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The Dormant Commerce Clause and State Tax Discrimination: Parceling State Actions Between Permissible and Impermissible Burdens
The article was authored by Philip M. Tatarowicz and is 92 pages in length. It was originally published in the State and Local Tax Lawyer 2007 Symposium Edition.
In the field of state and local taxation, no other clause of -- or silence within -- the Constitution has as much significance as the Commerce Clause. It yields the fundamental limitations on state taxing power with which professionals in our field grapple daily -- nexus, discrimination, and fair apportionment to name a few. This compilation of articles and essays presents analyses by preeminent authorities of not only the intricacies of these "day-to-day" issues, but also the theoretical underpinnings of Commerce Clause jurisprudence. The day-long program from which these pieces are adapted was held at Georgetown University Law Center on May 16th, 2007.
For information on the State and Local Tax Lawyer 2007 Symposium Edition, click here.
Article Excerpt
The dormant Commerce Clause plays a major role in harnessing state and local taxes imposed on interstate and foreign commerce, as well as those that may inappropriately trespass the rights of other states (hereafter collectively referred to as "protected commerce"). Unfortunately, since its first clear application to state taxes some 135 years ago, the standard employed by the U.S. Supreme Court has changed numerous times resulting in conflicting decisions and less than clear guidance. In some respects these changing standards are quite understandable and best understood when compared against the needs of the Nation at given points in time.
For instance, the Founding Fathers foresaw that without minimizing the trade wars that had plagued the thirteen colonies, the rapid growth of the Nation's economic prosperity that we enjoy today may not have been possible. It is primarily for that reason that the U.S. Supreme Court's (the Court's) Commerce Clause standard in the early years of the United States assumed a posture that afforded non-domiciliary taxpayers an expansive area of free trade unhampered by state taxes. Indeed, because of the breath of this protection, the Court's early standard resulted in allocating the costs of government almost exclusively to intrastate taxpayers.
As the Nation matured and the volume of interstate and foreign commerce grew, later decisions reveal the Court's change of view from significantly sheltering protected commerce to making it pay its fair share. For the Court, the fact that multijurisdictional corporations incurred greater costs to comply with the regulatory systems of numerous states compared to taxpayers operating in only one state was an acceptable consequence of federalism and not constitutionally prohibited.
Working from a base line measured by the Court's contemporary standard, and building on the principles that have informed the Court's jurisprudence to date, this Article sets forth a methodology that aids in the identification of state taxes that discriminate and may impermissibly burden protected commerce under the dormant Commerce Clause. The methodology sets forth a series of broad inquiries designed to filter state tax provisions through the issues important to the Court in parceling permissible from impermissible burdens. Like any predictability model built on jurisprudential guidance, however, care must be taken in interpreting its results.
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