This TaxProf Op-Ed on the recent decision in California v. Mullin is by Reuven S. Avi-Yonah (Michigan):

When Is a Fee a Tax?

Reuven S. Avi-Yonah

On June 8, 2026, US District Judge Leo T. Sorokin (D. Mass.) issued an opinion invalidating the $100,000 payment that the Trump administration had imposed on applications to obtain H-1B visas.¹ The main rationale was that this payment was a tax and therefore could not be constitutionally imposed without Congressional legislation or a clear delegation as a matter of separation of powers.²

This holding is wrong for several reasons. First, it misapplies the main Supreme Court case it is based on, NFIB v. Sebelius.³ Second, the tax rationale in Sebelius is not persuasive or binding since Mullin is easily distinguishable as not involving a payment for an omission (failing to obtain health insurance), but a commission (applying for the visa). Third, the delegation in this case is stronger than the delegation in Learning Resources v. Trump, in which the Supreme Court held that tariffs are taxes and cannot be imposed based on a power to “regulate.”⁴ In this case, the most natural characterization of the payment is not as a penalty or a tax, but as a fee for issuing H-1B visas, and that fee is not subject to the Taxing Clause and is within the scope of the relevant delegation.

Judge Sorokin explained his holding as follows:

Plaintiffs contend that the Policy violates separation-of-powers principles because it “usurps both” Congress’s constitutional “powers to regulate the admission of noncitizens . . . and to levy taxes.” Doc. No. 87 at 20.

The Court begins with Plaintiffs’ assertion that the Policy intrudes upon Congress’s taxing power. The first inquiry is whether the $100,000 payment requirement constitutes a tax. The parties quibble about whether the requirement resembles a tax or a “penalty” as characterized by two Supreme Court precedents: Bailey v. Drexel Furniture Company and National Federation of Independent Business v. Sebelius. In Drexel, the Supreme Court held that the Child Labor Tax Law—which required employers to pay the government one-tenth of their net income if they were found to knowingly employ child laborers—was a penalty, not a tax. 259 U.S. 20, 36 (1922). The Court reasoned that the “heavy exaction” functioned as a prohibitory regulation, rather than a mere tax, because it was “imposed to stop the employment of children within the age limits prescribed.” Id. at 36-37.

In Sebelius, the Supreme Court further clarified the distinction between a tax and a punishment. There, the Court found that the Affordable Care Act’s requirement that individuals pay an additional fee to the Internal Revenue Service (“IRS”) for not obtaining health insurance amounted to a tax, not a penalty. 567 U.S. 519, 574 (2012). In distinguishing penalties from taxes, the Court explained that, “if the concept of penalty means anything, it means punishment for an unlawful act or omission.” Id. at 567 (citation modified). Applying this principle, the Court concluded:

While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. Id. at 567-68.

Here, the $100,000 payment requirement for all H-1B petitions does not aim to establish that hiring H-1B workers is illegal. The payment is not a penalty, just as the IRS fee in Sebelius was not, because it is not “punishment for an unlawful act or omission.” Id. at 567. Hiring workers pursuant to the H-1B program is plainly lawful. Of course, rendering the hiring of H-1B workers “unlawful” would eliminate the program established by Congress through the statute, which would raise a different separation-of-powers concern. See Clinton v. City of New York, 524 U.S. 417, 438 (1998) (“There is no provision in the Constitution that authorizes the President to enact, to amend, or to repeal statutes.”); Hawaii, 585 U.S. at 689 (“We may assume that § 1182(f) does not allow the President to expressly override particular provisions of the INA.”). Nor is this case analogous to Drexel. There, the exaction was clearly imposed to outlaw the hiring of child laborers and to punish employers who deviated from this standard. 259 U.S. at 37-38. The Supreme Court’s reasoning in this pair of precedents supports a finding that the $100,000 payment requirement amounts to a tax, not a penalty.⁵

There are several problems with this analysis.

