BAR FLASHCARDS - CL 3_ State Reg_Tax of Commerce

Question 1

THE DORMANT COMMERCE CLAUSE

Answer 1

a. The dormant commerce clause (Negative implications of the commerce clause):
The principle that state and local laws are unconstitutional violations of the Commerce Clause if they place an undue burden on interstate commerce. Even where Congress has not acted, the Commerce Clause restricts state regulation of interstate commerce; states may not favor local economic interests or unduly burden interstate commerce.
AKA “Negative Commerce Clause” or “the negative implications of the Commerce Clause”

Question 2

THE PRIVILEGES AND IMMUNITIES CLAUSE OF ARTICLE IV

Answer 2

Under the Privileges and Immunities Clause of Article IV, states may not deprive citizens of other states of privileges and immunities it accords its own citizens. Meant to pre vent states from discriminating to out of staters.
Note: Corporations and aliens are not protected by this Clause. (In contrast, corporations and aliens are protected by the Equal Protection and Due Process Clauses of the Fourteenth Amendment, and can claim a law violates the Dormant Commerce Clause.)

Question 3

Privileges and Immunities Clause (U.S. Constitution, Article IV, Section 2, Clause 1, also known as the Comity Clause) prevents….

Answer 3

Privileges and Immunities Clause (U.S. Constitution, Article IV, Section 2, Clause 1, also known as the Comity Clause) prevents a state from treating citizens of other states in a discriminatory manner. Additionally, a right of interstate travel is associated with the clause.

Question 4

Article IV Privileges and Immunities

Answer 4

1. Prohibits states from discriminating against citizens of other states with respect to “fundamental” rights (Note: Corporations and aliens are not citizens)
2. Mainly used to prevent substantially unequal treatment regarding commercial activities
3. Substantial justification exception if nonresidents are part of problem and there are no less restrictive means to solve problem

Question 5

Under the Privileges and Immunities Clause of Article IV, states may not…

Answer 5

Under the Privileges and Immunities Clause, states may not discriminate against nonresidents regarding fundamental rights-i.e., those involving important commercial activities (such as pursuit of a livelihood) or civil liberties-absent a substantial justification:
i.e., the state shows that nonresidents either cause or are part of the problem the state is attempting to solve, and that there are no less restrictive means to solve the problem.
For example, states may not charge nonresident commercial fishermen substantially more for a license than they charge residents absent substantial justification.

Question 6

The Privileges and Immunities Clause of Article IV prohibits a state from….

Answer 6

The Privileges and Immunities Clause of Article IV would be relevant in determining the validity of a state tax on interstate commerce that discriminates against a natural person who is a nonresident. This Clause prohibits a state from discriminating against nonresidents regarding commercial activities.

Question 7

The Privileges and Immunities Clause of Article IV prohibits what?

Answer 7

The Privileges and Immunities Clause of Article IV prohibits discrimination by a state against nonresidents.
The Privileges and Immunities Clause of Article IV protects against discrimination by a state in favor of its own citizens when it affects a fundamental right, such as the pursuit of a livelihood.

Any statute that results in such discrimination violates the Clause unless the state shows that it has a substantial justification for the discriminatory treatment. In effect, it must show that nonresidents either cause or are part of the problem it is attempting to solve, and that there are no less restrictive means to solve the problem.

Question 8

Ability to Earn a Living—Privileges and Immunities Clause of Article IV

Answer 8

Ability to Earn a Living—Privileges and Immunities Clause of Article IV: If the law discriminates against out-of-staters with regard to their ability to earn their livelihood, it violates the Privileges and Immunities Clause of Article IV unless it is necessary to achieve an important government purpose.
When analyzing these cases, establish that:
- The law discriminates against out-of-staters.
- The discrimination is with regard to fundamental rights or important economic activities.
- The party is proper. Remember, corporations and aliens cannot use the privileges and immunities clause.
- The discrimination is necessary to achieve an important government purpose. Any statute that results in such discrimination violates the Clause unless the state shows that it has a substantial justification for the discriminatory treatment. In effect, it must show that nonresidents either cause or are part of the problem it is attempting to solve, and that there are no less restrictive means to solve the problem.

