Appeal from the United States District Court for the District of South Carolina, at Beaufort.
Julian Abele Cook, Jr., Senior District Judge, sitting by designation. (CA-94-2719-9-19)
Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.
Vacated and remanded with instructions by published opinion. Judge Michael wrote the opinion, in which Judge Niemeyer and Judge Motz joined.
The substantive issue in this case is whether South Carolina law prohibits a Jasper County ordinance that imposes a license fee on businesses leasing video poker machines. The district court held that the ordinance cannot be enforced as written because it conflicts with South Carolina law. Because the issue of whether jurisdiction is barred by the Tax Injunction Act, 28 U.S.C. Section(s) 1341, must be addressed, we vacate the judgment of the district court and remand for that court to consider the applicability of the Act.
Appellant Jasper County, South Carolina, enacted an ordinance in 1993 that imposes a "license fee" on various businesses associated with the gaming industry, including video poker arcades, distributors, and lessors. The purpose of the fee, as stated in the ordinance, is "providing regulation as may be required by the businesses subject thereto and for the purpose of raising revenue for the general fund of the County through a privilege tax." J.A. 256. The ordinance separates gaming businesses into different classes and assigns a separate rate to each class. Video poker arcades, distributors, and lessors must pay Jasper County $200 for the first $2,000 in income derived from the business and $40 for each $1,000 in income thereafter.
Appellee Collins Holding Corporation (Collins) leases video poker machines to bars, convenience stores, and other businesses in South Carolina. Collins paid a 1994 license fee of $17,000 (plus a $850 penalty) to Jasper County under protest and brought this action in the United States District Court for the District of South Carolina. Collins challenged the constitutionality of the Jasper County ordinance under the Equal Protection Clause of the United States Constitution, thereby invoking federal question jurisdiction. Collins also challenged the validity of the ordinance under South Carolina law. The district court, exercising supplemental jurisdiction to reach the state law claim, see 28 U.S.C. Section(s) 1367, held that the county ordinance imposed a license fee in excess of that permitted by South Carolina law. Collins was therefore awarded a refund. Jasper County appeals.
We are bound on our own to ask whether the Tax Injunction Act ousted the district court of jurisdiction to hear Collins' case. *fn1 The Act is one sentence long: "The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. Section(s) 1341. This broad restriction on federal court jurisdiction over state and local tax matters reflects the importance of the taxing power to the operation of state governments as well as the desire of the Congress to restrain federal courts from unduly interfering with state revenue collection. See Arkansas v. Farm Credit Serv. of Cent. Arkansas, 117 S. Ct. 1776, 1780 (1997) ("The States' interest in the integrity of their own processes is of particular moment respecting questions of state taxation."); National Private Truck Council, Inc. v. Oklahoma Tax Comm'n, 515 U.S. 582, 115 S. Ct. 2351, 2354 (1995) ("`It is upon taxation that the several States chiefly rely to obtain the means to carry on their respective governments, and it is of the utmost importance to all of them that the modes adopted to enforce the taxes levied should be interfered with as little as possible.'" (quoting Dows v. City of Chicago, 78 U.S. (11 Wall.) 108, 110 (1871))).
Two questions frequently arise when a federal court considers whether the Tax Injunction Act bars a suit challenging a state or local tax. First, do the state courts provide a "plain, speedy and efficient" remedy? Second, is the state or local law a "tax," or is it a regulatory fee that falls outside the restrictions of the Tax Injunction Act? *fn2
The "plain, speedy, and efficient" remedy question turns on whether the available state court remedies meet certain procedural criteria. See Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 521 (1981). "In particular, a state-court remedy is plain, speedy and efficient only if it provides the taxpayer with a full hearing and judicial determination at which she may raise any and all constitutional objections to the tax." California v. Grace Brethren Church, 457 U.S. 393, 411 (1982) (citations and internal quotation marks omitted). Providing for a refund action may be sufficient: "the fact that a taxpayer must either pay a tax or post a bond prior to challenging the state tax assessment does not render the state's remedy outside the scope of the Tax Injunction Act." International Lotto Fund v. Virginia State Lottery Dep't, 20 F.3d 589, 593 (4th Cir. 1994); see also Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 301 (1943) (noting that Tax Injunction Act is "predicated upon the desirability of freeing, from interference by the federal courts, state procedures which ...