The Third Circuit Court of Appeals upheld a District Court’s dismissal of a taxpayer’s challenge to New Jersey’s partnership filing fee under the tax comity doctrine. The partnership filing fee was enacted by New Jersey in 2002 to offset the costs of reviewing and auditing partnership tax returns. The fee is a flat fee computed based on the total number of partners in the partnership, $150 per partner up to a $250,000 maximum. The taxpayer sought to enjoin the fee alleging that the fee unfairly burdens companies with significant out-of-state operations in violation of the Commerce Clause.
New Jersey sought dismissal for two reasons: the Tax Injunction Act (TIA) and the doctrine of tax comity. The parties disputed whether the TIA applied, with New Jersey arguing that the fee was a “tax” for TIA purposes and the taxpayer arguing that the fee was a “fee” for TIA purposes and therefore outside the scope of the TIA. The District Court and the Third Circuit declined to resolve that question, ruling instead that the suit should be dismissed as a matter of comity under the Supreme Court’s decision in Levin v. Comm. Energy, Inc., 560 U.S. 413 (2010), because the fee was embodied in a “revenue affecting statute” involving matters of “state tax administration” and did not involve any fundamental right or classification that attracts heightened judicial scrutiny and because state courts were “better positioned” to craft a remedy in the event the fee were found to be unconstitutional.
Energy Transfer LP v. John Ficara et al., No. 22-3347 (3rd Cir. Not Reported 2024).