The Tax Injunction Act, a staple of the state court taxation system, has come under fire amidst worsening court case backlogs. Enacted in 1937 as a means to stop large taxpayers from utilizing federal courts to obtain injunctions against taxes, the act stipulates that all state tax claims must proceed in state courts. However, some legal professionals believe that the act may now be more of a hindrance than an aid.
Despite the dramatic societal shifts since its inception, the Tax Injunction Act has remained untouched for 87 years. Even the outbreak of Covid-19 and its significant impact on the legal system, could not trigger a revision of the Act. The pandemic led to significant delays in adjudication, compounding upon what was already a robust backlog in many state court systems. This has led to cases remaining in limbo for 10 years or more, effectively negating the possibility of a ‘speedy remedy’ as mentioned in the Act.
A number of legal professionals, citing cases that have been drawn out over decades, suggest that it’s time for the Act to be amended or reinterpreted. They argue that the delays in the state court system have become so severe that they may start hurting taxpayers’ rights to a speedy trial. One anecdote from Ryan Eads of global tax services firm Ryan LLC, reveals an unresolved refund request pending in a state tax agency for 10 years.
The use of the Tax Injunction Act has also been a matter of debate in federal courts. In some instances, the federal courts seem to have approached the act with an unwillingness to increase their workload. The Supreme Court has recognized that the conditions of the act require individual inquiry and analysis but has provided little further direction over time.
With systemic delays only set to worsen in the short term due to the lingering effects of Covid-19, calls for the reconsideration of the Tax Injunction Act are likely to intensify. Legal professionals are keen to see whether the courts or Congress will step in and revise this essential piece of tax legislation to reflect the realities of the current era.
Further reading on the matter can be found in this detailed piece by Richard D. Pomp, professor at University of Connecticut Law School and a member of the American College of Tax Counsel, who provides his insight on how the Tax Injunction Act could be amended to improve both judicial and administrative processes for state tax cases.