The Sixth Circuit recently vacated a district court’s grant of a preliminary injunction preventing enforcement of Ruling 2010-4 by the Department of Treasury, Alcohol and Tobacco Tax and Trade Bureau, and it remanded the action to the district court with instructions to dismiss. Ruling 2010-4 deemed retailers that offered roll-your-own cigarette machines to be “manufacturers of tobacco products” within the meaning of 26 U.S.C. § 5702(d) and subjected the retailers to the same permit requirements and taxes as mass manufacturers. Several companies brought suit claiming that the Ruling was an incorrect interpretation of § 5702(d). But in a unanimous opinion written by Judge McKeague, the panel held not only that the underlying controversy had been mooted by a new federal law signed by President Obama, but also that the district court’s exercise of jurisdiction was barred by the Anti-Injunction Act. See Opinion, RYO Machine, LLC, et al. v. U.S. Department of Treasury, et al. (6th Cir. Case No. 11-3163) (PDF).
On July 6, 2012, President Obama signed into law the Moving Ahead for Progress in the 21st Century Act. This new transportation funding law amended the definition of “manufacturers of tobacco products” to include retailers who make roll-your-own machines available to customers. As the Sixth Circuit observed, the new Act achieved “the same result” as Ruling 2010-4, thus mooting the underlying controversy with regard to roll-your-own tobacco removed after its enactment. As Judge McKeague wrote, “[b]ecause there is now no question as to the proper interpretation of § 5702(d) as amended, it appears there is no longer any live controversy between the parties with respect to tobacco removed after the amendment’s enactment.”
The Sixth Circuit also held that the district court’s injunction had to be vacated in its entirety because the district court’s exercise of jurisdiction was barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a) (the “AIA”). The AIA provides that, except for certain narrow exceptions, “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.” 26 U.S.C. § 7421(a). The Sixth Circuit determined that the plaintiffs’ claims fell within the purview of the AIA because the purpose of Ruling 2010-4, and the permitting requirements that go with it, “is to clarify the taxation status of retailers who offer high-speed rolling machines to customers so that the Bureau can enforce the excise tax. It follows that the Companies’ complaint is directed at the assessment and collection of taxes, and comes within the ambit of the AIA.” The Sixth Circuit ultimately held that “because no exception to the AIA applies, the district court should have dismissed this case for lack of jurisdiction.”
