12‐4659‐cv Entergy Nuclear v. Shumlin
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term, 2013
(Argued: August 27, 2013 Decided: December 10, 2013)
Docket No. 12‐4659‐cv
ENTERGY NUCLEAR VERMONT YANKEE, LLC; ENTERGY NUCLEAR OPERATIONS, INC.,
Plaintiffs‐Appellants,
— v. —
PETER SHUMLIN, in his official capacity as Governor of the State of Vermont; WILLIAM SORRELL, in his official capacity as the Attorney General of the State of Vermont; MARY N. PETERSON, in her official capacity as the Commissioner of the Department of Taxes of the State of Vermont,
Defendants‐Appellees.*
B e f o r e:
NEWMAN, RAGGI, and LYNCH, Circuit Judges.
__________________
* The Clerk of Court is respectfully directed to amend the official caption in this case to conform with the caption above. Appeal from a judgment of the United States District Court for the District
of Vermont (Christina Reiss, Chief Judge) dismissing plaintiffs’ suit for lack of
subject matter jurisdiction. Plaintiffs own a nuclear power plant that is the sole
entity taxed under Vt. Stat. Ann. tit. 32, § 8661 (the “Generating Tax”), which
imposes a charge on electricity produced by every generating facility in the state
with a capacity of least 200,000 kilowatts. Plaintiffs brought suit against various
state officers in their official capacities, claiming that the Generating Tax is
unconstitutional under the Supremacy, Commerce, Equal Protection, and
Commerce Clauses of the United States Constitution, and seeking injunctive
relief. The district court dismissed for lack of subject matter jurisdiction under
the Tax Injunction Act, 28 U.S.C. § 1341 (the “TIA”), which prohibits federal
courts from interfering with state taxation schemes so long as the state courts
offer an adequate forum to litigate the validity of the tax. Plaintiffs principally
contend that the Generating Tax is not a “tax” for purposes of the TIA. We
conclude that it is, and that Vermont’s procedures offer an adequate opportunity
to challenge the constitutionality of the tax in state court. We therefore AFFIRM
the judgment of the district court.
CHARLES ALAN ROTHFELD, ESQ. (Hollis L. Hyans, Esq., Robert A. Salerno, Esq., on the brief), Morrison & Foerster LLP, Washington, D.C., for the Plaintiffs‐Appellants.
LAWRENCE S. ROBBINS (Mark T. Stancil, Joshua S. Bolian, on the brief), Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, Washington, D.C., for Jonathan T. Rose, Danforth Cardozo, III, Assistant Attorneys General, Office of the Attorney General, Montpelier, Vermont, for the Defendants‐Appellees.
GERARD E. LYNCH, Circuit Judge:
This case requires us to decide whether the Tax Injunction Act, 28 U.S.C.
§ 1341 (the “TIA”), denies the federal courts jurisdiction to review plaintiffs’
challenges to Vermont’s Electrical Energy Generating Tax, Vt. Stat. Ann. tit. 32,
§ 8661 (the “Generating Tax”). We conclude that the TIA applies to the
Generating Tax, and that Vermont provides a “plain, speedy and efficient”
mechanism for raising the plaintiffs’ objections to the validity of the tax. We
therefore affirm the district court’s dismissal of plaintiffs’ challenge to the tax for
lack of subject matter jurisdiction.
3 BACKGROUND
Plaintiffs Entergy Nuclear Vermont Yankee, LLC and Entergy Nuclear
Operations, Inc. (collectively “Entergy”) own and operate a nuclear power plant
(the “Plant”) in Vermont, which is the largest generator of electricity in the state.
Entergy purchased the Plant in 2001, and undertook expansions of the Plant’s
output and facilities in 2003 and 2005. In exchange for Vermont’s regulatory
approval of these modifications, Entergy entered various Memoranda of
Understanding (the “MOUs”) with the state, agreeing to make certain payments
into designated state funds serving specific policy purposes. In the context of a
broader dispute regarding Vermont’s refusal to extend regulatory approval for
the Plant’s continuing operation, Entergy ceased making payments under the
MOUs in March 2012.
