No. 15-

In the Supreme Court of the United States

_________________________

ROGER HUANG, General Partner, on behalf of HYW Limited Partnership,

Petitioner,

V.

CITY OF LOS ANGELES,

Respondent. _________________________

On Petition for a Writ of Certiorari to the United States Court of Appeals

for the Ninth Circuit _________________________

PETITION FOR A WRIT OF CERTIORARI

_________________________

STUART BANNER FRANK A. WEISER UCLA School of Law Counsel of Record Supreme Court Clinic 3460 Wilshire Blvd. 405 Hilgard Ave. Suite 1212 Los Angeles, CA 90095 Los Angeles, CA 90010 (213) 384-6964

maimons@aol.com

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QUESTIONS PRESENTED

1. Whether a penalty imposed for failing to pay a tax is itself a “tax” under the Tax Injunction Act, 28 U.S.C. § 1341.

2. Whether the Tax Injunction Act deprives feder-al courts of jurisdiction to hear a taxpayer’s chal-lenge to the method by which the government ob-tains the information it uses to calculate tax liabil-ity.

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TABLE OF CONTENTS

QUESTION PRESENTED ......................................... i

TABLE OF AUTHORITIES ..................................... iv

OPINIONS BELOW .................................................... 1

JURISDICTION .......................................................... 1

STATUTE INVOLVED ............................................... 1

STATEMENT .............................................................. 1

REASONS FOR GRANTING THE WRIT ................. 8

I. The Court should decide whether a penal-ty imposed for failing to pay a tax is itself a “tax” under the Tax Injunction Act. .................. 8

A. The circuits are divided on this recur-ring question. ................................................... 9

B. The view taken by the Fifth and Ninth Circuits is contrary to this Court’s precedent. ....................................................... 16

II. The Court should decide whether the Tax Injunction Act deprives federal courts of jurisdiction to hear a taxpayer’s challenge to the method by which the government obtains the information it uses to calcu-late tax liability. .................................................. 19

A. The decision below is contrary to Di-rect Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015). ............................................. 19

B. The Ninth Circuit’s view is contrary to that of the Second and Fifth Circuits. ........... 21

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CONCLUSION ......................................................... 24

APPENDICES

A. Court of Appeals opinion .................................... 1a

B. District Court opinion ......................................... 4a

C. District Court judgment ................................... 37a

D. Court of Appeals order denying panel rehearing and rehearing en banc ..................... 38a

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TABLE OF AUTHORITIES

CASES

America’s Health Ins. Plans v. Hudgens, 742 F.3d 1319 (11th Cir. 2014) .................................... 12

Bellsouth Telecomm., Inc. v. Farris, 542 F.3d 499 (6th Cir. 2008) ................................................ 11

Bidart Bros. v. California Apple Comm’n, 73 F.3d 925 (9th Cir. 1996) .......................... 4, 5, 14, 15

Blangeres v. Burlington Northern, Inc., 872 F.2d 327 (9th Cir. 1989) .......................................... 6

Chamber of Commerce v. Edmonson, 594 F.3d 742 (10th Cir. 2010) ................................ 10, 11

City of Los Angeles v. Patel, 135 S. Ct. 2443 (2015) ....................................................................... 4

Comenout v. Washington, 722 F.2d 574 (9th Cir. 1983) ........................................................... 7, 22

Direct Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015) .............................. 2, 7, 8, 19, 20, 21, 23

Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 651 F.3d 722 (7th Cir. 2011) (en banc) ................................................ 10, 16

Hibbs v. Winn, 542 U.S. 88 (2004) ..................... 20, 22 Jerron West, Inc. v. California State Bd. of

Equalization, 129 F.3d 1334 (9th Cir. 1997) .................................................................. 6, 21

Kathrein v. City of Evanston, 636 F.3d 906 (7th Cir. 2011) ....................................................... 10

Linn v. Chivatero, 714 F.2d 1278 (5th Cir. 1983) ...................................................................... 22

Lipke v. Lederer, 259 U.S. 557 (1922) ...................... 18 Luessenhop v. Clinton Cty., 466 F.3d 259 (2d

Cir. 2006) ......................................................... 22, 23

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Matheson v. Smith, 551 Fed. Appx. 292 (9th

Cir. 2013) ........................................................... 5, 15 National Fed’n of Indep. Business v.

Sebelius, 132 S. Ct. 2566 (2012) ............................ 17 Oehrleins v. Hennepin Cty., 115 F.3d 1372

(8th Cir. 1997) ....................................................... 12 RTC Commercial Assets Trust 1995-NP3-1 v.

Phoenix Bond & Indemnity Co., 169 F.3d 448 (7th Cir. 1999) .............................................. 6, 9

San Juan Cellular Tel. Co. v. Public Serv. Comm’n, 967 F.2d 683 (1st Cir. 1992) .................. 14

Trailer Marine Transp. Corp. v. Rivera Vazquez, 977 F.2d 1 (1st Cir. 1992) ........................ 8

United States v. La Franca, 282 U.S. 568 (1931) ..................................................................... 17

United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213 (1996) ..................................................................... 17

Washington v. Linebarger, Goggan, Blair, Pena & Sampson, LLP, 338 F.3d 442 (5th Cir. 2003) ..................................................... 6, 13, 14

Wells v. Malloy, 510 F.2d 74 (2d Cir. 1975) ............ 12

STATUTES

26 U.S.C. § 7421(a) ................................................... 22 28 U.S.C. § 1341 ............................................... passim 28 U.S.C. § 1254(1) ..................................................... 1 42 U.S.C. § 1983 ......................................................... 3

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PETITION FOR A WRIT OF CERTIORARI

Petitioner Roger Huang respectfully petitions for a writ of certiorari to review the judgment of the U.S. Court of Appeals for the Ninth Circuit.

OPINIONS BELOW

The opinion of the U.S. Court of Appeals for the Ninth Circuit is unpublished but is available at 2016 WL 683269 (9th Cir. 2016). App 1a. The opinion of the District Court is unpublished. App. 4a.

JURISDICTION

The judgment of the Court of Appeals was entered on February 18, 2016. The Court of Appeals denied panel rehearing and rehearing en banc on April 12, 2016. App. 38a. This Court has jurisdiction under 28 U.S.C. § 1254(1).

STATUTE INVOLVED

The Tax Injunction Act, 28 U.S.C. § 1341, pro-vides: “The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and effi-cient remedy may be had in the courts of such State.”

STATEMENT

The Tax Injunction Act deprives federal courts of jurisdiction to entertain challenges to a tax, not chal-lenges to a penalty. But what about challenges to a penalty imposed for failing to pay a tax? For the last several years, this question has been the subject of a

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circuit split. On one side, the Second, Sixth, Seventh, and Tenth Circuits correctly hold that that a tax penalty is a penalty, not a tax, so that a suit chal-lenging the penalty but not the tax is not barred by the Tax Injunction Act. On the other side, the Fifth and Ninth Circuits incorrectly hold that a tax penal-ty is a tax, not a penalty, so that a suit challenging the penalty but not the tax is barred by the Tax In-junction Act.

This case provides a clean vehicle for resolving the conflict. The issue is important, because virtually all taxes entail penalties for nonpayment, so this ques-tion could arise with respect to any tax.

The case also raises a second issue as to which the Ninth Circuit is failing to follow this Court’s prece-dents. In Direct Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015), the Court held that the Tax Injunction Act does not bar federal jurisdiction for challenges to the methods by which the government gathers the information it uses to calculate tax liability. In the decision below, however, the Ninth Circuit concluded that despite Direct Marketing, the Tax Injunction Act deprives federal courts of jurisdiction to hear suits contending that warrantless searches of tax-payers’ books and records, for the purpose of obtain-ing the information the government uses to calculate tax liability, violate the Fourth Amendment.

1. Petitioner Roger Huang is the general partner of HYW Limited Partnership, which owns a 38-unit apartment building near Dodger Stadium in Los An-

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geles.1 In 2012, respondent City conducted a tax au-dit, during which it demanded to inspect HYW’s books and records without the partnership’s consent, and without obtaining a warrant. App. 5a-6a. HYW informed the City’s auditor that such an inspection would violate the Fourth Amendment, and that HYW would not permit the auditor to inspect its books and records without a warrant. App. 6a. HYW also informed the auditor that penalizing HYW for exercising its Fourth Amendment rights would be an additional constitutional violation. App. 6a; 9th Cir. ER 4.

Shortly thereafter, the City sent HYW a bill for $6,756.55. That sum was made up of $4,196 in as-sessed taxes, $882.44 in interest, and $1,678.11 in penalties. (By the time the complaint in this case was filed, additional accrued interest raised the total to $7,322.44. App. 6a.) HYW filed an administrative appeal that included several grounds, one of which was that the City’s warrantless inspections violate the Fourth Amendment. App. 6a. A City appeal hearing officer upheld the assessment. App. 6a.

A few months later, a City employee entered HYW’s property for investigatory purposes, without HYW’s consent and without a warrant. App. 6a.

Huang then filed this suit on behalf of HYW un-der 42 U.S.C. § 1983. In pertinent part, he alleged that the City’s warrantless inspections violate the

1 Because the Court is reviewing the grant of a motion to dis-miss, the facts stated in the complaint must be accepted as true.

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Fourth Amendment.2 Pet. App. 4a. Huang’s counsel was also counsel of record to the respondent hotel owners in City of Los Angeles v. Patel, 135 S. Ct. 2443 (2015), which held that the City’s similar war-rantless inspections of hotel records violate the Fourth Amendment. Counsel sought to make the same argument on behalf of the owners of apartment buildings.

In Huang’s Fourth Amendment cause of action, he disputed neither the lawfulness of the tax nor HYW’s liability for it. His claim was rather that warrantless inspections of books and records are an unconstitu-tional method of gathering the information the City uses to calculate the tax, and that it is equally un-constitutional for the City to impose penalties on him for standing on his Fourth Amendment rights.

2. The District Court dismissed the complaint on the ground that the Tax Injunction Act, 28 U.S.C. § 1341, deprived the court of jurisdiction. App. 4a-36a.

a. First, the District Court determined that the penalty imposed by the City for nonpayment of the tax is itself a tax under the Tax Injunction Act. App. 19a-29a. The court noted that in Bidart Bros. v. Cali-fornia Apple Comm’n, 73 F.3d 925, 931 (9th Cir. 1996), the Ninth Circuit established a three-factor test for “determining whether an assessment is a tax or a regulatory fee for purposes of the TIA.” App.

2 Shortly after the City filed its motion to dismiss, Huang vol-untarily dropped the other claims in the complaint, including all claims that the tax itself is unlawful. App. 4a-5a.

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20a. These factors are: “‘(1) the entity that imposes the assessment; (2) the parties upon whom the as-sessment is imposed; and (3) whether the assess-ment is expended for general public purposes, or used for the regulation or benefit of the parties upon whom the assessment is imposed.’” App. 20a (quot-ing Bidart, 73 F.3d at 931). The District Court ob-served that the Ninth Circuit had recently applied the Bidart factors to conclude that interest and pen-alties added to taxes, for nonpayment of the taxes, should be classified as taxes under the Tax Injunc-tion Act. App. 20a (citing Matheson v. Smith, 551 Fed. Appx. 292 (9th Cir. 2013) (unpublished opin-ion)).