Question 9

The privileges or immunities clause of the Fourteenth Amendment

Answer 9

Under the Fourteenth Amendment Privileges or Immunities Clause, state laws that interfere with the right to travel are unconstitutional. LIMITED TO RIGHT TO TRAVEL.
Prohibits states from denying their own citizens rights of national citizenship (corporations are not citizens)

Question 10

states may not deny their own citizens rights of national citizenship, this rule comes from….

Answer 10

states may not deny their own citizens rights of national citizenship, this rule comes from the Privileges or Immunities Clause of the Fourteenth Amendment RATHER THAN from the Article IV Privileges and Immunities Clause.

Question 11

The Fourteenth Amendment Privileges or Immunities Clause prohibits states from….

Answer 11

The Fourteenth Amendment Privileges or Immunities Clause prohibits states from denying their citizens the rights of national citizenship, such as the right to petition Congress for redress of grievances, the right to vote for federal officers, the right to enter public lands, the right to interstate travel, and any other right flowing from the distinct relation of a citizen to the United States Government.
Corporations, aliens, and legal residents are not citizens of the United States and are not protected by the Fourteenth Amendment Privileges or Immunities Clause.

Question 12

A state law that distinguishes between new residents solely on the length of their residency… violates what?

Answer 12

The Privileges or Immunities Clause of the Fourteenth Amendment prohibits states from denying their citizens the privileges and immunities of national citizenship.
This includes the right to travel, and the Court has held that the right to travel includes the right of newly arrived citizens to enjoy the same privileges and immunities as are enjoyed by other citizens of the state (EQUAL PROTECTION?). A state law that distinguishes between new residents solely on the length of their residency will serve no legitimate state interest.

An individual has a fundamental right to travel from state to state, and a state law that is designed to deter persons from moving into the state is likely to violate the Equal Protection Clause (as well as the Fourteenth Amendment Privileges or Immunities Clause). When a state uses a durational residency requirement (a waiting period) for dispensing benefits, that requirement normally should be subject to the strict scrutiny test, and usually will be found not to have satisfied the test. One such requirement that has been invalidated on this basis is a one-year waiting period for state-subsidized medical care,

Question 13

Who is/is NOT protected by the Fourteenth Amendment Privileges or Immunities Clause?

Answer 13

Is protected: US Citizens.

Corporations, aliens, and legal residents are not citizens of the United States and are not protected by the Fourteenth Amendment Privileges or Immunities Clause.

The Fourteenth Amendment Privileges or Immunities Clause prohibits states from denying their citizens the rights of national citizenship, such as the right to petition Congress for redress of grievances, the right to vote for federal officers, the right to enter public lands, the right to interstate travel, and any other right flowing from the distinct relation of a citizen to the United States Government.

Question 14

What are the rights of national citizenship under the Privileges or Immunities Clause of the Fourteenth Amendment?

Answer 14

The Fourteenth Amendment Privileges or Immunities Clause prohibits states from denying their citizens the rights of national citizenship, such as the right to petition Congress for redress of grievances, the right to vote for federal officers, the right to enter public lands, the right to interstate travel, and any other right flowing from the distinct relation of a citizen to the United States Government.

Freedom of speech is not a right of national citizenship under the Privileges or Immunities Clause of the Fourteenth Amendment. In The Slaughterhouse Cases, the Supreme Court held that rights of national citizenship do not include all of the rights in the Bill of Rights, although some rights under the Bill of Rights may be held applicable to the states as incidents of due process.
The right to earn a living is not a right of national citizenship under the Privileges or Immunities Clause of the Fourteenth Amendment, although the right is protected under the Privileges and Immunities Clause of Article IV, which limits states from discriminating against nonresidents.
The right to an attorney is not a right of national citizenship under the Privileges or Immunities Clause of the Fourteenth Amendment. Although the right is included in the Bill of Rights under the Sixth Amendment, as discussed above, the Supreme Court held in The Slaughterhouse Cases that rights of national citizenship do not include the Bill of Rights.

Question 15

The Privileges or Immunities Clause prohibits states from denying their citizens the rights of….

Answer 15

The Privileges or Immunities Clause prohibits states from denying their citizens the rights of national citizenship, which includes the right to travel. Other rights protected include the right to petition Congress for redress of grievances, the right to vote for federal officers, and the right to enter public lands.

Question 16

KEY!!! [TWO-PART TEST]: States may regulate local aspects of interstate commerce as long as the local regulation ___ and the regulation meets the following tests: (i), and (ii) .