In May 2012, following a January 2012 district court decision denying
Vermont’s attempt to shut down the Plant, the Vermont state legislature
amended Vt. Stat. Ann. tit. 32, § 8661 to impose a Generating Tax of $0.0025 per
kilowatt‐hour on electricity produced by plants which have a “name plate
generating capacity of 200,000 kilowatts, or more.” The Plant is the only facility
in Vermont with this characteristic, and thus Entergy is the only entity affected
by the Generating Tax.
4 On September 11, 2012, Entergy brought suit in the United States District
Court for the District of Vermont (Christina Reiss, Chief Judge) against Vermont
governor Peter Shumlin, Vermont attorney general William Sorrell, and Vermont
tax commissioner Mary N. Peterson in their respective official capacities
(collectively “Vermont”), seeking a declaratory judgment that the Generating Tax
is unconstitutional under the Supremacy, Commerce, Equal Protection, and
Contract Clauses of the United States Constitution, and requesting injunctive
relief to prevent its enforcement. Vermont moved to dismiss for lack of subject
matter jurisdiction under the TIA. Concluding that the Generating Tax satisfies
the requirements of the TIA, the district court granted Vermont’s motion to
dismiss on October 26, 2012. Entergy timely appealed.
DISCUSSION
The TIA prohibits federal courts from interfering with state collection of
taxes so long as the state courts offer a “plain, speedy and efficient remedy” for
relief from the tax. 28 U.S.C. § 1341. To determine whether the TIA strips the
district court of jurisdiction over Entergy’s lawsuit, we must decide whether the
Generating Tax is a tax for the purposes of the TIA, and whether Vermont offers
adequate procedures for challenging its validity in the Vermont state courts.
5 I. The Generating Tax is a Tax.
This Circuit’s leading case on whether a state assessment qualifies as a tax
for the purposes of the TIA is Travelers Insurance Co. v. Cuomo, 14 F.3d 708 (2d
Cir. 1993), rev’d on other grounds, New York State Conference of Blue Cross &
Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645 (1995).1 Under
Travelers, the principal identifying characteristic of a tax, as opposed to some
other form of state‐imposed financial obligation, is whether the imposition
“serve[s] general revenue‐raising purposes.” 14 F.3d at 713. Whether a measure
serves “general revenue‐raising purposes” in turn depends on the disposition of
the funds raised. If the proceeds are deposited into the state’s general fund
(rather than directly allocated to the agency that administers the collection, for
the purpose of providing a narrow benefit to or offsetting costs for the agency),
the imposition will generally be seen as serving the general benefit of the state,
and thus as a tax. Id. at 713‐14.
1 Although Travelers was reversed on other grounds by the Supreme Court, we have recognized that it continues to control application of the TIA in this Circuit. See Hattem v. Schwarzenegger, 449 F.3d 423, 427 n. 3 (2d Cir. 2006) (“In overruling Cuomo, the Supreme Court made clear in Travelers that it was not disturbing our holding regarding the TIA.”).
6 Under this test, the Generating Tax easily qualifies as a tax for the purposes
of the TIA. The text of the statute imposing the tax, Vt. Stat. Ann. tit. 32, § 8661,
classifies the assessment as a “tax” and directs that it be paid to the
Commissioner of the Department of Taxes; a further Vermont statute explicitly
directs the proceeds of the Generating Tax into the state general fund. Vt. Stat.
Ann. tit. 32, § 435(b)(3). Nothing in the statute reserves the proceeds of the
Generating Tax for any particular purpose.
Entergy’s arguments that the Generating Tax ought to be treated as a
punitive fine or regulatory fee are unpersuasive. Entergy argues that the
legislative history of the Generating Tax reveals that its purpose is to substitute
for the payments formerly received pursuant to the MOUs, the proceeds of which
were designated to special‐purpose funds. However, even if this narrative
accurately identifies the termination of the MOUs as the impetus for imposition
of the Generating Tax, that does not bear on our analysis. The Travelers test
directs us to the allocation of the proceeds from the Generating Tax – to general
state revenues as opposed to special‐purpose funds – and not to the allocation of
prior, repealed or terminated revenue‐raising devices. It is the actual
characteristics of the questioned revenue measure, not posited legislative intent
7 or general political context, that determine its status under the TIA. The
characteristics of the Generating Tax with respect to the allocation of its proceeds
are unambiguous.
