Appeals Court Rejects PPACA Challenge On Jurisdictional Grounds

The Fourth Circuit Court of Appeals has set aside a ruling by a Virginia federal court that upheld the validity of the Patient Protection and Affordable Care Act (PPACA) (P.L. 110-148). The appeals court determined that the Anti-Injunction Act, a tax code provision that bars any court action to restrain the assessment or collection of any tax, deprived the federal courts of the power to decide the case. The court found that the penalties provided for failure to comply with the  individual mandate and employer mandate, are taxes for purposes of the Anti-Injunction Act (AIA).

Both sides agreed that the AIA should not apply because the assessable amount for employers and the penalty for individuals were penalties, not taxes. They argued that Congress had specifically changed the word “tax” to “penalty”, reflecting an intent not to treat the charges as taxes. However, the court ruled, a tax, for purposes of the AIA, is any exaction for the support of the government. It doesn’t matter what Congress calls it, or what intent it might have expressed. As the court interpreted Supreme Court precedent, any exaction assessed by the Treasury Secretary under the authority of the Internal Revenue Code is a tax for purposes of the AIA even if its purposes is regulatory. The court noted that a charge could be a tax under the AIA but an invalid penalty in another context because the purpose of the AIA is to prevent disgruntled taxpayers from interfering with the orderly collection of revenue.  The taxpayer’s remedy is to pay the tax and apply for a refund, not to enjoin the agency from sending a bill.

The court’s ruling does not reflect either a favorable or an unfavorable view of PPACA. However, two of the three judges on the panel expressed opinions on the validity of the law. The concurring judge, who agreed that the AIA barred the court from hearing the case, stated that if he did reach the merits he would rule that the law is a valid exercise of the power of Congress to levy taxes for the general welfare. The third judge, who dissented, believed that the AIA did not apply to the case at all; he would have upheld the mandates as within the power of Congress to regulate interstate commerce.  These judges’ statements have no legal effect but may provide a clue about the courts’ treatment of the case when the issue is properly presented in the future.

Liberty University Inc. v. Geithner