The District Court determined that each of the Bidart factors pointed toward the conclusion that penalties imposed for nonpayment of taxes are themselves taxes under the Tax Injunction Act. App. 20a-21a. Under the first factor, the penalty was im-posed by the City rather than by an administrative agency. App. 21a-23a. Under the second factor, the penalty was applicable to all businesses operating in the City rather than to a small subset. App. 23a-24a. Under the third factor, the penalty was paid into the City’s General Fund rather than into a special fund. App. 24a-25a. The District Court concluded that “the taxes, interest, and penalties assessed against city businesses, including HYW, constitute a tax.” App. 25a.

The District Court acknowledged that “there is a circuit split as to whether penalties added to delin-quent taxes are considered taxes under the TIA.”

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App. 26a. On one side, “[t]he Seventh Circuit has held that such charges are not taxes, and that the TIA does not bar federal courts from exercising ju-risdiction over actions that challenge them.” App. 26a (citing RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix Bond & Indemnity Co., 169 F.3d 448, 457 (7th Cir. 1999)). On the other side, “[t]he Fifth Circuit, by contrast, has held that a penalty charged in connection with a delinquent tax account is part of the tax.” App. 26a-27a (citing Washington v. Line-barger, Goggan, Blair, Pena & Sampson, LLP, 338 F.3d 442, 444 (5th Cir. 2003). The District Court rec-ognized that the Seventh Circuit’s view is “in tension with the precedent by which this court is bound.” App. 27a. The District Court thus concluded that tax penalties are taxes under the Tax Injunction Act. App. 27a-28a.

b. Second, the District Court determined that the City’s demand for HYW’s business records and the City’s search of HYW’s premises were both part of the “assessment, levy or collection” of taxes under the Tax Injunction Act. App. 29a-35a. Under Ninth Circuit precedent, the District Court explained, “the process of auditing a taxpayer is clearly part of the government’s assessment of a tax.” App. 30a (citing Jerron West, Inc. v. California State Bd. of Equaliza-tion, 129 F.3d 1334, 1337 (9th Cir. 1997)). The Dis-trict Court noted that the Ninth Circuit had likewise held that the Tax Injunction Act bars a suit seeking to enjoin the production of earnings records, because “the authorities would not have the information nec-essary to make the assessment.” App. 30a-31a (citing Blangeres v. Burlington Northern, Inc., 872 F.2d 327,

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328 (9th Cir. 1989)). The District Court observed that in Comenout v. Washington, 722 F.2d 574, 577-78 (9th Cir. 1983), the Ninth Circuit held that the Tax Injunction Act barred a similar claim of an un-lawful warrantless search, on the ground that the TIA bars challenges to the constitutionality of state procedures to enforce a tax as well as challenges to the constitutionality of the tax itself. App. 32a-33a.

The District Court accordingly dismissed the com-plaint for lack of subject matter jurisdiction. App. 35a. The District Court gave Huang the opportunity to amend the complaint. App. 36a. When he elected not to do so, the District Court entered judgment for the City. App. 37a.

3. The Court of Appeals for the Ninth Circuit af-firmed. App. 1a-3a. Applying the three Bidart fac-tors, the Court of Appeals concluded that “the busi-ness taxes assessed by the City of Los Angeles, as well as the penalties added thereto for delinquent payment, are ‘taxes’ under the TIA.” App. 2a. Al-though the Court of Appeals directed the parties to discuss Direct Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015), at argument (the case had been decided after briefing was complete), the Court of Appeals rejected Huang’s contention that Direct Marketing required reversal. The Court of Appeals’ complete explanation was that “the reasoning of Direct Mar-keting [is not] applicable to the facts of this case.” App. 2a.

The Court of Appeals denied panel rehearing and rehearing en banc. App. 38a.

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REASONS FOR GRANTING THE WRIT

The Court should grant certiorari for two reasons. First, the Court should resolve the circuit split over whether a penalty imposed for failing to pay a tax is itself a “tax” under the Tax Injunction Act. Second, the Court should resolve the question the Ninth Cir-cuit apparently believes was left open in Direct Mar-keting Ass’n v. Brohl, 135 S. Ct. 1124 (2015)—whether the Tax Injunction Act bars a taxpayer’s challenge to the method by which the government obtains the information it uses to calculate tax liabil-ity.

I. The Court should decide whether a penal-ty imposed for failing to pay a tax is itself a “tax” under the Tax Injunction Act.

The Tax Injunction Act deprives federal courts of jurisdiction only where the plaintiff is challenging a “tax.” All agree that where a state or local govern-ment requires a payment that is not a “tax,” the Tax Injunction Act does not come into play. The difficulty is in deciding precisely what constitutes a “tax,” be-cause state and local governments require payments with a variety of names—taxes, fees, assessments, penalties, and so on. Every circuit to address the question has held, correctly, that what constitutes a “tax” under the Tax Injunction Act is a question of federal law, not state law. That is, a federal court cannot simply defer to whatever label the state puts on the payment. See, e.g., Trailer Marine Transp. Corp. v. Rivera Vazquez, 977 F.2d 1, 5 (1st Cir. 1992).

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This case involves a subset of this classification

problem: how to distinguish a tax from a penalty. The circuits have split four to two on whether tax penalties should be treated as taxes or as penalties. The Court should confirm that the majority view is correct.

A. The circuits are divided on this recur-ring question.

1. The Second, Sixth, Seventh, and Tenth Circuits hold that a penalty for nonpayment of a tax is a penalty, not a tax, for purposes of the Tax Injunction Act. The leading case on this side of the split is RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix Bond & Indemnity Co., 169 F.3d 448 (7th Cir. 1999), in which the plaintiff sought a declaration that it was not liable for interest or penalties associated with a state tax. Id. at 456. The Seventh Circuit reasoned that because “interest is nothing more than an adjustment for the delay in payment, it logically should be considered as part of the tax itself.” Id. at 457. But “[p]enalties stand on a different footing. States do not assess penalties for the purpose of raising revenue; they assess them so that delinquent tax debtors will be deterred the next time around from ignoring their legal obligations.” Id. The court continued: “This suggests that the penalty is not a fee calculated to generate revenues, which the county could then use for general purposes; instead, it is a special purpose regulatory device.” Id. The Seventh Circuit therefore concluded that “the penalty is not a ‘tax’ for TIA purposes.” Id. at 457-58.

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In subsequent cases, the Seventh Circuit has

repeated this sharp distinction between taxes and penalties: Taxes are intended to raise revenue, while penalties are intended to punish and deter violations of the law. Writing for the en banc court, Judge Posner criticized decisions that “have flirted with open-ended, multifactor tests” for distinguishing taxes from penalties, because “[t]he Supreme Court has not endorsed any multifactor test for applying the Tax Injunction Act, and such a test would be inappropriate quite apart from the need for clarity and simplicity in interpreting a forum-selection law.” Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 651 F.3d 722, 727-28 (7th Cir. 2011) (en banc). In the Seventh Circuit, “[t]he only material distinction is between exactions designed to generate revenue—taxes, whatever the state calls them,” and “exactions designed … to punish (fines, in a broad sense) rather than to generate revenue (the hope being that the punishment will deter, though deterrence is never perfect and therefore fines generate some state revenues).” Id. at 728. See also Kathrein v. City of Evanston, 636 F.3d 906, 911 (7th Cir. 2011) (distinguishing a tax, which is imposed “to raise the revenue a government needs in order to function,” from a “regulatory device,” which is a penalty “attached to a behavior that is a clear candidate for deterrence”).

The Tenth Circuit uses this same sharp distinction between taxes and penalties to conclude that tax penalties are penalties, not taxes, under the Tax Injunction Act. Chamber of Commerce v. Edmonson, 594 F.3d 742 (10th Cir. 2010), was a

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challenge to a state law requiring firms to withhold certain taxes from contractors. Id. at 750. Firms that failed to withhold taxes were subject to penalties. Id. The Tenth Circuit concluded that this provision “imposes a penalty, not a tax, because its purpose is to regulate conduct rather than to raise revenue.” Id. at 761. The court explained that “an assessment is a tax when its purpose is to raise revenue, while levies assessed for regulatory or punitive purposes, even though they may also raise revenues, are generally not ‘taxes.’” Id. (internal quotation marks omitted). The Tenth Circuit approvingly cited the Seventh Circuit’s RTC opinion for the proposition that “[p]enalties are designed to incentivize compliance with law, not to raise revenue.” Id. at 762.

The Sixth Circuit likewise classifies tax penalties a penalties, not taxes, under the Tax Injunction Act. Bellsouth Telecomm., Inc. v. Farris, 542 F.3d 499 (6th Cir. 2008) (Sutton, J.), involved a challenge to a state law that required phone companies to pay a tax themselves rather than collecting the tax from their customers and passing it along to the state. Id. at 501. Companies that violated this provision were charged a substantial penalty. Id. The Sixth Circuit held that the Tax Injunction Act did not bar the phone companies from challenging the penalty, because it was a penalty, not a tax. Id. at 501-04. “The elimination of this civil penalty provision might well decrease state revenue,” the court concluded, “but because it is not ‘a tax under State law,’” in the words of the Tax Injunction Act, “the Act does not apply.” Id. at 504.

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Similarly, the Second Circuit holds that the Tax

Injunction Act does not bar a challenge to a penalty for nonpayment of a tax. In Wells v. Malloy, 510 F.2d 74 (2d Cir. 1975) (Friendly, J.), a delinquent taxpayer alleged that the penalty for failing to pay the tax was unconstitutional. Id. at 76. The Second Circuit rejected the state’s invocation of the Tax Injunction Act, because the taxpayer was challenging a “sanction for non-payment of a tax” rather than the tax itself. Id. at 77.

The majority view rests on a sharp distinction between taxes and penalties. Taxes are intended to raise revenue. If everyone followed the law, taxes would raise lots of revenue. Penalties are intended to induce compliance. If everyone followed the law, penalties would raise no revenue at all. Using this distinction, tax penalties are penalties, not taxes. They are intended to induce compliance with the tax law. If everyone paid their taxes in a timely manner, the revenue from tax penalties would be zero.

A few other circuits employ this same sharp distinction between taxes and penalties when deciding whether a required payment is a “tax” under the Tax Injunction Act. See, e.g., America’s Health Ins. Plans v. Hudgens, 742 F.3d 1319, 1328 (11th Cir. 2014) (“to the extent the statute challenged is regulatory rather than revenue raising in purpose, the measure does not constitute a tax, and the district court retains jurisdiction”) (citation and internal quotation marks omitted); Oehrleins v. Hennepin Cty., 115 F.3d 1372, 1382-83 (8th Cir. 1997) (“The Ordinance obviously raises revenue by

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way of the tipping fees charged by the HERC facility. This does not, however, render the Ordinance a tax. The Ordinance’s primary purpose is clearly regulatory, rather than revenue-raising.”). If the Question Presented in this case were to arise in these circuits, they would side with the majority view.

2. The Fifth and Ninth Circuits take the opposite view. In these circuits, a tax penalty is a tax, not a penalty, for purposes of the Tax Injunction Act.