Entergy attempts to inject ambiguity by noting that during the same
session in which it enacted the Generating Tax, the legislature appropriated
certain funds to various particular purposes that had previously been the
beneficiaries of payments under the MOUs. These appropriations, however,
were made from the general treasury. 2011 Vt. Acts & Resolves No. 162 §
D.108(a)(2). Nothing in the appropriations bill ties the amount of the
appropriations to the proceeds collected from the Generating Tax, or otherwise
links the appropriations to that tax. The appropriations bill in question also
made other unrelated expenditures. See id. §§ D.108(a)(1), D.108(a)(3). Nor does
the Generating Tax itself suggest such a specific flow of revenues or other unique
relationship. Cf. GenOn Mid‐Atlantic, LLC v. Montgomery County, 650 F.3d
1021, 1022 (4th Cir. 2011) (holding a levy on carbon dioxide emitters not a tax
under the TIA where “50% [of revenues were] earmarked for funding greenhouse
gas reduction programs”). Under these circumstances, as the First Circuit has
held in a similar case, “there is neither any precedent nor any plausible
8 jurisprudential basis for analyzing separate tax and subsidy statutes as an
integrated unit under the [TIA].” Cumberland Farms, Inc. v. Tax Assessor, 116
F.3d 943, 947 (1st Cir. 1997).
Entergy also argues that the district court erred in relying on our treatment
in Travelers of the allocation of the revenues generated by a measure as the
primary determinant of its status as a tax, suggesting that the court should have
instead applied the three‐factor test announced by then‐Chief Judge Breyer for
the First Circuit in San Juan Cellular Telephone Co. v. Public Service
Commission, 967 F.2d 683 (1st Cir. 1992). But Entergy’s effort to drive a wedge
between our standard and that of the First Circuit is unavailing. We need not
decide here whether the additional factors cited in San Juan Cellular – the nature
of the entity imposing the tax and the population subject to it, id. at 685 – could in
some circumstances be useful, or even determinative, in distinguishing a tax
from, say, a user fee or special purpose assessment. On the facts of this case,
consideration of those factors only reinforces the conclusion reached by the
district court under Travelers.
At the outset, we emphasize that the Travelers court did not see itself as
rejecting or distinguishing the First Circuit’s position in San Juan Cellular. To the
9 contrary, in Travelers we quoted San Juan Cellular with approval, noting that
“courts ‘have tended . . . to emphasize the revenue’s ultimate use, asking whether
it provides a general benefit to the public, of a sort often financed by a general
tax, or whether it provides more narrow benefits to regulated companies or
defrays the agency’s costs of regulation.’” Travelers, 14 F.3d at 713, quoting San
Juan Cellular, 967 F.2d at 685. Other courts applying the San Juan Cellular
factors, including the First Circuit itself, have similarly followed that language,
and concluded that whether the purported tax is directed to general public
purposes is “the most salient factor in the decisional mix.” Cumberland Farms,
116 F.3d at 947; see also Collins Holding Corp. v. Jasper County., 123 F.3d 797,
800 (4th Cir. 1997) (observing that “the purpose and ultimate use of the
assessment” is “the heart of the inquiry”).
As will generally be the case, the other San Juan Cellular factors either
reinforce the conclusion drawn from the allocation of the revenue, or are of little
significance. The first of these additional factors, the nature of the entity
imposing the charge, cuts strongly in favor of classifying the Generating Tax as a
tax. Unlike many tolls, user fees, special assessments and other similar measures,
the Generating Tax is imposed by the state legislature, and collected by the state’s
10 Department of Taxes; it is not imposed by a limited‐purpose governmental
authority. Here, as in most cases, this factor is closely linked to the ultimate
destination of the revenue in the state’s treasury, rather than in some special fund
for the maintenance of the facility to which the user fee is attached.
