State Regulation And Commerce

Question 1

What is the dormant commerce clause generally?

Answer 1

The Constitution contemplates a system of regulation of commerce and taxation that includes both the federal and state governments. The Dormant Commerce Clause is a doctrine that limits the power of states to legislate in ways that impact interstate commerce.

The Commerce Clause (Art 1, Sec 8, Clause 3), reserves to Congress the power to regulate commerce’s w it’s foreign nations, and among the states, and with native tribes. As a corollary, individual states are limited in their ability to legislate on such matters.

Question 2

What is the Dormant Commerce Clause Rule?

Answer 2

The Dormant Commerce Clause dictates that if Congress has not enacted legislation in a particular area of interstate commerce, the the states are free to regulate, so long as the state or local action does NOT:

1) Discriminate against out of state commerce
2) Unduly Burden interstate commerce, OR
3) Regulate extraterritorial (wholly-out-of-state) activity

DUBE

Question 3

In Dormant Commerce clause (DCC), what is the test for determining whether a regulation discriminates against out of state commerce?

Answer 3

A state or local regulation discriminates against out-of-state commerce if it protects local economic interests at the expense of out-of-state competitors. cases in point: state statute prohibiting importation of OOS garbage discriminated in favor of local trash collectors, and so did a statute requiring milk sold locally to be bottled locally.

Question 4

In the DCC, what is the Necessary to important state interest test?

Answer 4

If a state or local regulation, on its face or in practice, is discriminatory, then the regulations may be upheld if the state or local gov’t can establish that:

1) an important local interest is served, AND
2) No other non-discriminatory means are available to achieve that purpose.

Discriminatory regulation has rarely been upheld. In the few instances where they are upheld, an important, non-economic health and safely interest is at stake, such as prohibiting the importation of a non-local fish that may contaminate local waters.

Question 5

What is the market-participant exception to the DCC?

Answer 5

A state my behave in a discriminatory fashion if it is acting as a market participant (buyer or seller) as opposed to a market regulator. If a state is a market participant, it may favor local commerce or discriminate against nonresident commerce as could any private business. (Such as a state-owned cement plant only selling to in-state buyers during a shortage.)

Question 6

what is the Traditional government function exception?

Answer 6

State and local regulations may favor state and local government entities, though not local private entities, when those entities are performing a traditional government function, such as waste disposal. ‘

Ex: an ordinance may require all trash haulers to deliver to a local public waste-treatment plant, but not to a local PRIVATE facility. Or, a sate may discriminate against OOS interests when raising money to fund state and local government projects. (So a case upheld a state income tax exemption for income earned on state and local bonds, but not on OOS bonds)

Question 7

What is the Subsidy exception to the DCC?

Answer 7

A state may favor its own citizens when providing for subsidy, such as OOS tuition vs instate tuition.

Question 8

What is the congressional-permitted discrimination exception to the DCC?

Answer 8

Because Congress has exclusive authority over interstate commerce, it may explicitly permit states to act in ways that would otherwise violate the DCC.

Ex: state tax only on OOS insurance companies upheld when Congress had enacted a state law permitting states to regulate insurance in any manner consistent with federal statutes.

NOTE: It must be unmistakeable clear that Congress intended to permit otherwise impermissible state regulation. Congress must expressly allow or “affirmatively contemplate” such state legislation. The fact that the state policy appears to be consistent with federal policy or that the state policy furthers the goals that Congress has in mind is sufficient.

Question 9

What is in Undue Burden on Interstate Commerce Balancing test?

Answer 9

A state regulation that is not discriminatory may still be struck down as unconstitutional/violating the DCC if it imposes an undue burden on interstate commerce. The courts will balance, case by case, the objectives and purpose fo the state law against the burden on interstate commerce and evaluate whether there are less restrictive alternatives. If the benefits of the state law are grossly outweighed by the burdens on interstate commerce, then even nondiscriminatory regulation may be struck down. This balancing test is not a cost- benefit analysis or a form of close scrutiny of economic regulation.

Question 10

Can states, under the DCC, regulate ‘extraterritorial’ conduct?

Answer 10

No; under the DCC states may not regulate conduct that occurs wholly beyond their borders. This, Connecticut could not require that beer sold in Connecticut not be priced higher than beer sold in any of the four neighboring sates, because the Connecticut regime had the effect of regulating beer prices in those states.

Question 11

What is the general rule for states taxation of commerce under the commerce clause?

Answer 11

Much as with regulation, the states may tax interstate commerce only if Congress has not already acted in the particular area and if the tax does not discriminate against or unduly burden interstate commerce.

Question 12

How does the Supreme Court determine whether a state tax on interstate commerce comports with the commerce clause?

Answer 12

The SC applies a four-part test to determine whether a state tax on interstate commerce comports with the commerce clause:

1) Substantial Nexus
2) Fair apportionment
3) Nondiscrimination
4) Fair relationship to services provided

So Fair, No Fair

This is the Complete Auto test

Question 13

Under the Complete Auto test, what is the Substantial Nexus element?