In Washington v. Linebarger, Goggan, Blair, Pena & Sampson, LLP, 338 F.3d 442 (5th Cir. 2003), the Fifth Circuit concluded that a penalty imposed for nonpayment of a tax should be classified as a tax. The plaintiffs challenged the lawfulness of only the penalty for delinquent tax payments, not the underlying tax, which they conceded was lawful. Id. at 443. The Fifth Circuit nevertheless held that the penalty “is inexorably tied to the tax collection itself, which sustains the essential flow of revenue to the government.” Id. at 444 (citation and internal quotation marks omitted). The Fifth Circuit reasoned that the Tax Injunction Act prohibits federal courts “from deciding disputes involving tax related concepts or functions,” a category broad enough to include tax penalties. Id. The Fifth Circuit added that “the plain language of the Tax Injunction Act’s jurisdictional limitation is not focused on taxes only, but rather the broader activities of assessing, levying, and collecting taxes.” Id. Because one purpose of a tax penalty is to “defray the cost of collection” from recalcitrant taxpayers, the Fifth

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Circuit found that a tax penalty is a tax for purposes of the Tax Injunction Act. Id.

The Ninth Circuit reaches the same result by a different route. As the courts below both noted, the Ninth Circuit has adopted a three-factor test to determine whether a required payment is a tax under the Tax Injunction Act. First, the Ninth Circuit considers the entity that imposes the assessment. “An assessment imposed directly by the legislature is more likely to be a tax than an assessment imposed by an administrative agency.” Bidart Bros. v. California Apple Comm’n, 73 F.3d 925, 931 (9th Cir. 1996). Second, the Ninth Circuit considers the parties upon whom the assessment is imposed. “An assessment imposed upon a broad class of parties is more likely to be a tax than an assessment imposed upon a narrow class.” Id. Third, the Ninth Circuit considers the ultimate use of the assessment. “Assessments treated as general revenues and paid into the state’s general fund are taxes,” while an “assessment placed in a special fund and used only for special purposes is less likely to be a tax.” Id. at 932.3

3 In adopting this three-part test, the Ninth Circuit called it “[t]he San Juan Cellular test,” Bidart, 73 F.3d at 931, because the Ninth Circuit erroneously believed that the First Circuit had adopted such a test in San Juan Cellular Tel. Co. v. Public Serv. Comm’n, 967 F.2d 683, 685 (1st Cir. 1992) (Breyer, C.J.). In fact, San Juan Cellular did not claim to be inventing any “test” at all. The First Circuit simply described various factors courts had considered in distinguishing taxes from fees. Moreo-ver, San Juan Cellular involved only the particular question of how to distinguish a tax from a “regulatory fee” (in San Juan

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The Ninth Circuit has now twice applied this test

to determine that tax penalties are taxes under the Tax Injunction Act. In Matheson v. Smith, 551 Fed. Appx. 292 (9th Cir. 2013) (unpublished opinion), the Ninth Circuit held that a taxpayer’s challenge to “penalties for her failure to pay taxes” was barred by the Tax Injunction Act, because the penalties satisfied all three of the Bidart factors. Id. at 294-95. The penalties, like the underlying taxes, were “imposed by the legislature upon a broad class of individuals and expended for the general public.” Id. at 295 (citing Bidart, 73 F.3d at 931). The Ninth Circuit reached the same conclusion in our case. App. 2a (citing Bidart, 73 F.3d at 931-32).

Under the Ninth Circuit’s three-factor test, tax penalties will always be taxes, because all three factors will be identical for the penalties and the underlying taxes. If a tax is imposed by the legislature, a penalty for its nonpayment will also be imposed by the legislature. If a tax is imposed on a broad class of individuals, so will a penalty for the tax’s nonpayment. And if tax revenues are paid into a general fund, the penalties for nonpayment of the tax will typically be paid into the same fund. Under the Ninth Circuit’s test, just as in the Fifth Circuit, tax penalties are always taxes.

The Ninth Circuit’s Bidart test is precisely the sort of multifactor test condemned by the en banc Seventh Circuit in Empress Casino. The Seventh

Cellular, a fee imposed on only one firm), not, as the Ninth Cir-cuit erroneously believed, the different question of how to dis-tinguish a tax from a penalty.

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Circuit deplored the use of factors such as “whether the money generated by the exaction is deposited in a ‘lock box’ type of trust fund,” 651 F.3d at 727, “whether the persons or firms subjected to the exaction are numerous or few,” id. at 728, and “whether the beneficiaries of the exaction are numerous or few,” id. These are the exact factors used by the Ninth Circuit. As the Seventh Circuit concluded, such factors have “nothing to do with any concern behind the Tax Injunction Act.” Id. at 730.

The District Court below recognized this conflict, App. 26a. In the Court of Appeals, both sides discussed the conflict in their briefs. Huang urged the Court of Appeals to follow the Seventh Circuit’s RTC decision, while the City urged the Court of Appeals to disregard it. The Court of Appeals did not acknowledge the conflict, apparently because the court recognized that it was bound by Bidart. App. 2a.

B. The view taken by the Fifth and Ninth Circuits is contrary to this Court’s precedent.

The majority view is correct. A tax is intended to raise revenue. The more people comply with the law, the more revenue a tax will raise. A penalty, by con-trast, is intended to punish and deter violations of the law. The more people comply with the law, the less revenue a penalty will raise. A penalty for non-payment of a tax is a penalty, not a tax.

The Court has never considered this question in interpreting the Tax Injunction Act, but the question

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is not a new one. The Court has discussed the differ-ence between a tax and a penalty in several other contexts. Each time, the Court has drawn the same sharp distinction drawn by the majority side of the circuit split.

In United States v. Reorganized CF & I Fabrica-tors of Utah, Inc., 518 U.S. 213 (1996), the Court considered whether an IRS assessment on under-funded pension plans was a “tax” under a provision of the Bankruptcy Code giving priority to a claim for a tax. The Court held that the assessment was a penalty, not a tax. “[I]f the concept of penalty means anything,” the Court observed, “it means punish-ment for an unlawful act or omission, and a punish-ment for an unlawful omission is what this exaction is.” Id. at 224. The Court accordingly concluded that the IRS assessment “was not entitled to seventh pri-ority as [a tax], but instead is, for bankruptcy pur-poses, a penalty to be dealt with as an ordinary, un-secured claim.” Id. at 226.

By contrast, in National Fed’n of Indep. Business v. Sebelius, 132 S. Ct. 2566, 2596-97 (2012), the Court held that an exaction imposed on those with-out health insurance was a tax, not a penalty, be-cause it was not unlawful to decline to buy health insurance. The exaction was not a punishment for violating the law, but rather “a tax citizens may law-fully choose to pay in lieu of buying health insur-ance.” Id. at 2597.

The Court has drawn this distinction between taxes and penalties for a long time. See United States v. La Franca, 282 U.S. 568, 572 (1931) (“A

18

‘tax’ is an enforced contribution to provide for the support of government; a ‘penalty,’ as the word is here used, is an exaction imposed by statute as a punishment for an unlawful act. The two words are not interchangeable one for the other.”); Lipke v. Le-derer, 259 U.S. 557, 562 (1922) (distinguishing “a tax, whose primary function is to provide for the support of government,” from a penalty, which “clearly involves the idea of punishment for infrac-tion of the law”) (internal quotation marks omitted).

One can imagine cases in which an ostensible challenge to the lawfulness of a tax penalty is really a disguised challenge to the lawfulness of the under-lying tax, because the tax and the penalty must stand or fall together. In such a case, the Tax Injunc-tion Act should bar federal jurisdiction, because oth-erwise a taxpayer could evade the Tax Injunction Act simply by recasting his challenge to the tax as a challenge to the penalty for not paying. But this is not such a case, and neither are the other cases that make up the circuit split. In all these cases, ours in-cluded, the taxpayer is conceding the lawfulness of the tax and challenging only the penalty. In our case, Roger Huang contends that it is unconstitu-tional for the City to penalize him for standing on his Fourth Amendment rights. Whether his argument is right or wrong, a federal court has jurisdiction to hear it.

19

II. The Court should decide whether the

Tax Injunction Act deprives federal courts of jurisdiction to hear a taxpay-er’s challenge to the method by which the government obtains the information it uses to calculate tax liability.

The Court of Appeals below erred for a second reason as well. The Tax Injunction Act bars federal courts from restraining “the assessment, levy or col-lection of any tax.” But Roger Huang is not asking for any such relief. He is only challenging the meth-od by which the City obtains the information it uses to calculate tax liability. The gathering of tax-related information is not encompassed within “assessment, levy or collection.”

A. The decision below is contrary to Di-rect Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015).

The decision below is contrary to Direct Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015). Our case is a Fourth Amendment challenge to the City’s warrant-less inspections of books and records, inspections the City undertakes to obtain the information it uses to calculate a taxpayer’s liability for its business license tax. In Direct Marketing, the Court held that the Tax Injunction Act does not deprive federal courts of ju-risdiction to hear challenges to such “reporting re-quirements,” because reporting requirements are not encompassed within the “assessment, levy or collec-tion” of a tax. Id. at 1131. Rather, “information gath-ering” is “a phase of tax administration procedure that occurs before assessment, levy, or collection.”

20

Id. at 1129. As the Court explained, a reporting re-quirement no doubt improves the state’s “ability to assess and ultimately collect its sales and use taxes from consumers, but the TIA is not keyed to all ac-tivities that may improve a State’s ability to assess and collect taxes.” Id. at 1131.

Direct Marketing broke no new ground. The Court has long recognized that the Tax Injunction Act was not intended to bar all suits that might hinder state or local tax administration, Hibbs v. Winn, 542 U.S. 88, 104-05 (2004), but only suits “in which state tax-payers seek federal-court orders enabling them to avoid paying state taxes.” Id. at 107.

Our case is solely about the means by which the City gathers the information it uses to calculate tax liability. Roger Huang is not contesting the City’s authority to tax businesses or the lawfulness of the tax itself. All he alleges is that the City must obtain a warrant before inspecting his books and records. A federal court has jurisdiction to hear this claim, be-cause Huang is not challenging the “assessment, levy or collection” of the tax.

To be fair, three members of the Court take a nar-rower view of Direct Marketing. In their view, Direct Marketing does not reach the question whether the Tax Injunction Act bars challenges to “reporting ob-ligations imposed on a taxpayer,” as opposed to such obligations imposed on a retailer that sells to the taxpayer. Direct Marketing, 135 S. Ct. at 1136 (Ginsburg, J., concurring). Our case is precisely the case envisioned in Justice Ginsburg’s concurring opinion. It is a challenge to a reporting obligation

21

brought by a taxpayer, not by an intermediary be-tween the taxpayer and the government.

The Court of Appeals below may have agreed with this narrower view, although the court’s cryptic opin-ion makes it impossible to be sure. The Court of Ap-peals ordered the parties to discuss Direct Marketing at oral argument. Both parties did. Huang’s counsel argued that the case “clearly is controlled by Direct Marketing Association,” and that under Direct Mar-keting the District’s Court’s decision was “clearly subject to reversal.” Oral argument transcript, 2016 WL 1133815 (Feb. 8, 2016). The City’s lawyer argued that the facts of our case are “not what happened in Direct Marketing.” Id. The Court of Appeals agreed with the City. In its opinion, the court addressed the issue in a single sentence: “Nor is the reasoning of Direct Marketing applicable to the facts of this case.” App. 2a.

The Court of Appeals erred. The reasoning of Di-rect Marketing is indeed applicable, because this case is a challenge to the gathering of tax-related in-formation, not a challenge to the assessment, levy, or collection of a tax.

