Brief Fact Summary. Massachusetts imposed a non-discriminatory tax on in-state producers and out-of-state producers of milk sold in Massachusetts. Thereupon, the proceeds of the tax were given to in-state producers.
Synopsis of Rule of Law. A tax scheme that raises revenue and benefits local producers by burdening their out-of-state competitors is a violation of the dormant Commerce Clause.
Issue. Was the non-discriminatory tax and subsidy program unconstitutional as against the dormant Commerce Clause?
The purpose and the effect of the program was to enable higher cost Massachusetts dairy farmers to compete with lower costs farmers from other states. Thus, the subsidy is essentially a tax which makes milk produced out of state more expensive.
Although the tax applies to Massachusetts producers, the effect of the tax is offset by the subsidy.
The fact that each of the component parts of the program is Constitutional does not mean that the tax and subsidy program taken together are Constitutional.
Moreover, by joining the tax with the subsidy, the State’s political process is impaired. One of the in-state interests, the Massachusetts milk producers, which would otherwise lobby against the tax, has been mollified.
Dissent. Chief Justice Rehnquist (J. Rehnquist) stated that the Court’s reasoning that the tax and subsidy distorts the political process is the wrong basis upon which to interpret the dormant Commerce Clause.
Concurrence. Justice Antonin Scalia (J. Scalia) stated that I would allow a State to subsidize its domestic industry so long as it does so with non-discriminatory taxes that are channeled into the State’s general revenue fund
Discussion. At issue in this case is an impermissible discriminatory subsidy. While subsidies are similar in economic effect to tax exemptions, subsidies are usually held constitutional where tax exemptions are not. The Supreme Court reasons, as between subsidies and tax exemptions, that the form a State chooses matters.