The Tax Injunction Act does not remove jurisdiction from federal courts to enjoin the enforcement of a tax law's notice and reporting requirements, since it applies only to the assessment, levy, or collection of taxes, which are separate phases in the taxation process that happen after the notice and reporting phases.
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .
Colorado requires residents who purchase tangible personal property from a retailer that does not collect sales or use taxes to file a return and remit those taxes directly to the State Department of Revenue. To improve compliance, Colorado enacted legislation requiring noncollecting retailers to notify any Colorado customer of the State s sales and use tax requirement and to report tax-related information to those customers and the Colorado Department of Revenue.
Petitioner, a trade association of retailers, many of which sell to Colorado residents but do not collect taxes, sued respondent, the Director of the Colorado Department of Revenue, in Federal District Court, alleging that Colorado s law violates the United States and Colorado Constitutions. The District Court granted petitioner partial summary judgment and permanently enjoined enforcement of the notice and reporting requirements, but the Tenth Circuit reversed. That court held that the Tax Injunction Act (TIA), which provides that federal district courts 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, deprived the District Court of jurisdiction over the suit.
Held: Petitioner s suit is not barred by the TIA. Pp. 4-13.
(a) The relief sought by petitioner would not enjoin, suspend or restrain the assessment, levy or collection of Colorado s sales and use taxes. Pp. 4-12.
(1) The terms assessment, levy, and collection do not encompass Colorado s enforcement of its notice and reporting requirements. These terms, read in light of the Federal Tax Code, refer to discrete phases of the taxation process that do not include informational notices or private reports of information relevant to tax liability. Information gathering has long been treated as a phase of tax administration that occurs before assessment, levy, or collection. See, e.g., 26 U. S. C. 6041 et seq. Respondent portrays the notice and reporting requirements as part of the State s assessment and collection process, but the State s assessment and collection procedures are triggered after the State has received the returns and made the deficiency determinations that the notice and reporting requirements are meant to facilitate. Enforcement of the requirements may improve the State s ability to assess and ultimately collect its sales and use taxes, but the TIA is not keyed to all such activities. Such a rule would be inconsistent with the statute s text and this Court s rule favoring clear boundaries in the interpretation of jurisdictional statutes. See Hertz Corp. v. Friend, 559 U. S. 77. Pp. 5-9.
(2) Petitioner s suit cannot be understood to restrain the assessment, levy or collection of Colorado s sales and use taxes merely because it may inhibit those activities. While the word restrain can be defined as broadly as the Tenth Circuit defined it, it also has a narrower meaning used in equity, which captures only those orders that stop acts of assessment, levy, or collection. The context in which the TIA uses the word restrain resolves this ambiguity in favor of this narrower meaning. First, the verbs accompanying restrain enjoin and suspend are terms of art in equity and refer to different equitable remedies that restrict or stop official action, strongly suggesting that restrain does the same. Additionally, restrain acts on assessment, levy, and collection, a carefully selected list of technical terms. The Tenth Circuit s broad meaning would defeat the precision of that list and render many of those terms surplusage. Assigning restrain its meaning in equity is also consistent with this Court s recognition that the TIA has its roots in equity practice, Tully v. Griffin, Inc., 429 U. S. 68, and with the principle that [j]urisdictional rules should be clear, Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U. S. 308 (Thomas, J., concurring). Pp. 10-12.
(b) The Court takes no position on whether a suit such as this might be barred under the comity doctrine, which counsels lower federal courts to resist engagement in certain cases falling within their jurisdiction, Levin v. Commerce Energy, Inc., 560 U. S. 413. The Court leaves it to the Tenth Circuit to decide on remand whether the comity argument remains available to Colorado. P. 13.
735 F. 3d 904, reversed and remanded.
Thomas, J., delivered the opinion for a unanimous Court. Kennedy, J., filed a concurring opinion. Ginsburg, J., filed a concurring opinion, in which Breyer, J., joined, and in which Sotomayor, J., joined in part.
In an effort to improve the collection of sales and use taxes for items purchased online, the State of Colorado passed a law requiring retailers that do not collect Colo-rado sales or use tax to notify Colorado customers of their use-tax liability and to report tax-related information to customers and the Colorado Department of Revenue. We must decide whether the Tax Injunction Act, which provides that federal district courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law,”28 U. S. C. §1341, bars a suit to enjoin the enforcement of this law. We hold that it does not.
Like many States, Colorado has a complementary sales-and-use tax regime. Colorado imposes both a 2.9 percent tax on the sale of tangible personal property within the State, Colo. Rev. Stat. §§39–26–104(1)(a), 39–26–106(1)(a)(II) (2014), and an equivalent use tax for any prop-erty stored, used, or consumed in Colorado on which a sales tax was not paid to a retailer, §§39–26–202(1)(b), 39–26–204(1). Retailers with a physical presence in Colorado must collect the sales or use tax from consumers at the point of sale and remit the proceeds to the Colorado Department of Revenue (Department). §§39–26–105(1), 39–26–106(2)(a). But under our negative Commerce Clause precedents, Colorado may not require retailers who lack a physical presence in the State to collect these taxes on behalf of the Department. See Quill Corp. v. North Da-kota,504 U. S. 298–318 (1992). Thus, Colorado requires its consumers who purchase tangible personal property from a retailer that does not collect these taxes (a “noncollecting retailer”) to fill out a return and remit the taxes to the Department directly. §39–26–204(1).
Voluntary compliance with the latter requirement is relatively low, leading to a significant loss of tax revenue, especially as Internet retailers have increasingly displaced their brick-and-mortar kin. In the decade before this suit was filed in 2010, e-commerce more than tripled. App. 28. With approximately 25 percent of taxes unpaid on Internet sales, Colorado estimated in 2010 that its revenue loss attributable to noncompliance would grow by more than $20 million each year. App. 30–31.
In hopes of stopping this trend, Colorado enacted legislation in 2010 imposing notice and reporting obligations on noncollecting retailers whose gross sales in Colorado exceed $100,000. Three provisions of that Act, along with their implementing regulations, are at issue here.
First, noncollecting retailers must “notify Colorado purchasers that sales or use tax is due on certain purchases . . . and that the state of Colorado requires the purchaser to file a sales or use tax return.” §39–21–112(3.5)(c)(I); see also 1 Colo. Code Regs. §201–1:39–21–112.3.5(2) (2014), online at http://www.sos.co.us/CRR (as visited Feb. 27, 2015, and available in the Clerk of Court’s case file). The retailer must provide this notice during each transaction with a Colorado purchaser, ibid., and is subject to a penalty of $5 for each transaction in which it fails to do so, Colo. Rev. Stat. §39–21–112(3.5)(c)(II).