B. The Ninth Circuit’s view is contrary to that of the Second and Fifth Circuits.

In the Ninth Circuit, the Tax Injunction Act bars a taxpayer’s Fourth Amendment challenge to the method by which the government obtains the infor-mation it uses to calculate tax liability. See (in addi-tion to the decision below) Jerron West, Inc. v. Cali-fornia State Bd. of Equalization, 129 F.3d 1334, 1336

22

(describing the Fourth Amendment claim), 1337 (finding the claim barred by the Tax Injunction Act because it would “intrude upon and disrupt Califor-nia’s taxation process”) (9th Cir. 1997); Comenout v. Washington, 722 F.2d 574, 575 (describing the claim as based on “unconstitutional arrests and searches and seizures”), 578 (finding the claim barred by the Tax Injunction Act because it “would interfere with the enforcement of the state tax scheme”) (9th Cir. 1983).

Other circuits have taken the opposite view in analogous cases. In Linn v. Chivatero, 714 F.2d 1278 (5th Cir. 1983), the Fifth Circuit held that a taxpay-er’s Fourth Amendment challenge to the Internal Revenue Service’s information-gathering methods is not barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a), which is the twin of the Tax Injunction Act applicable to federal tax collection. (Because the two statutes are so similar, they are interpreted in tan-dem. See, e.g., Hibbs, 542 U.S. at 102-04.) The Fifth Circuit recognized that “[t]he essence of Linn’s fourth amendment claim is not that the IRS should be enjoined from obtaining information,” but simply that the IRS “should obtain that information in ac-cordance with” lawful procedures. Linn, 714 F.2d at 1284. The Fifth Circuit accordingly held that “the Anti-Injunction Act should not be applied to Linn’s fourth amendment complaint.” Id. at 1283.

The Second Circuit has likewise held that the Tax Injunction Act does not bar a taxpayer’s due process challenge to the method by which the government collects taxes. In Luessenhop v. Clinton Cty., 466

23

F.3d 259 (2d Cir. 2006), the plaintiffs alleged that they had received constitutionally insufficient notice of the government’s intention to foreclose on their property for delinquent property tax payments. The Second Circuit recognized that “the taxpayers are not attempting to avoid paying state taxes. They are willing to pay the full amount of their property tax-es.” Id. at 268. The court concluded that “the chal-lenges here do not trigger the TIA because the tax-payers are not seeking to utilize federal courts as a conduit to empty state coffers.” Id. at 266.

The view taken by the Second and Fifth Circuits is in line with Direct Marketing. Because the plain-tiffs in these cases were not challenging the lawful-ness of the assessment, levy or collection of taxes, federal courts had jurisdiction to hear the challeng-es, even though the challenges, if successful, would have interfered with the administration of the taxes at issue. The Ninth Circuit interprets the Tax In-junction Act more broadly. In the Ninth Circuit, these challenges would have been barred, because of the disruption they would have caused to the en-forcement of the tax schemes.

24

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

STUART BANNER FRANK A. WEISER UCLA School of Law Counsel of Record Supreme Court Clinic 3460 Wilshire Blvd. 405 Hilgard Ave. Suite 1212 Los Angeles, CA 90095 Los Angeles, CA 90010 (213) 384-6964 maimons@aol.com

1a

APPENDIX A

NOT FOR PUBLICATION United States Court of Appeals

for the Ninth Circuit

Roger HUANG, General Partner, on behalf of HYW LIMITED PARTNERSHIP, Plaintiff–Appellant,

v. CITY OF LOS ANGELES, a municipal corporation,

Defendant–Appellee.

No. 14–55400 Argued and Submitted Feb. 8, 2016

Filed Feb. 18, 2016

Appeal from the United States District Court for the Central District of California Margaret M. Morrow, District Judge, Presiding. D.C. No. 2:13–cv–07698–MMM–AJW.

Before FARRIS, CLIFTON, and BEA, Circuit Judg-es.

MEMORANDUM*

Roger Huang appeals the district court’s dismissal for lack of subject matter jurisdiction of his suit chal-lenging the City of Los Angeles’s conduct in as-sessing taxes against his business. We review de no-vo a district court’s dismissal for lack of subject mat-ter jurisdiction. N. Cty. Cmty. All., Inc. v. Salazar, 573 F .3d 738, 741 (9th Cir. 2009).

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36–3.

2a

The Tax Injunction Act (TIA), 28 U.S.C. § 1341, bars taxpayers from challenging the validity of a state tax in federal court where an adequate remedy is available in state court. Huang does not dispute that such a “plain, speedy and efficient remedy” is available in the California courts. 28 U.S.C. § 1341. The key factors to consider in deciding whether a municipal fee is a “tax” for purposes of the TIA are (1) the entity that imposes the charge; (2) the parties upon whom the charge is imposed; and (3) the pur-pose of imposing the charge. Bidart Bros v. Cal. Ap-ple Comm’n, 73 F.3d 925, 931–32 (9th Cir. 1996). Applying Bidart, the business taxes assessed by the City of Los Angeles, as well as the penalties added thereto for delinquent payment, are “taxes” under the TIA. The district court therefore lacked subject matter jurisdiction over Huang’s claim challenging the assessment of the taxes and penalties.

The Supreme Court’s decisions in National Feder-ation of Independent Business (N.F.I.B.) v. Sebelius, 132 S. Ct. 2566 (2012), and Direct Marketing Associ-ation v. Brohl, 135 S. Ct. 1124 (2015), do not change this analysis. The Court’s analysis in N.F.I.B. is not “clearly irreconcilable” with existing Ninth Circuit precedent. Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc). Nor is the reasoning of Direct Marketing applicable to the facts of this case.

The district court did, however, abuse its discre-tion in dismissing Huang’s claim with prejudice. A dismissal for lack of subject matter jurisdiction, be-cause it does not go to the merits of the case, is with-out prejudice. See Oaks of Woodlake Phase III, Ltd. v. Hall, Bayoutree Assocs., Ltd. (In re Hall, Bayoutree

3a Assocs., Ltd.), 939 F.2d 802, 804 (9th Cir. 1991); see also Fed. R. Civ. P. 41(b). Huang’s claim therefore should have been dismissed without prejudice. We consequently vacate the district court’s order of dis-missal with prejudice and remand with instructions to enter a dismissal of the complaint without preju-dice for lack of subject matter jurisdiction.

Costs are awarded to Defendant–Appellee City of Los Angeles.

VACATED AND REMANDED.

4a

APPENDIX B

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

ROGER HUANG, on behalf of HYW LIMITED PARTNERSHIP, Plaintiff,

vs. CITY OF LOS ANGELES, a municipal corporation; AND DOES 1 THROUGH 10 INCLUSIVE, Defend-

ants.

Case No. CV 13-07698 MMM (AJWx)

ORDER GRANTING DEFENDANT’S MOTION TO DISMISS

On October 17, 2013, Roger Huang, the general partner of HYW Limited Partnership (“HYW”), filed this action on HYW's behalf against the City of Los Angeles ("the City") and various fictitious defend-ants.1 The complaint asserts three causes of action, which concern an assessment the City made against HYW under the business license tax provisions of the Los Angeles Municipal Code (“LAMC”), § 21.00 et seq. HYW asserts a claim under 42 U.S.C. § 1983 for violation of its (1) Fourth Amendment right to be free from unreasonable searches and seizures; (2) Fourth Amendment right not to have unreasonable conditions and restrictions placed on licensing; (3) Fifth Amendment right to be free from an unconsti-tutional taking of its property; and (4) Fourteenth Amendment substantive and procedural due process right not to have conditions and restrictions placed on licensing. HYW’s second claim seeks a writ of 1 Complaint, Docket No. 1 (Oct 17, 2013).

5a mandate setting aside the City’s assessment of the tax fee. Its third claim is a cause of action for inverse condemnation. HYW seeks $1,000,000.00 in damag-es, declaratory and injunctive relief, and a writ of mandate vacating the City's decision upholding the assessment.

On November 14, 2013, the City filed a motion to dismiss the complaint under Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of jurisdic-tion and under Rule 12(b)(6) for failure to state a claim on which relief could be granted.2 On February 5, 2014, HYW filed a notice of voluntary dismissal without prejudice of the Fifth Amendment § 1983 claim and the second and third claims for relief.3 Those aspects of the City's motion to dismiss are therefore denied as moot. HYW opposes the City's request that the court dismiss its Fourth and Four-teenth Amendment § 1983 claims, however.4

I. FACTUAL BACKGROUND

HYW alleges that it is a California limited part-nership that owns and operates an apartment build-ing located at 1070 W. Kensington Road, Los Ange-les, California 90026 (“the property”).5 HYW asserts that in December 2012, the City conducted a busi-ness license tax audit of the partnership.6 As part of the audit, the City auditor demanded, as a condition 2 Motion to Dismiss (“Motion”), Docket No. 7 (Nov. 14, 2013). 3 Notice of Voluntary Dismissal without Prejudice, Docket No. 11 (Feb. 5, 2014). 4 Opposition to Motion to Dismiss (“Opposition”), Docket No. 9 (Feb. 4, 2013). 5 Complaint, ¶¶ 3-4. 6 Id., ¶ 7.

6a of licensing HYW to do business in the City, an op-portunity to inspect the books and records of HYW without its consent or an administrative warrant.7 HYW did not consent to the inspection, arguing that such an inspection would violate its Fourth and Fourteenth Amendment rights.8

On February 10, 2013, the City notified HYW that it had assessed an estimated license tax of $7,322.44, including interest and penalties.9 HYW appealed the assessment on the grounds that, inter alia, it violat-ed the Fourth and Fourteenth Amendments.10 A City appeal hearing officer held a hearing and issued a written decision upholding the tax assessment on July 29, 2013.11

In September 2013, an official from the City Office of Finance entered the property without HYW's con-sent and without a warrant for investigatory pur-poses.12 In October 2013, the City informed HYW that it intended to record an administrative lien against the property in order to collect the assess-ment.13 HYW alleges that recording such a lien would be unlawful14 because the assessment was not final, as there was no court or City Council order af- 7 Id., ¶ 8. 8 Id., ¶¶ 9-10. 9 Id., ¶ 11. 10 Id., ¶ 12. 11 Id., ¶ 16. 12 Id., ¶ 20. 13 Id., ¶ 21. 14 The allegations in the complaint do not clearly state whether the City has in fact recorded the lien, as the complaint states only that the City informed HYW of its intention to record a lien. (See id., ¶ 21.)

7a firming it.

II. DISCUSSION

A. Huang's Failure to File Timely Opposition

Local Rule 7-12 provides that “[t]he failure to file any required paper, or the failure to file it within the deadline, may be deemed consent to the granting or denial of [a] motion.” CA CD L.R. 7-12. Because the City set its motion to dismiss for hearing on Febru-ary 24, 2014, the deadline for filing opposition was February 3, 2014. Huang filed opposition on Febru-ary 4, 2014 and “supplemental opposition” on Febru-ary 5, 2014. Because Huang failed to file timely op-position, the court could, under Rule 7-12, grant the motion on this basis alone. See Cortez v. Hubbard, No. CV 07-4556-GHK (MAN), 2008 WL 2156733, *1 (C.D. Cal. May 18, 2008) (“Petitioner has not filed an [o]pposition to the [m]otion and has not requested any further extension of time to do so. Pursuant to Local Rule 7-12, her failure to do so could be deemed to be consent to a grant of the [m]otion”); Mack-University LLC v. Halstead , No. SA CV 07-393 DOC (ANx), 2007 WL 4458823, *4 n. 4 (C.D. Cal. Sept. 25, 2007) (holding, where a party “failed to oppose or in any way respond” to a motion, that “[p]ursuant to local Rule 7-12, the [c]ourt could grant [p]laintiffs' [m]otion on this ground alone”); Ferrin v. Bias , No. ED CV 02-535 RT (SGLx), 2003 WL 25588274, *1 n. 1 (C.D. Cal. Jan. 2, 2003) (“Under Local Rule 7-12, failure to file an opposition may be deemed consent to the granting of the motion").

