Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 09 C 3585-Matthew F. Kennelly, Judge.
The opinion of the court was delivered by: Posner, Circuit Judge.
Before EASTERBROOK, Chief Judge, and BAUER, POSNER,
KANNE, WOOD, SYKES, TINDER, and HAMILTON, Circuit Judges.*fn1
The plaintiffs, four riverboat casinos operating in Illinois, brought this RICO suit against five Illinois racetracks, charging that the owner of two of the tracks, in cahoots with Illinois' then governor, Rod Blagojevich, had "bought" a pair of Illinois statutes harmful to the casinos. Enacted in 2006 and 2008 by large margins, these statutes, which are to remain in effect until the end of this year, require the casinos to deposit 3 percent of their revenues in a segregated state fund-the "Horse Racing Equity Trust Fund"-for disbursement to the racetracks within 10 days of receipt; the racetracks are directed to use the money to increase winners' and runner-ups' purses and improve the tracks. Ill. Pub. Act 94-804, effective May 26, 2006; Ill. Pub. Act 95-1008, effective Dec. 15, 2008.
The plaintiffs asked the district court to impose, as a remedy for the alleged violation of RICO, a constructive trust in their favor on the money received by the racetracks under these laws. The district judge issued a temporary restraining order that required that any money paid by the state fund be placed in an escrow account that the racetracks could not reach while the litigation was pending. Later the judge ruled that the Tax Injunction Act, 28 U.S.C. § 1341, barred equitable relief, of which the imposition of a constructive trust is a form. So he dissolved the temporary restraining order.
The casinos appealed. A panel of this court reinstated the temporary restraining order pending appeal (so the escrow remains in force and no money is being disbursed to the racetracks), and then reversed the district court (with one judge dissenting), holding that the Tax Injunction Act did not bar the casinos' quest for equitable relief in federal court. 638 F.3d 519 (7th Cir. 2011). We granted rehearing en banc to re-examine that holding. The merits of the suit were not before the panel and are not before us. Moreover, upon the grant of rehearing en banc, the panel opinion was vacated only with regard to appeal No. 09-3975; the part of the panel's opinion and order that relates to appeal No. 10-1019, which had been consolidated with No. 09-3975, was unaffected by the grant of rehearing en banc and is unaffected by the present opinion. And the temporary restraining order pending appeal remains in force.
The Tax Injunction Act forbids federal district courts to "enjoin, suspend or restrain the assessment, levy or collection of any tax under State law," provided that an adequate remedy is available in the state courts, 28 U.S.C. § 1341, and it is in this case. The Act thus does not limit any substantive rights to enjoin a state tax but requires only that they be enforced in a state court rather than a federal court. The requirement serves to minimize the frictions inherent in a federal system of government, and is considered so important that the duty of federal courts to cede litigation seeking to enjoin state tax statutes to the state courts (a duty of "comity"-that is, of respect for another sovereign) extends beyond the limits of the Tax Injunction Act. Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100, 110 (1981). The Act is just a "partial codification of the federal reluctance to interfere with state taxation." National Private Truck Council, Inc. v. Oklahoma Tax Comm'n, 515 U.S. 582, 590 (1995); see also Levin v. Commerce Energy, Inc., 130 S. Ct. 2323, 2331-33 (2010). The Supreme Court has told us to withhold decision even in situations to which the Act does not apply, though we won't have to take that step in this case.
Ex parte Young, 209 U.S. 123 (1908), had as a practical matter stripped away the states' sovereign immunity from equitable suits. So were it not for the Tax Injunction Act and the related doctrine of comity, " 'state tax administration might be thrown into disarray, and taxpayers might escape the ordinary procedural requirements imposed by state law. During the pendency of the federal suit the collection of revenue under the challenged law might be obstructed, with consequent damage to the State's budget, and perhaps a shift to the State of the risk of taxpayer insolvency.' " Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 527 (1981), quoting Perez v. Ledesma, 401 U.S. 82, 128 n. 17 (1971) (separate opinion); see also Hill v. Kemp, 478 F.3d 1236, 1246-47 (10th Cir. 2007). The Act is "first and foremost a vehicle to limit drastically federal district court jurisdiction to interfere with so important a local concern as the collection of taxes." Rosewell v. LaSalle Nat'l Bank, supra, 450 U.S. at 522. The reason for this drastic limitation is that "it is upon taxation that the several States chiefly rely to obtain the means to carry on their respective governments, and it is of the utmost importance to all of them that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public." Dows v. City of Chicago, 78 U.S. (11 Wall.) 108, 110 (1871).