Second, by January 31 of each year, each noncollecting retailer must send a report to all Colorado purchasers who bought more than $500 worth of goods from the retailer in the previous year. §39–21–112(3.5)(d)(I); 1 Colo. Code Regs. §§201–1:39–21–112.3.5(3)(a), (c). That report must list the dates, categories, and amounts of those purchases. Colo. Rev. Stat. §39–21–112(3.5)(d)(I); see also 1 Colo. Code Regs. §§201–1:39–21–112.3.5(3)(a), (c). It must also contain a notice stating that Colorado “requires a sales or use tax return to be filed and sales or use tax paid on certain Colorado purchases made by the purchaser from the retailer.” Colo. Rev. Stat. §39–21–112(3.5)(d)(I)(A). The retailer is subject to a penalty of $10 for each report it fails to send. §39–21–112(3.5)(d)(III)(A); see also 1 Colo. Code Regs. §201–1:39–21–112.3.5(3)(d).
Finally, by March 1 of each year, noncollecting retailers must send a statement to the Department listing the names of their Colorado customers, their known addresses, and the total amount each Colorado customer paid for Colorado purchases in the prior calendar year. Colo. Rev. Stat. §39–21–112(3.5)(d)(II)(A); 1 Colo. Code Regs. §201–1:39–21–112.3.5(4). A noncollecting retailer that fails to make this report is subject to a penalty of $10 for each customer that it should have listed in the report. Colo. Rev. Stat. §39–21–112(3.5)(d)(III)(B); see also 1 Colo. Code Regs. §201–1:39–21–112.3.5(4)(f).
Petitioner Direct Marketing Association is a trade association of businesses and organizations that market products directly to consumers, including those in Colorado, via catalogs, print advertisements, broadcast media, and the Internet. Many of its members have no physical presence in Colorado and choose not to collect Colorado sales and use taxes on Colorado purchases. As a result, they are subject to Colorado’s notice and reporting requirements.
In 2010, Direct Marketing Association brought suit in the United States District Court for the District of Colo-rado against the Executive Director of the Department, alleging that the notice and reporting requirements violate provisions of the United States and Colorado Constitutions. As relevant here, Direct Marketing Association alleged that the provisions (1) discriminate against interstate commerce and (2) impose undue burdens on interstate commerce, all in violation of this Court’s negative Commerce Clause precedents. At the request of both parties, the District Court stayed all challenges except these two, in order to facilitate expedited consideration. It then granted partial summary judgment to Direct Marketing Association and permanently enjoined enforcement of the notice and reporting requirements. App. to Pet. for Cert. B–1 to B–25.
Exercising appellate jurisdiction under28 U. S. C. §1292(a)(1), the United States Court of Appeals for the Tenth Circuit reversed. Without reaching the merits, the Court of Appeals held that the District Court lacked jurisdiction over the suit because of the Tax Injunction Act (TIA),28 U. S. C. §1341. Acknowledging that the suit “differs from the prototypical TIA case,” the Court of Appeals nevertheless found it barred by the TIA because, if successful, it “would limit, restrict, or hold back the state’s chosen method of enforcing its tax laws and generating revenue.” 735 F. 3d 904, 913 (2013).
We granted certiorari, 573 U. S. ___ (2014), and now reverse.
Enacted in 1937, the TIA provides that federal district courts “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.” §1341. The question before us is whether the relief sought here would “enjoin, suspend or restrain the assessment, levy or collection of any tax under State law.” Because we conclude that it would not, we need not consider whether “a plain, speedy and efficient remedy may be had in the courts of” Colorado.
The District Court enjoined state officials from enforcing the notice and reporting requirements. Because an injunction is clearly a form of equitable relief barred by the TIA, the question becomes whether the enforcement of the notice and reporting requirements is an act of “assessment, levy or collection.” We need not comprehensively define these terms to conclude that they do not encompass enforcement of the notice and reporting requirements at issue.
In defining the terms of the TIA, we have looked to federal tax law as a guide. See, e.g., Hibbs v. Winn,542 U. S. 88,100 (2004). Although the TIA does not concern federal taxes, it was modeled on the Anti-Injunction Act (AIA), which does. See Jefferson County v. Acker,527 U. S. 423–435 (1999). The AIA provides in relevant part that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.”26 U. S. C. §7421(a). We assume that words used in both Acts are generally used in the same way, and we discern the meaning of the terms in the AIA by reference to the broader Tax Code. Hibbs, supra, at 102–105; id., at 115 (Kennedy, J., dissenting). Read in light of the Federal Tax Code at the time the TIA was enacted (as well as today), these three terms refer to discrete phases of the taxation process that do not include informational notices or private reports of information relevant to tax liability.
To begin, the Federal Tax Code has long treated information gathering as a phase of tax administration procedure that occurs before assessment, levy, or collection. See §§6001–6117; §§1500–1524 (1934 ed.); see also §1533 (“All provisions of law for the ascertainment of liability to any tax, or the assessment or collection thereof, shall be held to apply . . . ”). This step includes private reporting of information used to determine tax liability, see, e.g., §1511(a), including reports by third parties who do not owe the tax, see, e.g., §6041 et seq. (2012 ed.); see also §§1512(a)–(b) (1934 ed.) (authorizing a collector or the Commissioner of Internal Revenue, when a taxpayer fails to file a return, to make a return “from his own knowledge and from such information as he can obtain through testimony or otherwise”).
“Assessment” is the next step in the process, and it refers to the official recording of a taxpayer’s liability, which occurs after information relevant to the calculation of that liability is reported to the taxing authority. See §1530. In Hibbs, the Court noted that “assessment,” as used in the Internal Revenue Code, “involves a ‘recording’ of the amount the taxpayer owes the Government.” 542 U. S., at 100 (quoting §6203 (2000 ed.)). It might also be understood more broadly to encompass the process by which that amount is calculated. See United States v. Galletti,541 U. S. 114,122 (2004); see also Hibbs, supra, at 100, n. 3. But even understood more broadly, “assessment” has long been treated in the Tax Code as an official action taken based on information already reported to the taxing authority. For example, not many years before it passed the TIA, Congress passed a law providing that the filing of a return would start the running of the clock for a timely assessment. See, e.g., Revenue Act of 1924, Pub. L. 68–176, §277(a),43Stat.299. Thus, assessment was understood as a step in the taxation process that occurred after, and was distinct from, the step of reporting information pertaining to tax liability.
