In National Federation of Independent Business v Sebelius1 (“NFIB”), the Supreme Court maintained both its jurisdiction over the case and the constitutionality of the Affordable Care Act2 (ACA) by threading the needle between the Anti-Injunction Act3 (AIA) and Congress’s taxing power under the Constitution.4 The legal implications of the majority opinion, however, have yet to work themselves out in the field of tax law. The AIA and the Tax Injunction Act5 (TIA) protect federal and state taxes, respectively, from precollection injunctions in federal court. In other words, litigants must pay first and then challenge the taxes in court. Because the text of each act mentions only “taxes,” courts have interpreted the acts to mean that they do not protect other government charges. This means that courts must determine when a government charge is a “tax” and when it is something else. The main alternatives are “regulatory fees” (or simply “fees”) and “penalties,” and the problems of delineating these categories are the subject of Part II. In short, taxes are seen as being imposed broadly for the purpose of general revenue while penalties and fees are imposed more narrowly to incentivize certain behaviors or defray costs arising from regulations. Historically, courts deciding cases under the TIA have tended to minimize the importance of the statutory label applied to a charge when deciding how to categorize it,6 but the logic of NFIB in interpreting the AIA turns on the fact that Congress labeled the “individual mandate” a “penalty” rather than a “tax.”7 The majority construed this language as evidence of a purposeful decision by Congress not to take advantage of the protection against injunctions offered by its own creation, the AIA.8

The application of NFIB to future cases under the AIA should be straightforward: if Congress labels a charge a “penalty” or “fee,” then it is deemed to have intended that the AIA not protect that charge. On the other hand, the logic of NFIB, in which a single legislative body excepts one of its laws from another of its own laws, is one step removed from the TIA, which applies to laws enacted by state legislatures. But just as Congress can control the application of its own law, it can also give states the ability to control the application of federal law by “incorporating” state law.9 Despite the federal–state distinction between the AIA and the TIA, the text and effects of the statutes are substantially identical, and cases that treat the definitions and applications of the statutes are used as interchangeable precedent by default in current jurisprudence. Given this background, the logical extension of the Supreme Court’s decision in NFIB would be to look to a state-law label to define a charge under the TIA. This Comment argues that applying NFIB’s label test to the TIA is justifiable, based on the act’s legislative history and the practice of using the AIA in TIA cases, and beneficial, in that it offers a bright-line test for determining when an exaction is a “tax” for purposes of the TIA.

Currently, courts use a variety of tests to separate taxes from nontaxes. But federal courts struggle to make a consistent distinction, especially when faced with exactions that both raise revenue (like a tax) and penalize very specific behavior (like a penalty). For instance, circuits are split over whether “tax delinquency penalties,” applied to individuals who fail to pay their taxes, should be categorized as taxes or penalties under the TIA. But under NFIB, the state-law “penalty” label would be dispositive. The simplicity of this new test saves litigants from current uncertainty and federal judges from navigating a growing body of conflicted jurisprudence.

Part I of this Comment outlines the legislative history of the AIA and TIA, as well as the Supreme Court’s understanding of their related legislative purposes. Part II reviews the current inter- and intracircuit splits over how to tell when a government charge is a “tax” protected under the TIA. Part III examines two recent Supreme Court decisions, Direct Marketing Association v Brohl10 and NFIB, in order to evaluate possible solutions. While the legislative history and purpose behind the TIA are important, Brohl precludes a solution based on legislative purpose alone. On the other hand, NFIB offers the possibility of a much simpler test. Part III then offers an analysis of why this label test should be transplanted from NFIB, an AIA case, into TIA jurisprudence.

  • 1. 567 US 519 (2012) (“NFIB”).
  • 2. Patient Protection and Affordable Care Act, Pub L No 111-148, 124 Stat 119 (2010).
  • 3. Act of Mar 2, 1867 § 10, 14 Stat 471, 475; Internal Revenue Code of 1954 § 7421, 68A Stat 1, 876, codified at 26 USC § 7421. This statute is sometimes also referred to as the Tax Anti-Injunction Act, but the majority of courts refer to it as the Anti-Injunction Act. The AIA should not be confused with the statute of the same name, enacted as part of the Judiciary Act of 1789 § 5, 1 Stat 333, 334–35, codified at 28 USC § 2283 (preventing federal courts from issuing injunctions against ongoing proceedings in state courts).
  • 4. See US Const Art I, § 8, cl 1 (“The Congress shall have power to lay and collect taxes, duties, imposts and excises.”).
  • 5. 50 Stat 738 (1937), codified at 28 USC § 1341.
  • 6. See Part I.B.
  • 7. See NFIB, 567 US at 543–46.
  • 8. Id.
  • 9. See note 142.
  • 10. 135 S Ct 1124 (2015).