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CRS Annotated Constitution

CRS Annotated Constitution

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[p.216]

The State Proprietary Activity Exception.—In a case of first impression, the Court held unaffected by the commerce clause—“the kind of action with which the Commerce Clause is not concerned”—a Maryland bounty scheme by which the State paid scrap processors for each “hulk” automobile destroyed. As first enacted, the bounty plan did not distinguish between in–state and out–of–state processors, but it was subsequently amended to operate in such a manner that out–of–state processors were substantially disadvantaged. The Court held that where a State enters into the market itself as a purchaser, in effect, of a potential article of interstate commerce, it does not, in creating a burden upon that commerce by restricting its trade to its own citizens or businesses within the State, violate the commerce clause.865

Affirming and extending somewhat this precedent, the Court held that a State operating a cement plant could in times of shortage (as well presumably at any time) confine the sale of cement by the state plant to residents of the State.866 “The Commerce Clause responds principally to state taxes and regulatory measures impeding free private trade in the national marketplace. . . . There is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market.”867 It is yet unclear how far this concept of the State as market participant rather than market regulator will be extended.868

Congressional Authorization of Impermissible State Action.—The Supreme Court has never forgotten the lesson that was administered to it by the Act of Congress of August 31, 1852,869 which pronounced the Wheeling Bridge “a lawful structure,” thereby setting aside the Court’s determination to the contrary earlier[p.217]the same year.870 The lesson, subsequently observed the Court, is that “[i]t is Congress, and not the Judicial Department, to which the Constitution has given the power to regulate commerce.”871 Similarly, when in the late eighties and the early nineties statewide prohibition laws began making their appearance, Congress again approved state laws the Court had found to violate the dormant commerce clause.

The Court seized upon a previously rejected dictum of Chief Justice Marshall872 and began applying it as a brake on the operation of such laws with respect to interstate commerce in intoxicants, which the Court denominated “legitimate articles of commerce.” While holding that a State was entitled to prohibit the manufacture and sale within its limits of intoxicants,873 even for an outside market, manufacture being no part of commerce,874 it contemporaneously laid down the rule, in Bowman v. Chicago & Northwestern Railway Co.,875 that, so long as Congress remained silent in the matter, a State lacked the power, even as part and parcel of a program of statewide prohibition of the traffic in intoxicants, to prevent the shipment into it of intoxicants from a sister State, and this holding was soon followed by another to the effect that, so long as Congress remained silent, a State had no power to prevent the sale in the original package of liquors introduced from another State.876 The effect of the latter decision was soon overcome by an act of Congress, the so–called Wilson Act, repealing its alleged silence,877 but the Bowman decision still stood, the act in question being interpreted by the Court not to subject liquors from sister States to local authority until their arrival in the hands of the person to whom consigned.878 Not until 1913 was the effect of[p.218]the decision in the Bowman case fully nullified by the Webb–Kenyon Act,879 which placed intoxicants entering a State from another State under the control of the former for all purposes whatsoever.880

Less than a year after the ruling in United States v. South– Eastern Underwriters Assn.,881 that insurance transactions across state lines constituted interstate commerce, thereby logically establishing their immunity from discriminatory state taxation, Congress passed the McCarran Act882 authorizing state regulation and taxation of the insurance business. In Prudential Ins. Co. v. Benjamin,883 a statute of South Carolina that imposed on foreign insurance companies, as a condition of their doing business in the State, an annual tax of three percent of premiums from business done in South Carolina, while imposing no similar tax on local corporations, was sustained. “Obviously,” said Justice Rutledge for the Court, “Congress’ purpose was broadly to give support to the existing and future State systems for regulating and taxing the business of insurance. This was done in two ways:

“One was by removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise expressly provided in the Act itself or in future legislation. The other was by declaring expressly and affirmatively that continued State regulation and taxation of this business is in the public interest and that the business and all who engage in it ‘shall be subject to’ the laws of the several States in these respects. . . . The power of Congress over commerce exercised entirely without reference to coordinated action of the States is not restricted, except as the Constitution expressly provides, by any limitation which forbids it to discriminate against interstate commerce and in favor of local trade. Its plenary scope enables Congress not only to promote but also to prohibit interstate commerce, as it has done frequently and for a great variety of reasons. . . . This broad authority Congress may exercise alone, subject to those limitations, or[p.219]in conjunction with coordinated action by the States, in which case limitations imposed for the preservation of their powers become inoperative and only those designed to forbid action altogether by any power or combination of powers in our governmental system remain effective.”884

Thus, it is now well established that “[w]hen Congress so chooses, state actions which it plainly authorizes are invulnerable to constitutional attack under the Commerce Clause.”885 But the Court requires congressional intent to permit otherwise impermissible state actions to “be unmistakably clear.”886 The fact that federal statutes and regulations had restricted commerce in timber harvested from national forest lands in Alaska was, therefore, “insufficient indicium” that Congress intended to authorize the State to apply a similar policy for timber harvested from state lands. The rule requiring clear congressional approval for state burdens on commerce was said to be necessary in order to strengthen the likelihood that decisions favoring one section of the country over another are in fact “collective decisions” made by Congress rather than unilateral choices imposed on unrepresented out–of–state interests by individual States.887 And Congress must be plain as well when the issue is not whether it has exempted a state action from[p.220]the commerce clause but whether it has taken the less direct form of reduction in the level of scrutiny.888