Entergy argues that the remaining factor cited in San Juan Cellular, the
population subject to the charge, cuts against a finding that the Generating Tax is
indeed a tax, since the Plant is the only facility in the state that generates enough
electric power to be required to pay the tax. In support of this claim Entergy cites
the Fourth Circuit’s skepticism as to whether an assessment falling on a single
entity qualifies as a tax. See GenOn, 650 F.3d at 1024. But Entergy’s treatment of
this factor is too simplistic. While certain non‐tax user fees and assessments may
well fall on a limited population of payers, such fees are usually assessed upon
those who ultimately benefit from the very governmental service for which the
assessment is earmarked. See, e.g., Gov. Suppliers Consol. Serv. v. Bayh, 975 F.2d
1267, 1271 n. 2 (7th Cir. 1992) (finding a regulatory fee rather than a tax where the
“fees are used to implement the . . . regulatory system to which registrants [who
pay the fee] are subject”). Many revenue measures that are indisputably taxes,
however, fall on a limited portion of the population. A tax on casino revenue, for
11 example, where the proceeds go to general revenues, is no less a tax because the
state has licensed only one casino. Graduated income taxes, or, as in this case,
taxes imposed only on entities of a particular size, will often fall only on a limited
population, but are nevertheless clearly taxes. The category of persons or entities
subject to such taxes is defined by general and open‐ended criteria, even if only a
few entities, or one entity alone, are subject to the tax. Assuming that this factor
is appropriately considered, and even assuming that on the facts of this case it
cuts against considering the Generating Tax as subject to the TIA, we conclude
that it counts for too little to weigh against the strength of the other factors, and
especially the principal criterion of the designation of the revenue to the general
treasury. Weighing all of the San Juan Cellular factors thus makes no difference
to the outcome: the Generating Tax is a tax for purposes of the TIA.2
2 To the extent Entergy argues that the Generating Tax is not a tax because its enactment was the product of local hostility towards the Plant, that argument – which relies on a factor found in neither Travelers nor San Juan Cellular – is unavailing. Assuming arguendo that Entergy is correct about the motivation for the tax, and assuming further that the motivation might bear in some way on the merits of one or more of Entergy’s constitutional arguments against the tax (and expressing or implying no opinion on either of those propositions), the argument has no bearing on whether the Generating Tax is a tax within the meaning of the TIA. “Sin taxes” levied on conduct or products the state seeks to discourage, and taxes imposed on industries believed to impose unusual costs on the state or its residents are common, and are unquestionably taxes. See Empress Casino Joliet
12 II. Vermont Provides a Plain, Speedy and Efficient Forum for Challenging the Tax.
That the Generating Tax is a “tax” within the meaning of the TIA does not
in itself defeat the district court’s jurisdiction. The TIA only denies the federal
courts power to “enjoin, suspend or restrain” state taxes “where a plain, speedy,
and efficient remedy may be had in the [state] courts.” 28 U.S.C. § 1341. Such a
remedy exists where the available state‐court procedures satisfy certain “minimal
procedural criteria,” including a “full hearing and judicial determination at
which [a taxpayer] may raise any and all constitutional objections to the tax.”
Rosewell v. LaSalle Nat. Bank, 450 U.S. 503, 512, 514 (1981) (internal quotation
marks and emphasis omitted). The availability of typical “state administrative
and judicial procedures” through which a party can ultimately challenge the
validity of the tax in court satisfies these criteria. California v. Grace Brethren
Church, 457 U.S. 393, 412 (1982) (observing commonplace state refund
procedures that provide for judicial appeal after exhaustion of administrative
Corp. v. Balmoral Racing Club, Inc., 651 F.3d 722, 730 (7th Cir. 2011) (“‘[S]in taxes’ are real taxes . . . We mustn’t write transfer payments and behavior‐ shaping taxes out of the Tax Injunction Act just because it is easier with such taxes to identify winners and losers. The Act would have a very limited reach if we did that.”).
