Court Opinion

ID: 9890042
Source: CourtListenerOpinion
Date Created: 2023-10-12 00:00:33.165482+00
Date Added: 2024-06-11T12:50:24.430874
License: Public Domain

Case: 22-50924      Document: 00516928024         Page: 1     Date Filed: 10/11/2023

           United States Court of Appeals
                for the Fifth Circuit
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                 ____________                                   FILED
                                                                         October 11, 2023
                                  No. 22-50924                             Lyle W. Cayce
                                 ____________                                   Clerk

   Judy Harward; Brent Harward; 3325 Westlake Owners,
   L.L.C.; Kirk Fritschen, as trustee of the 3705 Westlake
   Trust; 4200 Rivercrest, L.L.C.; Et al.,

                                                            Plaintiffs—Appellants,

                                       versus

   City of Austin,

                                            Defendant—Appellee.
                  ______________________________

                  Appeal from the United States District Court
                       for the Western District of Texas
                             USDC No. 1:21-CV-95
                  ______________________________

   Before Richman, Chief Judge, Jones, and Ho, Circuit Judges.
   Per Curiam:

          The district court dismissed claims brought by Texas property owners
   as barred from federal court jurisdiction by the Tax Injunction Act. We hold
   that, apart from two minor exceptions, the property owners do not ask the
   court to “enjoin, suspend or restrain the assessment, levy or collection of any
   tax under State law.” 28 U.S.C. § 1341. We AFFIRM in part, REVERSE
   in part, and REMAND for further proceedings.
Case: 22-50924      Document: 00516928024           Page: 2    Date Filed: 10/11/2023

                                     No. 22-50924

                                 BACKGROUND
          A 128-year confluence of Texas laws, city charters, and city
   ordinances has caused confusion regarding the legal status of certain
   properties along the shoreline of Lake Austin. In 2019, the City of Austin,
   Texas, issued an ordinance (1) declaring that the shoreline properties are
   within the city’s full purpose jurisdiction; (2) repealing a 1986 ordinance that
   putatively declared the shoreline properties to be within the city’s limited-
   purpose jurisdiction but promised not to tax those properties until the city
   made city services available to them; and (3) announcing that the shoreline
   properties are subject to taxation by the city, albeit without providing city
   services.
          Owners of the shoreline properties contend that their properties lie
   within the city’s limited-purpose or extraterritorial jurisdiction and that the
   2019 ordinance constitutes an illegal annexation attempt. The owners
   asserted claims under the due process, equal protection, takings and ex post
   facto clauses of the Constitution, together with state law claims, and sought
   various declarations, injunctions, and writs of mandamus. They alternatively
   seek just compensation for the taking of their properties’ jurisdictional
   status, the provision of city services, or disannexation. The district court, at
   the recommendation of the magistrate judge, dismissed all claims without
   prejudice as barred by the Tax Injunction Act. 28 U.S.C. § 1341 Plaintiffs
   appeal that judgment.
                                  DISCUSSION
          The TIA bars district courts from “enjoin[ing], suspend[ing] or
   restrain[ing] 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 act applies to municipal taxes. Home Builders
   Ass’n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 n.6 (5th Cir. 1998).

                                              2
Case: 22-50924        Document: 00516928024              Page: 3      Date Filed: 10/11/2023

                                         No. 22-50924

   It precludes both injunctive and declaratory relief. California v. Grace
   Brethren Church, 457 U.S. 393, 411, 102 S. Ct. 2498, 2509 (1982). And it
   serves as a “broad jurisdictional impediment to federal court interference
   with the administration of state tax systems.” Home Builders, 143 F.3d at
   1010 (quotation marks and citation omitted). “Whether the district court
   was prevented from exercising jurisdiction over the case because of the Tax
   Injunction Act is a question of subject matter jurisdiction which we review de
   novo.” Washington v. Linebarger, Goggan, Blair, Pena & Sampson, LLP,
   338 F.3d 442, 444 (5th Cir. 2003).
           Plaintiffs contend that they do not challenge the city’s right to assess,
   levy, or collect taxes on properties that are within its full-purpose
   jurisdiction. Instead, they challenge the procedure by which the city declared
   their properties to be within its full-purpose jurisdiction. The city, on the
   other hand, argues that this case is about taxes. Observing that Plaintiffs
   mentioned the word tax over 100 times in their complaint, the city contends
   that the relief sought by Plaintiffs would restrain or prohibit its tax collection,
   thereby depriving the city of both current and future tax revenue. The city
   posits that the “action’s objective aim” is to invalidate an ordinance that
   effectively requires Plaintiffs to pay city taxes.
           The parties’ dispute hinges on two Supreme Court cases. 1 In Direct
   Marketing Association v. Brohl, the plaintiff challenged a Colorado statute that
   required certain retailers to “notify Colorado purchasers that sales or use tax
   is due on certain purchases . . . and that the state of Colorado requires the
   purchaser to file a sales or use tax return.” 575 U.S. 1, 5, 135 S. Ct. 1124, 1128

