Brief Fact Summary.
Massachusetts taxed all milk dealers who sold milk to Massachusetts retailers, the proceeds of which were then distributed to Massachusetts dairy farmers.
Synopsis of Rule of Law.
States may not impose tariffs or taxes that are effectively tariffs, such that it discriminates against out-of-state commerce.
Our Commerce Clause jurisprudence is not so rigid as to be controlled by the form by which a State erects barriers to commerce.View Full Point of Law
On January 28, 1992, in response to the serious financial hardships of Massachusetts dairy farmers (due to lower prices of their competitor producers in other states), the Massachusetts Department of Food and Agriculture issued a pricing order. The order taxed all dealers who sold milk to Massachusetts retailers, the proceeds of which would then be used to subsidize the efforts of Massachusetts dairy farmers and help them compete in the national milk market. Plaintiff filed an action in state court claiming that the order violated the Commerce Clause of the Constitution.
Is the Massachusetts pricing order a breach of the Commerce Clause?
Yes, because the pricing order discriminated against interstate commerce.
According to the Court’s previous holding in Limbach, “[Direct] subsidization of domestic industry does not ordinarily run afoul of the Dormant Commerce Clause; discriminatory taxation of out-of-state manufacturers does.”
A State may subsidize its domestic industry so long as it does so from nondiscriminatory taxes that go into the State’s general revenue fund.
While the pricing order taxed all dealers (facially nondiscriminatory), the benefit of the tax was reserved exclusively for in-state dairy farmers. Moreover, it not only assists local farmers, it burdens interstate commerce by increasing the price of milk produced out-of-state. Thus, the Court concluded that, in effect, the pricing order functioned like a tariff, and was clearly unconstitutional.