless a sales tax was previously paid on the item. Cal.Rev. & Tax.Code Secs. 6201 through 6207, 6401.

DMA filed this action in district court on August 19, 1988, alleging that enforcement of the state's sales and use tax with respect to DMA's out-of-state members violates the commerce clause of the United States Constitution and the due process clause of the fourteenth amendment. 2 DMA sought injunctive and declaratory relief, as well as attorney's fees under 42 U.S.C. Sec. 1988.

The district court granted defendant Board's motion to dismiss on the ground that DMA's members had a plain, speedy, and efficient remedy under state law. Specifically, the district court found that DMA's members were not precluded from paying the contested taxes and then filing for a refund. It thus held that the Tax Injunction Act barred proceedings in federal court. 3 A dismissal based on lack of subject matter jurisdiction is freely reviewable on appeal. Redding Ford v. California State Board of Equalization, 722 F.2d 496, 497 (9th Cir.1983), cert. denied, 469 U.S. 817, 105 S.Ct. 84, 83 L.Ed.2d 31 (1984).



The Tax Injunction Act bars federal courts from enjoining the collection of state taxes "where a plain, speedy and efficient remedy may be had in the courts of such State." 4 A state remedy is not plain within the meaning of the Tax Injunction Act, however, "if there is uncertainty regarding its availability or effect." Ashton v. Cory, 780 F.2d 816, 819 (9th Cir.1986). See also Township of Hillsborough v. Cromwell, 326 U.S. 620, 625-26, 66 S.Ct. 445, 449, 90 L.Ed. 358 (1946) (where uncertainty regarding the availability of a remedy under New Jersey law rendered the state's remedy speculative, district court properly retained jurisdiction); Alcan Aluminum Ltd. v. Department of Revenue of State of Oregon, 724 F.2d 1294, 1297 (7th Cir.1984) (ambiguity of Oregon tax statutes rendered availability of remedy uncertain, and thus the Tax Injunction Act did not apply to bar federal jurisdiction); Garrett v. Bamford, 538 F.2d 63, 67 (3d Cir.), cert. denied, 429 U.S. 977, 97 S.Ct. 485, 50 L.Ed.2d 585 (1976) ("... it is sufficient for a finding of inadequacy that the availability of the state remedy be merely uncertain.").

In California the sole legal remedy for resolving tax disputes is a postpayment refund action. 5 Only after filing a claim

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for refund can a party institute a court action challenging the collection of a tax. 6 The issue in this case is whether DMA's members may avail themselves of the refund procedure for sales and use taxes set forth in sections 6901 through 6908 of the California Revenue and Taxation Code.

DMA contends that the state's remedy is unavailable for two reasons. First, citing California Revenue & Taxation Code Sec. 6902, DMA claims that only a taxpayer may make a claim for refund. DMA argues that since the use tax is levied on the consumer and the retailer is a mere collector of the tax, retailers may not seek a refund of the tax they collect and pay to the Board. Second, DMA argues that the remedy is not available because its members have not received determinations.

We agree. The relevant provision, section 6902, establishes the limitation periods for filing refund claims. It reads:

(a) For taxpayers filing returns on other than an annual basis, except as provided in subdivision (b) no refund shall be approved by the board after three years from the last day of the month following the quarterly period for which the overpayment was made, or, with respect to determinations made under Article 2 (commencing with Section 6481), 3 (commencing with Section 6511), or 4 (commencing with Section 6536) of Chapter 5 of this part, after six months from the date the determinations become final, or after six months from the date of overpayment, whichever period expires the later, unless a claim therefor is filed with the board within such period. (emphasis added).

Section 6902 thus provides...

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