Footnotes
865 Hughes v. Alexandria Scrap Corp., 426 U. S. 794 (1976).
866 Reeves, Inc. v. Stake, 447 U.S. 429 (1980).
867 Id., 436–437.
868 See also White v. Massachusetts Council of Construction Employers, 460 U.S. 204 (1983) (city may favor its own residents in construction projects paid for with city funds); South–Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82 (1984) (illustrating the deep divisions in the Court respecting the scope of the exception).
869 10 Stat. 112 , Sec. 6.
870 Pennsylvania v. Wheeling & Belmont Bridge Co., 13 How. (54 U.S.) 518 (1856), statute sustained in Pennsylvania v. Wheeling & Belmont Bridge Co., 18 How. (59 U.S.) 421 (1856). The latter decision seemed facially contrary to a dictum of Justice Curtis in Cooley v. Board of Wardens of Port of Philadelphia, 12 How. (53 U.S.) 299, 318 (1851), and cf. Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232, 263 n. 4 (1987) (Justice Scalia concurring in part and dissenting in part), but if indeed the Court is interpreting the silence of Congress as a bar to action under the dormant commerce clause, then when Congress speaks it is enacting a regulatory authorization for the States to act.
871 Transportation Co. v. Parkersburg, 107 U.S. 691, 701 (1883).
872 In Brown v. Maryland, 12 Wheat. (25 U.S.) 419, 449 (1827), in which the “original package” doctrine originated in the context of state taxing powers exercised on imports from a foreign country, Marshall in dictum indicated the same rule would apply to imports from sister States. The Court refused to follow the dictum in Woodruff v. Parham, 8 Wall. (75 U.S.) 123 (1869).
873 Mugler v. Kansas, 123 U.S. 623 (1887).
874 Kidd v. Pearson, 128 U.S. 1 (1888).
875 125 U.S. 465 (1888).
876 Leisy v. Hardin, 135 U.S. 100 (1890).
877 26 Stat. 313 (1890), sustained in, In re Rahrer, 140 U.S. 545 (1891).
878 Rhodes v. Iowa, 170 U.S. 412 (1898).
879 37 Stat. 699 (1913), sustained in Clark–Distilling Co. v. Western Md. Ry. Co., 242 U.S. 311 (1917). See also Dept. of Revenue v. Beam Distillers, 377 U.S. 341 (1964).
880 National Prohibition, under the Eighteenth Amendment, first cast these conflicts into the shadows, and Sec. 2 of the Twenty–first Amendment significantly altered the terms of the dispute. But that section is no authorization for the States to engage in mere economic protectionism separate from concerns about the effect of the traffic in liquor. Bacchus Imports Ltd. v. Dias, 468 U.S. 263 (1984); Brown–Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573 (1986); Healy v. Beer Institute, 491 U.S. 324 (1989).
881 322 U.S. 533 (1944).
882 59 Stat. 33 , 15 U.S.C. §§ 1011 –15.
883 328 U.S. 408 (1946).
884 Id., 429–430, 434–435. The Act restored state taxing and regulatory powers over the insurance business to their scope prior to South–Eastern Underwriters. Discriminatory state taxation otherwise cognizable under the commerce clause must, therefore, be challenged under other provisions of the Constitution. See Western, &, Southern Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648 (1981). An equal protection challenge was successful in Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869 (1985), invalidating a discriminatory tax and stating that a favoring of local industries “constitutes the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent.” Id., 878. Controversial when rendered, Ward may be a sport in the law. See Northeast Bancorp v. Board of Governors of the Federal Reserve System, 472 U.S. 159, 176–178 (1985).
885 Northeast Bancorp v. Board of Governors of the Federal Reserve System, 472 U.S. 159, 174 (1985) (interpreting a provision of the Bank Holding Company Act, 12 U.S.C. Sec. 1842 (d), permitting regional interstate bank acquisitions expressly approved by the State in which the acquired bank is located, as authorizing state laws that allow only banks within the particular region to acquire an in–state bank, on a reciprocal basis, since what the States could do entirely they can do in part).
886 South–Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 90 (1984).
887 Id., 92. Earlier cases had required express statutory sanction of state burdens on commerce but under circumstances arguably less suggestive of congressional approval. E.g., Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941, 958–960 (1982) (congressional deference to state water law in 37 statutes and numerous interstate compacts did not indicate congressional sanction for invalid state laws imposing a burden on commerce); New England Power Co. v. New Hampshire, 455 U.S. 331, 341 (1982) (disclaimer in Federal Power Act of intent to deprive a State of “lawful authority” over interstate transmissions held not to evince a congressional intent “to alter the limits of state power otherwise imposed by the Commerce Clause”). But see White v. Massachusetts Council of Construction Employers, 460 U.S. 204 (1983) (Congress held to have sanctioned municipality’s favoritism of city residents through funding statute under which construction funds were received).
888 Maine v. Taylor, 477 U.S. 131 (1986) (holding that Lacey Act’s reinforcement of state bans on importation of fish and wildlife neither authorizes state law otherwise invalid under the Clause nor shifts analysis from the presumption of invalidity for discriminatory laws to the balancing test for state laws that burden commerce only incidentally).
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