The Supreme Court unanimously reversed a federal appeals court decision in a case challenging Ohio’s taxation of independent marketers of natural gas, and said the case should be tried in state court.

In the case, Levin, Tax Commissioner of Ohio v. Commerce Energy Inc., et al, independent marketers offering to sell natural gas to Ohio consumers, sued the Ohio Tax Commissioner in federal court, alleging discriminatory taxation of independent marketers and their patrons in violation of the Commerce and Equal Protection Clauses. They sought to invalidate three tax exemptions that Ohio grants exclusively to the independent marketers’ competitors, the local public utilities.

A district court initially held that the lawsuit was not blocked by the Tax Injunction Act, which prohibits lower federal courts from restraining “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.”

Nevertheless, the court dismissed the suit based on the more embracive comity doctrine, which restrains federal courts from entertaining claims that risk disrupting state tax administration. The Sixth Circuit Court of Appeals agreed with the district court’s holding, but reversed the court’s comity ruling, and remanded the case back to the lower court for adjudication of the merits.

A footnote in an earlier case, Hibbs v. Winn, the Court of Appeals believed, foreclosed an expansive reading of the comity precedents. The footnote stated that the court “has relied upon ‘principles of comity’ to preclude original federal-court jurisdiction only when plaintiffs have sought district-court aid in order to arrest or countermand state tax collection.” The respondents in the case challenged only a few limited exemptions, the Sixth Circuit observed, and therefore their success on the merits would not significantly intrude upon Ohio’s administration of its tax system.

However, Justice Ruth Bader Ginsburg, writing for the high court, ruled, “Under the comity doctrine, a taxpayer’s complaint of allegedly discriminatory state taxation, even when framed as a request to increase a competitor’s tax burden, must proceed originally in state court.”

The Sixth Circuit had held that the comity principles barred federal courts only from hearing cases in which plaintiffs sought to reduce their taxes. But Ginsburg, joined by five other justices, held that the principles of comity prohibit federal courts from hearing complaints alleging discriminatory state taxation even when they are seeking an increase in a competitor’s tax burden.

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