CRS Annotated Constitution

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State Taxation and Regulation: The Old Law

Although in previous editions of this volume considerable attention was paid to the development and circuitous paths of the law of the negative commerce clause, the value of this exegesis was doubtlessly quite limited. The Court itself has admitted that its “some three hundred full–dress opinions” as of 1959 have not resulted in “consistent or reconcilable” doctrine but rather in something more resembling a “quagmire.”889 Although many of the principles still applicable in constitutional law may be found in the older cases, in fact the Court has worked a revolution in constitutional law in this area, though at different times for taxation and for regulation. Thus, in this section we summarize the “old” law and then deal more fully with the “modern” law of the negative commerce clause.

General Considerations.—The task of drawing the line between state power and the commercial interest has proved a comparatively simple one in the field of foreign commerce, the two things being in great part territorially distinct.890 With “commerce among the States” affairs are very different. Interstate commerce is conducted in the interior of the country, by persons and corporations that are ordinarily engaged also in local business; its usual incidents are acts that, if unconnected with commerce among the States, would fall within the State’s powers of police and taxation, while the things it deals in and the instruments by which it is carried on comprise the most ordinary subject matter of state power. In this field, the Court consequently has been unable to rely upon sweeping solutions. To the contrary, its judgments have often been fluctuating and tentative, even contradictory, and this is particu[p.221]larly the case with respect to the infringement on interstate commerce by the state taxing power.891

Taxation.—The leading case dealing with the relation of the States’ taxing power to interstate commerce, the case in which the Court first struck down a state tax as violative of the commerce clause, was the State Freight Tax Case.892 Before the Court was the validity of a Pennsylvania statute that required every company transporting freight within the State, with certain exceptions, to pay a tax at specified rates on each ton of freight carried by it. The Court’s reasoning was forthright. Transportation of freight constitutes commerce.893 A tax upon freight transported from one State to another effects a regulation of interstate commerce.894 Under the Cooley doctrine, whenever the subject of a regulation of commerce is in its nature of national interest or admits of one uniform system or plan of regulation, that subject is within the exclusive regulating control of Congress.895 Transportation of passengers or merchandise through a State, or from one State to another, is of this nature.896 Hence, a state law imposing a tax upon freight, taken up within the State and transported out of it or taken up outside the State and transported into it, violates the commerce clause.897

The principle thus asserted, that a State may not tax interstate commerce, confronted the principle that a State may tax all purely domestic business within its borders and all property “within its jurisdiction.” Inasmuch as most large concerns prosecute both an interstate and a domestic business, while the instrumentalities of interstate commerce and the pecuniary returns from such commerce are ordinarily property within the jurisdiction of some State or other, the task before the Court was to determine where to draw the line between the immunity claimed by interstate business, on the one hand, and the prerogatives claimed by local power on the other. In the State Tax on Railway Gross Receipts Case,898 decided the same day as the State Freight Tax Case, the issue was a tax upon gross receipts of all railroads chartered by the State, part of[p.222]the receipts having been derived from interstate transportation of the same freight that had been held immune from tax in the first case. If the latter tax were regarded as a tax on interstate commerce, it too would fall. But to the Court, the tax on gross receipts of an interstate transportation company was not a tax on commerce. “[I]t is not everything that affects commerce that amounts to a regulation of it, within the meaning of the Constitution.”899 A gross receipts tax upon a railroad company, which concededly affected commerce, was not a regulation “directly. Very manifestly it is a tax upon the railroad company. . . . That its ultimate effect may be to increase the cost of transportation must be admitted. . . . Still it is not a tax upon transportation, or upon commerce. . . .”900

Insofar as there is a distinction between these two cases, the Court drew it in part on the basis of Cooley, that some subjects embraced within the meaning of commerce demand uniform, national regulation, while other similar subjects permit of diversity of treatment, until Congress acts, and in part on the basis of a concept of a “direct” tax on interstate commerce, which was impermissible, and an “indirect” tax, which was permissible until Congress acted.901 Confusingly, the two concepts were sometimes conflated, sometimes treated separately. In any event, the Court itself was clear that interstate commerce could not be taxed at all, even if the tax was a nondiscriminatory levy applied alike to local commerce.902 “Thus, the States cannot tax interstate commerce, either by laying the tax upon the business which constitutes such commerce or the privilege of engaging in it, or upon the receipts, as such, derived from it . . . ; or upon persons or property in transit in interstate commerce.”903 However, some taxes imposed only an “indirect” burden and were sustained; property taxes and taxes in lieu of property taxes applied to all businesses, including instrumentalities of interstate commerce, were sustained.904 A good rule[p.223]of thumb in these cases is that taxation was sustained if the tax was imposed on some local, rather than an interstate, activity or if the tax was exacted before interstate movement had begun or after it had ended.