“Levy,” at least as it is defined in the Federal Tax Code, refers to a specific mode of collection under which the Secretary of the Treasury distrains and seizes a recalcitrant taxpayer’s property. See26 U. S. C. §6331 (2012 ed.); §1582 (1934 ed.). Because the word “levy” does not appear in the AIA, however, one could argue that its meaning in the TIA is not tied to the meaning of the term as used in federal tax law. If that were the case, one might look to contemporaneous dictionaries, which defined “levy” as the legislative function of laying or imposing a tax and the executive functions of assessing, recording, and collecting the amount a taxpayer owes. See Black’s Law Dictionary 1093 (3d ed. 1933) (Black’s); see also Webster’s New International Dictionary 1423 (2d ed. 1939) (“To raise or collect, as by assessment, execution, or other legal process, etc.; to exact or impose by authority . . . ”); §§1540, 1544 (using “levying” and “levied” in the more general sense of an executive imposition of a tax liability). But under any of these definitions, “levy” would be limited to an official governmental action imposing, determining the amount of, or securing payment on a tax.
Finally, “collection” is the act of obtaining payment of taxes due. See Black’s 349 (defining “collect” as “to obtain payment or liquidation” of a debt or claim). It might be understood narrowly as a step in the taxation process that occurs after a formal assessment. Consistent with this understanding, we have previously described it as part of the “enforcement process . . . that ‘assessment’ sets in motion.” Hibbs, supra, at 102, n. 4. The Federal Tax Code at the time the TIA was enacted provided for the Commissioner of Internal Revenue to certify a list of assessments “to the proper collectors . . . who [would] proceed to collect and account for the taxes and penalties so certified.” §1531. That collection process began with the collector “giv[ing] notice to each person liable to pay any taxes stated [in the list] . . . stating the amount of such taxes and demanding payment thereof.” §1545(a). When a person failed to pay, the Government had various means to collect the amount due, including liens, §1560, distraint, §1580, forfeiture, and other legal proceedings, §1640. Today’s Tax Code continues to authorize collection of taxes by these methods. §6302 (2012 ed.). “Collection” might also be understood more broadly to encompass the receipt of a tax payment before a formal assessment occurs. For example, at the time the TIA was enacted, the Tax Code provided for the assessment of money already received by a person “required to collect or withhold any internal-revenue tax from any other person,” suggesting that at least some act of collection might occur before a formal assessment. §1551 (1934 ed.) (emphasis added). Either way, “collection” is a separate step in the taxation process from assessment and the reporting on which assessment is based.
So defined, these terms do not encompass Colorado’s enforcement of its notice and reporting requirements. The Executive Director does not seriously contend that the provisions at issue here involve a “levy”; instead she portrays them as part of the process of assessment and collection. But the notice and reporting requirements precede the steps of “assessment” and “collection.” The notice given to Colorado consumers, for example, informs them of their use-tax liability and prompts them to keep a record of taxable purchases that they will report to the State at some future point. The annual summary that the retailers send to consumers provides them with a reminder of that use-tax liability and the information they need to fill out their annual returns. And the report the retailers file with the Department facilitates audits to determine tax deficiencies. After each of these notices or reports is filed, the State still needs to take further action to assess the taxpayer’s use-tax liability and to collect payment from him. See Colo. Rev. Stat. §39–26–204(3) (describing the procedure for “assessing and collecting [use] taxes” on the basis of returns filed by consumers and collecting retailers). Colorado law provides for specific assessment and collection procedures that are triggered after the State has received the returns and made the deficiency determinations that the notice and reporting requirements are meant to facilitate. See §39–26–210; 1 Colo. Code Regs. §201–1:39–21–107(1) (“The statute of limitations on assessments of . . . sales [and] use . . . tax . . . shall be three years from the date the return was filed . . . ”).
Enforcement of the notice and reporting requirements may improve Colorado’s ability to assess and ultimately collect its sales and use taxes from consumers, but the TIA is not keyed to all activities that may improve a State’s ability to assess and collect taxes. Such a rule would be inconsistent not only with the text of the statute, but also with our rule favoring clear boundaries in the interpretation of jurisdictional statutes. See Hertz Corp. v. Friend,559 U. S. 77,94 (2010). The TIA is keyed to the acts of assessment, levy, and collection themselves, and enforcement of the notice and reporting requirements is none of these.
Apparently concluding that enforcement of the notice and reporting requirements was not itself an act of “assessment, levy or collection,” the Court of Appeals did not rely on those terms to hold that the TIA barred the suit. Instead, it adopted a broad definition of the word “restrain” in the TIA, which bars not only suits to “enjoin . . . assessment, levy or collection” of a state tax but also suits to “suspend or restrain” those activities. Specifically, the Court of Appeals concluded that the TIA bars any suit that would “limit, restrict, or hold back” the assessment, levy, or collection of state taxes. 735 F. 3d, at 913. Because the notice and reporting requirements are intended to facilitate collection of taxes, the Court of Appeals reasoned that the relief Direct Marketing Association sought and received would “limit, restrict, or hold back” the Department’s collection efforts. That was error.
To resolve this ambiguity, we look to the context in which the word is used. Robinson v. Shell Oil Co.,519 U. S. 337,341 (1997). The statutory context provides several clues that lead us to conclude that the TIA uses the word “restrain” in its narrower sense. Looking to the company “restrain” keeps, Jarecki v. G. D. Searle & Co.,367 U. S. 303,307 (1961), we first note that the words “enjoin” and “suspend” are terms of art in equity, see Fair Assessment in Real Estate Assn., Inc. v. McNary,454 U. S. 100, and n. 13 (1981) (Brennan, J., concurring). They refer to different equitable remedies that restrict or stop official action to varying degrees, strongly suggesting that “restrain” does the same. See Hibbs, 524 U. S., at 118 (Kennedy, J., dissenting); see also Jefferson County, 572 U. S., at 433.
Additionally, as used in the TIA, “restrain” acts on a carefully selected list of technical terms—“assessment, levy, collection”—not on an all-encompassing term, like “taxation.” To give “restrain” the broad meaning selected by the Court of Appeals would be to defeat the precision of that list, as virtually any court action related to any phase of taxation might be said to “hold back” “collection.” Such a broad construction would thus render “assessment [and] levy”—not to mention “enjoin [and] suspend”—mere surplusage, a result we try to avoid. See Hibbs, supra, at 101 (interpreting the terms of the TIA to avoid superfluity).
Assigning the word “restrain” its meaning in equity is also consistent with our recognition that the TIA “has its roots in equity practice.” Tully v. Griffin, Inc.,429 U. S. 68,73 (1976). Under the comity doctrine that the TIA partially codifies, Levin v. Commerce Energy, Inc.,560 U. S. 413–432 (2010), courts of equity exercised their “sound discretion” to withhold certain forms of extraordinary relief, Great Lakes Dredge & Dock Co. v. Huffman,319 U. S. 293,297 (1943); see also Dows v. Chicago, 11 Wall. 108, 110 (1871). Even while refusing to grant certain forms of equitable relief, those courts did not refuse to hear every suit that would have a negative impact on States’ revenues. See, e.g., Henrietta Mills v. Rutherford County,281 U. S. 121,127 (1930); see also 5 R. Paul & J. Mertens, Law of Federal Income Taxation §42.139 (1934) (discussing the word “restraining” in the AIA in its equitable sense). The Court of Appeals’ definition of “restrain,” however, leads the TIA to bar every suit with such a negative impact. This history thus further supports the conclusion that Congress used “restrain” in its narrower, equitable sense, rather than in the broad sense chosen by the Court of Appeals.
