Maintaining Class Actions in Tax Cases: Why Have Federal Litigants Been so Much Less Successful?

Abstract

Class actions challenging tax collections and seeking refunds are commonplace to state tax administrators in many jurisdictions. In stark contrast, however, class actions remain unusual in the various federal courts in which suits claiming that federal taxes have been illegally collected can be brought. This paper will attempt to offer some tentative explanations for this disparity.

The disparity can be easily generalized. The federal courts have viewed their ability to interfere with tax processes as strictly a matter of limited jurisdiction under specific statutory provisions. Taking their cues from statutes that clearly were intended to limit their power in tax cases, the federal courts have been relatively unwilling to interpret these statutes in ways that expand taxpayers’ remedies. State courts, on the other hand, seem far more likely to apply the same approach to tax cases as they would apply to any other civil case involving private parties, and as a result, feel far less hesitation in taking a more generous approach to taxpayers’ remedies. Why?