First, Chief Justice Roberts` opinion in Sebelius was based in part on the fact that the Affordable Care Act payment requirement was included in the Internal Revenue Code and collected by the IRS. Roberts wrote that—

The exaction the Affordable Care Act imposes on those without health insurance looks like a tax in many respects. The “[s]hared responsibility payment,” as the statute entitles it, is paid into the Treasury by “taxpayer[s]” when they file their tax returns. 26 U. S. C. §5000A(b). It does not apply to individuals who do not pay federal income taxes because their household income is less than the filing threshold in the Internal Revenue Code. §5000A(e)(2). For taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status. §§5000A(b)(3), (c)(2), (c)(4). The requirement to pay is found in the Internal Revenue Code and enforced by the IRS, which—as we previously explained—must assess and collect it “in the same manner as taxes.” Supra, at 13–14. This process yields the essential feature of any tax: it produces at least some revenue for the Government. United States v. Kahriger, 345 U.S. 22, 28, n. 4 (1953). Indeed, the payment is expected to raise about $4 billion per year by 2017. Congressional Budget Office, Payments of Penalties for Being Uninsured Under the Patient Protection and Affordable Care Act (Apr. 30, 2010), in Selected CBO Publications Related to Health Care Legislation, 2009–2010, p. 71 (rev. 2010).⁶

Roberts also wrote that—

The same analysis here suggests that the shared responsibility payment may for constitutional purposes be considered a tax, not a penalty: First, for most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the “prohibitory” financial punishment in Drexel Furniture. 259 U.S., at 37. Second, the individual mandate contains no scienter requirement. Third, the payment is collected solely by the IRS through the normal means of taxation—except that the Service is not allowed to use those means most suggestive of a punitive sanction, such as criminal prosecution. See §5000A(g)(2). The reasons the Court in Drexel Furniture held that what was called a “tax” there was a penalty support the conclusion that what is called a “penalty” here may be viewed as a tax.⁷

The payment for H-1B visas is collected by the Department of Homeland Security, not the IRS, and it is not imposed by the Internal Revenue Code. Therefore, Judge Sorokin`s reliance on Sebelius is misguided, and he is wrong to state that the Defendants made a mistake in arguing that  “the $100,000 fee is collected by DHS and not the IRS, which they argue resembles Drexel, where the penalty was collected by the Secretary of Labor” because it is not true that “neither Sebeliusnor Drexel stands for the proposition that the particular agency charged with collecting the fee determines whether the fee constitutes a tax.”⁸

Second, Judge Sorokin ignores the fact Chief Justice Roberts was mostly alone in holding that the ACA payment was a tax. Five Justices including Roberts held that it exceeded Congress‘ power to regulate commerce, and the other four opined that it did not, but only the Chief Justice took the view that the ACA payment was constitutional because it was a tax, although the liberal Justices joined him in upholding the ACA on this ground. This part of the opinion is not persuasive,⁹ and Judge Sorokin did not have to follow it because the payment in Mullin is easily distinguishable since as discussed below it can be characterized as a fee for a service (issuing the visa), while the payment in Sebelius involved an omission to pay a fee for a service (health insurance).

Third, the delegation in this case is stronger than the one in Learning Resources, which hinged on the word “regulate” imports. Since a tariff is a tax, the argument was whether adopting a tax can be covered by “regulate.” I have argued it can be.¹⁰ But in this case the relevant delegation is INA § 215(a), which grants the President the power to impose “reasonable rules, regulations, and orders” as well as “limitations and exceptions” to the entry of noncitizens. That delegation is sufficient to support imposing a fee for issuing a H-1B visa. And the most natural interpretation of the $100,000 payment is that it is neither a tax nor a penalty, but a fee, because there is a direct quid pro quo for the payment.¹¹