Finally, adopting a narrower definition is consistent with the rule that “[j]urisdictional rules should be clear.” Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg.,545 U. S. 308,321 (2005) (Thomas, J., concurring); see also Hertz Corp., supra, at 94. The question—at least for negative injunctions—is whether the relief to some degree stops “assessment, levy or collection,” not whether it merely inhibits them. The Court of Appeals’ definition of “restrain,” by contrast, produces a “ ‘vague and obscure’ ” boundary that would result in both needless litigation and uncalled-for dismissal, Sisson v. Ruby,497 U. S. 358,375 (1990) (Scalia, J., concurring in judgment), all in the name of a jurisdictional statute meant to protect state resources.
Applying the correct definition, a suit cannot be understood to “restrain” the “assessment, levy or collection” of a state tax if it merely inhibits those activities.
We take no position on whether a suit such as this one might nevertheless be barred under the “comity doctrine,” which “counsels lower federal courts to resist engagement in certain cases falling within their jurisdiction.” Levin, supra, at 421. Under this doctrine, federal courts refrain from “interfer[ing] . . . with the fiscal operations of the state governments . . . in all cases where the Federal rights of the persons could otherwise be preserved unimpaired. ” Id., at 422 (internal quotation marks omitted).
Unlike the TIA, the comity doctrine is nonjurisdictional. And here, Colorado did not seek comity from either of the courts below. Moreover, we do not understand the Court of Appeals’ footnote concerning comity to be a holding that comity compels dismissal. See 735 F. 3d, at 920, n. 11 (“Although we remand to dismiss [petitioner’s] claims pursuant to the TIA, we note that the doctrine of comity also militates in favor of dismissal”). Accordingly, we leave it to the Tenth Circuit to decide on remand whether the comity argument remains available to Colorado.
Because the TIA does not bar petitioner’s suit, we reverse the judgment of the Court of Appeals. Like the Court of Appeals, we express no view on the merits of those claims and remand the case for further proceedings consistent with this opinion.
1 Our decision in California v. Grace Brethren Church,457 U. S. 393 (1982), is not to the contrary. In that case, California churches and religious schools sought “to enjoin the State from collecting both tax information and the state [unemployment] tax,” based, in part, on the argument that “recordkeeping, registration, and reporting requirements” violate the Establishment Clause by creating the potential for excessive entanglement with religion. Id., at 398, 415. We held that the TIA barred that suit. Id., at 396. But nowhere in their brief to this Court did the plaintiffs in Grace Brethren Church separate out their request to enjoin the tax from their request for relief from the recordkeeping and reporting requirements. See Brief for Grace Brethren Church et al., in California v. Grace Brethren Church, O. T. 1981, No. 81–31 etc., pp. 34–38. Grace Brethren Church thus cannot fairly be read as resolving, or even considering, the question presented in this case.
2 Because the text of the TIA resolves this case, we decline the parties’ invitation to derive various per se rules from our decision in Hibbs v. Winn,542 U. S. 88 (2004). In Hibbs, the Court held that the TIA did not bar an Establishment Clause challenge to a state tax credit for charitable donations to organizations that provided scholarships for children to attend parochial schools. Id., at 94–96. Direct Marketing Association argues that Hibbs stands for the proposition that the TIA has no application to third-party suits by nontaxpayers who do not challenge their own liability. Brief for Petitioner 18–21. The Executive Director acknowledges that Hibbs created an exception to the TIA, but argues that the exception does not apply to suits that restrain activities that have a collection-propelling function. Brief for Respondent 25–33.
I write separately to make two observations.
First, as the Court has observed, Congress designed the Tax Injunction Act not “to prevent federal-court interference with all aspects of state tax administration,” Hibbs v. Winn,542 U. S. 88,105 (2004) (internal quotation marks omitted), but more modestly to stop litigants from using federal courts to circumvent States’ “pay without delay, then sue for a refund” regimes. See id., at 104–105 (“[I]n enacting the [Tax Injunction Act], Congress trained its attention on taxpayers who sought to avoid paying their tax bill by pursuing a challenge route other than the one specified by the taxing authority.”). This suit does not implicate that congressional objective. The Direct Marketing Association is not challenging its own or anyone else’s tax liability or tax collection responsibilities. And the claim is not one likely to be pursued in a state refund action. A different question would be posed, however, by a suit to enjoin reporting obligations imposed on a taxpayer or tax collector, e.g., an employer or an in-state retailer, litigation in lieu of a direct challenge to an “assessment,” “levy,” or “collection.” The Court does not reach today the question whether the claims in such a suit, i.e., claims suitable for a refund action, are barred by the Tax In-junction Act. On that understanding, I join the Court’s opinion.
Second, the Court’s decision in this case, I emphasize, is entirely consistent with our decision in Hibbs. The plaintiffs in Hibbs sought to enjoin certain state tax credits. That suit, like the action here, did not directly challenge “acts of assessment, levy, and collection themselves,” ante, at 9. See Hibbs, 542 U. S., at 96, 99–102. Moreover, far from threatening to deplete the State’s coffers, “the relief requested [in Hibbs] would [have] result[ed] in the state’s receiving more funds that could be used for the public benefit.” Id., at 96 (internal quotation marks omitted; emphasis added). Even a suit that somewhat “inhibits” “assessment, levy, or collection,” the Court holds today, falls outside the scope of the Tax Injunction Act. Ante, at 12. That holding casts no shadow on Hibbs’ conclusion that a suit further removed from the Act’s “state-revenue-protective moorings,” 542 U. S., at 106, remains outside the Act’s scope.
1 Justice Sotomayor joins this opinion with respect to the first observation.
Almost half a century ago, this Court determined that, under its Commerce Clause jurisprudence, States cannot require a business to collect use taxes—which are the equivalent of sales taxes for out-of-state purchases—if the business does not have a physical presence in the State. National Bellas Hess, Inc. v. Department of Revenue of Ill.,386 U. S. 753 (1967). Use taxes are still due, but under Bellas Hess they must be collected from and paid by the customer, not the out-of-state seller. Id., at 758.
