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Published by Jake Leahy

Federal Jurisdiction Barred: Tax Injunction Act Precludes Federal Court for Interest-Only State Tax Case (DeMartino v. New York, 2nd Cir.)

Second Circuit affirms the dismissal of lawsuit arising from unpaid interest, when the principal tax was paid in full. Tax Injunction Act requires DeMartino's claim to be litigated only in state court due to Tax Injunction Act.
DeMartino v. New York (2nd Cir. Tax Injunction Act)
May 10, 2023

I had the chance to attend this oral argument at the Second Circuit Court of Appeals in the beginning of March. I had an open morning so I went to the court to see oral arguments, I didn’t have the chance to look at the cases beforehand, but to my surprise there was a Tax Injunction Act / SALT case being heard.

There was a group of about 20-30 high school students next to me attending the oral argument. There was another case that involved an employment discrimination suit brought by a Hispanic police officer, perhaps the high school students were more interested in that case than about federal jurisdiction for a state tax case.

At oral argument, the crux of the conversation addressed whether interest is a tax. It was an intriguing discussion about an interesting topic. I was not surprised to see the Second Circuit agree with the decision below and with the State, although the monies in question are exclusively interest payments, rather than the principal.


DeMartino’s company, TADCO Construction, failed to pay $20,000 in withholding taxes to the New York State Department of Taxation and Finance in 2005. After some payments, the remaining balance was assessed against DeMartino as a “responsible person,” and he made payments against this personal assessment over ten years, bringing his personal balance to zero. Later, he discovered that a balance remained on the TADCO account and alleged that it was “manufactured . . . out of thin air” and in violation of the Eighth Amendment. However, the district court dismissed his complaint on the ground that the Tax Injunction Act and comity barred jurisdiction over his claim. HELD: 

The district court dismissed the case for lack of jurisdiction, reasoning that the Tax Injunction Act precluded the case from proceeding in federal court. In reviewing whether dismissal was proper, the question in from the Second Circuit was whether the assessments against TADCO were taxes (under the Tax Injunction Act), and whether the comity doctrine precludes federal jurisdiction. 


DeMartino claims that in the “responsible person” assessment against him, the amount billed was the entire amount of tax and interest that had been assessed against TADCO. DeMartino paid off the account in full, which he claims should have resulted in TADCO having no further tax obligation. He infers that the remaining balance must have been manufactured by the government. 

The New York Department of Finance and Taxation disputes portions of DeMartino’s characterization of the events. New York claims that it is policy to only assess the principal balance against the Responsible Person, not the interest; therefore, the amount owed by the company, but not him as responsible person, was always larger. 


To show that the federal courts have subject matter jurisdiction, the burden is on the party asserting jurisdiction to prove it by a preponderance of the evidence. The court found in favor of New York, for several reasons. 

First, the court was not convinced about the plausibility of DeMartino’s argument. DeMartino paid the tax warrant and claimed that he understood this to pay TADCO’s amount in full. However the tax warrant issued against TADCO months earlier was for $19,094.90, while the amount later issued against him as a responsible party was only $16,728.72. Because the full amount would have been at least as high as the amount assessed TADCO, the Second Circuit found his argument to be implausible. 

The second factor weighing in favor of New York is that at the time, State law did not permit interest accrued to be included in the Responsible Person assessment; this statute was later amended, changing the law from the “total amount . . . not collected,” to “the interest that has accrued on the total amount of tax . . .”

Pulled together, the Second Circuit found insufficient evidence to determine that the monies assessed by New York were anything more than the principal balance due. 


The Tax Injunction Act creates a high bar to being a state tax case to federal court, reading, that a federal court “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” 28 U.S.C. § 1341. The question here is whether the interest assessed against DeMartino constitutes a tax under the Tax Injunction Act. 

The factors to consider whether a lab amount due is a tax under the Tax Injunction Act is “(1) the nature of the entity imposing the assessment, (2) the population subject to the assessment, (3) the ultimate allocation or use of the revenues generated by the assessment.” (Citing Assoc. for Accessible Meds. v. James, 974 F.3d 216, 222 (2d Cir. 2020). 


The Second Circuit upheld the district court’s dismissal of DeMartino’s case on the grounds of lack of jurisdiction. The court determined that the assessments made against TADCO were indeed taxes under the Tax Injunction Act, and the comity doctrine further barred federal jurisdiction over DeMartino’s claim.

The court considered the nature of the entity imposing the assessment, the population subject to the assessment, and the ultimate allocation or use of the revenues generated by the assessment. In this case, the assessments were made by the New York State Department of Taxation and Finance, a governmental entity responsible for collecting taxes. The population subject to the assessment was TADCO, a construction company owned by DeMartino, and DeMartino himself as a responsible person. The revenues generated from the assessment were used to fulfill TADCO’s tax obligations.

Additionally, the court found that DeMartino’s argument lacked plausibility. Although he claimed to have paid off the tax warrant issued against TADCO in full, the amount assessed against him as a responsible person was lower. Moreover, New York’s policy only assessed the principal balance against responsible persons, not the interest. Therefore, the court concluded that there was insufficient evidence to support DeMartino’s allegation that the remaining balance on the TADCO account was manufactured by the government.

Considering the provisions of the Tax Injunction Act, which preclude federal courts from interfering with the assessment, levy, or collection of state taxes when a plain, speedy, and efficient remedy is available in state courts, the Second Circuit determined that DeMartino’s case did not meet the criteria for federal jurisdiction. Therefore, the district court’s dismissal of the case was upheld.

In conclusion, the court’s decision affirms the dismissal of DeMartino’s claim, emphasizing the jurisdictional limitations imposed by the Tax Injunction Act and the comity doctrine.

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