Taxpayers: Where Do We Stand?

Posted by: Jared Ahern, Michael Aram, Sarah Arnold, Sean Aten, Matthew Barney, Brad Barton, and Lily Berman

no_standing_pageSuppose you find out that your hard earned tax dollars are being used to fund a government program that you fundamentally disagree with. Naturally, you would like to challenge this spending in court. The question is “can you?” While this would appear to be a very simple question to find the answer to, it is actually rather tricky. There are many different aspects that determine the answer to the question. Ultimately, the answer is a very hard “ummm…maybe?”

Let’s Meet Sally

Consider this scenario: a taxpayer has a problem with the way tax dollars are being spent. In other words, a taxpayer has a problem with their tax dollars going into a general fund that could be funding a specific program which taxpayer disagrees with. Imagine Sally has paid all of her taxes and learns of a state statute that allows tax dollars to fund every cat shelter run by the Catholic Church in her state. Sally, being a dog lover, as we know, finds this statute to be offensive to her dogmatic ideology and thinks that it violates the Establishment Clause of the U.S. constitution. Sally is concerned that the Catholic Church running these shelters will start converting the cats and wants to challenge this state spending. What can Sally do?

What is Standing?

Before we delve into Sally’s pawsible issue, we need to first understand what standing it. Standing is essentially the “skin in the game” that courts require a plaintiff to have in order to bring a suit. In order for someone (a plaintiff) to challenge the actions of another party, the court requires that a plaintiff actually has a connection to the issue at hand. Federal Court standing is limited by Article III, Section 2 of the U.S. Constitution. This limitation requires that the courts only decide on an actual case or controversy. The court requires that there be an actual controversy that the court can decide upon. Therefore the federal courts cannot issue advisory opinions (just an opinion, not a real outcome of a controversial case). Beyond constitutional limitations, the Supreme Court also limits standing in federal court by placing prudential limits (discretionary/self-imposed limits) on what cases the courts will hear. For example, the court often refuses to hear cases that deal with political questions in respect of the executive and legislative branches. The difference between prudential and constitutional limitations on the exercise of federal jurisdiction can be viewed as internal versus external constraints. While Article III of the constitution is an external constraint that the Supreme Court took an oath to abide by, prudential limitations are judicially self-imposed limits (discretion).

There are three things the federal courts look at to make a final decision about a party’s standing.

1. Injury-in-fact: The party must have suffered some type of real injury. An injury-in-fact is any invasion of a person’s rights. It has to have happened, or it has to be imminent and unavoidable. The injury can be economic (what we will focus on for this article) or non-economic.

2. Causation: There has to be some sort of causal connection between the injured party and the party that the claim is being brought against. The injury has to be able to be traced to the involved parties.

3. Redressable: The issue has to be able to be solved by a court. If the court has no avenue to find a solution, they cannot hear the case at all.

Lujan v Defenders of Wildlife is a good example of how these criteria are applied by courts. If a plaintiff meets all three of these requirements, then they have standing to challenge the other party in court.

While state courts are not bound by the Article III limitations or the prudential limitations that restrict the federal courts, many state courts have standing requirements that very closely resemble the federal standing requirements. One area where state standing and federal standing requirements do differ is on the issue of taxpayer standing.

Taxpayer Standing

Taxpayer standing is the idea that a person who is subject to taxes may under some circumstances have standing to challenge the legality of how their tax money is being collected or spent.

Limited Taxpayer Standing in Federal Courts

Federal courts have an overall anti-taxpayer standing rule; state and federal taxpayers generally do not have standing, on the basis of being taxpayers, to challenge the legality of statute that spends general tax funds. On the other hand, municipal taxpayers may have definite and specific enough claims to have standing to challenge municipal taxes.

Federal Taxpayers:

In 1921, the Supreme Court in Frothingham v. Mellon found that federal taxpayers generally do not have standing to challenge the legality of a federal spending act that is funded through general funds because the injury is not direct or specific enough to constitute to meet the federal standing requirements stated in the section above. The Court held that for a federal taxpayer to have standing he or she must be able to show, “not only that the statute is invalid, but that he has sustained or is immediately in danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers in some indefinite way in common with people generally.”

Municipal Taxpayers:

In Frothingham v. Mellon, the Court also recognized that municipal taxpayers can have standing to challenge the legality of municipal taxes in federal court. This is because the spending of municipal funds often directly and immediately affects the taxpayer and “a remedy by injunction to prevent their misuse is not inappropriate.”

Does this make sense? Is there a discernable difference between municipal expenditures, where an individual’s money makes up .0001% of the pot, compared to federal expenditures where an individual’s money makes up .000001%? Is this an arbitrary view of determining a “sufficiently particularized injury?”