Twenty-five years later, the Court relied on stare decisis to reaffirm the physical presence requirement and to reject attempts to require a mail-order business to collect and pay use taxes. Quill Corp. v. North Dakota,504 U. S. 298,311 (1992). This was despite the fact that under the more recent and refined test elaborated in Complete Auto Transit, Inc. v. Brady,430 U. S. 274 (1977), “contemporary Commerce Clause jurisprudence might not dictate the same result” as the Court had reached in Bellas Hess. Quill Corp., 504 U. S., at 311. In other words, the Quill majority acknowledged the prospect that its conclusion was wrong when the case was decided. Still, the Court determined vendors who had no physical presence in a State did not have the “substantial nexus with the taxing state” necessary to impose tax-collection duties under the Commerce Clause. Id., at 311–313. Three Justices concurred in the judgment, stating their votes to uphold the rule of Bellas Hess were based on stare decisis alone. Id., at 319 (Scalia, J., joined by Kennedy, J., and Thomas, J., concurring in part and concurring in judgment). This further underscores the tenuous nature of that holding—a holding now inflicting extreme harm and unfairness on the States.
In Quill, the Court should have taken the opportunity to reevaluate Bellas Hess not only in light of Complete Auto but also in view of the dramatic technological and social changes that had taken place in our increasingly interconnected economy. There is a powerful case to be made that a retailer doing extensive business within a State has a sufficiently “substantial nexus” to justify imposing some minor tax-collection duty, even if that business is done through mail or the Internet. After all, “interstate commerce may be required to pay its fair share of state taxes.” D. H. Holmes Co. v. McNamara,486 U. S. 24,31 (1988). This argument has grown stronger, and the cause more urgent, with time. When the Court decided Quill, mail-order sales in the United States totaled $180 billion. 504 U. S., at 329 (White, J., concurring in part and dissenting in part). But in 1992, the Internet was in its infancy. By 2008, e-commerce sales alone totaled $3.16 trillion per year in the United States. App. 28.
Because of Quill and Bellas Hess, States have been unable to collect many of the taxes due on these purchases. California, for example, has estimated that it is able to collect only about 4% of the use taxes due on sales from out-of-state vendors. See California State Board of Equalization, Revenue Estimate: Electronic Commerce and Mail Order Sales, Rev. 8/13, p. 7 (2013) (Table 3). The result has been a startling revenue shortfall in many States, with concomitant unfairness to local retailers and their customers who do pay taxes at the register. The facts of this case exemplify that trend: Colorado’s losses in 2012 are estimated to be around $170 million. See D. Bruce, W. Fox, & L. Luna, State and Local Government Sales Tax Revenue Losses from Electronic Commerce 11 (2009) (Table 5). States’ education systems, healthcare services, and infrastructure are weakened as a result.
Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill. A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier. See Pearson v. Callahan,555 U. S. 223,233 (2009) (stare decisis weakened where “experience has pointed up the precedent’s shortcomings”). It should be left in place only if a powerful showing can be made that its rationale is still correct.


This article was originally published by the Louisiana State Medical Society, which has partnered with KSWB to feature guest articles concerning common legal issues facing the medical profession.
Our initial article concerning the Stark law titled “Physician’s Guide to Stark Law – Part I” addressed the Stark law self-referral prohibition in detail. As further explained therein, the Stark law, as amended, prohibits a physician from referring his or her Medicare or Medicaid patients for the furnishing of certain designated health services (“DHS”) to an entity with which the physician (or an immediate family member of the physician) has a financial relationship, unless an exception applies. 42 U.S.C. § 1395nn(a)(1)(A). In addition, an entity may not present, or cause to be presented, a claim to the Medicare program or bill to any individual, third party payor or other entity for DHS furnished pursuant to a prohibited referral. 42 U.S.C. § 1395nn(a)(1)(B). Because the Stark law is a strict liability statute, meaning that proof of specific intent is not required to violate the statute, any prohibited referral automatically violates the statute unless the financial relationship between the referring physician and the entity to which the physician refers a patient for DHS (“DHS Entity”) fully satisfies an applicable exception or exceptions. These exceptions are the focus of this article. Consistent with our previous Stark law prohibition article, this article is not intended to provide an exhaustive treatment of available Stark law exceptions, but rather, to serve as a general reference and educational guide. Accordingly, physicians and medical practices are encouraged to seek advice from their own counsel to address specific legal issues that arise in their individual practices.
Over thirty-five separate Stark law exceptions exist. An exception is applicable to either or both of the two types of financial relationships that may exist between a referring physician and a DHS Entity, specifically, ownership or investment interests and compensation arrangements. We will first identify all Stark law exceptions that are available and then discuss the often-used exceptions concerning office space and equipment rental as well as in-office ancillary services. As also discussed herein, these exceptions each contain one or more of the following requirements that are contained in many Stark law exceptions, namely, that compensation be set in advance, be consistent with fair market value, and/or not be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties. Under any circumstance, it is important to recognize that the exceptions are frequently re-defined, and typically contain subjective standards dependent on the facts and circumstances of the particular financial relationship. Indeed, whether a particular financial relationship fully satisfies an applicable exception or exceptions is rarely black and white, and many physicians and medical practices ultimately have to determine whether they are comfortable operating in some shade of grey.
ownership of or investment in publicly traded securities and mutual funds.
intra-family referrals in rural areas.
Office Space and Equipment Rental Exceptions.
the lease arrangement would be commercially reasonable even if no referrals were made between the parties.
42 U.S.C. § 1395nn(e)(1)(A) and (B) and 42 C.F.R § 411.357(a) and (b). If the lease arrangement expires after a term of at least one year, an indefinite holdover lease arrangement immediately following the expiration of the original lease arrangement satisfies the requirements of the office space or equipment rental exceptions if the original and holdover leases contain the same terms and conditions and fully comply with the above requirements (i.e., requirements a – e). The most difficult of these requirements to understand and satisfy are typically the requirements that the compensation (in this case, rental charges) be set in advance, be consistent with fair market value, and not be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties. As one or more of these requirements are also contained in numerous other Stark law exceptions, including the exceptions for bona fide employment relationships, personal service arrangements, fair market value compensation, academic medical centers and in-office ancillary services (which exception is further discussed below), let’s briefly examine each of these requirements.
“Compensation must be set in advance” – Stark law regulations provide that compensation is considered “set in advance” if it is set out in writing before the furnishing of the items or services for which the compensation is to be paid. 42 C.F.R. § 411.354(d)(1). While this mandate seems simple enough, the regulations also (1) recognize that compensation may include “aggregate compensation,” “a time-based or per-unit of service-based (whether per-use or per-service) amount,” or “[any other] specific formula for calculating compensation,” (2) require that any formula for determining compensation be set forth in sufficient detail such that it can be objectively verified and not be changed or modified during the course of the arrangement in any manner that takes into account the volume or value of referrals or other business generated by the referring physician, and (3) provide that, although they may fluctuate or be indeterminate, certain percentage-based compensation formulae may satisfy the “set in advance” requirement “depending on the facts,” yet also provide that the exceptions for rental of office space and rental of equipment (as well as for fair market value compensation and indirect compensation arrangements) wholly preclude the use of such formulae. Id., 72 Fed. Reg. 51,012, 51,031-31 (Sept. 5, 2007) and 73 Fed. Reg. 48,434, 48,709 (Aug. 19, 2008).
