Ruling Allows Federal Courts To Examine State Taxes

by Mike Godfrey, Tax-News.com, Washington

16 June 2004

The US Supreme Court ruled on Monday that taxpayers may use the federal courts to challenge state tax law, a decision that could leave dozens of states facing future challenges to their tax rules.

The case was the result of a legal challenge by a group of Arizona taxpayers who sued the state in response to the granting of a tax break to residents who donate money towards private religious school education, which the plaintiffs considered an unconstitutional promotion of religion.

Justices ruled that federal courts can hear such challenges despite the existence of a 1937 law which establishes that they may not interfere with the "assessment, levy or collection” of state taxes.

"In decisions spanning a near half century, courts in the federal system, including this court, have entertained challenges to tax credits authorized by state law," wrote Justice Ruth Bader Ginsburg for the majority in the 5-4 panel vote, according to the Associated Press.

The four judges who voted against the decision however, argued that state courts are due “more respect than this”.

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