Not that enjoining a particular tax, depending on what it is, is certain to "derange the operations of government." But a general lowering of standards under the Tax Injunction Act could result in state fiscal policy being nickeled and dimed to death by an avalanche of suits by disgruntled taxpayers. (When the suit is not by tax-payers, but by persons objecting just to how the money is being spent, as in Hibbs v. Winn, 542 U.S. 88 (2004), the danger of interference with state tax administration is diminished; Hibbs holds that such suits are outside the Act's scope.) The application of the Act should not turn on judges' guesses about the importance of a particular tax to the legitimate operations of state government. Even the plaintiffs acknowledge that the allegedly corrupt origin of the statutes they attack does not bear on whether the exactions that those statutes impose are taxes within the meaning of the Tax Injunction Act. The Act would be thwarted if a taxpayer could get a federal court to enjoin the collection of a state tax just by presenting evidence of corruption in the process by which the taxing statute had been enacted. This principle has been recognized in analogous contexts, see, e.g., City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 374-78 (1991) (state immunity from federal antitrust suits)-notably that of absolute immunity. Pierson v. Ray, 386 U.S. 547, 553-54 (1967).
We are mindful that the state is not a party to this suit. But the relief sought both is equitable and would thwart the tax as surely as an injunction against its collection. The taxpayers (the casinos) are seeking a constructive trust of the tax revenues, which if imposed would result in their recapturing the taxes they have paid. The tax would be nullified. (If the tax statutes were not shortly to expire, the casinos would be seeking an injunction as well.)
The Act's forum-selecting character argues compellingly for a crisp rule distinguishing taxes from other exactions by states, such as fees charged for services provided (or prices charged for the sale or lease of state property), transfers of damages awarded to a state to the persons on whose behalf the state had sued (cf. Trailer Marine Transport Corp. v. Rivera Vazquez, 977 F.2d 1, 5 (1st Cir. 1992) ("the accident-compensation statute is essentially a social welfare program and tort reform law to impose on motor vehicle owners as a class the cost of the accidents they cause and to assure compensation for accident victims") (emphasis added)), and fines. A crisp rule determining which court system has jurisdiction to decide a particular type of case is needful because until the proper forum for a lawsuit is determined, the case cannot proceed; and if at any time until the decision resolving the litigation becomes final by exhaustion of appellate remedies it is discovered that the court rendering the decision lacked jurisdiction, the suit must start over from scratch in the forum that has jurisdiction. A challenge to the constitutionality of the casino-tax statutes brought by the casinos in the Illinois state court system against public officials rather than the racetracks has already been decided (adversely to the casinos) by the Supreme Court of Illinois. Empress Casino Joliet Corp. v. Giannoulias, 896 N.E.2d 277 (2008). The casinos brought a second suit in the Illinois courts, making new allegations of corruption. While we federal judges are continuing to debate the proper venue of this case, the second state suit, too, has been decided on the merits, again adversely to the casinos. Empress Casino Joliet Corp. v. Giannoulias, 942 N.E.2d 783 (Ill. App. 2011), leave to appeal denied (Ill. S. Ct., No. 112003, May 25, 2011).
As the casino-tax litigation illustrates, "administrative simplicity is a major virtue in a jurisdictional statute . . . . Complex jurisdictional tests complicate a case, eating up time and money as the parties litigate, not the merits of their claims, but which court is the right court to decide those claims." Hertz Corp. v. Friend, 130 S. Ct. 1181, 1193 (2010). "Functional approaches to legal questions are often, perhaps generally, preferable to mechanical rules; but the preference is reversed when it comes to jurisdiction." Hoaglund ex rel. Midwest Transit, Inc. v. Sandberg, Phoenix & Von Gontard, P.C., 385 F.3d 737, 739 (7th Cir. 2004). And so "the more mechanical the application of a jurisdictional rule, the better. The chief and often the only virtue of a jurisdictional rule is clarity." In re Kilgus, 811 F.2d 1112, 1117 (7th Cir. 1987) (citations omitted); see also Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir. 2004).
