dormant commerce clause

Issues

Currently, Kentucky taxes interest income earned by holders of out-of-state municipal bonds but does not tax interest income earned by holders of in-state municipal bonds. Catherine and George Davis, Kentucky taxpayers and owners of out-of-state bonds, argue that Kentucky’s tax policy violates the Commerce Clause of the United States Constitution by interfering with interstate commerce. Kentucky argues, in response, that it is free to set the economic terms of the bonds it sells, and that its policy represents a legitimate balance between its desire to encourage investment in local public infrastructure and its need to raise tax revenue. The Kentucky Court of Appeals agreed with the Davises and found Kentucky’s tax scheme unconstitutional. The Supreme Court’s decision in this case will impact the validity of similar tax schemes in at least 41 other states. A ruling in the Davises’ favor would eliminate tax considerations in an investor’s decision between bonds issued by the investor’s State and bonds issued by another State, arguably benefiting all states by eliminating inefficient market segmentation. On the other hand, a ruling in Kentucky’s favor would prevent a disruptive change in the status quo, which would permit states to exercise greater discretion as they strike a balance between economic development and revenue collection.

Questions as Framed for the Court by the Parties

Additional Resources

Issues

The Supreme Court will decide whether to overturn Quill Corp. v. North Dakota, which held that the Commerce Clause prohibits states from imposing sales or use taxes on out-of-state sellers. Petitioner South Dakota argues that in modern times, a business may not have a physical presence in a state, yet still satisfy the “substantial nexus” requirement as articulated in Complete Auto Transit v. Brady. South Dakota further argues that increases in electronic commerce, concerns with states’ ability to collect adequate revenues, and overall changes in the national economy favoring online sellers weigh in favor of overturning Quill, despite stare decisis. In contrast, Respondent Wayfair, Inc. argues that changes in market conditions do not justify overturning Quill, especially when the underlying constitutional concerns of restraints on interstate commerce remain. Wayfair further argues that imposing sales taxes on remote sellers will unfairly burden small businesses with appreciable compliance costs, especially as the largest online sellers, such as Amazon, already voluntarily pay state sales taxes. If the Court rules in South Dakota’s favor, online retailers will be subject to state sales and use taxes, and likely raise the prices of the goods they sell. If the Court instead rules in Wayfair’s favor and upholds Quill, online retailers will continue to have an apparent advantage compared to local brick-and-mortar businesses.

Questions as Framed for the Court by the Parties

Written by

Edited by

Additional Resources

Issues

This case asks the Supreme Court to determine the scope of power granted to the States under the Twenty-first Amendment and to explain when exercises of that power infringe upon the dormant Commerce Clause. Tennessee requires that a person must be a Tennessee resident for two years before they may receive a retail or wholesale liquor license and for ten years before they may re-apply for a retail or liquor license. Clayton Byrd, Tennessee Fine Wines and Spirits, LLC, and Affluere Investments, Inc. argue that Tennessee’s requirements amount to discrimination against out-of-state economic interests in violation of the dormant Commerce Clause. Tennessee Wine and Spirits Retailers Association counters that the Twenty-first Amendment grants the States broad power to regulate the in-state distribution of alcohol, and that a state does not violate the dormant Commerce Clause if the state treats alcohol produced out-of-state the same as alcohol produced in-state. The outcome of this case will help determine how the power to regulate the sale, use, and distribution of alcohol is divided between the federal government and the States.

Questions as Framed for the Court by the Parties

Written by

Edited by

Additional Resources