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CRS Annotated Constitution

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Discrimination.—The “fundamental principle” governing this factor is simple. “‘No State may, consistent with the Commerce Clause, impose a tax which discriminates against interstate commerce . . . by providing a direct commercial advantage to local business.”’960 That is, a tax which by its terms or operation imposes greater burdens on out–of–state goods or activities than on competing in–state goods or activities will be struck down as discriminatory under the commerce clause.961 In Armco. Inc. v. Hardesty,962 the Court voided as discriminatory the imposition on an out–of–state wholesaler of a state tax that was levied on manufacturing and wholesaling but that relieved manufacturers subject to the manufacturing tax of liability for paying the wholesaling tax. Even though the former tax was higher than the latter, the Court found the imposition discriminated against the interstate wholesaler.963 A state excise tax on wholesale liquor sales, which ex[p.233]empted sales of specified local products, was held to violate the commerce clause.964 A state statute that granted a tax credit for ethanol fuel if the ethanol was produced in the State, or if produced in another State that granted a similar credit to the State’s ethanol fuel, was found discriminatory in violation of the clause.965

Supplement: [P. 233, add to text following n.965:]

Expanding, although neither unexpectedly nor exceptionally, its dormant commerce jurisprudence, the Court in Camps Newfound/Owatonna, Inc. v. Town of Harrison,43 applied its nondiscrimination element of the doctrine to invalidate the State’s charitable property tax exemption statute, which applied to nonprofit firms performing benevolent and charitable functions, but which excluded entities serving primarily non–state residents. The claimant here operated a church camp for children, most of whom resided out–of–state. The discriminatory tax would easily have fallen had it been applied to profit–making firms, and the Court saw no reason to make an exception for nonprofits. The tax scheme was designed to encourage entities to care for local populations and to discourage attention to out–of– state individuals and groups. “For purposes of Commerce Clause analysis, any categorical distinction between the activities of profit–making enterprises and not–for–profit entities is therefore wholly illusory. Entities in both categories are major participants in interstate markets. And, although the summer camp involved in this case may have a relatively insignificant impact on the commerce of the entire Nation, the interstate commercial activities of nonprofit entities as a class are unquestionably significant.” 44

Benefit Relationship.—Although, in all the modern cases, the Court has stated that a necessary factor to sustain state taxes having an interstate impact is that the levy be fairly related to benefits provided by the taxing State, it has declined to be drawn into any consideration of the amount of the tax or the value of the benefits bestowed. The test rather is whether, as a matter of the first factor, the business has the requisite nexus with the State; if it does, the tax meets the fourth factor simply because the business has enjoyed the opportunities and protections which the State has afforded it.966


960 Boston Stock Exchange v. State Tax Comm., 429 U.S. 318, 329 (1977) (quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 457 (1959)). The principle, as we have observed above, is a long–standing one under the commerce clause. E.g., Welton v. Missouri, 91 U.S. 275 (1876).
961 Maryland v. Louisiana, 451 U.S. 725, 753–760 (1981). But see Commonwealth Edison Co. v. Montana, 453 U.S. 609, 617–619 (1981).

Supplement: [P. 232, add to n.961:]

And see Oregon Waste Systems, Inc. v. Department of Envtl. Quality, 511 U.S. 93 (1994) (surcharge on in–state disposal of solid wastes that discriminates against companies disposing of waste generated in other States invalid).

962 467 U.S. 638 (1984).
963 The Court applied the “internal consistency” test here, too, in order to determine the existence of discrimination. Id., 644– 645. Thus, the wholesaler did not have to demonstrate it had paid a like tax to another State, only that if other States imposed like taxes it would be subject to discriminatory taxation. See also Tyler Pipe Industries v. Washington State Dept. of Revenue, 483 U.S. 232 (1987); American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266 (1987); Amerada Hess Corp. v. Director, New Jersey Taxation Div., 490 U.S. 66 (1989); Kraft General Foods v. Iowa Dept. of Revenue, 112S.Ct.2365 (1992)
964 Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984).
965 New Energy Co. of Indiana v. Limbach, 486 U.S. 269 (1988).

Supplement: [P. 233, add to n.965:]

Compare Fulton Corp. v. Faulkner, 516 U.S. 325 (1996) (state intangibles tax on a fraction of the value of corporate stock owned by in–state residents inversely proportional to the corporation’s exposure to the state income tax violated dormant Commerce Clause), with General Motors Corp. v. Tracy, 519 U.S. 278 (1997) (state imposition of sales and use tax on all sales of natural gas except sales by regulated public utilities, all of which were in– state companies, but covering all other sellers that were out–of–state companies did not violate dormant Commerce Clause because regulated and unregulated companies were not similarly situated).

966 Commonwealth Edison Co. v. Montana, 453 U.S. 609, 620–629 (1981). Two state taxes imposing flat rates on truckers, because they did not vary directly with miles traveled or with some other proxy for value obtained from the State, were found to violate this standard in American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266, 291 (1987), but this oblique holding was tagged onto an elaborate opinion holding the taxes invalid under two other Brady tests, and, thus, the precedential value is questionable.

Supplement Footnotes

43 520 U.S. 564 (1997) . The decision was a 5 to 4 one with a strong dissent by Justice Scalia, id. at 595, and a philosophical departure by Justice Thomas. Id. at 609.
44 Id. at 586.
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