Bench Memos

Comptroller v. Wynne: The Dormant Commerce Clause Is Very, Very Alive

On Monday the Supreme Court handed down its decision in Comptroller v. Wynne, a case about Maryland’s taxation scheme and its treatment of income earned through interstate commerce. Maryland had argued that its tax regime, which gives residents credit for income earned out-of-state as applied to the state portion of their taxes, but not to the county portion, did not discriminate against interstate commerce.

The opinion split 5-4 in favor of the taxpayers in a somewhat unusual lineup. (So much for my final predictions.) Justice Alito wrote for the majority, which included the Chief and Justices Kennedy, Breyer, and Sotomayor. The majority opinion takes a functionalist approach and takes pains to illustrate that Dormant Commerce Clause caselaw requires the court to look at the tax’s practical incentives and disincentives (as opposed to the mere text of the state statutes). Justice Ginsburg wrote the principal dissent, joined by Justices Scalia and Kagan. (Justice Ginsburg’s dissent is mainly a rebuttal of the majority’s reasoning. It contains few surprises, so I won’t summarize it here.)

As predicted, Justice Scalia dissented separately on the grounds that the Dormant Commerce Clause doesn’t exist. He was joined in part by Justice Thomas, who wasn’t willing to apply the doctrine anyway under stare decisis. Justice Thomas wrote his own separate dissent (joined in part by Justice Scalia) focusing on originalist arguments against the Dormant Commerce Clause. 

The majority opinion is heavy on case analysis (of primary relevance to tax lawyers), but it also struck another blow against the idea that the Constitution recognizes some mysterious difference between corporations and the people who own or operate them (citations omitted):

Attempting to explain why the dormant Commerce Clause should provide less protection for natural persons than for corporations, petitioner and the Solicitor General argue that States should have a free hand to tax their residents’ out-of-state income because States provide their residents with many services. As the Solicitor General puts it, individuals “reap the benefits of local roads, local police and fire protection, local public schools, [and] local health and welfare benefits.”

This argument fails because corporations also benefit heavily from state and local services. Trucks hauling a corporation’s supplies and goods, and vehicles transporting its employees, use local roads. Corporations call upon local police and fire departments to protect their facilities. Corporations rely on local schools to educate prospective employees, and the availability of good schools and other government services are features that may aid a corporation in attracting and retaining employees. Thus, disparate treatment of corporate and personal income cannot be justified based on the state services enjoyed by these two groups of taxpayers.

The sole remaining attribute that, in the view of petitioner, distinguishes a corporation from an individual for present purposes is the right of the individual to vote. The principal dissent also emphasizes that residents can vote to change Maryland’s discriminatory tax law. The argument is that this Court need not be concerned about state laws that burden the interstate activities of individuals because those individuals can lobby and vote against legislators who support such measures. But if a State’s tax unconstitutionally discriminates against interstate commerce, it is invalid regardless of whether the plaintiff is a resident voter or nonresident of the State. This Court has thus entertained and even sustained dormant Commerce Clause challenges by individual residents of the State that imposed the alleged burden on interstate commerce, and we have also sustained such a challenge to a tax whose burden was borne by in-state consumers.

As usual, Justice Scalia’s dissent has some zingers about the Dormant (which he dubs the “Synthetic” or “Imaginary”) Commerce Clause. For instance:

The Court’s efforts to justify this judicial economic veto come to naught. The Court claims that the doctrine “has deep roots.” So it does, like many weeds.

On the “internal consistency test” applied by the majority:

The internal consistency rule invoked by the Court nicely showcases our ad hocery. Under this rule, a tax violates the Constitution if its hypothetical adoption by all States would interfere with interstate commerce. How did this exercise in counterfactuals find its way into our basic charter? The test, it is true, bears some resemblance to Kant’s first formulation of the categorical imperative: “Act only according to that maxim whereby you can at the same time will that it should become a universal law” without contradiction. It bears no resemblance, however, to anything in the text or structure of the Constitution.

And:

Today’s enterprise of eliminating double taxation puts this problem prominently on display. The one sure way to eliminate all double taxation is to prescribe uniform national tax rules—for example, to allow taxation of income only where earned. But a program of prescribing a national tax code plainly exceeds the judicial competence. . . . The Court today chooses a third approach, prohibiting States from imposing internally inconsistent taxes. But that rule avoids double taxation only in the hypothetical world where all States adopt the same internally consistent tax, not in the real world where different States might adopt different internally consistent taxes. . . . Then again, it is only fitting that the Imaginary Commerce Clause would lead to imaginary benefits.

As John Madden would say, “Boom!”

Justice Thomas’s dissent goes back to the basics:

In reaching the contrary conclusion, the Court proves just how far our negative Commerce Clause jurisprudence has departed from the actual Commerce Clause. According to the majority, a state income tax that fails to provide residents with “a full credit against the income taxes that they pay to other States” violates the Commerce Clause. That news would have come as a surprise to those who penned and ratified the Constitution. As this Court observed some time ago, “Income taxes . . . were imposed by several of the States at or shortly after the adoption of the Federal Constitution.” There is no indication that those early state income tax schemes provided credits for income taxes paid elsewhere. Thus, under the majority’s reasoning, all of those state laws would have contravened the newly ratified Commerce Clause.

It seems highly implausible that those who ratified the Commerce Clause understood it to conflict with the income tax laws of their States and nonetheless adopted it without a word of concern. That silence is particularly deafening given the importance of such taxes for raising revenues at the time.

In other areas of constitutional analysis, we would have considered these laws to be powerful evidence of the original understanding of the Constitution. We have, for example, relied on the practices of the First Congress to guide our interpretation of provisions defining congressional power. And we have looked to founding-era state laws to guide our understanding of the Constitution’s meaning.

Where does this case leave us?  Right where we started: With a Dormant Commerce Clause enforced over the vigorous objections of Justices Scalia and Thomas.

Jonathan KeimJonathan Keim is Counsel for the Judicial Crisis Network. A native of Peoria, Illinois, he is a graduate of Georgetown University Law Center and Princeton University, an experienced litigator, and ...

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