Article I, Section 8, Clause 3:
[The Congress shall have Power . . .] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; . . .
In 1959, the Supreme Court acknowledged that, with respect to the taxing power of the states in light of the negative (or
dormant) commerce clause,
some three hundred full-dress opinions as of that year had not resulted in
consistent or reconcilable doctrine but rather in something more resembling a
quagmire. 1 Although many of the principles still applicable in constitutional law may be found in the older cases, the Court has worked a revolution in this area, though at different times for taxation and for regulation. Thus, in this section we summarize the
old law and then deal more fully with the
modern law of the negative commerce clause.
The task of drawing the line between state power and the commercial interest has proved a comparatively simple one in the field of foreign commerce, the two things being in great part territorially distinct. 2 With
commerce among the States affairs are very different. Interstate commerce is conducted in the interior of the country, by persons and corporations that are ordinarily engaged also in local business; its usual incidents are acts that, if unconnected with commerce among the states, would fall within the state's powers of police and taxation, while the things it deals in and the instruments by which it is carried on comprise the most ordinary subject matter of state power. In this field, the Court consequently has been unable to rely upon sweeping solutions. To the contrary, its judgments have often been fluctuating and tentative, even contradictory, and this is particularly the case with respect to the infringement of interstate commerce by the state taxing power. 3
The leading case dealing with the relation of the states' taxing power to interstate commerce – the case in which the Court first struck down a state tax as violating the Commerce Clause – was the State Freight Tax Case. 4 Before the Court was the validity of a Pennsylvania statute that required every company transporting freight within the state, with certain exceptions, to pay a tax at specified rates on each ton of freight carried by it. The Court's reasoning was forthright. Transportation of freight constitutes commerce. 5 A tax upon freight transported from one state to another effects a regulation of interstate commerce. 6 Under the Cooley doctrine, whenever the subject of a regulation of commerce is in its nature of national interest or admits of one uniform system or plan of regulation, that subject is within the exclusive regulating control of Congress. 7 Transportation of passengers or merchandise through a state, or from one state to another, is of this nature. 8 Hence, a state law imposing a tax upon freight, taken up within the state and transported out of it or taken up outside the state and transported into it, violates the Commerce Clause. 9
The principle thus asserted, that a state may not tax interstate commerce, confronted the principle that a state may tax all purely domestic business within its borders and all property
within its jurisdiction. Inasmuch as most large concerns prosecute both an interstate and a domestic business, while the instrumentalities of interstate commerce and the pecuniary returns from such commerce are ordinarily property within the jurisdiction of some state or other, the task before the Court was to determine where to draw the line between the immunity claimed by interstate business, on the one hand, and the prerogatives claimed by local power on the other. In the State Tax on Railway Gross Receipts Case, 10 decided the same day as the State Freight Tax Case, the issue was a tax upon gross receipts of all railroads chartered by the state, part of the receipts having been derived from interstate transportation of the same freight that had been held immune from tax in the first case. If the latter tax were regarded as a tax on interstate commerce, it too would fall. But to the Court, the tax on gross receipts of an interstate transportation company was not a tax on commerce.
[I]t is not everything that affects commerce that amounts to a regulation of it, within the meaning of the Constitution. 11 A gross receipts tax upon a railroad company, which concededly affected commerce, was not a regulation
directly. Very manifestly it is a tax upon the railroad company. . . . That its ultimate effect may be to increase the cost of transportation must be admitted. . . . Still it is not a tax upon transportation, or upon commerce. . . . 12
Insofar as it drew a distinction between these two cases, the Court did so in part on the basis of Cooley, that some subjects embraced within the meaning of commerce demand uniform, national regulation, whereas other similar subjects permit of diversity of treatment, until Congress acts; and in part on the basis of a concept of a
direct tax on interstate commerce, which was impermissible, and an
indirect tax, which was permissible until Congress acted. 13 Confusingly, the two concepts were sometimes conflated and sometimes treated separately. In any event, the Court itself was clear that interstate commerce could not be taxed at all, even if the tax was a nondiscriminatory levy applied alike to local commerce. 14
Thus, the States cannot tax interstate commerce, either by laying the tax upon the business which constitutes such commerce or the privilege of engaging in it, or upon the receipts, as such, derived from it . . . ; or upon persons or property in transit in interstate commerce. 15 However, some taxes imposed only an
indirect burden and were sustained; property taxes and taxes in lieu of property taxes applied to all businesses, including instrumentalities of interstate commerce, were sustained. 16 A good rule of thumb in these cases is that taxation was sustained if the tax was imposed on some local, rather than an interstate, activity or if the tax was exacted before interstate movement had begun or after it had ended.