The court declines to do so, however. HYW's coun-sel, Frank A. Weiser, has submitted a declaration

8a and numerous exhibits in support of a request that the court accept the late-filed opposition and consid-er the merits of his arguments. Weiser states that he suffered medical emergencies in December 2013 and January 2014 that prevented him from timely com-plying with the opposition deadline.15 While Weiser could have requested an extension of the opposition deadline prior to February 7, 2014, as he likely knew he would not be able to meet the deadline in mid-January and must have known that he could not by February 2 or 3, 2014, the court nonetheless con-cludes that the untimely filing was not due solely to lack of diligence, and that the delay was minimal be-cause the opposition was filed just one day after it was due. Furthermore, it is preferable to decide the case on the merits. For this reason, the court elects to consider the substance of the opposition rather 15 Declaration of Frank A. Weiser in Support of Late Filing of Opposition to Motion to Dismiss (“Weiser Decl.”), Docket No. 13 (Feb. 7, 2014). Weiser states that he felt weak and was bedrid-den from December 23 through December 26, 2013, and that on December 26, 2013, be fainted and was rushed to the hospital where he was treated for a urinary tract infection and dehydra-tion. He was discharged on December 31, 2013. On January 6, 2014, Weiser again felt weak, almost fainted, and went back to the emergency room where he was once again treated for a uri-nary tract infection and dehydration. At that point, doctors dis-covered that the problems were due to a bladder stone and complications from a 2009 surgery related to Crohn's disease. Doctors operated on Weiser to remove the bladder stone on January 9, 2014. Weiser was discharged from the hospital on January 11, 2014, but was readmitted the following morning after fainting several times at home. He was released from the hospital on January 15, 2014, facing a large backlog of cases. (Id., ¶¶ 6-22, 27.)

9a than grant the motion based on a violation of Local Rule 7-12. The court will consider both the opposi-tion and the “supplemental opposition.” The court warns Weiser, however, that it expects compliance with the Local Rules or a timely request for an ex-tension that satisfies the applicable legal standard governing such a request in the future.

B. Legal Standard Governing Rule 12(b)(1) Motions to Dismiss

A Rule 12(b)(1) motion tests whether the court has subject matter jurisdiction to hear the claims al-leged in the complaint. Such a motion may be “faci-al” or “factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). Stated differently, a party mounting a Rule 12(b)(1) challenge to the court's jurisdiction may do so either on the face of the pleadings or by presenting extrinsic evidence for the court's consideration. See White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000); Thornhill Publ'g Co. v. Gen. Tel. & Elecs., 594 F.2d 730, 733 (9th Cir. 1979).

As a general matter, “[i]n a facial attack, the chal-lenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of . . . allegations that, by themselves, would otherwise invoke federal jurisdiction.” Safe Air for Everyone, 373 F.3d at 1039. Whatever the nature of the challenge, the party seeking to sue in federal court bears the burden of establishing that the court has subject matter juris-diction to hear the action. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994); Association of

10a American Medical Colleges v. United States, 217 F.3d 770, 778-79 (9th Cir. 2000); Stock West, Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989).

The City's jurisdictional attack is facial. The court therefore accepts HYW's allegations as true and ex-amines whether they adequately show that the court has subject matter jurisdiction to hear the case. See Valdez v. United States, 837 F. Supp. 1065, 1067 (E.D. Cal. 1993), aff'd, 56 F.3d 1177 (9th Cir. 1995).

C. The Parties' Requests for Judicial Notice

Both parties request that the court take judicial notice of various documents. Huang asks that the court judicially notice the United States Supreme Court's decision in National Federation of Independ-ent Business v. Sebelius, 132 S. Ct 2566 (2012).16 The City requests that the court take judicial notice of Article III of the Los Angeles City Charter, Chapter 6 of the Los Angeles City Administrative Code, and Section 21.03 of the Los Angeles City Municipal Code.17 Neither party opposes the other’s request.

In deciding a Rule 12(b) motion, the court general-ly looks only to the face of the complaint and the documents attached thereto. Van Buskirk v. Cable News Network, Inc., 284 F. 3d 977, 980 (9th Cir. 2002); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1990). A court normally must convert a Rule 12(b)(6) motion

16 Request for Judicial Notice in Opposition to Motion to Dis-miss (“Huang RJN”), Docket No. 12 (Feb. 5, 2014). 17 Request for Judicial Notice in Support of Motion to Dismiss (“City RJN”), Docket No. 15 (Feb. 10, 2014).

11a into a Rule 56 motion for summary judgment if it “considers evidence outside the pleadings . . . . A court may, however, consider certain materials—documents attached to the complaint, documents in-corporated by reference in the complaint, or matters of judicial notice—without converting the motion to dismiss into a motion for summary judgment.” Unit-ed States v. Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003). See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (a court may consider “other sources courts ordinarily examine when rul-ing on Rule 12(b)(6) motions to dismiss, in particu-lar, documents incorporated into the complaint by reference, and matters of which a court may take ju-dicial notice”); Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994) (noting that a court may consider a document whose contents are alleged in a complaint, so long as no party disputes its authenticity), over-ruled on other grounds by Galbraith v. County of Santa Clara , 307 F.3d 1119 (9th Cir. 2002).

The same is true when the court is deciding a fa-cial Rule 12(b)(1) motion. The court can look beyond the complaint to consider documents that are proper subjects of judicial notice. See Warren v. Fox Family Worldwide, Inc., 171 F. Supp. 2d 1057, 1062 (C.D. Cal. 2001) (“Because they are properly the subject of judicial notice, the copyright registration certificates submitted by defendants may be considered by the court in addressing both defendants' lack of subject matter jurisdiction arguments under Rule 12(b)(1) and their motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6)”), aff'd, 328 F.3d 1136 (9th Cir. 2003); Maciel v. Rice, No. CV-F-07-1231-LJO-DLB, 2007 WL

12a 4525143, *2 (E.D. Cal. Dec. 18, 2007) (“In a facial at-tack, subject matter jurisdiction is challenged solely on the basis of the allegations contained in the com-plaint (along with any undisputed facts in the record or of which the court can take judicial notice)”).

It is unnecessary to take judicial notice of the Na-tional Federation decision, which HYW cites as bind-ing Supreme Court precedent. See, e.g., Lucero v. Wong, No. C 10-1339 SI (pr), 2011 WL 5834963 (N.D. Cal. Nov. 21, 2011) (“It is unnecessary to request that the court judicially notice published cases from California and federal courts as legal precedent; the court routinely considers such legal authorities in doing its legal analysis without a party requesting that they be judicially noticed”); Jacquett v. Sisto, No. CIV S-06-2938 RRB EFB P, 2008 WL 1339362 (E.D. Cal. Apr. 9, 2008) (construing a request that the court take judicial notice of a published Ninth Circuit decision as “a notice of supplemental authori-ty”); Chapman v. Chast Manhattan Mortg. Corp., No. 04-CV-0859-CVE-FHM, 2007 WL 4268774, *2 n. 7 (N.D. Okla.Nov. 30, 2007) (“Plaintiff s motion could also be construed as request to take judicial notice of legal precedent. . . . As a matter of course, federal courts are bound to apply precedent without formal-ly taking judicial notice of law, and the procedure for judicial notice under Fed. R. Evid. 201 applies only to adjudicative facts”); BP West Coast Products LLC v. May, 347 F.Supp.2d 898, 901 (D. Nev. 2004) (re-sponding to a request for judicial notice of another court’s decision by stating that the court could “take this case into account as non-binding precedent”); see also Getty Petroleum Marketing, Inc. v. Capital Terminal Co., 391 F.3d 312, 322 (1st Cir. 2004) (Li-

13a pez, J., concurring) (“Judicial notice of law is the name given to the commonsense doctrine that the rules of evidence governing admissibility and proof of documents generally do not make sense to apply to statutes or judicial opinions—which are technical-ly documents—because they are presented to the court as law, not to the jury as evidence . . . . Alt-hough judicial notice of fact and judicial notice of law share the phrase 'judicial notice,' they draw on dif-ferent rules of practice. Rule 201 'governs only judi-cial notice of adjudicative facts.' . . . Judicial notice of law is outside the scope of Rule 201, and derives from practical considerations and case law that do not rely on Rule 201 or principles of evidence”). Ac-cordingly, while the court will consider National Federation, it declines to take judicial notice of the opinion.

The court grants the City's request that it take judicial notice of certain provisions of the Los Ange-les Municipal Code, Administrative Code, and City Charter. These local laws are proper subjects of judi-cial notice because they are not subject to reasonable dispute. See Tollis, Inc. v. County of San Diego, 505 F.3d 935, 938 n. 1 (9th Cir. 2007) (“Municipal ordi-nances are proper subjects for judicial notice”); En-gine Mfrs. Ass'n v. South Coast Air Quality Man-agement Dist., 498 F.3d 1031, 1039 n. 2 (9th Cir. 2007) (taking judicial notice of a municipal ordinance and stating that "[m]unicipal ordinances are proper subjects for judicial notice"); Santa Monica Food Not Bombs v. City of Santa Monica, 450 F.3d 1022, 1025 n. 2 (9th Cir. 2006) (taking judicial notice of Santa Monica Ordinances Nos. 2116 and 2117); San Fran-cisco Baykeeper v. West Bay Sanitary District, 791

14a F.Supp.2d 719, 731 (N.D. Cal. 2011) (taking judicial notice of municipal code sections from various cities in Northern California); Wood v. City of San Diego, No. 03cv1910-MMA(POR), 2010 WL 2382335, *5 (S. D. Cal. June 10, 2010) (taking judicial notice of San Diego Municipal Code); Wheeler v. City of Oak-land, No. C 05-0647 SBA, 2006 WL 1140992, *5 (N.D. Cal. Apr. 28, 2006) (taking judicial notice of the Oakland Municipal Code); Rabkin v. Dean, 856 F. Supp. 543, 546 (N.D. Cal. 1994) (“The Court may take judicial notice of city charters, city ordinances and resolutions, and the contents and legislative his-tory of a proposed city ordinance or resolution”).

D. Whether the Court Lacks Jurisdiction Under the Tax Injunction Act

The City argues first that the Tax Injunction Act (“TIA”) bars the court from exercising subject matter jurisdiction over HYW's claims.18 The TIA provides that “district courts shall not enjoin, suspend or re-strain 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.” 29 U.S.C. § 1341.19 The Supreme Court and the Ninth

18 Motion at 4. HYW argues that whether the assessment is a tax is a question of fact better resolved in a motion for sum-mary judgment. The court disagrees. The interpretation of a local ordinance is a question of law. As the court has taken ju-dicial notice of the Los Angeles Charter, Administrative Code, and Municipal Code under Rule 201, it may interpret the ordi-nance, and determine whether the assessment is a tax in the context of a motion to dismiss. 19 “State taxation, for § 1341 purposes, includes local taxation.” Hibbs v. Winn, 542 U.S. 88, 100 n. 1 (2004). Thus, the TIA also

15a Circuit have both held that California's tax refund procedure is a “plain, speedy and efficient remedy” for tax relief.20 Franchise Tax Board v. Alcan Alu-minium, 493 U.S. 331, 338 (1990); Jerron West, Inc. v. State of California State Bd. Of Equalization, 129 F.3d 1334, 1339 (9th Cir. 1997).