Answer 16

States may regulate local aspects of interstate commerce as long as the local regulation does not conflict with, or is not preempted by, federal regulation and the regulation meets the following tests: (i) the regulation does not discriminate against out-of-state competition in order to benefit local economic interests, and (ii) the incidental burden on interstate commerce does not outweigh the local benefits of the regulation.

Question 17

S state ban affecting interstate commerce must…

Answer 17

The fact that a state ban affecting interstate commerce operates only within the state does clear one hurdle to validity, because a state does not have the power to regulate interstate commerce.

Question 18

Preemption: A field will be held to be preempted where….

Answer 18

A field will be held to be preempted only where the federal statute is so comprehensive that it appears that Congress intended to occupy the whole field.

Question 19

The FIRST part of test:

Answer 19

(i) the regulation does not discriminate against out-of-state competition in order to benefit local economic interests

Question 20

The SECOND part of test:

Answer 20

(ii) the incidental burden on interstate commerce does not outweigh the local benefits of the regulation…
The second part is a balancing test, in which the court will consider whether the regulation promotes legitimate state interests and whether less restrictive alternatives are available.

Question 21

When a bar exam question involves a state regulation that affects the free flow of interstate commerce, you should ask:

Answer 21

• Does the question refer to any federal legislation that might (1) supersede the state regulation or preempt the field or (2) authorize state regulation otherwise impermissible?
• If neither of those possibilities is dispositive, does the state regulation either discriminate against interstate or out-of-state commerce or place an undue burden on the free flow of interstate commerce?
• If the regulation is discriminatory, it will be invalid unless it:
  
  • • Furthers an important, noneconomic state interest and there are no reasonable nondiscriminatory alternatives, or
  • • The state is a market participant.
• If the regulation does not discriminate but burdens interstate commerce, it will be invalid if the burden on commerce outweighs the state’s interest.

Question 22

Analysis for state law: initial question

Answer 22

Begin the analysis of cases under these clauses by asking: Does the state law discriminate against out-of-staters?

Question 23

• Analysis If Law Doesn’t Discriminate Against Out-of-Staters:

Answer 23

– The Privileges and Immunities Clause of Article IV does not apply
– If the law burdens interstate commerce, it violates the dormant commerce clause if its burdens exceed its benefits. The court will consider whether less restrictive alternatives are available. If the burdens outwiehg benefits, struck down. (IL mudflaps law was struck down, even tho it didnt discriminate.
State Control of Corporations: A different standard may apply to statutes adopted by the state of incorporation regulating the internal governance of a corporation. Because the states have a long history of regulating the internal governance of corporations that they create and have a strong interest in doing so, even a corporate governance statute that heavily impacts interstate commerce may be upheld (for example, a state may deny voting rights to persons who acquire a controlling interest in a state corporation without approval from other shareholders, despite the impact that this may have on interstate commerce).

Question 24

Analysis If Law Discriminates Against Out-of-Staters

Answer 24

a. Dormant Commerce Clause. Violates DCC unless necessary to achieve a compelling gov purpose. No less discriminatory alternative. BUT EXCEPTIONS
b. Ability to Earn a Living—Privileges and Immunities Clause of Article IV

Question 25

Analysis If Law Discriminates Against Out-of-Staters PART I- Dormant Commerce Clause

Answer 25

Dormant Commerce Clause: If the law burdens interstate commerce, it violates the Dormant Commerce Clause unless it is necessary to achieve an important government purpose. State or local regulations that discriminate against interstate commerce to protect local economic interests (sometimes called protectionist purposes) are almost always invalid. To be valid, the state or local government must show that no less discriminatory alternatives are available.
Example: A state could prohibit importation of live bait fish because parasites could have a detrimental effect on its own fish population and preserving a state’s natural resources is a sufficiently important interest to justify the restriction.
Exception—Congressional Approval
Exception—State as “Market Participant”
Exception - Favoring Government Performing Traditional Government Functions:

Question 26

Exceptions to Dormant Commerce Clause

Answer 26

Exception—Congressional Approval

Exception—State as “Market Participant”: A state or local government may prefer its own citizens in receiving benefits from government programs or in dealing with government-owned businesses. (CA may charge more for out-of-state students).
For example, it may choose to sell state-owned resources only to its citizens. However, once a state sells state-owned resources, it cannot control what happens to the resource after that. Thus, AK violated the Commerce Clause when it imposed a contractual requirement on purchasers of state-owned timber that the timber be processed in Alaska before being shipped out of state.

