BOSTON (Legal Newsline) – Coors Brewing Company’s appeal of a ruling by the U.S. District Court of Puerto Rico was denied Friday by the U.S. Court of Appeals for the First Circuit.
Coors sued the Commonwealth of Puerto Rico asking for federal jurisdiction in a state tax case. The Colorado brewer filed suit against Puerto Rico because it taxes Coors at a higher rate since it is considered a “large brewer” for its beer tax schedule.
Coors brought suit in federal district court in 2006 against Puerto Rico’s Treasury Secretary, challenging differential treatment under the dormant Commerce Clause.
The district court originally dismissed the case on comity grounds. But in 2009,an appeals court reversed that decision based on the Hibbs 2004 Supreme Court case.
But the 2010 Supreme Court Levin case abrogated the 2009 Coors Brewing Co. decision. Puerto Rico moved the district court to dismiss the case based on Levin. The district court granted the motion. Coors appealed to the First Circuit.
Professor Ronald D. Rotunda, a law professor at Chapman University in Orange, Calif., said that the appeals court relied on a federal statute dating back to 1937.
This law stipulates 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.”
While Puerto Rico is not a state, he noted that another statute provides that “No suit for the purpose of restraining the assessment or collection of any tax imposed by the laws of Puerto Rico shall be maintained in the United States District Court for the District of Puerto Rico.”
The courts treat Puerto Rico as a “state” for these purposes. Therefore, general rule is that federal courts will not enjoin state taxes.
“Coors had an interesting position in this case,” said Prof. Rotunda, “arguing not that the federal court should enjoin the tax but that it should raise the tax of the competitor because the state tax is too low.
Coors was not seeking to reduce Puerto Rico’s tax revenue, but to increase it. But, if the federal court accepted jurisdiction, the net result would be the same, a state tax would be declared invalid. This is contrary to the federal statute.
According to Professor Rotunda, “The case does not uphold the Puerto Rican tax. It does not decide any issue on the merits. It simply rejects jurisdiction. Coors can file in the Puerto Rican courts, and make its same constitutional argument. However, Coors will not have access to the lower federal courts, and federal courts may be more sympathetic to federal rights.
“If it loses in the Puerto Rican courts, it can see review in the U.S. Supreme Court, but it is hard to get U.S. Supreme Court review, so procedurally, Coors is likely stuck in the Puerto Rican courts. Coors has suffered a substantial defeat on jurisdiction but not a defeat on the merits.”
The professor thinks the First Circuit case is a fair reading of U.S. Supreme Court cases limiting federal jurisdiction over state tax collection.
Coors has not indicated if it will return to the Puerto Rican courts.