Although a jurisdictional rule should be simple and clear, where possible-and this is possible in regard to the Tax Injunction Act-a number of decisions under the Act, including the panel majority opinion, have flirted with open-ended, multifactor tests-open-ended because the relative weights of the factors are left to judicial discretion. Among the factors either urged by the casino plaintiffs or mentioned in the cases are whether the legislature called the exaction a "tax" or something else (the Supreme Court of Illinois calls the casino exaction a "tax," but the plaintiffs insist that this is irrelevant-the legislature must use the word; it has not done so, instead calling the casino exaction a "condition of licensure"); whether the money generated by the exaction is deposited in a "lock box" type of trust fund (the only real kind, according to the plaintiffs, who call the Social Security Trust Funds a fraud); how quickly the money passes through the trust fund to the ultimate beneficiaries; the price elasticity of the taxed behavior; the amount of revenue collected by the exaction; whether that revenue is to be used for a traditional public purpose; whether the benefit that the fiscal program confers on the people of the state is direct or indirect; whether the exaction is designed to benefit one firm or a narrow group of firms (for example, race-tracks) by oppressing a competitor or competitors (for example, casinos); whether enjoining its collection would prevent the state from paying its bills or even threaten it with insolvency; whether the persons or firms subjected to the exaction are numerous or few, whether the beneficiaries of the exaction are numerous or few, and what the relative size of the two groups is; whether the amount of revenue from the exaction that is transferred to the intended beneficiaries is determined by the legislature or is allowed to rise and fall with the fluctuations in that revenue; whether the plaintiff avoids naming state officials as defendants; whether the exaction was based on the state's taxing power or on some other power, such as the police power (even though these are distinctions primarily relevant to the federal Constitution, which unlike state constitutions was designed, in order to protect state prerogatives, to be a constitution of limited, specified powers); and, as a kind of catchall, how much the exaction resembles what everyone would agree was a "tax," or as Wittgenstein might have wanted us to ask, how close a "family resemblance" the exaction bears to an exaction acknowledged by all to be a "tax." Is it a brother, or a third cousin?
The Supreme Court has not endorsed any multifactor test for applying the Tax Injunction Act, and such a test would be inappropriate quite apart from the need for clarity and simplicity in interpreting a forum-selection law. It is not a proper office of the federal courts to "reform" state fiscal policies by providing a federal forum for state taxpayers who object to the form or substance of laws designed to raise revenues for state purposes, whether purposes approved or disapproved by enlightened social thinkers. The wisdom of a tax on casinos to benefit racetracks is not a proper subject of inquiry by federal judges. "The federal balance is well served when the several States define and elaborate their own laws through their own courts and administrative processes and without undue interference from the Federal Judiciary. The States' interest in the integrity of their own processes is of particular moment respecting questions of state taxation." Arkansas v. Farm Credit Services of Central Arkansas, 520 U.S. 821, 826 (1997).
The only material distinction is between exactions designed to generate revenue-taxes, whatever the state calls them (for what is a "tax" for purposes of the Tax Injunction Act is a question of federal rather than state law, RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix Bond & Indemnity Co., 169 F.3d 448, 457 (7th Cir. 1999); Wright v. Riveland, 219 F.3d 905, 911 (9th Cir. 2000); American Landfill, Inc. v. Stark/Tuscarawas/Wayne Joint Solid Waste Management District, 166 F.3d 835, 837 (6th Cir. 1999))-and exactions designed either to punish (fines, in a broad sense) rather than to generate revenue (the hope being that the punishment will deter, though deterrence is never perfect and therefore fines generate some state revenues), or to compensate for a service that the state provides to the persons or firms on whom or on which the exaction falls (or, what is similar, to compensate the state for costs imposed on it by those persons or firms, other than costs of providing a service to them): in other words, a fee. "If the fee is a reasonable estimate of the cost imposed by the person required to pay the fee, then it is a user fee and is within the municipality's regulatory power. If it is calculated not just to recover a cost imposed on the municipality or its residents but to generate revenues that the municipality can use to offset unrelated costs or confer unrelated benefits, it is a tax, whatever its nominal designation." Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d 1388, 1399 (7th Cir. 1992).
For examples of exactions held to be fees, see Hager v. City of West Peoria, 84 F.3d 865, 870-71 (7th Cir. 1996) (fees for permits for use of certain streets by heavy trucks); Government Suppliers Consolidating Services, Inc. v. Bayh, 975 F.2d 1267, 1271 n. 2 (7th Cir. 1992) (registration fees for waste collection vehicles), and Trailer Marine Transport Corp. v. Rivera Vazquez, supra, 977 F.2d at 4-6 (annual fee imposed on owners of motor vehicles to fund compulsory accident compensation). For examples of nominal "fees" held to be taxes for purposes of the Act, see Hill v. Kemp, supra, 478 F.3d at 1243-46 (revenue from sale of specialty license plates greatly exceeded cost of the plates and the excess was earmarked for purposes, such as promotion of adoptions, tied to the legend on the plate); Folio v. City of Clarksburg, 134 F.3d 1211, 1217 (4th Cir. 1998) (city fee for fire protection); Wright v. McClain, 835 F.2d 143, 144-45 (6th Cir. 1987) (parolee's payments to a victim compensation fund); cf. Diginet, Inc. v. Western Union ATS, Inc., supra, 958 F.2d at 1399 ("franchise fee" ...