Answer 13

There must be a substantial nexus between the activity being taxed and the taxing state. A substantial nexus requires significant (i.e. more than minimum) contacts with, or substantial activity within, the taxing state. In one case, mailing of catalogs and shipment of goods to consumers in a state is not a sufficient nexus.

Question 14

Under the Complete Auto test, what is the fair apportionment element?

Answer 14

The tax must be fairly apportioned according to a rational formula (such as taxing only the state’s portion of the company’s business), such that interstate commerce does not pay total taxes greater that local commerce by virtue of having to pay tax in more than one state. The burden is on the tax paying business to prove unfair apportionment

Question 15

Under the Complete Auto test, what is the nondiscrimination element?

Answer 15

The tax may not provide a direct commercial advantage to local businesses over their interstate competitors (unless Congress specifically authorizes such a tax). A tax that is neutral on its face may still be unconstitutional if its effect is to favor local commerce.

Ex: a tax affecting all milk dealers, the revenue from which went to a fund used to subsidize in-state dairy farmers, violated the commerce clause

Also, the denial of tax exemption to a state entity unless the entity operates primarily for the benefit of state residents may be unconstitutional.

Question 16

In the Complete Auto test, what is the fair relationship element?

Answer 16

The tax must be fairly related to services provided by the taxing state.

Ex: tax on airline passengers was related to benefits the passengers received from the state airport facilities.

Question 17

Other than the commerce clause, what other portions of the Constitution may a discriminatory tax violate?

Answer 17

A discriminatory tax may violate more than just the Commerce Clause.

Comity Clause: A tax that discriminates against non-resident individuals-for example, an income tax that exempts local residents—may violate the Comity Clause

Equal Protection Clause: A discriminatory tax on out-of-state businesses, even if authorized by Congress and therefore allowed under the Commerce Clause, may still violate the EP Clause of the Fourteenth Amend., if there is no rational basis to support it.

Question 18

What are the 4 types of taxes?

Answer 18

1) Ad Valorem Property Tax
2) Sales
3) Use
4) ”Doing Business” taxes

Add Suds

Question 19

What is an Ad Valorem property tax?

Answer 19

An Ad Valorem tax is based on the value of real or personal property and is often assessed at a particular time (e.g. tax day). Such taxes, which may be imposed on the full value of the property, are generally valid, but a state may NOT levy ad Valorem taxes on goods in the course of transit. However, once goods are stopped for a business purpose, they may be taxed.

Question 20

When can a state tax the ‘instrumentalities of commerce’?

Answer 20

A state may tax the “instrumentalities of commerce” (airplanes, railroad cars, etc.), provided that:

1) The instrumentality has a taxable situs (stopped for a business purpose) or sufficient contacts with a state. In other words it must receive benefits or protection from the state

AND

2) The tax is fairly apportioned to the amount of time the instrumentality is in the state.

Question 21

What is a sales tax and when is it valid?

Answer 21

A sales tax is imposed on the seller of goods is valid as long as the sale takes place within the state. Sales tax generally does not discriminate against interstate commerce so long as there is a substantial nexus between the taxpayer and the state (like if his business is there) and the tax is properly apportioned.

Question 22

What is a use tax and when is it valid?

Answer 22

A use tax on goods purchased out of state but used within the taxing state is valid so long as the use tax rate is not higher than the sales tax rate on the same item. Even though a use tax does, on its face, seem to discriminate against out-of-state purchases, the rationale for its validity is that such a tax equalizes the tax on in-state and out-of-state goods.

Question 23

What are ‘doing business’ taxes and when are they valid?

Answer 23

Taxes levied against companies for the privilege of doing business in a state (like privilege, license, franchise or occupation taxes) are valid so long as they need the basic taxation requirements:

1. the activity taxed must have a substantial nexus to the taxing state;,
2. the tax must be fairly apportioned;
3. The tax may not discriminate against interstate commerce; and
4. The tax must be fairly related to the services provided by the state.

Such a tax may be measured by a flat annual fee or by a graduated rate proportional to the amount of revenue derived from the taxing state. The burden of showing that a tax is unfairly apportioned is on the taxpayer.

Question 24

When can states tax the import or export of foreign goods?

Answer 24

The Import-Export clause prohibits states, without the consent of Congress, from imposing any tax on any imported or exported goods, or on any commercial activity connected with imported goods, except what is absolutely necessary for executing its inspection laws.

Question 25

When can states tax commerce with foreign countries?

Answer 25

This commerce clause restricts state taxation of commerce with other countries because it vests in Congress the exclusive power to regulate foreign commerce. A state tax on foreign commerce must, in addition to meeting the same requirements as a tax on interstate commerce, NOT:

1. Create a substantial risk of international multiple taxation OR
2. Prevent the federal government from ‘speaking with one voice’ regarding international trade or foreign affairs issues.

Question 26

When can states regulate alcoholic beverages?

Answer 26

The 21st amend repealed prohibition and gave the authority to regulate the distribution of alcoholic beverages within each state to the each of the states. However, regulations that economically favor local businesses over out-of-state liquor businesses can violate the Commerce Clause. Also, Congress, under the spending power, can impose conditions on the grant of federal funds that affect state regulations of alcohol. `