State Taxpayers:

In 1952, the Supreme Court extended this anti-taxpayer rule to state taxpayer challenges in Doremus v. Board of Education. The six justice majority held Doremus’ state taxpayer status was not a sufficient basis for standing in federal court. They reasoned taxpayer status only affords a basis for standing when the taxpayer can show direct and particular financial interest in the illegal spending. Justices Douglas, Reed, and Burton dissented. They believed that Doremus, as a state taxpayer, did have a sufficient interest in the case to support standing to challenge the statute.

Flast Exception/ Establishment Clause Cases:

One potential exception to this overall anti-taxpayer standing doctrine in federal courts is Flast v. Cohen. In Flast v. Cohen the federal taxpayers claimed that federal legislation that financed the purchase of books for religious schools violated the Establishment Clause of the First Amendment. n an 8-1 decision, the Supreme Court found that Flast did have standing in federal court. The Flast court required two elements to be met in order for taxpayers to have standing when challenging a tax under the Establishment Clause. These elements are that (1) the taxpayer must clearly show a link that proves that their taxes are going to fund the challenged legislative enacted act, and (2) the taxpayer must show that their status as taxpayers is connected to the challenged portion of the constitution.The Supreme Court was careful to note, however, that cases involving taxpayer standing in connection with other similar constitutional issues should be decided on a case-by-case basis. Since the Flast exception, however, the court has continued to narrow this exception basically to the point that a case would have to have the exact same facts as the Flast case in order for the exception to be used. See: DiamlerChrysler Corp. v. Cuno (cannot be a violation under the Commerce Clause); Hein v. Freedom From Religion Foundation, Inc.; (must be a congressional action not an executive action) and Arizona Christian School Tuition Organization v. Winn (must be a tax expenditure not a tax credit).

Back to Sally

And now, back to Sally’s problem. Where we left off, Sally wanted to challenge a statute that allowed taxpayer dollars to fund cat shelters run by the Catholic Church. Sally is concerned that tax dollars are supporting the cats being converted to Catholicism and is challenging the state spending on the ground that it violates the Establishment Clause. Based on the Supreme Court decisions discussed above, because this kitty-favoring law is a state statute, based on it is unlikely that the in federal court will find that she has standing. She might have had a better chance if she was a municipal taxpayer challenging a municipal. Based on past cases, Sally’s action of paying into the taxpayer “pot” and not liking that this pot as being used to fund cat shelters will not be an injury in-fact. This is because this injury is one that she cannot definitively show is traceable to her. Sally may think her tax dollars are being used to fund these cat shelters, but she cannot trace where her specific tax dollars end up being spent. Additionally, this widely spread “injury” could be felt by every taxpayer in the state and thus could allow hundreds of thousands of lawsuits to be brought if this was considered an injury. Essentially, this opens the government up to every single decision about funding being challenged by a disgruntled taxpayer.

Again, this seems relatively straightforward but the real meat of the issue comes when governmental spending is challenged in state courts. So, let’s say that Sally decides to file this suit in state court. First, she would have to figure out what the standing requirements are for state taxpayer standing.

Taxpayer Standing in State Court

States differ on this. State courts are not Federal courts. While Federal courts judicial power arises from the United States Constitution, State courts judicial power generally arises from that particular State’s Constitution. It follows that State courts are not bound by the same standing and justiciability limitations grounded in Article III of the U.S. Constitution. For example, Federal courts have historically refused to issue “advisory opinions,” since the days of George Washington’s presidency, however some State Constitutions enumerate the power for State courts to issue such advisory opinions. Likewise, the general refusal to grant standing to federal and state taxpayer lawsuits does not apply to state courts. While state courts are not constrained by Article III requirements, most, but not all state courts do permit federal taxpayer actions.

Taxpayer standing requirements, whether permissive or strict, derive from different sources in different states. In some states, a specific textual provision of that State’s constitution may have been interpreted by their court system to authorize state taxpayer lawsuits. In others, it might be a civil procedure code, or a statute, or a mix of these. Virginia and New Hampshire are two examples of state courts that apply a strict, federal taxpayer standing approach. In Goldman v. Landsidle, the Supreme Court of Virginia adopted the Federal prohibition of taxpayer standing. In Baer v. N.H. Department of Education., the Supreme Court of New Hampshire rejected taxpayer standing and overruled prior decisions allowing such standing. While some states are an exception, generally speaking, state courts permit taxpayer lawsuits when the plaintiff has paid taxes, and the plaintiff challenges a government that theoretically affects his or her tax burden. The mainstream view is that state taxpayer standing doctrines are universally permissive, although one commentator noted that this view may “obscure the recent microtrend in a handful of states” of eliminating or narrowing these taxpayer standing doctrines. Whatever the trend may be, there is a definite disparity between federal and state taxpayer standing.