Favoring Government Performing Traditional Government Functions: The SC applies a more lenient standard when a law favors government action that involves the performance of a traditional government function (such as waste disposal). Discrimination against interstate commerce in such a case is permissible because it is likely motivated by legitimate objectives rather than by economic protectionism.

Question 27

Analysis If Law Discriminates Against Out-of-Staters PART II - Ability to Earn a Living—Privileges and Immunities Clause of Article IV

Answer 27

If the law discriminates against out-of-staters with regard to their ability to earn their livelihood, it violates the Privileges and Immunities Clause of Article IV unless it is necessary to achieve an important government purpose.
When Analyzing, Law violates P&I if:
- The law discriminates against out-of-staters.
- The discrimination is with regard to fundamental rights or important economic activities (ability to earn a livelihood). P&I means fundamental rights under the Con’, usually ability to earn a livelihood.
- Ex: Large cost for fishing license for out of stater.
- The party is proper. Remember, corporations and aliens cannot use the privileges and immunities clause. Use the DCC if this is the case.
UNLESS The discrimination is necessary to achieve an important government purpose. (no less discriminatory alternative).

Question 28

Law violates P&I if it:

Answer 28

Law violates P&I if it:
- The law discriminates against out-of-staters.
- The discrimination is with regard to fundamental rights or important economic activities (ability to earn a livelihood). P&I means fundamental rights under the Con’, usually ability to earn a livelihood.
- Ex: Large cost for fishing license for out of stater.
- The party is proper. Remember, corporations and aliens cannot use the privileges and immunities clause. Use the DCC if this is the case.
UNLESS The discrimination is necessary to achieve an important government purpose. (no less discrimatory alternative).

Question 29

Privileges and Immunities Clause of Article IV, which prohibits discrimination against nonresidents with respect to essential activities (e.g., pursuing a livelihood) unless: (TWO)

Answer 29

Privileges and Immunities Clause of Article IV, which prohibits discrimination against nonresidents with respect to essential activities (e.g., pursuing a livelihood) unless:
(i) the discrimination is closely related to a substantial state purpose, and
(ii) less restrictive means are not available.

Question 30

State taxation of interstate commerce

Answer 30

• States can’t use taxes to help in-state businesses (diff taxes for products in-state and out of state)
• State can only tax activites that have a substantial nexus to the state.
  – Physical presence not required.
• Interstate business must be fairly apportioned. State must only tax that which is connected to it.

Question 31

Substantial Nexus

Answer 31

A state may tax activities if there is a substantial nexus to the state. A substantial nexus exists when a business avails itself of the privilege of doing business in the state. Physical presence in the state is not necessary.

A state may require that out-of-state businesses collect sales taxes, even if they do not have a physical presence with the state, so long as they have a substantial nexus to the state.

Question 32

Congress has complete power to authorize or forbid state taxation that affects interstate commerce.

Answer 32

TRUE

Question 33

Apportionment

Answer 33

State taxation of interstate businesses must be fairly apportioned. The taxpayer has the burden of proving unfair apportionment.

Question 34

USE TAXES

Answer 34

Permissible in Buyer’s State: Use taxes are imposed on goods purchased outside the state but used within it. They are valid.
State May Force Seller to Collect Use Tax: An interstate seller may be required to collect a use tax if the seller has a substantial nexus with the taxing state (for example, maintains offices in the taxing state). A physical presence is not required to establish a substantial nexus.

Question 35

SALES TAXES:

Answer 35

Sales taxes are taxes imposed on the seller of goods for sales consummated within the state. They generally do not discriminate against interstate commerce. The key issue is usually whether there is a substantial nexus between the taxpayer and the taxing state or whether the tax is properly apportioned.

Question 36

State taxation of interstate commerce ANALYASIS (3 steps)

Answer 36

1. Does the state tax affect an activity addressed by federal lefgislation?
   YES-INVALID state tax if federal law preempt the field or state tax conflicts with federal law. VALID state tax if the fed law authorized the state tax.
2. Does the state tax discriminate against interstate commerce?
   YES - Invalid state tax.
3. Does the state tax unduly burden interstate commerce - no substantial nexus, unfair apportionment, or no fair relationship btwn tax and benefits.
   YES - Invlaid state tax.
   NO to ALL - Valid statew tax

Question 37

6.4 AD VALOREM PROPERTY TAXES

Answer 37

.

