Opinion ID: 793001
Heading Depth: 2
Heading Rank: 2

Heading: District Court Lacked Jurisdiction to Invalidate the Cities' Taxes

Text: 28 Qwest argues that the FTA prevents the Cities from charging rent for the use of the public rights-of-way. The Cities do not dispute that they cannot charge rent. They argue instead that their charges constitute taxes, which are exempted from preemption by § 601 of the FTA. The district court agreed with the Cities and held that § 601 saved the Cities' charges from preemption. We agree with the district court that the Cities' charges are taxes, but we conclude the claim should have been dismissed under the Tax Injunction Act, 28 U.S.C. § 1341, for lack of subject matter jurisdiction. 3 29 We apply the Bidart test to determine whether a certain charge is a fee or a tax. Bidart Bros. v. Cal. Apple Comm'n, 73 F.3d 925, 931 (9th Cir.1996). The test instructs courts to focus on three primary factors: (1) the entity that imposes the charge; (2) the parties upon whom the charge is imposed; and (3) whether the charge is expended for general public purposes, or used for the regulation or benefit of the parties upon whom the assessment is imposed. Id. When the first two Bidart factors are not dispositive, courts emphasize the third factor — the way in which the revenue is ultimately spent. Id. at 932. 30 The district court applied the Bidart test and found factors one and three weigh in favor of the charge being a tax and factor two weighs in favor of it being a fee. Considering that previous courts have focused on the third factor when the first two are conflicting, the district court concluded that the charges are taxes because the revenues from the charges flow into the Cities' general funds. 31 On appeal, Qwest does not dispute the district court's application of the Bidart test. Instead, Qwest argues that the Bidart test does not apply because when a government acts in a proprietary rather than a governmental capacity, its fees are never taxes. As the district court correctly concluded, this argument is fallacious. The Bidart test incorporates the distinction between proprietary and governmental power in its factors. For example, the third factor evaluates whether the revenues are spent to benefit the general public instead of a limited class of individuals. This factor is critical in distinguishing proprietary from governmental activities because a government does not ordinarily benefit the general public when it acts in a proprietary capacity. See Black's Law Dictionary 1256 (8th ed.2004) (defining proprietary function as [a] municipality's conduct that is performed for the profit or benefit of the municipality, rather than for the benefit of the general public.). Thus, the Bidart test addresses Qwest's concerns of proprietary versus governmental powers. 32 Moreover, case law from other circuits does not support Qwest's position. Qwest cautions this Court against being the first court to declare such rental fees taxes. However, we blaze no new trails in reaching such a conclusion. Numerous other courts have concluded that charges imposed upon users of a city's rights-of-way are taxes for purposes of the Tax Injunction Act. See, e.g., Robinson Protective Alarm Co. v. City of Philadelphia, 581 F.2d 371, 376 (3d Cir.1978) (ordinance imposing 5% charge on gross revenues of companies using underground wires is a tax despite the state court labeling it a rental fee); Keleher v. New England Tel. & Tel. Co., 947 F.2d 547, 549 (2d Cir.1991) (ordinance requiring utility companies using and occupying city streets to pay 2.5% of their gross revenues as fees constituted a tax) abrogated on other grounds by Jefferson County v. Acker, 527 U.S. 423, 434, 119 S.Ct. 2069, 144 L.Ed.2d 408 (1999); City of Chattanooga v. BellSouth Telecomm., Inc., 1 F.Supp.2d 809, 814 (E.D.Tenn.1998) (ordinance imposing 5% charge on gross revenue of telecommunications providers that install cable on rights-of-way is a tax despite being labeled rent in the ordinance). In each of these cases, the court evaluated factors similar to those in the Bidart test in determining whether the charge was a tax or a fee. Qwest provided us with no case law, Ninth Circuit or otherwise, holding that charges similar to the Cities' charges constitute fees. Therefore, we hold that where, as here, an ordinance requires that a telecommunications provider pay a percentage of its gross revenues to the municipality, and the revenue from that charge is directed to the municipality's general fund, the charge constitutes a tax. 33 Because the charges are taxes under the Bidart test, we must next determine whether the Tax Injunction Act deprived the district court of subject matter jurisdiction. The Tax Injunction Act provides, 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. § 1341. The Supreme Court interpreted the Tax Injunction Act as a broad jurisdictional barrier. Arkansas v. Farm Credit Servs. of Cent. Ark., 520 U.S. 821, 825, 117 S.Ct. 1776, 138 L.Ed.2d 34 (1997) (quotation marks omitted). As the Court noted, the Act is first and foremost a vehicle to limit drastically federal district court jurisdiction to interfere with so important a local concern as the collection of taxes. Id. at 826, 117 S.Ct. 1776(internal quotation marks omitted). Recently, we concluded that the dispositive question in determining whether the Tax Injunction Act's jurisdictional bar applies is whether the plaintiff's action, if successful, would reduce the flow of state tax revenue. May Trucking Co. v. Or. Dep't of Transp., 388 F.3d 1261, 1267 (9th Cir. 2004) (citing Hibbs v. Winn, 542 U.S. 88, 106, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004)). 34 Here, there is no question that, if Qwest were successful on the merits, the Cities' tax revenues would be reduced. Qwest's purpose in challenging the Cities' ordinances is to avoid paying the taxes in the future. This type of challenge seeking to avoid paying a tax is the archetypical action that the Tax Injunction Act carves out of federal jurisdiction. 35 Additionally, there is no evidence suggesting an adequate remedy is not available in Arizona courts. In fact, Qwest already challenged Tucson's tax in state court and lost. U.S. West Commc'n v. City of Tucson, 198 Ariz. 515, 11 P.3d 1054, 1060-63 (Ct.App.2000). Therefore, we hold that the charges imposed upon Qwest are taxes, and that the Tax Injunction Act deprived the district court of jurisdiction to invalidate the taxes.