An independent basis for invalidation was that the tax was discriminatory, that its impact was intentionally or unintentionally felt by interstate commerce and not by local, perhaps in pursuit of parochial interests. Many of the early cases actually involving discriminatory taxation were decided on the basis of the impermissibility of taxing interstate commerce at all, but the category was soon clearly delineated as a separate ground (and one of the most important today).905

Following the Great Depression and under the leadership of Justice, and later Chief Justice, Stone, the Court attempted to move away from the principle that interstate commerce may not be taxed and reliance on the direct–indirect distinction. Instead, a state or local levy would be voided only if in the opinion of the Court it created a risk of multiple taxation for interstate commerce not felt by local commerce.906 It became much more important to the validity of a tax that it be apportioned to an interstate company’s activities within the taxing State, so as to reduce the risk of multiple taxation.907 But, just as the Court had achieved constancy in the area of regulation, it reverted to the older doctrines in the taxation area and reiterated that interstate commerce may not be taxed at all, even by a properly apportioned levy, and reasserted the direct–indirect distinction.908 The stage was set, following a series of cases in which through formalistic reasoning the States were permitted to evade the Court’s precedents,909 for the formulation of a more realistic doctrine.


889 Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 457–458 (1959) (in part quoting Miller Bros Co. v. Maryland, 347 U.S. 340, 344 (1954)). Justice Frankfurter was similarly skeptical of definitive statements. “To attempt to harmonize all that has been said in the past would neither clarify what has gone before nor guide the future. Suffice it to say that especially in this field opinions must be read in the setting of the particular cases and as the product pf preoccupation with their special facts.” Freeman v. Hewit, 329 U.S. 249, 251–252 (1946). The comments in all three cases dealt with taxation, but they could just as well have included regulation.
890 Infra, pp.240–242.
891 In addition to the sources previously cited, see J. Hellerstein & W. Hellerstein, State and Local Taxation—Cases and Materials (5th ed. 1988), ch. 6, 241 passim. For a succinct description of the history, see Hellerstein, State Taxation of Interstate Business: Perspectives on Two Centuries of Constitutional Adjudication, 41Tax Law.37 (1987).
892 Reading Railroad v. Pennsylvania, 15 Wall. (82 U.S.) 232 (1873).
893 Id., 275.
894 Id., 275–276, 279.
895 Id., 279–280.
896 Id., 280.
897 Id., 281–282.
898 Reading Railway Co. v. Pennsylvania, 15 Wall. (82 U.S.) 284 (1872).
899 Id., 293.
900 Id., 294. This case was overruled 14 years later, when the Court voided substantially the same tax in Philadelphia Steamship Co. v. Pennsylvania, 122 U.S. 326 (1887).
901 See The Minnesota Rate Cases (Simpson v. Shepard), 230 U.S. 352, 398–412 (1913) (reviewing and summarizing at length both taxation and regulation cases). See also Missouri ex rel. Barrett v. Kansas Natural Gas Co., 265 U.S. 298, 307 (1924).
902 Robbins v. Shelby County Taxing District, 120 U.S. 489, 497 (1887); Leloup v. Port of Mobile, 127 U.S. 640, 648 (1888).
903 The Minnesota Rate Cases (Simpson v. Shepard), 230 U.S. 352, 400–401 (1913).
904 The Delaware Railroad Tax, 18 Wall. (85 U.S.) 206, 232 (1873). See Cleveland, Cincinnati, Chicago & St. Louis Ry. Co. v. Backus, 154 U.S. 439 (1894); Postal Telegraph Cable Co. v. Adams, 155 U.S. 688 (1895). See cases cited in J. Hellerstein & W. Hellerstein, supra, n. 891, 215–219.
905 E.g., Welton v. Missouri, 91 U.S. 275 (1875); Robbins v. Shelby County Taxing District, 120 U.S. 489 (1887); Darnell & Son Co. v. City of Memphis, 208 U.S. 113 (1908); Bethlehem Motors Corp. v. Flynt, 256 U.S. 421 (1921).
906 Western Live Stock v. Bureau of Revenue, 303 U.S. 250 (1938); McGoldrick v. Berwind–White Coal Mining Co., 309 U.S. 33 (1940); International Harvester Co. v. Dept. of Treasury, 322 U.S. 340 (1944); International Harvester Co. v. Evatt, 329 U.S. 416 (1947).
907 E.g., Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434 (1939); Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422 (1947); Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653 (1948).

Supplement: [P. 223, add to n.907:]

Notice the Court’s distinguishing of Central Greyhound in Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 188–91 (1995) .

908 Freeman v. Hewit, 329 U.S. 249 (1946); Spector Motor Service, Inc. v. O’Connor, 340 U.S. 602 (1951).
909 Thus, the States carefully phrased tax laws so as to impose on interstate companies not a license tax for doing business in the State, which was not permitted, Railway Express Agency v. Virginia, 347 U.S. 359 (1954), but a franchise tax on intangible property on the privilege of doing business in a corporate form, which was permissible. Railway Express Agency v. Virginia, 358 U.S. 434 (1959); Colonial Pipeline Co. v. Traigle, 421 U.S. 100 (1975). Also, the Court increasingly found the tax to be imposed on a local activity in instances it would previously have seen to be an interstate activity. E.g., Memphis Natural Gas Co. v. Stone, 335 U.S. 80 (1948); General Motors Corp. v. Washington, 377 U.S. 436 (1964); Standard Pressed Steel Co. v. Dept. of Revenue, 419 U.S. 560 (1975).
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