The City's procedure for contesting the assess-ment of a business license tax, which is similar to the procedure established by California law, is more favorable to taxpayers than the procedure estab-lished by California law because, in contrast to Cali-fornia law, a business wishing to contest an assess-ment under the Los Angeles Municipal Code does not have to pay the assessment before challenging it administratively.21 Compare CAL. REV. & TAX CODE § 19382 (“[A]fter payment of the tax and denial by the Franchise Tax Board of a claim for refund, any tax-payer claiming that the tax computed and assessed

bars district courts from enjoining the assessment, levy, or col-lection of local taxes if the state courts provide a speedy and efficient remedy. Id. 20 Under California law, a taxpayer must first pay the tax and then file an administrative claim prior to initiating a refund action in state court. See Swift Frame v. City of San Diego, No. 11cv461 WQH (CAB), 2011 WL 4381711, *6 (S.D. Cal. Sept. 20, 2011) (describing the state tax refund process) 21 As with a challenge to California state taxes, a Los Angeles taxpayer must pay the business license tax before bringing a court action because once the taxpayer has exhausted adminis-trative remedies, the tax becomes due, and “in order to initiate a suit for relief, [the taxpayer] must [then] make a tax payment and sue in superior court for a refund.” Writers Guild of Ameri-ca West, Inc. v. City of Los Angeles, 77 Cal.App.4th 475, 483 (2000).

16a is void in whole or in part may bring an action, upon the grounds set forth in that claim for refund, against the Franchise Tax Board for the recovery of the whole or any part of the amount paid”) with L.A. MUN. CODE § 21.16(b) (providing that an assessment does not become final until a person either waives a hearing in writing, fails to request a hearing within 15 days of being served with the assessment, or the Board of Review has made a determination). See also Chodos v. City of Los Angeles, 195 Cal.App.4th 675, 678 (2011) (describing the process for asserting a claim challenging a business tax assessment under the LAMC, and stating that “[f]irst, the Office of Fi-nance serves the taxpayer a notice of assessment, giving notice of the taxes owed. (LAMC, § 21.16(a).) The taxpayer may then request a hearing, which would be before an Assessment Review Officer (ARO), or the taxpayer may request that the ARO hearing be waived. (LAMC § 21.16(b), (d), (e).) The ARO may decrease, affirm, or increase the assess-ment. (LAMC, § 21.16(f).) The taxpayer then has the option of having the ARO's decision reviewed by a Board of Review, if one is established. (LAMC, § 21.16(g) and (h).) The Board of Review issues a de-termination that may decrease or affirm the deter-mination of the ARO. (LAMC, § 21.16(I).) The ad-ministrative review process is complete when the taxpayer (1) fails to appeal a deficiency determina-tion or assessment to an ARO (LAMC, § 21.16(b) and (c)), (2) fails to appeal an ARO's decision to the Board of Review (LAMC, § 21.16(g)), or (3) is given the decision of the Board of Review (LAMC, § 21.16(i)). After the administrative review process is final, the deficiency or assessment becomes due to

17a the City under LAMC section 21.05(a). The taxpayer may pay the assessment tax and file a claim for re-fund. (See LAMC, § 21.07 [Refunds of Overpay-ments].) The taxpayer may also do nothing and force the City to file suit to collect the taxes owed”). The City's business tax refund procedure is therefore a plain, speedy, and efficient remedy. Consequently, the TIA precludes the court from exercising jurisdic-tion over a lawsuit that seeks to enjoin the City's as-sessment, levying, or collection of a business tax un-der the LAMC against HYW.

As the Supreme Court has observed, the TIA is “grounded in the need of States to administer their fiscal affairs without undue interference from federal courts.” Arkansas v. Farm Farm Credit Services, 520 U.S. 821, 832 (1997). It has also stated that “federal courts must guard against interpretations of the . . . [TIA] which might defeat its purpose and its text.” Id. at 827; see also Jerron West, Inc., 129 F.3d at 1337 (“[E]ven an indirect restraint on tax assess-ment would violate the Act”). The purpose of the TIA is “to limit drastically federal district court jurisdic-tion to interfere with so important a local concern as the collection of taxes.” California v. Grace Brethren Church, 457 U.S. 393, 408 (1982); see also Rosewell v. LaSalle National Bank, 450 U.S. 503, 522 (1981) (same). For that reason, the TIA bars the court from granting any relief that would impose “even an indi-rect restraint on tax assessment” under the LAMC. Jerron West, Inc., 129 F.3d at 1337.

For these reasons, the Supreme Court has held that the TIA applies to more than injunctive relief claims; it also precludes district courts from granting declaratory judgments that may interfere with the

18a assessment, levy, or collection of taxes under state law, National Private Truck Council, Inc. v. Okla-homa Tax Commission, 515 U.S. 582, 586 (1995); Grace Brethren Churc, 457 U.S. at 408, and from granting a request for damages in a § 1983 or other type of suit challenging the validity of an assess-ment, levy, or collection of taxes under state law, Fair Assessment, 454 U.S. at 113 (“Petitioners will not recover damages under § 1983 unless a district court first determines that respondents' administra-tion of the County tax system violated petitioners' constitutional rights. In effect, the district court must first enter a declaratory judgment like that barred in Great Lakes. We are convinced that such a determination would be fully as intrusive as the eq-uitable actions that are barred by principles of comi-ty”); Marvin F. Poer and Co. v. Counties of Alameda, 725 F.2d 1234, 1236 (9th Cir. 1984) (holding, in a § 1983 action, that “although the language of the [TIA] does not specifically cover actions for refund or dam-ages, federal court consideration of such cases must be barred lest the [TIA] be deprived of its full ef-fect”); see also Simmons v. Weersing, 139 F.3d 908, 1998 WL 78341, *1 (9th Cir. Feb. 19, 1998) (Unpub. Disp.) (“The [TIA] bars federal lawsuits for declara-tory and injunctive relief, and for damages”); Josephs v. Zolin, 110 F.3d 68, 1997 WL 144190, *l (9th Cir. Mar. 26, 1997) (Unpub. Disp.) (same).

HYW challenges the assessment the City imposed, the City's demand that HYW submit to an audit as a condition of maintaining its business license, and the city's entrance on its property “for the purpose of in-vestigation.” HYW contends that these acts violated its Fourth Amendment right to be free from unrea-

19a sonable searches and seizures, and from “unconstitu-tional conditions and restrictions on licensing,” as well as its Fourteenth Amendment rights under both the substantive and procedural components of the Due Process Clause.22 It seeks injunctive and declar-atory relief, as well as $1,000,000 in damages.23 Be-cause the TIA bars suits seeking injunctive, declara-tory and damages relief, HYW's claim against the City is barred if the assessment is a tax and if the City’s purportedly unreasonable search of HYW's premises and unreasonable demand to audit its books were part of the City's assessment, levying, or collection of that tax. The court considers each ques-tion in turn.

1. Whether the Assessment is a Tax

HYW argues that the court has jurisdiction to hear the case because the assessment is a regulatory fee, not a tax. It contends that the assessment was made pursuant to a regulatory scheme and included charges for interest and penalties.24 These circum-stances, it contends, make the assessment a fee ra-ther than a tax.25 It is unclear from the face of HYW’s complaint and from its opposition whether HYW seeks to challenge only the penalty and inter-est portions of the assessment, or whether it also seeks to challenge the validity of the business license tax itself. Even if HYW challenged only the penalty and interest portions of the assessment, however,

22 Complaint, ¶ 24. 23 Id., ¶¶ 1-2 (Prayer, First Claim for Relief). 24 Opposition at 4. 25 Id. at 5

20a the court would determine that the charges HYW seeks to dispute are taxes, and that the court there-fore lacks jurisdiction to hear the claim.

The Ninth Circuit has set forth three factors that a court should consider in determining whether an assessment is a tax or a regulatory fee for purposes of the TIA: “(1) the entity that imposes the assess-ment; (2) the parties upon whom the assessment is imposed; and (3) whether the assessment is expend-ed for general public purposes, or used for the regu-lation or benefit of the parties upon whom the as-sessment is imposed.” Bidart Brothers v. California Apple Commission, 73 F.3d 925, 931 (9th Cir. 1996). The circuit court recently applied the Bidart factors to a cigarette wholesaler’s lawsuit challenging Wash-ington's assessment of taxes, interest, and penalties following the wholesaler's failure to pay taxes on cigarettes she had purchased. It concluded that the action was barred by the TIA. Matheson v. Smith, __ Fed. Appx. __, 2013 WL 6816700, *1 (9th Cir. Dec. 26, 2013) (Unpub. Disp.).

Matheson sought injunctive and declaratory relief as well as damages, and alleged that Washington had discriminated against her in its enforcement of the tax scheme because she was female and Native American. Id. Applying Bidart, the Ninth Circuit held that the cigarette assessments were “imposed by the legislature upon a broad class of individuals and expended for the general public,” and were therefore “‘taxes’ under the [TIA].” Id.26 An analysis

26 At the hearing, plaintiff’s counsel argued that Matheson is not binding authority because it is not a published opinion and because it did not consider the precise question before the

21a of the Bidart factors results in the same conclusion here.

In assessing the first Bidart factor, the Ninth Cir-cuit has instructed that “[a]n assessment imposed directly by the legislature is more likely to be a tax than an assessment imposed by an administrative agency.” Id. Here, both the business license tax and the penalties and interest that were added once HYW became delinquent were imposed by the City pursuant to Section 21.03 of the LAMC, which regu-lates business taxes assessed against businesses lo-cated in the City. Section 21.03 provides, in relevant part, that

“a business tax must be paid by every person

court. The court finds neither argument persuasive. Although counsel is correct that Matheson is unpublished and therefore not binding on this court, the court disagrees that Matheson does not address the question presented here. As noted, the plaintiff in Matheson challenged a state cigarette tax, which included penalties and interest, arguing that assessment of the tax violated her constitutional rights as a female Native Ameri-can. The Ninth Circuit expressly considered whether the “as-sessment of taxes, interest, and penalties” was a tax for pur-poses of the TIA under the Bidart factors. It is true that Matheson's challenge to the tax disputed the validity of the tax as applied to her while Huang s complaint appears also to chal-lenge the procedures by which the business license tax is as-sessed and collected. This distinction is immaterial, however, in deciding whether the penalty provisions of the taxes at issue are deemed part of the tax and barred by the TIA. Because Matheson considered the precise question presented by Huang's complaint here, the Ninth Circuit's application of the Bidart factors to a local tax scheme imposing taxes, interest, and pen-alties is both instructive and persuasive. The court therefore declines to disregard Matheson in deciding this motion.

22a

engaged in any of the businesses or occupa-tions specified in this Article; and a business tax is hereby imposed in the amount pre-scribed in the applicable section. No person shall engage in any business or occupation subject to tax under the provisions of this Ar-ticle without obtaining a registration certifi-cate and paying the tax required. (b) [T]he tax required to be paid [is] hereby declared to be required pursuant to the taxing power of the City of Los Angeles solely for the purpose of obtaining revenue.” LAMC § 21.03.