           _____________________
           1
            The parties both cite Franklin v. United States, 49 F.4th 429 (5th Cir. 2022). But
   that case is of limited value. There, the challenged actions’ illegality depended on the
   unlawfulness of the tax assessment. Id. at 435. The exact opposite relationship is at issue
   here: The tax assessments’ illegality depends upon the unlawfulness of the 2019 ordinance.

                                                    3
Case: 22-50924        Document: 00516928024              Page: 4      Date Filed: 10/11/2023

                                         No. 22-50924

   (2015) (quoting COLO. REV. STAT. § 39-21-112(3.5)(c)(I)). The Court stated
   that the “TIA is keyed to the acts of assessment, levy, and collection
   themselves.” Id. at 12, 1131. It proceeded to define each of those terms and
   held that the challenged statute did not fall within any of them. Id. at 9–11,
   1130–31. The Court then assessed whether the requested relief would
   nonetheless “restrain” such activities. Accordingly, the “question—at least
   for negative injunctions—is whether the relief to some degree stops
   ‘assessment, levy or collection,’ not whether it merely inhibits them.” Id. at
   14, 1133. Based on these conclusions, enjoining the statute at issue would
   merely inhibit Colorado’s assessment, levy, and collection of taxes, and the
   TIA did not apply. Id.
           The Court elaborated on Direct Marketing six years later in CIC
   Services, LLC v. IRS, 141 S. Ct. 1582 (2021). 2 There, a plaintiff challenged a
   reporting requirement that could result in a tax penalty if the plaintiff failed
   to comply. Id. at 1589. After determining the reporting requirement was not
   an act of assessment or collection, the Court evaluated whether “the action’s
   objective aim” was to “restrain” tax assessment or collection. Id. The Court
   answered this question in the negative even though, “if the suit succeed[ed],
   [the plaintiff] w[ould] never have to worry about the tax penalty.” Id. at 1591.
   In distinguishing the action’s “after-effect” from “its substance,” the Court
   looked to the claims brought, the injuries alleged, and, most importantly, the
   relief sought. Id. at 1589–90. For instance, it found that the reporting
   requirement “inflict[ed] costs separate and apart from the statutory tax

           _____________________
           2
             CIC Services addressed the Anti Injunction Act, 26 U.S.C. § 7421(a), which is the
   TIA’s federal analogue. Courts “assume that words used in both Acts are generally used
   in the same way.” Direct Mktg., 575 U.S. at 8, 135 S. Ct. at 1129. Cases interpreting the
   AIA are therefore “highly persuasive in construing similar language in the” TIA.
   17A Charles Alan Wright & Arthur R. Miller, FEDERAL PRACTICE & PROCEDURE § 4237
   (3d ed.).

                                                   4
Case: 22-50924      Document: 00516928024            Page: 5    Date Filed: 10/11/2023

                                      No. 22-50924

   penalty,” id. at 1591, was “several steps removed” from the tax, id., and was
   also backstopped by criminal penalties, id. at 1591–92.
          The import of these cases is that, for the TIA to apply, the requested
   relief must “to some degree stop[ ]” the assessment, levy, or collection of
   state taxes. Direct Mktg., 575 U.S. at 14, 135 S. Ct. at 1133. But such a finding
   is insufficient where the relief would do so only indirectly. In that scenario,
   a court must make a more exacting examination to determine from the “face
   of the taxpayer’s complaint” whether the “target of a requested injunction
   is a tax obligation.” CIC Servs., 141 S. Ct. at 1589–90. Considerations
   include whether the targeted law inflicts costs separate and apart from the
   tax, whether the targeted law bears a close relationship to the tax, and
   whether the relief attempts to circumvent a state’s “pay-now-sue-later” tax
   scheme. Id. at 1591–92.
          Plaintiffs here seek the invalidation of the 2019 ordinance and a
   declaration that their properties are within the city’s extraterritorial or
   limited purpose jurisdiction. Although the ordinance authorized the taxation
   of Plaintiffs’ properties, the county tax assessor had to add their properties
   to the Travis County Appraisal District’s rolls, appraise the properties,
   determine their tax liabilities, levy the taxes, collect the taxes, and remit those
   payments to the city. See TEX. TAX CODE §§ 25.01–25.24 (appraisal), 26.01–
   26.18 (assessment), 31.01–31.12 (collection). The ordinance’s authorization
   itself is therefore not an act of assessment, levy, or collection. It is no more
   than a prerequisite to assessment. See Direct Mktg., 575 U.S. at 9, 135 S. Ct.
   at 1130 (defining assessment as “the process by which [the taxpayer’s liability]
   is calculated”); see also TEX. TAX CODE § 21.01.
          Assuming that Plaintiffs’ requested relief would indirectly prevent the
   city from assessing, levying, and collecting future taxes, see TEX. TAX CODE
   § 21.01, TEX. LOC. GOV’T CODE §§ 43.130(c), 42.902, a more exacting

