Option II for the Commonwealth: Unexpected Orders in the Fourth Circuit challenges to the individual mandate still bad, but not as awful as originally thought

On Monday May 23, 2011 the Fourth Circuit issued two identical orders in Commonwealth v. Sebelius and Liberty U. v. Geithner requiring additional briefing on the issue of the Anti Injunction Act [AIA].   On May 24, I explained why this is not the worst news for the Commonwealth of Virginia.  Below is an alternate explanation as to why the Anti-Injunction Act [AIA] does not apply, and Monday’s orders are of less concern for the Commonwealth of Virginia’s case.

The Commonwealth of Virginia is also likely exempted from the AIA under the specific language of the AIA.  The AIA only enjoins lawsuits against the collection of a tax by a person under 26 U.S.C. § 7421.  A person is defined under 26 U.S.C. § 7701(1)(a) as follows:

"The term “person” shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation."

In a 1934 case analyzing a different taxation statute it was determined that the Commonwealth of Pennsylvania was a person under a statute that said “the word 'person' is to be construed as meaning and including a partnership, association, company, or corporation, as well as a natural person.”  Pennsylvania, ex. rel. Schnader v. Fix, 9 F. Supp. 272, 276 (M. D. Pa. 1934).  On appeal, the Third Circuit in an indirect way stated the AIA applied to Pennsylvania as “the state had adequate remedy at law, viz., paying the contested taxes and bringing suit for the recovery of the same because allegedly illegally assessed . . .”  79 F.2d 520 (3d Cir. 1935).

The facts of that case are different than in Commonwealth v. Sebelius as Pennsylvania was trying to enjoin the enforcement of a federal tax on the state sale of alcohol, and Pennsylvania was actively engaging in the sale of alcohol.  In 2011 Virginia is not making the decision to forego the purchase of health insurance, the activity the Fourth Circuit is implying might be considered a taxable act. 

Ultimately, A state (or in this instance Commonwealth) is not a legal person under the AIA.  This issue does not appear to have been addressed in South Carolina v. Regan (keeping in mind that was 27 years ago).  As South Carolina v. Regan is the seminal case on this issue I doubt the definitions argument has ever been litigated. 

Click here. for my previous posts regarding the individual mandate.