New Energy Co. of Indiana v. Limbach

Citation. 486 U.S. 269, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988).

Brief Fact Summary.

After Ohio enacted § 5735. 145(B), New Energy Company, an Indiana based ethanol producer, became ineligible for the Ohio tax credit.  New Energy sued, alleging that the Ohio statute violated the Commerce Clause.

Synopsis of Rule of Law.

State statutes that discriminate against interstate commerce will be struck down unless the discrimination is justified by legitimate reasons unrelated to “economic protectionism.”

Facts.

In 1984, Ohio enacted§ 5735. 145(B).  The statute awarded tax credits for each gallon of locally produced ethanol sold but denied tax credits to ethanol produced outside of Ohio.  The statute included a reciprocity provision, granting similar tax advantages to other States that granted tax credits or refunds to ethanol from Ohio.  Indiana did not have a similar tax exemption for ethanol.  Instead, Indiana provided a direct subsidy to its in-state ethanol producers.  Therefore, ethanol produced in Indiana did not qualify for Ohio’s tax exemptions.  New Energy Company of Indiana challenged the statute, alleging that it discriminated against interstate commerce in violation of the Commerce Clause.

Issue.

Whether § 5735. 145(B) violated the Commerce Clause.

Held.

JUSTICE SCALIA holding:  Yes.  The Ohio statute facially discriminated against interstate commerce and was justified only by benefiting ethanol produced in Ohio at the expense of out-of-state producers.

Discussion.

Justice Scalia reasoned that the Commerce Clause grants Congress the authority to regulate interstate commerce and acts as a direct limit on any State regulation which discriminates against interstate commerce.  Ohio argued that the statute did not discriminate against interstate commerce.  Instead, the statute sought to promote commerce because, by incentivizing other States to enact similar tax schemes, more states would engage in the interstate sale of ethanol.  The Court rejected this, reasoning that they had already rejected similar statutes with reciprocity provisions.  For example, in Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.S. 366 (1976), the Court invalidated a Mississippi statute where Mississippi would accept out-of-state milk only if the other State accepted milk from Mississippi on a reciprocal basis.  The Court in Cottrell reasoned that States “may not use the threat of economic isolation as a weapon [against] sister States. . . .”

Ohio argued that its statute was distinct from Cottrell’s reciprocity provision because the provision in Cottrell would have amounted to a total ban of all out-of-state milk, whereas the provision at issue here would have only caused a “substantial commercial disadvantage.”  The Court rejected this too, reasoning that whether there was a total ban or merely a disadvantage does not alter the Court’s analysis.  Because there was no legitimate justification to disadvantage out-of-state products, the Ohio statute violated the Commerce Clause.  Ohio sought to justify its statute by alleging that it promoted both “health and commerce.”  In rejecting this argument, the Court reasoned that there was no reason to believe that out-of-state ethanol would be any less likely to further the State’s goals.