Under Section 21.05(a) and (b), “all business taxes required to be paid shall be deemed delinquent if not paid on or before or within the time prescribed in this article. . . . Any person who fails to pay any tax required to be paid by this article . . . within the time required shall pay a penalty of 5% of the amount of the tax in addition to the amount of the tax.” The Code also provides for the assessment of interest when a business's license tax becomes delinquent:

“In addition to the penalties imposed, any per-son who fails to pay any tax required to be paid by this article . . . shall pay interest on the amount of the tax, exclusive of any penal-ty, from the date on which the tax first be-came delinquent until the date it is paid, dur-ing each calendar year at the rate per month, or fraction of the month, determined by divid-ing by 12 the sum of the average Federal short-term rate during the months of July, August, and September of the prior calendar year plus three percentage points.” LAMC § 21.05(e).

23a

1

Because all of the components of the assessment—tax, interest, and penalty—were imposed by the City through its enactment of the Municipal Code, the first Bidart factor indicates that the assessment is likely a tax.27

With respect to the second Bidart factor, the Ninth Circuit has said that “[a]n assessment im-posed upon a broad class of parties is more likely to be a tax than an assessment imposed upon a narrow class.” Bidart, 73 F.3d at 931. The license tax is im-posed on all businesses operating in the City. Be-cause “all businesses” is a broad category, it is likely a tax.28 Compare Matheson, 2013 WL 6816700 at *1 27 The LAMC, moreover, expressly notes that a business tax registration certificate, which businesses receive once they have paid the tax, shall state that the “person named on the face [of the certificate] has fulfilled the requirements of Article I of Chapter II of the [LAMC] by registering with the Director of Finance for the purpose of paying business tax,” and that the “certificate does not authorize the person to conduct any unlaw-ful business or to conduct any lawful business in an illegal manner.” The LAMC clarifies that the “business tax registra-tion certificate does not constitute a permit.” LAMC § 21.08(b). It is therefore clear that the City has created the business tax scheme to generate revenue rather than to regulate the behav-ior of business owners, which the City does in other ways. 28 At the hearing, Huang's attorney argued that the class of persons assessed the penalty was small: i.e., a class of one. The Matheson court, however, interpreted this Bidart factor differ-ently. As noted, it considered the class of persons the statutory scheme regulates as a whole, not the number of taxpayers upon whom individual fees are imposed under the scheme. The court agrees with the holding in Matheson. In any tax case, the amount of tax, penalty, other fees, or combination of taxes, penalties, and other fees could be said to have been assessed just against the individual taxpayer because they likely vary depending upon the circumstances of the individual taxpayer.

24a (holding that all purchasers of cigarettes was a broad class) with Qwest Communications Corp. v. City of Berkeley, 146 F. Supp. 2d 1081, 1091 (N.D. Cal. 2001) (holding that “service providers seeking installation of telecommunications equipment and conduits[ ] [was] a narrowly defined target class”); Bidart, 73 F.3d at 931-32 (holding that “apple pro-ducers” was a narrow class).

Finally, the Ninth Circuit has instructed that in evaluating the third Bidart factor, “[a]ssessments treated as general revenues and paid into the state's general fund are taxes. An assessment placed in a special fund and used only for special purposes is less likely to be a tax. . . [E]ven assessments that are segregated from general revenues are ‘taxes’ under the TIA[, however,] if expended to provide 'a general benefit to the public.'” Bidart, 73 F.3d at 932. Thus, in Wright v. McClain, 835 F.2d 143 (6th Cir. 1987),

It appears, however, that the purpose of the Bidart factors is to weed out those amounts assessed against a small percentage of individuals, such as the class of apple producers at issue in Bi-dart, from amounts that are assessed against the populace more generally. Under Huang's proposed approach, almost any taxpayer could argue that only a narrow class of people (or a class of one) was assessed the particular combination of fees it was assessed because of its peculiarly individual circumstanc-es. The court declines to adopt this approach. Even if it did, however, the second Bidart factor is not determinative. Be-cause, in this case, the other two Bidart factors favor a finding that the fees at issue here are taxes, the court would reach the same conclusion. See Bidart, 73 F.3d at 932 (“The Commission assessments in the case at bar are imposed only upon apple producers. This narrow imposition weighs in favor of [a finding that the assessments are fees], but like the nature of the entity imposing the assessment, [this] is not dispositive”).

25a which the Bidart court cited with approval, the Sixth Circuit held that an assessment imposed on parolees was a tax under the TIA even though it was ear-marked for the Corrections Department budget be-cause it was used for purposes related directly to the general welfare, i.e., monitoring parolees and com-pensating victims. Id. at 144-45. By contrast, the Bi-dart court held that an assessment that was placed in a segregated fund, used only for Apple Commis-sion purposes, and earmarked for return to the apple producers if the Commission was terminated, was not a tax. 73 F. 3d at 932.

Here, the money collected by the City under the business license tax ordinance is deposited into the City's General Fund. Section 302 of the Los Angeles Charter states that “[a]ll revenues and receipts which are not by law or Charter pledged or encum-bered for special purposes shall be credited to the General Fund.” Because the business license tax revenue collected by the City—taxes, interest, and penalties—is not pledged or encumbered for special purposes, and is deposited into the City's General Fund, this indicates that it is a tax rather than a regulatory fee. All of the Bidart factors therefore weigh in favor of a finding that the business license assessment is a tax. Just as the Matheson court de-cided that the taxes, interest, and penalties Wash-ington assessed on cigarette purchasers were a tax, the court concludes that the taxes, interest, and penalties assessed against city businesses, including HYW, constitute a tax.29

29 At the hearing, HYW's counsel argued that the Supreme Court's decision in National Federation of Independent Busi-

26a

As the parties note, there is a circuit split as to whether penalties added to delinquent taxes are considered taxes under the TIA. The Seventh Circuit has held that such charges are not taxes, and that the TIA does not bar federal courts from exercising jurisdiction over actions that challenge them; the Seventh Circuit reached this conclusion because such amounts are assessed “so that delinquent tax debtors will be deterred the next time around from ignoring their legal obligations.”30 RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix Bond & Indem. Co., 169 F.3d 448, 457 (7th Cir. 1999). The Fifth Cir-cuit, by contrast, has held that a penalty charged in ness v. Sebelius, 132 S.Ct. 2566, 2582-84 (2012), in which the Court held that a challenge to the individual mandate of the Patient Protection and Affordable Care Act (“PPACA”) was not barred by the Anti-Injunction Act (“the AIA”), is binding on this court, and calls Bidart into question. The AIA, 26 U.S.C. § 7421(a), bars litigation to enjoin or obstruct the collection of any federal tax. In National Federation, the Court concluded that the fee assessed individuals under the individual mandate clause of the PPACA was a penalty because the Act did not re-quire that the penalty be treated as a tax for purposes of the Anti-Injunction Act. Id. at 2584. Section 7421(a) is not based on principles of comity like the TIA is, however, and there is no indication that the court's holding in National Federation over-rules Bidart. Considering, moreover, that the Ninth Circuit applied the Bidart factors to consider whether the TIA barred the plaintiff’s suit in Matheson, and that that case was heard after the Supreme Court's decision in National Federation, it appears that Bidart remains binding authority. 30 There does not appear to be a circuit split as to whether in-terest charges are taxes; even the RTC court agreed that inter-est charges were “nothing more than an adjustment for the de-lay in payment [and so should] logically be considered as part of the tax itself.” Id. at 457.

27a connection with a delinquent tax account is part of the tax because it “is inexorably tied to the tax col-lection itself, which 'sustains the essential flow of revenue to the government . . . [and because the TIA prohibits] . . . federal district courts . . . from decid-ing disputes involving tax related concepts or func-tions.” Washington v. Linebarger, Goggan, Blair, Pena & Sampson, 338 F.3d 442, 444 (5th Cir. 2003). Given the holding of the Matheson court, which in-cluded penalties as part of the tax, and did not hold that they were a separate regulatory fee imposed to promote prompt payment of taxes, it appears that the Ninth Circuit would find the reasoning of Line-barger more persuasive than that of RTC.

RTC, moreover, appears to be in tension with the precedent by which this court is bound: in determin-ing that the penalty was a regulatory fee as opposed to a tax, the RTC court considered only one ques-tion—the motivational purpose behind imposition of the penalty. It did not apply the three-factor Bidart test that is binding in this circuit. Even were the court to consider the motivational purpose behind imposition of the penalty, moreover, it would likely come to a conclusion contrary to that of the RTC court when considering the business license tax pen-alty here. In considering the purpose behind the fee at issue in RTC, the Seventh Circuit determined that the Illinois legislature had created the penalty for deterrent effect. RTC, 169 F.3d at 457. It there-fore held that the penalty was “a regulatory device” rather than a tax because its purpose was to modify behavior rather than raise revenue.

While it is true that all penalties likely have a de-terrent, regulatory effect in that they motivate indi-

28a viduals to pay taxes in a timely fashion, the City does not appear to have been motivated by a desire to deter businesses when it enacted the penalty pro-visions of the business license tax ordinance at issue here. As noted, the LAMC specifically states that the business license tax was passed pursuant to the City's taxing power and that charges are assessed under that scheme “solely for the purpose of obtain-ing revenue.” LAMC § 21.03(b). The penalty provi-sion states, moreover, that “[f]or collection purposes [ ], every penalty imposed and the interest that is ac-crued under the provisions of this section shall be-come a part of the tax required to be paid.” LAMC § 21.05(t). The court cannot conclude, therefore, that the City intended that the penalty provisions of its business license tax ordinance would serve a regula-tory, rather than a revenue-generating, purpose.

For all of these reasons, the court concludes that the business license tax, as well as the interest and penalty assessments added to it, are taxes as op-posed to regulatory fees for purposes of the TIA. Consequently, under any construction of HYW's complaint—whether it is read as challenging the tax in combination with the interest and penalties, or whether it is construed simply as a challenge solely to the interest and penalties—the court is barred by the TIA from exercising jurisdiction over any aspect of HYW's § 1983 claim, which is based fundamental-ly on the assertion that the assessment is invalid.

Stated more precisely, to the extent that HYW's § 1983 claim contests the actual assessment of tax, in-terest, and penalties, it is clearly barred by the TIA and is dismissed with prejudice. As noted, the § 1983 claim also challenges the City's request to audit

29a HYW's books and its allegedly unreasonable search of HYW's property. HYW argues that this conduct is not part of the City's process of assessing, levying, or collecting taxes and is therefore not barred by the TIA.31 The court addresses this issue below.

2. Whether the Audit Request and the Search of HYW's Premises Were Part of the Assessment, Levying, or Collection of a Tax

The City's right to audit business records in con-nection with the collection of business license taxes is set forth in the LAMC. Section 21.15(c) provides:

“The Director of Finance and the City Control-ler, and deputies of each of them, shall have the power to audit and examine all books and records, and, where necessary, all equipment, of any person engaged in business in the City for the purpose of ascertaining the amount of business tax, sales or use tax, if any, required to be paid by the provisions hereof[.] . . . If such person, after written demand by the Di-rector of Finance or City Controller, or a depu-ty of either, refuses to make available for au-dit, examination or verification such books, records or equipment as the Director of Fi-nance, City Controller, or deputy of either, re-quests, the Director of Finance may, after full consideration of all information within his knowledge concerning the business and activi-ties of the person so refusing, make an as-

31Opposition at 6-7.

30a

sessment in the manner provided in Sec. 21.16 of any taxes estimated to be due.” LAMC § 21.15(c).

Based on HYW's allegations, the City followed this procedure in assessing the tax against HYW. The City requested an audit of HYW's books, HYW refused, and, as a result; the City assessed taxes based on the knowledge it possessed.

