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Beach Creek Marina v. Royal Tax Lien Services, LLC

2010 WL 2674457 (U.S. Dist. Ct. D. N.J. 2010) (Unpublished)

TAXATION; APPEALS — The Federal Tax Injunction Act prohibits federal courts from interfering in the administration of a state tax system and, as a result, a federal court cannot entertain an equitable or legal challenge to state or local taxes if a sufficient remedy is available in state court.

After a municipality-wide revaluation, a commercial property owner’s taxes were increased from $39,000 to $103,000. This was based upon an outside appraisal that raised the assessed value from $1,526,200 in the prior tax year to $14,612,900 in the current year. The owner filed suit, seeking to stop the municipality from acting against the property. The lower court initially entered temporary restraints prohibiting a tax sale; however it later lifted the restraints and transferred remaining issues to the Tax Court. A week later, the municipality conducted a tax sale and a tax lien was sold. In the Tax Court, the owner filed a complaint appealing the new assessment. The Tax Court dismissed the complaint as untimely. The Appellate Division affirmed, finding the owner had actual notice of its tax obligation and had failed to file for relief in the Tax Court before the proper date.

Within weeks of the opinion from the Appellate Division, the owner sued the municipality, appraiser, and tax lienholder in the United States District Court seeking relief from the expected foreclosure by the purchaser of the tax lien certificate who had paid the outstanding taxes. The defendants, relying on the federal Tax Injunction Act (TIA), asserted that the issues implicated the New Jersey State Tax system and its remedies, thereby depriving the federal court of subject matter jurisdiction. The District Court agreed, and dismissed the complaint against all parties.

The Court held that the TIA prohibits federal courts from interfering in the administration of state tax systems. The court cited a New Jersey Supreme Court’s holding that state remedial procedures for challenging property tax assessments were adequate to invoke the TIA. The Court ruled that the property owner already had pursued its state remedies, and that a federal court could not interfere even where a party fails to take advantage of the state remedies by missing deadlines. The Court remarked that the TIA makes clear that a federal court cannot entertain an equitable or legal challenge to state or local taxes if a sufficient remedy is available in state court. Here, the Court agreed that this federal law suit was no more than an untimely and misplaced tax appeal that should have been timely filed against the taxing authority in a state forum.


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