(CN) – The Supreme Court on Tuesday dismissed a federal lawsuit challenging Ohio’s system of taxing natural gas suppliers, saying the tax discrimination claims belong in state court.
A pair of independent natural gas suppliers had sued in federal court, claiming Ohio’s tax scheme unconstitutionally favors local suppliers. They claimed local suppliers received unfair tax exemptions that were unavailable to out-of-state suppliers.
A federal judge dismissed the lawsuit for lack of jurisdiction, citing the comity doctrine, which bars federal courts from hearing claims that risk disrupting state tax administration.
On appeal, the 6th Circuit revived the lawsuit based on a footnote in Hibbs v. Winn, in which the Supreme Court said it “has relied upon ‘principles of comity’ to preclude original federal-court jurisdiction only when plaintiffs have sought district-court aid in order to arrest or countermand state tax collection.”
The Supreme Court took up the tax challenge to settle a division among federal appeals courts, some of which similarly read the Hibbs footnote to limit the comity doctrine.
The justices emphasized Tuesday that the footnote had no such constraining effect.
“Hibbs was hardly a run-of-the-mine tax case,” Justice Ruth Bader Ginsburg wrote for the unanimous court. “It was essentially an attack on the allocation of state resources for allegedly unconstitutional purposes.” She said the footnote “is most sensibly read to affirm that, just as the case was a poor fit under the [Tax Injunction Act], so it was a poor fit for comity.”
The Tax Injunction Act “precludes relief that would diminish state revenues, even if such relief is the remedy least disruptive of the state Legislature’s design,” the ruling states.
“These limitations on the remedial competence of lower federal courts counsel that they refrain from taking up cases of this genre, so long as state courts are equipped fairly to adjudicate them,” Ginsburg wrote.
The high court reversed the 6th Circuit’s ruling and remanded.
Justices Anthony Kennedy, Clarence Thomas and Samuel Alito filed separate concurring opinions.