“Compensation must be consistent with fair market value” – Stark law regulations define “fair market value” as the value in an arm’s-length transaction that is consistent with the price or compensation that would result from bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for each other. In connection with the exceptions for rental of office space and equipment (as well as for fair market value compensation), the Stark law regulations further define “fair market value” as the value of rental property for general commercial purposes (not taking into account its intended use) and, in the case of a lease of space, prohibit adjusting this value to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee. 42 C.F.R. § 411.351. To establish the fair market value of any arrangement that involves compensation paid for with assets or services, the Centers for Medicare & Medicaid Services (“CMS”) will accept any “commercially reasonable” valuation method, including obtaining a list of comparables and/or an appraisal from a qualified independent expert. 66 Fed. Reg. 944 (Jan. 4, 2001). It is recommended that both of these methods be employed, if possible, when developing a compensation arrangement that implicates the Stark law as the burden of establishing that any such arrangement is consistent with fair market value rests wholly with the contracting parties. Id.
“Compensation must not take into account the volume or value of any referrals or other business generated between the parties” – Stark law regulations provide that a referring physician may not be compensated based on the historical or anticipated volume or value of referrals or other business generated by the physician. For example, a physician cannot be paid a fixed amount for each Medicare or Medicaid patient he or she refers to another healthcare provider for the furnishing of DHS. Although seemingly straight-forward, the Stark law regulations also (1) provide that unit-based compensation (including time-based or per-unit of service-based, i.e., per-click, compensation) is deemed not to take into account “the volume or value of referrals” (or “other business generated between the parties”) provided that the compensation is fair market value for services or items actually provided and does not vary during the course of the compensation arrangement in any manner that takes into account referrals of DHS (or other business generated by the referring physician), and (2) yet further provide that the exceptions for rental of office space and rental of equipment (as well as for fair market value compensation and indirect compensation arrangements) wholly preclude the use of per-unit of service-based compensation arrangements, while permitting the use of certain time-based compensation arrangements. 42 C.F.R. § 411.354(d)(2) and (3).
A New Alternative: The Timeshare Exception. Recognizing that there are situations where a traditional office space or equipment lease is not necessary or practical, CMS recently finalized a new Stark exception permitting physicians and hospitals or other physician groups to share “premises (space), equipment, personnel, items, supplies or services” through a non-exclusive, as-needed timeshare arrangement provided certain conditions are met, including that the arrangement is predominantly for the provision of evaluation and management services to patients (rather than predominantly for the furnishing of DHS to patients) and does not convey a possessory leasehold interest in the office space that is the subject of the arrangement. 42 C.F.R. § 411.357(y). Other conditions that must be met (not surprisingly) include, but are not limited to, that the compensation paid over the term of the arrangement be set in advance, be consistent with fair market value, and not be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties. Id. Before entering into a formal, exclusive lease for space or equipment when the Stark law is implicated, physicians should first determine whether a timeshare arrangement is a better fit for their needs and, if so, should structure such an arrangement to wholly satisfy this new exception.
Specifically: (1) The referring physician, (2) a physician who is a member of the same group practice as the referring physician, or (3) an individual who is supervised by the referring physician or, if the referring physician is in a group practice, by another physician in the group practice.
Specifically: Three very detailed, regulatory options exist for satisfying this requirement, including that the DHS be offered in the same building in which the referring physician or group practice has an office normally open to patients for medical services at least 35 hours per week and the referring physician (or one or more members of the group practice) regularly practice medicine or furnish services at least 30 hours per week (which must include services unrelated to DHS payable by a government or private payor).
Specifically: (1) The physician performing or supervising the service, (2) the group practice of which the performing or supervising physician is a member under a billing number assigned to the group practice, (3) the group practice if the supervising physician is a “physician in the group practice” (as defined elsewhere in the regulations) under a billing number assigned to the group practice, (4) an entity that is wholly owned by the performing or supervising physician or by that physician’s group practice under the entity’s own billing number or under a billing number assigned to the physician or group practice, or (5) an independent third party billing company in certain defined instances.
which meets other regulatory standards.
42 U.S.C. § 1395nn(h)(4). Significantly, medical practices that satisfy the Stark law definition of a “group practice” are not only able to take advantage of the IOASE, they are also able to take advantage of special compensation rules permitting its member physicians to share profits and pay certain productivity bonuses under certain circumstances. Id.
Every state, including Louisiana, has its own Stark law statutes, often referred to as “mini-Stark statutes.” Louisiana’s mini-Stark statute can be found at La. R.S. 37:1744. Once we address the federal anti-kickback statute in our next article, we will next address Louisiana’s state Stark law and anti-kickback provisions.
If you have any questions regarding the Stark law or broader health care law issues, please do not hesitate to contact our firm.
If you have any questions regarding the AKS or broader health care law issues, please do not hesitate to contact our firm.


Cohen, Stokke, Owen & Davis and Mitchell Samuelson for Petitioner.
Herbert M. Rosenthal and Marie M. Moffat for Respondent.
This is a proceeding to review a recommendation of the Disciplinary Board of the State Bar (Disciplinary Board) that the [24 Cal. 3d 158] petitioner be suspended from the practice of law for one year on conditions of probation, including actual suspension of six months. Petitioner was admitted to practice law in California in 1962 and has no prior disciplinary record.
Petitioner is charged with violating his oath and duties as an attorney (Bus. & Prof. Code, §§ 6067, 6068), with acts involving moral turpitude and dishonesty (Bus. & Prof. Code, § 6106) and with failing to place advance fee payments from clients in an identified and labelled "Trust Account" (Rules of Prof. Conduct, rule 8-101).
The charges arise out of the petitioner's dealings with three different clients. These matters were consolidated for hearing before the Disciplinary Board. The root of his problem, however, appears to have been a $480,000 debt for back taxes which petitioner owed to the Internal Revenue Service (I.R.S.). The liability for the back taxes arose in 1969 as a result of petitioner's ownership of an engineering business, and resulted in a major tax lien against petitioner's earnings. In 1974, petitioner began to consider the possibility of declaring himself bankrupt. In 1976, he filed a voluntary bankruptcy petition which listed, in addition to the I.R.S. claim, a $25,000 debt for back taxes owing to the State of California and unsecured creditors' claims in the total amount of $251,126.54. fn. 1 Included in this last figure were amounts paid by petitioner's clients as advance fee payments for which services had never been rendered by petitioner and which petitioner considered morally and legally "refundable." These payments form the basis of most of the charges against petitioner.
