The Dormant Commerce Clause

Subsidy exception

d. Subsidy exception A state may favor its own citizens when providing for subsidy. For example, a state may offer in-state residents a lower tuition rate to attend a state college or university than out-of-state residents. Vlandis v. Kline, 412 U.S. 441 (1973).

General Rule

1. General Rule If Congress has not enacted legislation in a particular area of interstate commerce, then the states are free to regulate, so long as the state or local action does not: i) Discriminate against out-of-state commerce; ii) Unduly burden interstate commerce; or iii) Regulate extraterritorial (wholly out-of-state) activity. Note: Unlike the Comity Clause of Article IV, Section 2, the Dormant Commerce Clause does not exclude corporations and aliens from its protection against state or local action. See XIV.A.1. "Prohibits State Discrimination Against Nonresidents," infra.

Discrimination Against Out-of-State Commerce

2. Discrimination Against Out-of-State Commerce 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. See City of Philadelphia v. New Jersey, 437 U.S. 617 (1978) (state statute prohibiting importation of out-of-state garbage discriminated in favor of local trash collectors); Dean Milk Co. v. City of Madison, 340 U.S. 349 (1959) (state law discriminated against out-of-state milk suppliers by requiring all milk sold in the city to be processed and bottled locally).

Undue Burden on Interstate Commerce

3. Undue Burden on Interstate Commerce A state regulation that is not discriminatory may still be struck down as unconstitutional if it imposes an undue burden on interstate commerce. The courts will balance, case by case, the objective and purpose of 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. Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). This balancing test is not a cost-benefit analysis or a form of close scrutiny of state economic regulation. United Haulers Ass'n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (2007).

"Extraterritoriality"

4. "Extraterritoriality" States may not regulate conduct that occurs wholly beyond their borders. Thus, Connecticut could not require that beer sold in Connecticut not be priced higher than beer sold in any of the four neighboring states, because the Connecticut regime had the practical effect of regulating beer prices in those states. Healy v. Beer Inst., Inc., 491 U.S. 324 (1989). There may be an exception for the regulation of the internal affairs of corporations. CTS Corp. v. Dynamics Corp., 481 U.S. 69 (1987).

The Dormant Commerce Clause

The Dormant Commerce Clause (sometimes referred to as the Negative Commerce Clause) is a doctrine that limits the power of states to legislate in ways that impact interstate commerce. The Commerce Clause (Article I, Section 8, Clause3) reserves to Congress the power "[t]o regulate commerce with foreign nations, and among the several states, and with the Indian tribes"; as a corollary, individual states are limited in their ability to legislate on such matters.

Necessary to important state interest

a. Necessary to important state interest If a state or local regulation, on its face or in practice, is discriminatory, then the regulation may be upheld if the state or local government can establish that: i) An important local interest is being served; and ii) No other nondiscriminatory means are available to achieve that purpose. Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333 (1977). Discriminatory regulation has rarely been upheld. In a few instances, a discriminatory state or local regulation that furthers an important, non-economic state interest, like health and safety, has not been struck down. Maine v. Taylor, 477 U.S. 131 (1986) (upheld a prohibition against importation into the state of out-of-state live baitfish that may pose contamination hazards to local waters).

Market-participant exception

b. Market-participant exception A state may behave in a discriminatory fashion if it is acting as a market participant (buyer or seller), as opposed to a market regulator. If the state is a market participant, it may favor local commerce or discriminate against nonresident commerce as could any private business. E.g., Reeves, Inc. v. Stake, 447 U.S. 429 (1980) (state-owned cement plant may, in times of shortage, sell only to in-state buyers).

Traditional government function exception

c. Traditional government function exception State and local regulations may favor state and local government entities, though not local private entities, when those entities are performing a traditional governmental function, such as waste disposal. For example, an ordinance may require all trash haulers to deliver to a local public waste-treatment facility, but not to a local private facility. Compare United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (2007) (public facility), with C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383 (1994) (private facility). Similarly, a state may discriminate against out-of-state interests when raising money to fund state and local government projects. Dep't of Revenue of Kentucky v. Davis, 553 U.S. 328 (2008) (upholding state income tax exemption for income earned on state and local bonds, but not out-of-state bonds).

Exception—congressionally permitted discrimination

e. Exception—congressionally permitted discrimination Because Congress has exclusive authority over interstate commerce, it may explicitly permit states to act in ways that would otherwise violate the Dormant Commerce Clause. Prudential Ins. Co. v. Benjamin, 328 U.S. 408 (1946) (state tax only on out-of-state insurance companies upheld when Congress had enacted a law permitting states to regulate insurance in any manner consistent with federal statutes). It must be unmistakably clear that Congress intended to permit the 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 had in mind is insufficient. South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 90 (1984).