13 remedies satisfy the remedy requirement of the TIA). The condition that lifts the
bar to federal jurisdiction is “uncertainty” that the remedy offers the opportunity
to seek adequate relief. Rosewell, 450 U.S. at 517. The requirement that the
remedy be “plain, speedy and efficient” does not, however, suggest that the
remedy must possess any unique attributes that facilitate or accelerate the
process of challenging a tax. Id. at 516‐517. The Supreme Court has furthermore
indicated that the remedial exception to the TIA should be “construe[d]
narrowly” to respect the basic purpose of the TIA – preventing the federal
judiciary from interfering with the state collection of revenues. Grace Brethren
Church, 457 U.S. at 413.
The statutory framework into which the Generating Tax is woven offers
“plain, speedy and efficient” access to the state courts such that the TIA remedy
requirement is satisfied. The statute imposing the tax states that “[a] person . . .
failing to make returns or pay the tax imposed by this section within the time
required shall be subject to and governed by the provisions of section[] . . . 3203
of this title.ʺ Vt. Stat. Ann. tit. 32, § 8661(b). Section 3203 sets out the procedures
by which the Vermont state commissioner notifies taxpayers of deficiencies in
payment. Challenges to these deficiency notices are permitted by Vt. Stat. Ann.
14 tit. 32, § 5883, which states that upon receipt of a notice of deficiency under §
3203, a taxpayer may “petition the Commissioner in writing for a determination
of that deficiency . . . [and t]he Commissioner shall thereafter grant a hearing
upon the matter.” Judicial review of the commissioner’s determination at a §
5883 hearing is, in turn, provided for by Vt. Stat. Ann. tit. 32, § 5885(b).3 The
Vermont statutory framework thus articulates precisely the type of
administrative and judicial review that has been deemed adequate under the
TIA.
Entergy argues that because §§ 5883 and 5885 permit an appeal of
“determinations” of the commissioner, and the commissioner lacks the power to
address the statutes’ constitutionality, Vermont’s judicial review procedure does
not grant taxpayers the opportunity to raise constitutional challenges. This
argument lacks merit. We have previously had occasion to observe that while
“state administrative agencies in Vermont are generally not empowered to
consider constitutional challenges to state statutes,” Vermont case law establishes
3 Section 5885(b) provides that “any aggrieved taxpayer may . . . after a determination by the commissioner concerning a notice of deficiency . . . appeal that determination to the Washington superior court or [the local Vermont state superior court].”
15 that “the courts of Vermont are empowered to decide constitutional questions,
even when reviewing determinations by administrative agencies that lack such
power.” Murray v. McDonald, 157 F.3d 147, 148 (2d Cir. 1998) (per curiam).
Indeed, the Vermont Supreme Court has adjudicated such questions, see, e.g., In
re Williams, 166 Vt. 21 (1996), and has held that even though the commissioner is
not empowered to hear constitutional claims, aggrieved taxpayers should still
exhaust available administrative remedies before raising constitutional claims
before the courts. Stone v. Errecart, 165 Vt. 1, 4 (1996). Thus, we are confident
that the Vermont courts have jurisdiction to hear the full array of Entergy’s
grievances against the tax, constitutional or otherwise, provided that
administrative avenues (which may have more limited jurisdiction) are
exhausted first,4 and that Entergy’s purported concern that it would not be able
to raise constitutional claims before the Vermont courts is baseless.5
4 Indeed, this Circuit has specifically noted that the precedent, Barringer v. Griffes, 964 F.2d 1278, 1283‐1284 (2d Cir. 1992), upon which Entergy primarily relies to argue the Vermont state courts might lack the power to hear constitutional questions where the initial administrative reviewer cannot hear them has been superseded by Vermont decisions adjudicating such questions. Murray, 157 F.3d at 147‐48. 5 Because the procedures available to challenge the Generating Tax through a tax determination appeal create the type of “plain, speedy and efficient” access to
16 CONCLUSION
Because the Generating Tax is a tax within the meaning of the TIA, and
Vermont provides an adequate state court forum for Entergy’s challenges to the
validity of that tax, the TIA deprives the federal courts of jurisdiction to consider
those challenges. The judgment of the district court dismissing Entergy’s
complaint for lack of jurisdiction is accordingly AFFIRMED.
judicial review that satisfies the remedy requirement of the TIA, we need not decide whether the alternative remedies Vermont argues are also available (tax refund appeals and declaratory relief) satisfy the remedy requirement.