In this regard, it is helpful to examine how tax law defines a tax for purposes of the foreign tax credit, which only applies to taxes and not to other payments. Under Treas. Reg. 1.901-2(a)(2), a foreign tax is defined as a levy that—

requires a compulsory payment pursuant to the authority of a  foreign country to levy  taxes. A  penalty, fine,  interest, or similar  obligation is not a tax, nor is a customs duty a tax. Whether a foreign levy requires a compulsory  payment pursuant to a  foreign country’s authority to levy  taxes is determined by principles of U.S. law and not by principles of law of the  foreign country. Therefore, the assertion by a  foreign country that a levy is pursuant to the foreign country’s authority to levy  taxes is not determinative that, under U.S. principles, it is pursuant thereto. Notwithstanding any assertion of a  foreign country to the contrary, a foreign levy is not pursuant to a  foreign country’s authority to levy  taxes, and thus is not a tax, to the extent a  person subject to the levy receives (or will receive), directly or indirectly, a specific economic  benefit (as defined in paragraph (a)(2)(ii)(B) of this section) from the  foreign country in  exchange for  payment pursuant to the levy. Rather, to that extent, such levy requires a compulsory  payment in  exchange for such specific economic  benefit.¹²

“Specific economic benefit” is defined as—

an economic  benefit that is not made available on substantially the same  terms to  substantially all persons who are subject to the  income tax that is generally imposed by the  foreign country, or, if there is no such generally imposed  income tax, an economic  benefit that is not made available on substantially the same  terms to the population of the country in general. Thus, a concession to extract government-owned petroleum is a specific economic  benefit, but the right to travel or to ship freight on a government-owned airline is not, because the latter, but not the former, is made generally available on substantially the same  terms. An economic  benefit includes  property; a service…¹³

In this case, H-1B visas are a specific economic benefit that is not generally available to the foreign public, and it is either property or a service. Thus, a payment for such visas is not a tax under US principles.                

Judge Sorokin then discusses and rejects the defendant`s counter arguments as follows– 

Defendants contend that that the payment requirement cannot constitute a tax because the purpose of a tax is to raise revenue, and the Policy has had the result of decreasing the number of H-1B petitions as well as the total fees collected by USCIS from H-1B applications. Doc. No. 93 at 36. This argument falls short. An obvious purpose of the Policy is to raise revenue—it charges a substantial fee for all H-1B petitions. That total revenue from H- 1B petitions has declined does not mean raising revenue was not a purpose of the Policy; rather, it means that such a purpose was not achieved. Purpose and effect are different. Moreover, every $100,000 payment made pursuant to the Policy does raise revenue. That is indisputable. No legal authority suggests that a payment requirement qualifies as a tax only if it increases the total revenue generated from that particular tax. Finally, as Plaintiffs point out, the government may impose a tax with the purpose of curbing the purchase of undesirable goods (e.g., a tobacco tax). Doc. No. 99 at 19; see also Sebelius, 567 U.S. at 572 (acknowledging that Congress can “use its taxing power to influence conduct”). Such a tax does not lose its identity as a tax because its ultimate aim or effect is to reduce revenue.

But the imposition of a fee or a penalty by the government also raises revenue, but that does not make it a tax.

Judge Sorokin continues–

Furthermore, Defendants claim that the $100,000 payment requirement is “a regulatory payment,” which is “not the same as a tax.” Doc. No. 93 at 35. This is mere ipse dixit. Defendants offer no definition for what constitutes “a regulatory payment,” cite no cases or statutes employing the term, and advance no reasoned argument explaining how this term encompasses something different than a tax or a penalty. They have waived this theory. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) (“[I]ssues adverted to in a perfunctory manner, unaccompanied by some effort at developed argumentation, are deemed waived.”). In any event, the manner in which a particular payment is labeled “does not determine whether the payment may be viewed as an exercise of Congress’s taxing power,” because what matters is the “substance and application” of the payment, not its “designation.” Sebelius, 567 U.S. at 564-65. Here, the substance and application of the $100,000 payment reveal that it is a tax, regardless of what the payment is called.¹⁴

This statement ignores the fact that much of the Internal Revenue Code involves an attempt to influence taxpayer behavior by rewarding activities that generate positive externalities (e.g., investment or research) and penalizing activities that create negative externalities (e.g., pollution). All tax expenditures are regulatory.¹⁵

The court then discusses and rejects the argument that the Immigration and Naturalization Act of 1952, which as amended in 1990 created the H-1B visa, delegated to the president the power to impose the payment, writing that—

