CHICAGO — A federal judge in Illinois won’t get involved with a legal entanglement pitting a suburban woman who sells clothes online and the state of California, which seized thousands of dollars from her bank account in a sales tax dispute.
Isabel Rubinas runs Lollipop Seeds, a children’s clothing business, from her Glen Ellyn home, with most of her sales going through Amazon, according to a Sept. 16 opinion from Judge Edmond Chang. After California forcibly recovered back taxes for purchases of Rubinas' merchandise made by that state’s residents, Rubinas filed a federal lawsuit in Chicago hoping the court would intervene on her behalf.
After Chang denied Rubinas’ motion for a temporary restraining order, she requested a preliminary injunction forcing California to return the money it already seized from her bank account and barring the state from claiming any more assets. Saying she should’ve sued in California state court, Chang again denied Rubinas’ request.
California Attorney General Rob Bonta
“There is still no doubt that this case presents challenging questions of tax law and fundamental fairness,” Chang wrote in his opinion. “But Rubinas’s claims for injunctive relief cannot succeed because this Court lacks subject matter jurisdiction to hear her case. The California state court system — and ultimately the United States Supreme Court — is where Rubinas must present her claims.”
According to Chang, Rubinas participates in the Fulfilled by Amazon program, through which she ships products directly to Amazon, which then can ship her items to its warehouses throughout the country, without her input. Amazon also processes sales, collects payments and ships goods to customers, then pays Rubinas after deducting its share.
Rubinas said California didn’t tell her until July 2019 that she had to collect tax on sales to California customers. She then paid more than $2,600 for that tax year, and in January 2020 had her accountant file sales and use tax returns for 2017 and 2018. which showed she owed more than $7,200. At that point Rubinas told the California Department of Tax and Fee Administration she couldn’t pay.
Although the state offered to put Rubinas on a payment plan, it accused her of avoiding contact from March through December 2020, at which point the state said it would pursue collections. The state then placed a levy on Rubinas’ Chase bank account and eventually began seizing assets.
Chang said Rubinas’ requests for judicial intervention failed because the federal Tax Injunction Act prevents a U.S. district court from interfering with state tax collection so long as “a plain, speedy and efficient remedy may be had” in that state’s legal system. He said California code satisfies each of those three statutory requirements, foreclosing him from taking any action in the Northern District of Illinois.
Although Rubinas argued she had standing to invoke the Internet Tax Freedom Act, which would pre-empt the Tax Injunction Act, Chang said he could only consider that position if he first determined he had subject matter jurisdiction over her complaint.
“But there is no textual basis for an exception like that,” Chang wrote. “The Tax Injunction Act has been around for over 80 years, and no exception for claims based on preemption has been carved into the Act.”
Even if Chang determined he did have jurisdiction and were to rule in Rubinas’ favor, California could invoke the doctrine of soverign immunity, precluding the return of the money it already seized.
Chang further said Congress could have written an exception into the Internet Tax Freedom Act, but did not do so. The judge noted several instances in which the U.S. Ninth Circuit Court of Appeals and the U.S. Supreme Court rejected challenges to California’s tax refund procedures.
Ultimately, Chang said, Rubinas’ proper path is suing California in California under the Internet Tax Freedom Act. He dismissed her complaint.
Rubinas has been represented by attorneys Aaron Karl Block, of The Block Firm, of Atlanta; Paul S. Rafelson, of Rafelson Schick, of Boca Raton, Florida; and Paul K. Vickrey, of the firm of Vitale, Vickrey, Niro, Solon & Gasey, of Chicago.
California was represented by attorneys with the office of the California Attorney General.