On the basis of these representations, Labosky agreed to pay petitioner a $5,000 fee to handle the case. The payments were made in a series of installments over a two-week period. Labosky testified that petitioner at no time contacted him to discuss the merits of the case. Petitioner did attend a meeting with the general contractor and his attorney sometime in early November. It was at this time, petitioner testified, that he determined that the chances of Labosky prevailing in a lawsuit were "less than desirable." At no time, however, did petitioner inform his client of his change in outlook. To the contrary, Labosky was not even able to contact petitioner; his numerous phone calls were never returned; he also made an appointment which petitioner failed to keep.
In February 1976, Labosky contacted another attorney, John Ball, about his problem. Ball investigated the matter and informed Labosky that his case against the general contractor was dubious; Ball, however, agreed to contact petitioner about a refund of the $5,000 fee. Although there is some question as to how much work was actually performed, petitioner admitted that the fee was not earned when received and that a substantial portion was owing to Labosky. Ball later represented Labosky in an action in Santa Clara County Superior Court and obtained a default judgment against petitioner. The $5,000 fee was not repaid until a week before the disciplinary hearing. Petitioner admits having spent the $5,000 "shortly after [he] received it" and does not dispute the fact that he failed to keep any time accounting records and failed to place any of the $5,000 fee in an identified and labelled trust account.
As a result of his dealings with Mr. Labosky, the Disciplinary Board hearing panel found that petitioner's advice to his client concerning the merits of his claim, as well as his failure to apprise his client of his change in attitude, constituted a reckless inducement to entertain a legal action in violation of his responsibility to discharge his duties as an attorney at law to the best of his knowledge and ability (Bus. & Prof. Code, § 6067) and of his obligation to counsel only such actions as appear to him legal or just. (Bus. & Prof. Code, § 6068.) The panel also concluded that such actions constituted "acts involving moral turpitude" in violation of Business and Professions Code section 6106. In addition, the panel determined that the petitioner's failure to place the $5,000 fee in an identifiable trust account violated rule 8-101 of the Rules of Professional Conduct of the State Bar.
The facts in this matter are also not in dispute. On March 25, 1975, Adam Potsdawny contacted petitioner about drawing up a will. At that [24 Cal. 3d 160] time, petitioner advised Potsdawny that he should incorporate his sole proprietorship because of certain "tax advantages." Potsdawny accepted petitioner's advice and paid him a $900 fee. Shortly thereafter, Potsdawny consulted his tax counselor who informed him that he knew of no tax advantages and advised him not to incorporate. Potsdawny immediately contacted petitioner and told him to stop the incorporation.
Petitioner testified that he considered the $900 fee at all times "to be a refundable fee." Nevertheless, he failed to place the money in an identifiable trust account, choosing instead to cash the check. Petitioner informed Potsdawny that he was financially unable to refund the $900 and did not refund the money until one week prior to the disciplinary hearing.
As a result of his transaction with Mr. Potsdawny, the Disciplinary Board hearing panel found that the petitioner's failure to place the $900 fee in an identifiable trust account constituted a violation of rule 8-101 of the Rules of Professional Conduct of the State Bar of California.
The substance of respondent State Bar's argument in this matter, however, concerns a loan which petitioner induced his client to make to him. In June 1973, petitioner approached Mrs. Brown about the possibility of her making him a $2,000 loan at 10 percent interest, payable at $200 per month for 11 months. He indicated that he needed the money to pay his staff since he was currently working on an important case pro [24 Cal. 3d 161] bono. After he had properly made the first two payments, Mrs. Brown offered to lend him another $1,000 on the same terms, an offer which petitioner accepted. Subsequent to the second loan, although Mrs. Brown repeatedly asked for her money back, petitioner made no further payments to her until one week prior to the disciplinary hearing. At no time, however, did petitioner indicate to his client that he was unable to repay the loan.
There is a dispute between petitioner and Mrs. Brown as to how much she knew about his financial condition. He claims that she was aware of the I.R.S. tax lien. She testified that she did not learn of the extent of petitioner's difficulties until after he filed for bankruptcy. A witness at the hearing testified that petitioner had told Mrs. Brown that he was having "some difficulty in meeting his obligations as they came through." It is clear from the record, however, that petitioner refused to fill out a standard bank loan form listing assets and liabilities when requested to do so by Mrs. Brown and that he failed to fully explain to her the various means and methods of making loans or discuss with her terms of loans which are favorable to lenders.
Petitioner's contention in this hearing fall into three general categories. He first argues that the findings of the hearing panel in the three matters are not supported by the evidence. Secondly, he contends that several procedural errors committed by the respondent denied him his right to a fair hearing. He finally urges that the findings of the hearing panel do not justify the severity of the disciplinary action imposed. We turn first to the petitioner's contention that the evidence does not support the hearing panel's findings.
With respect to the Brown matter, petitioner's conduct was even more questionable.  In past cases, we have repeatedly warned of the immense danger involved when an attorney places himself in a position in which his business interests are adverse to those of his client. (Marlowe v. State Bar (1965) 63 Cal. 2d 304, 308 [46 Cal. Rptr. 326, 405 P.2d 150]; Magee v. State Bar (1962) 58 Cal. 2d 423, 430 [24 Cal. Rptr. 839, 374 P.2d 807].) Such a situation inherently jeopardizes the fiduciary relationship between attorney and client and requires that the attorney bear the heavy burden of proving that the dealings were fair. [3b] Petitioner failed to carry that burden here. In order to absolve himself, petitioner would have been compelled to show that he would have advised Mrs. Brown in good faith to make the loan even if he himself had not been the recipient. His inability to make such a showing, coupled with his failure to fill out a [24 Cal. 3d 163] form listing his assets and liabilities when requested to do so by Mrs. Brown and his failure to explain to Mrs. Brown other less dangerous and more profitable ways of investing her money, clearly support the findings of the Disciplinary Board.
The asserted violations of rule 8-101 fn. 3 as to Labosky and Potsdawny pose an interesting and novel issue. There is no dispute as to the fact that petitioner received an advance fee payment of $5,000 from Labosky and $900 from Potsdawny. There is also no dispute as to the fact that at least a substantial portion of these advance fees were never earned or that petitioner failed to repay them until one week prior to the disciplinary hearing. The only question is whether or not rule 8-101 required the petitioner to deposit such funds in an identifiable trust account.
Rule 8-101 expressly requires that sums advanced to pay costs or expenses be placed in a separate trust account; it does not expressly deal with advance legal fees. Thus the present case poses two issues: Whether any portion of the monies advanced by Labosky and Potsdawny were for costs or expenses, and, if not, whether rule 8-101 nevertheless requires that unearned fees be placed in a separate trust account.