An independent basis for invalidation was that the tax was discriminatory, that its impact was intentionally or unintentionally felt by interstate commerce and not by local, perhaps in pursuit of parochial interests. Many of the early cases actually involving discriminatory taxation were decided on the basis of the impermissibility of taxing interstate commerce at all, but the category was soon clearly delineated as a separate ground (and one of the most important today). 17
Following the Great Depression and under the leadership of Justice, and later Chief Justice, Stone, the Court attempted to move away from the principle that interstate commerce may not be taxed and reliance on the direct-indirect distinction. Instead, a state or local levy would be voided only if in the opinion of the Court it created a risk of multiple taxation for interstate commerce not felt by local commerce. 18 It became much more important to the validity of a tax that it be apportioned to an interstate company's activities within the taxing state, so as to reduce the risk of multiple taxation. 19 But, just as the Court had achieved constancy in the area of regulation, it reverted to the older doctrines in the taxation area and reiterated that interstate commerce may not be taxed at all, even by a properly apportioned levy, and reasserted the direct-indirect distinction. 20 The stage was set, following a series of cases in which through formalistic reasoning the states were permitted to evade the Court's precedents, 21 for the formulation of a more realistic doctrine.
Much more diverse were the cases dealing with regulation by the state and local governments. Taxation was one thing, the myriad approaches and purposes of regulations another. Generally speaking, if the state action was perceived by the Court to be a regulation of interstate commerce itself, it was deemed to impose a
direct burden on interstate commerce and impermissible. If the Court saw it as something other than a regulation of interstate commerce, it was considered only to
affect interstate commerce or to impose only an
indirect burden on it in the proper exercise of the police powers of the states. 22 But the distinction between
indirect burdens was often perceptible only to the Court. 23
A corporation's status as a foreign entity did not immunize it from state requirements, conditioning its admission to do a local business, to obtain a local license, and to furnish relevant information as well as to pay a reasonable fee. 24 But no registration was permitted of an out-of-state corporation, the business of which in the host state was purely interstate in character. 25 Neither did the Court permit a state to exclude from its courts a corporation engaging solely in interstate commerce because of a failure to register and to qualify to do business in that state. 26
Interstate transportation brought forth hundreds of cases. State regulation of trains operating across state lines resulted in divergent rulings. It was early held improper for states to prescribe charges for transportation of persons and freight on the basis that the regulation must be uniform and thus could not be left to the states. 27 The Court deemed
reasonable and therefore constitutional many state regulations requiring a fair and adequate service for its inhabitants by railway companies conducting interstate service within its borders, as long as there was no unnecessary burden on commerce. 28 A marked tolerance for a class of regulations that arguably furthered public safety was long exhibited by the Court, 29 even in instances in which the safety connection was tenuous. 30 Of particular controversy were
full-crew laws, represented as safety measures, that were attacked by the companies as
feather-bedding rules. 31
Similarly, motor vehicle regulations have met mixed fates. Basically, it has always been recognized that states, in the interest of public safety and conservation of public highways, may enact and enforce comprehensive licensing and regulation of motor vehicles using its facilities. 32 Indeed, states were permitted to regulate many of the local activities of interstate firms and thus the interstate operations, in pursuit of these interests. 33 Here, too, safety concerns became overriding objects of deference, even in doubtful cases. 34 In regard to navigation, which had given rise to Gibbons v. Ogden and Cooley, the Court generally upheld much state regulation on the basis that the activities were local and did not demand uniform rules. 35
As a general rule, although the Court during this time did not permit states to regulate a purely interstate activity or prescribe prices for purely interstate transactions, 36 it did sustain a great deal of price and other regulation imposed prior to or subsequent to the travel in interstate commerce of goods produced for such commerce or received from such commerce. For example, decisions late in the period upheld state price-fixing schemes applied to goods intended for interstate commerce. 37
However, the states always had an obligation to act nondiscriminatorily. Just as in the taxing area, regulation that was parochially oriented, to protect local producers or industries, for instance, was not evaluated under ordinary standards but subjected to practically per se invalidation. The mirror image of Welton v. Missouri, 38 the tax case, was Minnesota v. Barber, 39 in which the Court invalidated a facially neutral law that in its practical effect discriminated against interstate commerce and in favor of local commerce. The law required fresh meat sold in the state to have been inspected by its own inspectors with 24 hours of slaughter. Thus, meat slaughtered in other states was excluded from the Minnesota market. The principle of the case has a long pedigree of application. 40 State protectionist regulation on behalf of local milk producers has occasioned judicial censure. Thus, in Baldwin v. G.A.F. Seelig., 41 the Court had before it a complex state price-fixing scheme for milk, in which the state, in order to keep the price of milk artificially high within the state, required milk dealers buying out-of-state to pay producers, wherever they were, what the dealers had to pay within the state, and, thus, in-state producers were protected. And, in H. P. Hood & Sons, Inc. v. Du Mond, 42 the Court struck down a state refusal to grant an out-of-state milk distributor a license to operate a milk receiving station within the state on the basis that the additional diversion of local milk to the other state would impair the supply for the in-state market. A state may not bar an interstate market to protect local interests. 43