Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 83-Ronald A. Guzman, Judge.
The opinion of the court was delivered by: Kanne, Circuit Judge.
Before RIPPLE, KANNE, and SYKES, Circuit Judges.
Michael and Victoria Kathrein sued the City of Evanston, Illinois, and various officials ("Evanston"), pursuant to 42 U.S.C. § 1983, claiming Evanston's Affordable Housing Demolition Tax ("Demolition Tax") violates the Fifth and Fourteenth Amendments of the United States Constitution, the Illinois Constitution, and other Illinois law (Counts II-VII). They also claimed that the Tax Injunction Act, 26 U.S.C. § 7421(a) ("TIA"), violates Article V of the United States Constitution (Count I). Upon Evanston's motion, the district court dismissed for lack of subject matter jurisdiction. Because the Kathreins have standing and the TIA does not bar their challenges to the Demolition Tax, we reverse as to Counts II through VII. Because the Kathreins do not have standing to challenge the TIA, we affirm as to Count I.
Evanston's Demolition Tax is part of an ordinance scheme designed to keep high-quality, affordable housing in Evanston. When applying for a permit to demolish a residential building, the property owner must pay a Demolition Tax of $10,000 per building or $3,000 per residential unit to be demolished, whichever is greater. The Demolition Tax raised $90,000 in each of Evanston's Fiscal Years 2006-07 and 2007-08. The proceeds of the Demolition Tax go to the city's Affordable Housing Fund, which helps low- and moderate-income residents find and keep affordable housing in Evanston.
The Demolition Tax does not apply to every demolition of a residential building. An exemption applies whenever the owner replaces the demolished structure with affordable housing or forms an agreement with the city to provide affordable housing by some other means. Another exemption applies when the property owner has lived in the building or unit for three years prior to demolition and will live for three years in the replacement building. Finally, the Demolition Tax does not apply to any demolition ordered by the city or by an appropriate city official.
The Kathreins own property located at 1925 Jackson Avenue in Evanston. A single-family house is on the land. In fall 2007, the Kathreins agreed to sell the property to Eitan Ouzan, a real estate investor and developer, for $225,000. Shortly after agreeing to buy, Ouzan learned of Evanston's Demolition Tax. He demanded the sale price be reduced to offset the Demolition Tax. When the Kathreins refused, Ouzan refused to buy. The Kathreins now have no plan to sell the property or to demolish the house.
The Kathreins filed suit in federal district court, challenging the Demolition Tax under various constitutional theories. Evanston argued that the TIA divested the district court from considering these claims, so the Kathreins amended their complaint to include a claim challenging the constitutionality of the TIA. The district court granted Evanston's motion to dismiss, concluding that the TIA divested the court of jurisdiction and that the Kathreins did not have standing to challenge the TIA or the Demolition Tax. The Kathreins appealed. We appointed amicus curiae to provide briefing and argument on the Kathreins' behalf.
We review de novo the district court's conclusion that the TIA divests it of jurisdiction over the Kathreins' claims. Hager v. City of West Peoria, 84 F.3d 865, 868-69 (7th Cir. 1996). We also review de novo the district court's dismissal for lack of standing. Arreola v. Godinez, 546 F.3d 788, 794 (7th Cir. 2008). But we review for clear error any factual findings upon which the court based its standing decision. Id.
A. The Tax Injunction Act
The TIA provides that federal district courts "shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. The TIA applies to any claim in federal district court seeking declaratory or injunctive relief from state or municipal taxes, even when the claim challenges the ...