Islamic Center of Nashville v. State of Tenn.
872 F.3d 377, 2017 WL 4159484, 2017 FED App. 0220P (2017)
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Rule of Law:
The Tax Injunction Act bars federal courts from enjoining, suspending, or restraining the assessment or collection of a state tax, including through declaratory judgments, where the state provides a plain, speedy, and efficient remedy in its own courts, and this jurisdictional bar applies even to challenges based on the First Amendment.
Facts:
- The Islamic Center of Nashville (ICN), a tax-exempt religious nonprofit, needed to finance the construction of a new school building.
- To comply with Islamic law's prohibition on paying interest, ICN entered into an 'ijara' financing agreement in August 2008.
- Under the 'ijara' agreement, ICN formally transferred legal title of its property to a bank and then leased the property back.
- From August 2008 to October 2013, the bank held legal title to the property, although ICN continuously occupied and used it for religious and educational purposes.
- Due to the transfer of legal title to the non-exempt bank, the county tax assessor put the property back on the tax rolls and assessed property taxes against it for the period the bank held the title.
- In October 2013, ICN completed its payments, and the bank transferred the unencumbered title back to ICN.
- ICN then applied for a retroactive property tax exemption for the 2008-2013 period, which state authorities denied.
Procedural Posture:
- ICN's application for a retroactive tax exemption was denied by the Tennessee State Board of Equalization's designee.
- ICN appealed to a Tennessee Administrative Law Judge (ALJ), who heard the case and upheld the tax assessment in February 2015.
- ICN then appealed the ALJ's decision to the State Board's Assessment Appeals Commission, which affirmed the ALJ's ruling in May 2016.
- Instead of seeking judicial review in the Tennessee Chancery Court as provided by statute, ICN filed a new lawsuit in the U.S. District Court for the Middle District of Tennessee in September 2016.
- The state defendants moved to dismiss for lack of subject-matter jurisdiction, citing the Tax Injunction Act.
- The district court granted the motion to dismiss in December 2016.
- ICN, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Sixth Circuit.
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Issue:
Does the Tax Injunction Act bar a federal district court from exercising subject-matter jurisdiction over a religious nonprofit's constitutional challenge to a state property tax assessment when the state provides a clear statutory avenue for judicial review in its own courts?
Opinions:
Majority - Moore, J.
Yes. The Tax Injunction Act (TIA) bars federal court jurisdiction over this challenge to a state tax assessment because Tennessee provides a plain, speedy, and efficient remedy in its state courts. The TIA prohibits federal courts from enjoining, suspending, or restraining the assessment of state taxes. This prohibition extends to declaratory judgments and applies even when the challenge is based on constitutional grounds, such as the First Amendment. ICN's suit, which seeks to invalidate the assessment of a tax, falls squarely within the TIA's scope. The exception for suits where no 'plain, speedy and efficient remedy' exists in state court does not apply here, as Tennessee law explicitly provides for judicial review of tax assessments in its chancery courts. ICN's failure to pursue this available state remedy requires the dismissal of its federal lawsuit for lack of jurisdiction.
Analysis:
This decision reinforces the high jurisdictional barrier established by the Tax Injunction Act, emphasizing federal courts' deference to state tax administration. It clarifies that litigants cannot bypass the TIA by framing their claims as seeking only prospective declaratory or injunctive relief if the practical effect is to nullify a tax assessment. The court's distinction of Hibbs v. Winn confirms that the TIA's jurisdictional bar is at its strongest when taxpayers challenge their own tax liability, as opposed to third parties challenging tax credits given to others. This ruling serves as a strong reminder to practitioners that challenges to the validity of state taxes, even on federal constitutional grounds, must almost invariably be litigated within the state court system first.