                                               5
Case: 22-50924        Document: 00516928024              Page: 6       Date Filed: 10/11/2023

                                         No. 22-50924

   analysis must be made as to the TIA’s applicability. 3 See CIC Servs.,
   141 S. Ct. at 1593. That analysis reveals that Plaintiffs challenge a “separate
   legal mandate,” not a tax. Id. As detailed above, the taxes themselves are
   several steps removed from the ordinance. Moreover, the ordinance imposes
   costs separate and apart from the property taxes—it subjects the Plaintiffs
   and their property to the city’s broad home rule authority. See City of
   Galveston v. Texas, 217 S.W.3d 466, 469 (Tex. 2007) (Home-rule
   municipalities have “all the powers of the state not inconsistent with the
   Constitution, the general laws, or the city’s charter.” (quotation marks and
   citation omitted)). Plaintiffs, moreover, do not seek to circumvent the state’s
   “pay-now-sue-later” scheme. They have dutifully paid their taxes, and if
   they prevail in invalidating the 2019 ordinance and seek a refund, they must
   proceed through Texas’s tax procedures. See TEX. TAX CODE § 41.41(a)(6).
   Whether and to what extent invalidating the 2019 ordinance affects past and
   future tax assessments, levies, and collections thus remains in the hands of
   state authorities. 4
           Two of Plaintiffs’ requested remedies, however, must be struck from
   the complaint. First, they request “a declaration that the City’s notices to
   TCAD that the shoreline properties are within their taxing-unit boundaries
   are invalid.” Second, they seek “a writ of mandamus directing the City to

           _____________________
           3
             Plaintiffs alternatively request equal municipal services or just compensation for
   the taking of their properties’ jurisdictional status. As such remedies would not stop the
   assessment, levy, or collection of city taxes, the claims to which these remedies correspond
   are not barred by the TIA. See Direct Mktg., 575 U.S. at 14, 135 S. Ct. at 1133; see also
   Franklin, 49 F.4th at 434–39 (conducting claim-by-claim TIA analysis).
           4
             Detroit Edison Company v. East China Township School District No. 3, 378 F.2d 225
   (6th Cir. 1967), is not to the contrary. The plaintiffs there challenged the assumption of
   two annexed school districts’ bond-indebtedness. Id. at 226. The Sixth Circuit affirmed
   the dismissal of those claims “under an application of the abstention doctrine,” not
   pursuant to the TIA. Id. at 230.

                                                    6
Case: 22-50924      Document: 00516928024           Page: 7     Date Filed: 10/11/2023

                                     No. 22-50924

   instruct TCAD and the Travis County Assessor-Collector that the shoreline
   properties are in the City’s extraterritorial or limited-purpose jurisdiction.”
   Both of these remedies go beyond the 2019 ordinance and would directly
   challenge the state’s taxing power by affirmatively precluding TCAD from
   assessment, levy, and collection of future taxes on the Plaintiffs’ properties.
   See TEX. TAX CODE §§ 21.01, 41.41(a)(6). They are thus barred by the TIA.
          In the alternative, the city invites us to affirm the district court’s
   decision based on several abstention doctrines, the political question
   doctrine, and pleading defects. Plaintiffs agree that because the district court
   did not rule on these issues, they are best left for the district court to resolve
   on remand. We decline to reach these issues in the first instance, See Am.
   Bank & Trust Co. of Opelousas v. Dent, 982 F.2d 917, 922 (5th Cir. 1993), and
   we will not address the merits of Plaintiffs’ claims. See Montano v. Texas,
   867 F.3d 540, 546 (5th Cir. 2017).
                                 CONCLUSION
          Apart from two minor exceptions, Plaintiffs do not ask the district
   court to “enjoin, suspend or restrain the assessment, levy or collection of any
   tax under State law.” 28 U.S.C. § 1341. Their claims thus fall outside the
   TIA. We AFFIRM in part, REVERSE in part, and REMAND for further
   proceedings.

                                               7