In Arizona for example, state taxpayer actions are influenced both by statute, and by common law. One example, of Arizona allowing taxpayers to challenge state spending on federal constitutional grounds was in Arizona Christian School Tuition Organization v. Winn, which allowed taxpayers to challenge a state tax credit program under the Establishment Clause of the First Amendment.

Arizona grants taxpayer standing through both state statute and constitutionally based standing. While Arizona’s rules on taxpayer standing are fairly confusing, in essence there are a variety of statutes that give taxpayers standing in a variety of circumstances. For example, §35-213 says that if a taxpayer submits a written request to the attorney general to challenge a state tax and the attorney general fails to act within 60 days, a taxpayer has standing to bring the suit in state court. Additionally, taxpayers can be granted standing under Arizona Constitution Art. 4 Pt. 2 § 17 if the legislation grants extra compensation to various public officers after their services or if a compensation of a justice of a peace is increased or diminished.

Sally Gets to Court

Let’s assume Sally lives in Arizona and under Arizona statute has standing to challenge the state’s spending. Sally brings her claim to the state district court. Sally is challenging the state’s cat shelter spending statute arguing that it is unconstitutional because it violates the Establishment Clause of the First Amendment of the U.S. Constitution, which protects against any law being made forcing citizens to support an establishment of religion (remember the cat shelters are run by the Catholic Church). Let’s assume Sally gets all the way to the Supreme Court of Arizona (Arizona’s highest court). This could be the end of Sally’s lawsuit or it could lend itself to one more court, the United States Supreme Court, depending on the outcome of the case:

The State Wins and Sally Loses

If the state wins, this is the end of the line for Sally according to the ruling in ASARCO v. Kadish. This is because Sally lacks standing under the Article III requirements to bring the suit to federal court, as we discussed above. The ASARCO decision provides that a party seeking review in the U.S. Supreme Court after losing an appeal in their state’s highest court must meet the Article III standing requirements. In this case, Sally lacks standing as we determined above and thus cannot appeal to the Supreme Court. This is the end of the road for our dear friend Sally.

Sally Wins and the State Loses

If Sally wins in the Arizona Supreme Court, however, the state of Arizona can appeal to the Supreme Court under ASARCO. Arizona has satisfied its Article III standing requirement because it received injury in-fact by being ruled against in the Arizona Supreme Court. It is worth noting that this is not just applicable to the state but to any of the parties that were being sued in order to challenge the spending. Additionally, the U.S. Supreme Court has made it significantly easier to find an injury in-fact for states after their ruling in Massachusetts v. EPA. Thus, if the state loses in the highest court, it does have Article III standing to have the decision reviewed by the U.S. Supreme Court.

Taxpayer Standing Flowchart

Is this Fair?

If you are thinking this doesn’t seem entirely fair, you are not alone. There are several reasons that the rules on taxpayer standing can give a person a feeling of uneasiness. First, think back to the beginning of our lawsuit with Sally. If Sally had lived in New Hampshire and not Arizona, even if the two states have the exact same statute that Sally was challenging, Sally could not have even brought the suit. This means that taxpayers in some but not all states are able to challenge state spending at all. Further, because Sally could never even bring the suit, this state spending statute would never even have the possibility to be reviewed by the U.S. Supreme Court even though an identical statute in Arizona could be reviewed. This brings up issues of uniformity and federal supremacy, the two things, according to Justice Story in Martin v. Hunter’s Lessee, that are the real functions of the U.S. Supreme Court.

Supremacy and Uniformity

This Constitution, and the Laws of the United States… shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby…” – Article 6, Clause 2 of the United States Constitution. Though the usage and interpretation of the Supremacy Clause has changed over the years, the original intent was to ensure that when any conflicts between State and Federal Law arose, the Federal Laws would be followed. One would think, based on the above Supremacy Clause, that the Federal Courts would want to protect their established precedent and so reserve for themselves the right to review decisions made of State courts concerning standing.