Question 38

Ad Valorem property taxes

Answer 38

Ad valorem property taxes are based on the assessed value of the property in question.

Question 39

Ad Valorem property taxes: No Tax on Commodities in Course of Interstate Commerce

Answer 39

Commodities in interstate transit are entirely exempt from state taxation.

Question 40

Ad Valorem property taxes: When Does Interstate Transportation Begin?

Answer 40

Interstate transportation begins when the cargo is delivered to an interstate carrier or actually starts its interstate journey.

Question 41

Ad Valorem property taxes: Effect of “Break” in Transit

Answer 41

A break in the continuity of transit does not destroy the interstate character of the shipment unless the break was intended to end or suspend the shipment.

Question 42

Ad Valorem property taxes: When Does Interstate Shipment End?

Answer 42

The interstate shipment usually ends when the cargo reaches its destination; thereafter the goods are subject to local tax.

Question 43

Ad Valorem property taxes: Tax on Instrumentalities Used to Transport Goods Interstate

Answer 43

The validity of ad valorem property taxes on instrumentalities of commerce (for example, trucks or airplanes) depends on whether the instrumentality has acquired a “taxable situs” in the taxing state (that is, whether there are sufficient “contacts” with the taxing state to justify the tax) and whether the value of the instrumentality has been properly apportioned according to the amount of the “contacts” with each taxing state.

Question 44

Ad Valorem property taxes: Taxable Situs

Answer 44

An instrumentality has a taxable situs in a state if it receives benefits or protection from the state. (There may be more than one taxable situs.) Example: An airplane was held to have a taxable situs in a state—even though the airline owned no other property in the state— because the airline made 18 regularly scheduled flights daily from a rented depot in the state.

Question 45

Ad Valorem property taxes: Apportionment Requirement

Answer 45

A tax apportioned on the value of the instrumentality will be upheld if it fairly approximates the average physical presence of the instrumentality in the taxing state. The taxpayer’s domiciliary state can tax the full value of instrumentalities used in interstate commerce unless the taxpayer can prove that a defined part thereof has acquired a “taxable situs” elsewhere.

Question 46

PRIVILEGE, LICENSE, FRANCHISE, OR OCCUPATIONAL TAXES

Answer 46

So-called “doing business” taxes are generally permitted. Such taxes may be measured by a flat amount or by a proportional rate based on contact with the taxing state. In either case, all of the following basic requirements must be met:
• The activity taxed must have a substantial nexus with the taxing state
• The tax must be fairly apportioned
• The tax must not discriminate against interstate commerce
• The tax must fairly relate to services provided by the state

Question 47

When a question involves state taxation that affects interstate commerce, you should ask:

Answer 47

• Does the question refer to any federal legislation that might forbid the state tax, preempt the field, or authorize state taxation?
• If none of these possibilities is dispositive, does the state tax discriminate against or unduly burden the free flow of interstate commerce? If the state tax discriminates or is unduly burdensome (no substantial nexus, unfair apportionment, or no fair relationship), it is invalid.

Question 48

POWER OF STATES TO TAX FOREIGN COMMERCE

Answer 48

The Import-Export Clause and the Commerce Clause greatly limit the states’ power to tax foreign commerce.

Question 49

TWENTY-FIRST AMENDMENT—STATE CONTROL OVER INTOXICATING LIQUOR

Answer 49

.

Question 50

State control over liquor: Intrastate Regulation

Answer 50

State governments have wide latitude over the importation of liquor and the conditions under which it is sold or used within the state. However, regulations that constitute only an economic preference for local liquor manufacturers may violate the Commerce Clause.

Question 51

State control over liquor: Interstate Regulation

Answer 51

Liquor in interstate commerce is subject to the Commerce Clause.

Question 52

State control over liquor: Federal Power

Answer 52

Congress may regulate economic transactions involving liquor through the federal commerce power (for example, antitrust laws) or by conditioning grants of money (for example, highway funds given only to states with a minimum drinking age of 21).