 The Disciplinary Board made a specific finding that the advance fee payments from clients Labosky and Potsdawny included advances for costs and expenses. Petitioner, however, correctly challenges the finding of the Board as unsupported by the evidence. When petitioner cashed the $900 Potsdawny check, he secured a cashier's check for $36 to cover the cost of a corporation kit. There is no evidence in the record as to whether any part of the additional $864 was intended in part as an advance for additional costs and expenses or, as petitioner claims, was entirely an advance fee. With respect to the $5,000 Labosky fee, there is no evidence in the record to indicate whether or not any of it was intended to cover [24 Cal. 3d 164] costs and expenses. Thus, if the invocation of rule 8-101 depends on the distinction between money for costs and money for fees, it is reasonable to conclude that the State Bar has failed to sustain its burden of proof in the matter.
The novel aspect of the issue is the seemingly implicit contention of the respondent State Bar that the issue of costs and expenses is irrelevant. Its argument would appear to be that any advance fee payment must be deposited in an identifiable trust account until such time as it is earned. We need not, however, resolve the question of whether or not an advance fee payment is correctly characterized as money "received or held for the benefit of clients" within the meaning of rule 8-101 fn. 4 since petitioner's violation of the various sections of the Business and Professions Code fully warrants the Disciplinary Board's recommendation of a six-month actual suspension.
Petitioner raises three procedural arguments, alleging that certain errors committed by the respondent State Bar denied him his opportunity for a fair hearing. All three contentions are without merit.
We first point out that petitioner failed to tender any objection when the chairman of the hearing panel announced at the outset of the hearing that the third member of the panel would not be participating. Secondly, petitioner fails to note that rule 73.10 provides that a quorum for a hearing panel consists of a majority of the members of that panel. Finally, a prior decision of this court has ruled that participation by two members of a three-member panel constitutes a valid hearing for the purposes of disciplinary action against a member of the bar. (Petersen v. State Bar (1943) 21 Cal. 2d 866, 870-871 [136 P.2d 561].) Petitioner would distinguish Petersen on the grounds that the referee in that case permanently "retired" from the local committee because of disqualification whereas the referee in this case was only temporarily incapacitated because of illness. Such a distinction is without a difference. Both referees were absent for the entire proceeding and did not in any way participate in the decision-making process. We hold, therefore, that the absence of the third panel member did not deprive petitioner of his right to a fair hearing.
 Petitioner's second contention is that he was improperly denied advisory review by the State Bar pursuant to rule 22.10. That rule requires that the State Bar grant an advisory review if the member under investigation files a written request within 15 days after service of the proposed decision. Petitioner was then served with a copy of the proposed decision on or about November 28, 1977. Accompanying the decision was a cover letter informing the petitioner of the 15-day limit within which he was required to file a request for an advisory review. Petitioner did not file such a request until February 23, 1978, over two months after the deadline had passed and nearly one month after the Disciplinary Board had entered its final decision. Petitioner offered no explanation for the delay. Under such circumstances, the administrative denial by the State Bar of the petitioner's request does not constitute an abuse of discretion.
 Petitioner's third contention is that he was improperly denied a hearing de novo and leave to present further evidence. He claims that he was surprised by the rapid termination of the hearing and that he subsequently discovered additional evidence which he felt should be presented. The claim of surprise is unsupported by the record. The reporter's transcript of the hearing makes clear that the petitioner had no intention of presenting additional evidence and was well aware that the evidentiary phase of the hearing had been completed.
 Petitioner contends that the six-month actual suspension is an excessive punishment in view of the circumstances. He argues that his precarious financial position during the incidents coupled with his subsequent repayment of the amounts owed should be looked upon by this court as mitigating factors. We must disagree.
As we pointed out above, the fact that petitioner during this period encountered serious financial difficulties indicates that he should have been more, not less careful with the handling of his clients' funds. fn. 6 His subsequent repayment of the monies, standing alone, might be a mitigating factor. But the fact that they were repaid only a week before the disciplinary hearing detracts from the petitioner's plea.
We find the Disciplinary Board's recommendation appropriate. It is therefore ordered that the petitioner be suspended from the practice of law for one year on conditions of probation, including an actual suspension of six months. In addition, petitioner must pass the Professional Responsibility Examination within one year (see Segretti v. State Bar (1976) 15 Cal. 3d 878, 891, fn. 8 [126 Cal. Rptr. 793, 544 P.2d 929]) and comply with California Rules of Court, rule 955 within thirty days after the effective date of this order.
FN 1. Petitioner listed his total assets at the time as $5,050.
FN 2. The Disciplinary Board found that although the petitioner did perform some services in connection with the $450 fee paid by Mrs. Brown, neither the preparation of the will nor the services in connection with the settlement agreement dispute were ever completed. In reference to its conclusion, however, that petitioner had violated two sections of the Business and Professions Code in this matter, the board seemed to ignore the question of the petitioner's failure to complete all the work promised, focusing instead exclusively on petitioner's conduct in securing a loan from Mrs. Brown.
"(2) Funds belonging in part to a client and in part presently or potentially to the member of the State Bar or firm of which he is a member must be deposited therein and the portion belonging to the member of the State Bar or firm of which he is a member must be withdrawn at the earliest reasonable time after the member's interest in that portion becomes fixed. However, when the right of the member of the State Bar or firm of which he is a member to receive a portion of trust funds is disputed by the client, the disputed portion shall not be withdrawn until the dispute is finally resolved. ..."
FN 4. An "advance fee payment" as used in this context is to be distinguished from a classic "retainer fee" arrangement. A retainer is a sum of money paid by a client to secure an attorney's availability over a given period of time. Thus, such a fee is earned by the attorney when paid since the attorney is entitled to the money regardless of whether he actually performs any services for the client. The respondent's argument concerning the applicability of rule 8-101 is intended to cover only advance fees paid for the performance of a particular legal service (e.g., the incorporation of a business or the preparation of a will). In those instances, respondent asserts that the fee is not earned until the service is actually performed. Thus, the State Bar argues that the advance fee payments are funds held by an attorney in trust "for the benefit of clients" within the meaning of rule 8-101.
FN 5. Rule 20.10 provides that "[e]xcept as provided in Rule 20.20 [inapplicable], a hearing panel is composed of three disciplinary referees, not more than two of whom may be disciplinary referees pro tem."
FN 6. Although it does not form the basis for our decision, we note the strong suggestion in this case that petitioner's overzealous evaluation of Mr. Labosky's case which we found to involve gross carelessness (see p. 162, ante), may have been motivated by his desire to obtain a sizeable advance fee payment in order to salvage his own deteriorating financial position. That petitioner knew or should have known that few if any services would actually be performed in the case, coupled with petitioner's admitted knowledge that his own insolvent condition made repayment of any refundable fees unlikely if not impossible, makes petitioner's conduct even more difficult to condone.