That does not end the Court’s analysis. While the Constitution exclusively vests Congress with the “Power To lay and collect Taxes, Duties, Imposts, and Excises,” U.S. Const. art. 1, § 8, cl. 1, Congress can delegate the taxing power to the executive branch so long as it “clearly” indicates “its intention to delegate.” Skinner v. Mid-Am. Pipeline Co., 490 U.S. 212, 224 (1989). Thus, the relevant inquiry here is whether the provisions of the INA granting the President discretionary powers to regulate the entry of noncitizens reflect a delegation of Congress’s taxing power. Under INA § 212(f), the President has the authority to “impose on the entry of aliens any restrictions he may deem to be appropriate.” 8 U.S.C. § 1182(f). INA § 215(a) additionally grants the President the power to impose “reasonable rules, regulations, and orders” as well as “limitations and exceptions” to the entry of noncitizens. Id. § 1185(a)(1). 

Plaintiffs argued that these provisions do not confer the power to impose taxes, relying on the Supreme Court’s recent guidance in Learning Resources. But if the payment is a fee for granting the H-1B visa, this whole discussion is irrelevant, and such a fee can be regarded as a “reasonable rule” or a “limitation” on granting a visa. It ensures that H-1B visas will only be granted in cases where the economic value of the employee to the paying employer (and to the US economy) exceeds $100,000.¹⁶

In sum, Judge Sorokin`s opinion in Mullin is wrong, and it should be reversed on appeal.

1. California v. Mullin, No. 25-cv-13829-LTS (D. Mass. 2026). It is interesting that the plaintiffs chose to bring this case in Massachusetts rather than in California, presumably because the plaintiffs (a coalition of twenty blue states) believed that it was a more friendly forum, especially on appeal (the First Circuit is the most liberal in the country since all of the judges were nominated by Democratic presidents). For the contrary view, see Chamber of Commerce v. DHS, No. 25-cv-3675 (BAH) (D.D.C. 2025) (upholding the fee).  ↩︎
2. See Proclamation No. 10,973, Restriction on Entry of Certain Nonimmigrant Workers, 90 Fed. Reg. 46,027 (Sept. 24, 2025), which adds a $100,000 supplemental payment requirement to all H-1B petitions. The opinion also accepted challenges to the Proclamation under the Administrative Procedure Act, which I will not address here, although some of the reasons assume that the payment is a tax. ↩︎
3. Nat’l Fed. Ind. Bus. v. Sebelius, 567 U.S. 519 (2012). ↩︎
4. Learning Resources, Inc. v. Trump, 146 S. Ct. 628 (2026). See Reuven S. Avi-Yonah, Can the Corporate Tax be Delegated? 122 Tax Notes Int`l 361 (April 20, 2026). ↩︎
5. Mullin, supra note 1. ↩︎
6. Sebelius, supra note 3. ↩︎
7. Id. ↩︎
8. Mullin, supra note 1. ↩︎
9. See Reuven S. Avi-Yonah & Yosef M. Edrey, Constitutional Review of Federal Tax Legislation, 2023 Ill. L. Rev. 1; Kyle D. Logue, NFIB v. Sebelius and the Individual Mandate: Thoughts on the Tax/Regulation Distinction, 5 Mich. Bus. & Entrepreneurial L. Rev. 173 (2016). ↩︎
10. Avi-Yonah, supra note 4. ↩︎
11. For a similar argument in regard to export license fees, see Reuven S. Avi-Yonah, Corporate Taxation and Industrial Policy, 120 Tax Notes Int`l 155 (Oct. 6, 2025). ↩︎
12. Treas. Reg. 1.901-2(a)(2). ↩︎
13. Treas. Reg. 1.901-2(a)(2)(ii)(B). ↩︎
14. Mullin, supra note 1. ↩︎
15. See Avi-Yonah & Edrey, supra note 9. ↩︎
16. See United States v. U.S. Shoe Corp., 523 U.S. 360 (1998) (holding that a user fee must be proportional to the government services or benefits received). ↩︎