South Carolina v. Regan, 465 U.S. 367 (1984)

South Carolina v. Regan

No. 94, Orig.

Argued October 5, 1983
Decided February 22, 1984
465 U.S. 367

ON MOTION FOR LEAVE TO FILE COMPLAINT

Syllabus

Section 103(a) of the Internal Revenue Code exempts from a taxpayer’s gross income the interest earned on the obligations of any State. Section 103 was amended by the Tax Equity and Fiscal Responsibility Act of 1982, which added a new provision, § 103(j)(1), to the Internal Revenue Code. Section 103(j)(1) requires that "registration-required obligation[s]" be issued in registered, rather than bearer, form to qualify for the § 103(a) exemption. If a registration-required obligation is issued in bearer, rather than registered, form, § 103(j)(1) provides that the interest is taxable. South Carolina asks leave to file a complaint against the Secretary of the Treasury, seeking injunctive and other relief on the ground that § 103(j)(1) is invalid as violative of the Tenth Amendment and the doctrine of intergovernmental tax immunity. The Secretary argues that the action is barred by the Anti-Injunction Act, which provides that

no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

Held: The motion for leave to file the complaint is granted.

JUSTICE BRENNAN delivered the opinion of the Court with respect to Parts I and II, concluding that the Anti-Injunction Act does not bar the action. Pp. 373-381.

(a) The Act’s purposes and the circumstances of its enactment indicate that it does not apply to actions brought by aggrieved parties, such as South Carolina, for whom Congress has not provided an alternative forum in which to litigate their claims. Here, if South Carolina issues bearer bonds, its bondholders, by virtue of § 103(j)(1), will be liable for the tax on the interest earned on those bonds. South Carolina will incur no tax liability. Under these circumstances, the State will be unable to utilize any statutory procedure to contest the constitutionality of § 103(j)(1). Pp. 373-380.

(b) The indicia of congressional intent also demonstrate that Congress did not intend the Anti-Injunction Act to apply where an aggrieved party would be required to depend on the mere possibility of persuading a third party to assert his claims. The nature of the remedy proposed by the Secretary that the State may obtain judicial review of its claims by issuing bearer bonds and urging a purchaser of those bonds to bring a suit contesting the legality of § 103(j)(1), only buttresses the conclusion that the Act was not intended to apply to this kind of action. Reliance on such proposed remedy would create the risk that the Act would entirely deprive the State of any opportunity to obtain review of its claims. Pp. 380-381.

JUSTICE BRENNAN, joined by CHIEF JUSTICE BURGER, JUSTICE WHITE, and JUSTICE MARSHALL, concluded in Part III that, since the manner in which a State may exercise its borrowing power is a question of vital importance to all States, it is appropriate for this Court to exercise its discretion in favor of hearing this case. But since the record is presently not sufficiently developed to permit the merits to be addressed, a Special Master will be appointed to develop the record. Pp. 381-382.

JUSTICE BLACKMUN concluded that, because the suit is not one "for the purpose of restraining the assessment or collection of any tax," the Anti-Injunction Act is no bar to South Carolina’s ability to bring the suit in another court. Nevertheless, because the issue presented is substantial and of concern to a number of States, and because prompt resolution of the issue in this Court will benefit all concerned, the grant of leave to file is a proper exercise of the Court’s discretion. P. 384.

JUSTICE O’CONNOR, joined by JUSTICE POWELL and JUSTICE REHNQUIST, concluded that, although great deference is due the congressional policy against premature judicial interference with federal taxes, it is proper to exercise this Court’s original jurisdiction where South Carolina has demonstrated injury of "serious magnitude" and that it has no adequate alternative forum in which to raise its unique claims. Pp. 400-402.

BRENNAN, J., announced the judgment of the Court and delivered the opinion of the Court with respect to Parts I and II, in which BURGER, C.J., and WHITE, MARSHALL, and STEVENS, JJ., joined, and an opinion with respect to Part III, in which BURGER, C.J., and WHITE and MARSHALL, JJ., joined. BLACKMUN, J., filed an opinion concurring in the judgment, post, p. 382. O’CONNOR, J., filed an opinion concurring in the judgment, in which POWELL and REHNQUIST, JJ., joined, post, p. 384. STEVENS, J., filed an opinion concurring in part and dissenting in part, post, p. 403.