Courts have held that the process of auditing a taxpayer is clearly part of the government's assess-ment of a tax. In Jerron, the Ninth Circuit consid-ered a request to enjoin the State Board of Equaliza-tion from prosecuting sales tax collection proceed-ings during the pendency of a federal criminal inves-tigation because, inter alia, the proceedings allegedly violated the taxpayers' Fourth Amendment right against illegal searches and seizures. The court re-viewed California's statutory scheme for setting the amount of sales tax, and noted that “[t]he Board ini-tially conducts an audit and then issues a notice of its determination. The taxpayer can [then] petition the Board for a redetermination of that assessment.” Jerron, 129 F.3d at 1337. In determining that the TIA barred Jerron’s claim, the Ninth Circuit recog-nized that audits are part of a government's assess-ment of taxes, and described the audit process as part of California's “assessment procedure.” Id.

Likewise, in Blangeres v. Burlington Northern, Inc., 872 F.2d 327, 328 (9th Cir. 1989), the Ninth Circuit held that it could not enjoin the production of certain records of earnings by an employer to the state taxing authorities because doing so would pre-clude the state from taxing the employees, as the au-thorities would not have the information necessary

31a to make the assessment. In Washington Trucking Association v. Trause, No. C 11-1223RSM. 2012 WL 585077, *3 (W.D. Wash. Feb. 21, 2012), the district court held that a suit seeking injunctive and declara-tory relief, the goal of which was to prevent the state “'from conducting further audits of [the plaintiffs) and issuing assessments” against them, was barred by the TIA because it was a suit seeking to prohibit the assessment and collection of taxes. As in Jerron, Blangeres, and Washington Trucking, if HYW pre-vailed on its claim that the City's request to audit its books was unconstitutional, any resulting order that prohibited the City from auditing HYW would have the effect of restraining the City's assessment of tax-es. For that reason, HYW's challenge to the City's demand that it be permitted to audit HYW's books is barred by the TIA and that aspect of its § 1983 claim must be dismissed with prejudice.

The remaining aspect of HYW's § 1983 cause of action is its claim that the City conducted an uncon-stitutional search of its property when a City official “entered onto the property without HYW's consent or a warrant for the purposes of investigation of the property” in September 2013.32 HYW contends that this aspect of its claim is not barred by the TIA be-cause the City entered the property after assessing and levying the tax.33 HYW does not assert, howev-er, that the City was not trying to collect the tax when it undertook a search of HYW’s premises. The allegations in the complaint, moreover, support an inference that a City official entered the property in

32 Complaint, ¶ 20. 33 Opposition at 7.

32a furtherance of the City's attempt to collect the as-sessment, because a month after having entered the property, the City informed HYW that it was go-ing.to record an administrative lien against the property.34

The LAMC provides that “[t]he Director of Fi-nance may record liens against property to collect unpaid taxes, interest, and penalties upon the ex-haustion of the administrative process to determine the amount of such liabilities under this Chapter. Such liens may be recorded against real property used in connection with activities that generated the tax liability[.]” LAMC § 21.15(o). The Supreme Court has recognized that “enforcement methods such as tax liens and levies” are methods of “collect[ing] the outstanding tax.” Hibbs, 542 U.S. at 102. The Ninth Circuit has likewise recognized that liens are a form of collection activity. Air Polynesia, Inc. v. Freitas, 742 F.2d 5461 547 (9th Cir. 1984) (describing the process of foreclosing on tax liens as part of the “tax collection proceedings”).

It makes no difference for purposes of the TIA, moreover, that the City official entered the property without a search warrant. In Comenout v. State of Washington, 722 F.2d 574, 577-78 (9th Cir. 1983), the Ninth Circuit held that a complaint seeking to recover confiscated cigarettes and liquor bottles that did not have the stamps required by the tax code and seeking to enjoin the state from entering onto the plaintiff's property in the future was barred by the TIA. The court stated that “[o]bviously the relief re-quested by the plaintiffs, if granted, would interfere 34 Complaint, ¶ 21.

33a with the enforcement of the state tax scheme and [the suit] is therefore barred by section 1341.” Id. at 578. Although the goods had been confiscated pursu-ant to a search warrant, the court held that the plaintiff s claims for unlawful arrest and assault were barred by the TIA because the “gravamen of the[ ] complaint is the state's attempt to enforce its cigarette and liquor taxes on [the plaintiff's] proper-ty. In these circumstances, maintenance of this suit against the Director of the Department of Revenue and the Chairman of the Liquor Control Board would intrude on the enforcement of the state scheme.” Id. In Comenout, as in this case, the plain-tiff was challenging the constitutionality of “state procedures to enforce the . . . tax,” rather than the constitutionality of the tax itself.35

35At the hearing, plaintiff's counsel argued that the Second Cir-cuit's decision in Luessenhop v. Clinton County, New York, 466 F.3d 259 (2d Cir. 2006), compelled a different result because like the plaintiffs in Luessenhop, HYW asserts that the City's business license tax assessment and collection procedures vio-late its federal constitutional rights. In Luessenhop, plaintiffs sued a county, arguing that the government had foreclosed on their property to collect a tax delinquency without providing adequate notice of the foreclosure. The Second Circuit held that the TIA did not bar the case because the taxpayers were not “attempting to avoid paying state taxes. They are willing to pay the full amount of their property taxes, both current and back. Likewise, the taxpayers do not contest the government’s au-thority to collect property taxes, nor do they dispute the as-sessments or amounts owed. Therefore, these cases do not raise the specter of federal courts reducing the flow of money into state coffers—the evil that the TIA was intended to eradicate.” Id. at 268. Luessenhop is distinguishable because HYW chal-lenges not only certain City actions that were purportedly un-constitutional but also the validity of the assessments them-

34a

Based on this authority, if a City official entered the property in furtherance of the City's investiga-tion concerning the filing of a lien or other method of collection, a challenge to that action would be barred by the TIA.36 As the complaint does not allege that the official entered the property for a reason unre-lated to the assessment, levying, or collection of the tax and as HYW bears the burden of adequately al- selves. Even if Luessenhop were not distinguishable, moreover, the court is bound by the Ninth Circuit precedent it has cited, including Jerron, Blangeres, and Comenout. All of these cases indicate that a challenge to a state's procedures for assessing, levying, and collecting taxes, even constitutional challenges, are barred by the TIA. See also Fair Assessment v. McNary, 454 U.S. 100, 107 & n. 4 (1981) (declining to decide whether the TIA barred a § 1983 action seeking damages based on an alleg-edly unconstitutional tax procedure, finding that principles of comity barred federal courts from hearing such cases, and stat-ing that “taxpayers are barred by the principles of comity from asserting § 1983 actions against the validity of state tax sys-tems in federal courts. Such taxpayers must seek protection of their federal rights by state remedies”).

At the hearing, counsel also cited Patel v. City of San Bernar-dino, 310 F.3d 1138 (9th Cir. 2002), and asserted that the Ninth Circuit's decision in that case supported the view that constitutional challenges to the City's collection procedures were not barred by the TIA. Patel, however, held that a taxpay-er who had already obtained a state court judgment finding a tax unconstitutional could, without running afoul of the TIA, prosecute a federal claim for damage based on the City 's collec-tion of taxes because the state court had found the tax invalid. Patel is not controlling here, as HYW never filed suit in state court. Instead, it filed this federal action. HYW has a plain, speedy, and efficient remedy in state court that it must pursue· in that forum. 36 It is possible that the City official entered the property to the propriety of assessing a new tax. This conduct, too, would be barred by the TIA.

35a leging that the court has jurisdiction, the court con-cludes that, based on the present pleading, it does not have jurisdiction to hear HYW's Fourth Amend-ment claim. For that reason, the court grants the City's motion to dismiss. Although the court indicat-ed that it intended to give HYW leave to amend in the event it was able to allege that the City official's entrance onto its property was unrelated to the city's assessment, levying, or collection of the business li-cense tax assessment,37 its attorney stated at the hearing that he did not believe any amendment was possible.

III. CONCLUSION

For the reasons stated, the City's motion to dis-miss is granted. HYW's complaint is dismissed for lack of subject matter jurisdiction. Because the TIA precludes the court from hearing claims alleging that the City's assessment of a tax (including inter-est and penalties) and its request to audit HYW's books are unconstitutional, the court dismisses these aspects of HYW's § 1983 claim with prejudice. The TIA also precludes the court from adjudicating HYW's claim that the City violated its Fourth Amendment rights by entering its property to the extent that the official’s entrance onto the property was connected to the City's assessment, levying, or

37 Because it appears the court lacks subject matter jurisdiction to hear HYW' s claim that the City conducted an unreasonable search of its property, the court declines to address the City’s argument that HYW has not adequately alleged a Fourth Amendment violation. (See Motion at 9.)

36a collection of a business license tax. The court dis-misses this aspect of HYW's § 1983 claim with leave to amend because there is a possibility that HYW can truthfully allege that the City's entry onto its land was unrelated to its assessment, levying or col-lection of a tax. This is the only claim that can be al-leged in an amended complaint. Although, as noted, counsel indicated at the hearing that he did not be-lieve HYW could amend this aspect of its claim, the court nonetheless affords HYW twenty days to amend the complaint in the event it has reevaluated its ability to amend. If HYW remains of the view that it cannot amend, it is directed to file a notice stating that it elects to stand on the complaint with-in the same twenty day period. If such a notification is filed the complaint will be dismissed and judg-ment will be entered for defendant.

DATED: March 10, 2014

MARGARET M. MORROW UNITED STATES DISTRICT JUDGE

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APPENDIX C

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

ROGER HUANG, on behalf of HYW LIMITED PARTNERSHIP, Plaintiff,

vs. CITY OF LOS ANGELES, a municipal corporation; AND DOES 1 THROUGH 10 INCLUSIVE, Defend-

ants.

CASE NO. CV 13-07698 MMM (AJWx)

JUDGMENT FOR DEFENDANT

On March 10, 2014, the court granted defendant City of Los Angeles’ motion to dismiss plaintiff HYW Limited Partnership’s (“HYW”) complaint with leave to amend. On March 14, 2014, HYW filed a notice of election not to amend in accordance with the proce-dure for doing so set forth in Edwards v. Marin Park, Inc., 356 F.3d 1058, 1063-64 (9th Cir. 2004), and WMX Technologies, Inc. v. Miller, 104 F.3d 1133, 1136 (9th Cir. 1997) (en banc). Accordingly,

IT IS ORDERED AND ADJUDGED

1. That plaintiff take nothing by way of its com-plaint; and

2. That the action be, and it hereby is, dismissed.

DATED: March 31, 2014 MARGARET M. MORROW UNITED STATES DISTRICT JUDGE

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APPENDIX D

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

ROGER HUANG, General Partner on behalf of HYW LIMITED PARTNERSHIP, Plaintiff-Appellant,

v. CITY OF LOS ANGELES, a municipal corporation,

Defendant-Appellee.

No. 14-55400 D.C. No. 2:13-cv-07698-MMM-AJW

April 12, 2016

Before: FARRIS, CLIFTON, and BEA, Circuit Judg-es.

The panel has voted to deny the petition for panel rehearing. Judges Clifton and Bea have voted to de-ny the petition for rehearing en banc, and Judge Farris has so recommended.

The full court has been advised of the petition for rehearing en banc and no judge has requested a vote on whether to rehear the matter en banc. Fed. R. App. P. 35.

The petition for panel rehearing and petition for rehearing en banc are denied.