Typically, when the Supreme Court makes a ruling, they will require the States to follow that precedent. You can see this idea in action when you look at abortion, gay marriage, and even your Fourth Amendment Miranda rights. The Supreme Court has been clear about how to establish standing, specifically taxpayer standing, in federal courts through holdings found in Flast and Hein. However, the Court has consciously failed to enforce its rulings on taxpayer standing, despite the fact that taxpayer standing is intertwined with federal issues found in the Establishment Clause, Commerce Clause, and other constitutional interests. The ruling in ASARCO demonstrates how the Supreme Court is doing this. Basically, if a State loses a constitutional challenge from a taxpayer, the State can then appeal that decision to the Supreme Court. If a taxpayer loses their challenge on the constitutionality of a statute, they cannot appeal that decision to the Supreme Court. This allows states to determine the constitutionality of their tax laws on their own, without Federal Supremacy. What this leads to is variation in each State’s interpretation of the Constitution.

The reason that variation in State’s interpretations of the Constitution is harmful is because citizens who live in different jurisdictions have unequal opportunities to bring their claims to higher courts. American citizens may casually assume that the Constitution is applied to all citizens equally because it governs the country as a whole; however, this notion is not necessarily reality. Shocking, yet true, is the biting possibility that one citizen may be denied her day in court while another citizen, with the very same constitutionally based concerns, may confidently march into court with a blaze of glory.

To understand what is going on here lets change our example from before with Sally. Let’s assume Sally has filed a claim challenging the constitutionality of a State taxpayer statute. It goes up to the State Supreme Court and Sally wins. The State can now appeal the decision to the Supreme Court for review. In the majority of these cases, the Supreme Court will likely favor the State. If we change the facts just slightly and assume that Sally loses, she will now be barred from bringing her case to the Supreme Court of the United States. (see flow chart)

Federalism

Where the federal courts have failed to state how the constitution applies to the state governments, there is not a conflict between the federal law and the state law; therefore, the Supremacy Clause may not prevent the states from interpreting standing. Though the Supreme Court has limited itself on its ability to hear standing issues, it has not directly interpreted the constitutional standing issues when the state is a party. This allows the states to assert their sovereignty until further interpretation is provided from the Supreme Court. Leaving the states the power to interpret the Constitution may provide more balance between state governments and federal governments where the federal government inherently tends to aggregate powers. Furthermore, the variance between the states might be healthy for federalism as it allows citizens to simply move to states that hold a taxpayer standing standard that fits their individual needs. Where taxpayers remain unsatisfied with the state’s taxpayer standing laws, they have the democratic option to vote for representatives that will implement appropriate policies.

On the other hand, the variance between the states could render certain constitutional rights unworkable. Though the states may be the proverbial laboratories of justice, Justice Story, in Martin v. Hunter’s Lessee worried that “If there were no revising authority to control these jarring and discordant judgments” between the states, then the “constitution of the United States would be different in different states…” which would result in uneven construction and inefficacy of the Constitution. The Constitution offers interests to individuals and limits the federal government’s ability to encroach upon those interests. The Fourteenth Amendment extends those limitations upon the states. The United States Congress sits confidently on the notorious “Tax and Spending” clause to accumulate funds for government activities. But the issue arises when the congress decides to “tax” or “spend” in a way that offends an individual’s constitutionally protected interest. If the limitations of a government’s ability to tax and spending are not uniform, the extent of a an individual’s constitutional interests will be unknown. In a Constitutional Republic, an essential purpose of an individual right is to maintain equality under the law.

Ultimately one might argue that, on the taxpayer standing issue, that the current taxpayer standing holding in the Supreme Court are appropriate because a system that directs taxpayers to federal courts might overwhelm the judicial branch. Justice Southerland, in Commonwealth of Massachusetts v. Mellon, reasoned that taxpayer standing is generally inadequate in relation to injury because the taxpayer’s interest in “the moneys of the treasury—partly realized from taxation and partly from other sources—is shared with millions of others, is comparatively minute and indeterminable, and the effect upon future taxation, of any payment out of the funds, so remote, fluctuating and uncertain, that no basis is afforded for an appeal to the preventive powers of a court of equity.”

Taxpayer standing, as it is, may protect healthy federalism. Flast, Hein, and ASARCO may be conducive for federalism and because it cultivates separation of powers in the federal government. A government with three coequal branches likely functions more efficiently when they perform their specific responsibilities without intruding upon the each other. The congress traditionally addresses injury to the public. Meanwhile, an abiding principle of the Constitution, by way of the “Cases and Controversy” doctrine, is that the Court’s power is limited as it may “‘solely decide on the rights of individuals.’” Justice Sutherland convincingly argued that misappropriation, or unconstitutional management of government money, is “essentially a matter of public and not of individual concern.” If the Court were to go beyond protecting the rights of individuals by addressing the public’s injuries, the Court would be in danger of venturing beyond Cases and Controversies and abating fundamental “separation of powers” precepts which have served our culture with merit.

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Taxpayers: Where Do We Stand?