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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Court Decisions
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Jerron West, Inc. v. California State Board of Equalization … (1997)
The Federal Tax Injunction Act Requires Dismissal of Action to Prevent Assessment and Collection of Sales Tax
A corporation and its two shareholders were under investigation by the IRS Criminal Investigation Division when the Board issued an assessment for sales tax against the corporation. The corporation filed a petition for redetermination, requesting a hearing before the Board, but also requesting a stay of that hearing and all administrative proceedings until the criminal investigation was completed (the corporation's shareholders were later charged with federal crimes). The Board refused the request and set the hearing. Before that hearing, the corporation and the two shareholders filed a civil rights action for injunction and declaratory relief in federal district court. The district court held that the Tax Injunction Act (28 U.S.C. § 1341) deprived it of jurisdiction because there was an adequate state remedy. The Board thereafter held the hearing and issued a Notice of Redetermination.
The Court of Appeals held that the state provided an adequate remedy, and the hearing and administrative proceedings that plaintiffs sought to enjoin are an integral part of California's sales tax assessment and collection scheme. Thus, the court held that regardless of the basis for seeking the injunctive relief, the explicit language of the Tax Injunction Act divests jurisdiction from the US District Court. The court held further that the correct procedure is for plaintiff corporation to file a claim for refund before the Board and, if the criminal proceedings are still pending, again request the stay, raising its constitutional arguments. The court explained that if the Board declines to stay the action and denies the claim, plaintiffs would thereafter have an adequate remedy in state court. Jerron West, Inc. v. California State Board of Equalization (9th Cir. 1997) 129 F.3d 1334.