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Journal of Law and Policy

Abstract

The unpredictability of the Supreme Court’s dormant Commerce Clause (“DCC”) jurisprudence continues to draw trenchant criticism from commentators and the Justices themselves, as the Court remains unable to explain which state taxes and subsidies impede interstate commerce. We show that these problems can be resolved by a Commerce Neutrality framework requiring that state taxes and subsidies provide a combined treatment of inbound and outbound transactions at least as favorable as their treatment of intrastate transactions. This simple test has an economic foundation because taxes and subsidies that violate it create incentives to engage in intrastate rather than interstate transactions. The Supreme Court recently took an important step toward implementing this framework in Maryland Comptroller v. Wynne, 135 S. Ct. 1787 (2015), when it invalidated Maryland’s income tax scheme based on economic analysis similar to that presented in this article.

The simple Commerce Neutrality condition resembles the Court’s oft-used, but poorly explained, internal consistency test. At the same time, Commerce Neutrality simplifies DCC jurisprudence by sweeping away the Court’s flawed call for equal treatment of out-of-state and in-state parties (as opposed to equal treatment of interstate and intrastate transactions), its half-hearted concern about multiple taxation, and its ill-defined concept of external consistency. And, because Commerce Neutrality applies to subsidies on the same terms as taxes, it eliminates the tax-subsidy confusion that has figured so prominently in analyses of the DCC.

By focusing on the prevention of discrimination against interstate commerce, Commerce Neutrality puts the commerce back in the Dormant Commerce Clause.