Laws, Regulations & Annotations


Business Taxes Law Guide – Revision 2021

Sales And Use Tax Court Decisions

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Direct Marketing Ass'n, Inc. v. Bennett … (1990)

Federal Tax Injunction Act Does Not Bar Out-of-State Retailers from Challenging an Obligation to Collect Use Tax from Customers

Plaintiff was a trade association whose members engaged in direct mail advertising and marketing of products for sale. A majority of plaintiff's members were mail houses located outside California that accepted orders for products by mail or telephone for shipment to customers inside the state. The Board required many of plaintiff's out-of-state members selling products to California residents by use of credit cards issued by California financial institutions to register as retailers engaged in business pursuant to former section 6203(f). That former section deemed a person engaged in business inside California where, among other things, it made substantial and recurring solicitations for orders by mail and benefited from any banking or financing activities occurring inside the state. The federal district court dismissed the action on the basis that the Tax Injunction Act barred the proceedings in federal court.

The Court of Appeals reversed, holding that the Tax Injunction Act did not bar plaintiff from relief since it was not entitled to a "plain, speedy and efficient remedy" in a state court. The court found that plaintiff lacked a state remedy for two reasons. First, plaintiff could not make a claim for refund of tax since its customers, and not plaintiff, were liable for the use tax. Second, the court found that a remedy was not available because the Board had not yet issued a determination. The issuance of a determination was speculative and did not create certainty that a remedy would be available to plaintiff. Direct Marketing Ass'n, Inc. v. Bennett (9th Cir. 1990) 916 F.2d 1451.