Textron, Inc., has filed a petition for certiorari seeking review by the U.S. Supreme Court of the First Circuit’s en banc decision in United States v. Textron, Inc., 577 F.3d 21 (1st Cir. 2009). The First Circuit held that Textron’s tax accrual workpapers were not protected under the work product privilege because the documents were routinely required for non-litigation business reasons and were not “prepared for use in” litigation. In its certiorari petition, Textron emphasizes the split among the circuit courts as to the proper test to apply in determining whether documents are prepared “in anticipation of litigation” under Federal Rule of Civil Procedure 26(b)(3), with some circuits looking to whether the documents were prepared “because of litigation” and others looking to whether the “primary motivating purpose” of the document was to assist in litigation. We will continue to monitor this case, and we invite you to contact us for more information on the work product doctrine as applied by the States.

The U.S. Supreme Court agreed to hear (whoo hoo!) Levin v. Commerce Energy, Docket No. 09-223, which involves the question of federal jurisdiction over state controversies. The Ohio Department of Revenue has asked the Court to determine whether a federal court’s jurisdiction over a state tax case, which arguably is not barred by the Tax Injunction Act, should nevertheless be barred based on the principle of “comity.” The comity doctrine, which the Tax Injunction Act reflects, generally prohibits federal court jurisdiction over cases that unduly intrude into state sovereignty interests. In an earlier case, Hibbs v. Winn, 542 U.S. 88 (2004), the Court held that the Tax Injunction Act’s bar did not apply to a challenge to a state tax credit, because the taxpayer was seeking only to bring more money into state coffers rather than interfering with state tax collections. In Levin, the U.S. Court of Appeals for the Sixth Circuit applied the same principle to a federal court challenge to Ohio’s allegedly discriminatory sales tax exemption favoring local gas distribution companies over interstate marketers. In so doing, the Court of Appeals rejected the views of other U.S. Courts of Appeals that the comity doctrine nevertheless bars federal court jurisdiction as an inappropriate intrusion into state tax controversies, even if the Tax Injunction Act does not bar the action under Hibbs v. Winn. The Court granted certiorari to resolve this conflict. Amicus briefs in support of the state were filed by the Multistate Tax Commission and by a number of states. Oral Argument is scheduled for March 22, 2010. If you are coming to town for the argument, let us know.

A taxpayer has asked the Court to determine whether the Due Process Clause barred a state court from limiting the application of its decision in favor of the taxpayer on a state law issue on prospective only basis. Exelon Corp. v. Illinois Department of Revenue, Docket No. 09-759, Cert. Petition filed December 22, 2009; response due January 28, 2010. The Illinois Supreme Court held that the taxpayer was entitled to investment tax credits, based on its determination (long denied by the Department of Revenue) that electricity was tangible personal property. After a request by the Department for a rehearing, and without affording the taxpayer an opportunity to respond, the state court modified its initial decision to apply its interpretation on a prospective basis only; therefore, depriving the taxpayer of any “backward looking relief.” The result was to deny the taxpayer the right to $80 million of credits to which (with the benefit of hindsight) it was entitled for a fourteen-year period. This case raises important issues associated with states limiting (or eliminating) refunds of illegally collected taxes, including the question whether the Supreme Court’s decision in Great Northern Railway Co. v. Sunburst Oil & Refining Co., 287 U.S. 358 (1932), holding that state court prospective-only decisions on state law issues do not implicate the Due Process Clause can be reconciled with U.S. Supreme Court decisions holding that retroactive legislation can violate substantive due process principles. See United States v. Carlton, 512 U.S. 26 (1994).