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A New York Theory for Maryland Taxes

Noah Feldman is a Bloomberg View columnist. He is a professor of constitutional and international law at Harvard University and was a clerk to U.S. Supreme Court Justice David Souter. His books include “Cool War: The Future of Global Competition” and “Divided by God: America’s Church-State Problem -- and What We Should Do About It.”
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The U.S. Supreme Court was mostly in cleanup mode on Monday, disposing of six cases, four of them unanimously and a fifth almost unanimously.  In the sixth case, the court decided that Maryland can't double tax certain income earned by its residents out-of-state -- and that opinion drew one of the strangest 5-4 lineups I've ever seen.

The majority in Comptroller v. Wynne was written by Justice Samuel Alito, who was joined by Chief Justice John Roberts and Justices Anthony Kennedy, Stephen Breyer and Sonia Sotomayor. Justice Ruth Bader Ginsburg wrote a dissent that was joined by Justices Antonin Scalia and Elena Kagan, while Justice Clarence Thomas dissented separately and joined in a separate concurrence by Scalia. If you're counting at home, that means three conservatives and two liberals on one side, with two liberals and two conservatives on the other. What, exactly, was going on here?

Start with the rather obscure doctrine under which the case was decided. It's known as the dormant commerce clause -- a phrase that, as Scalia repeatedly pointed out in his dissent, appears nowhere in the Constitution. What the Constitution contains is the commerce clause, which empowers Congress to regulate interstate commerce. The “dormant” commerce clause is based on an extension of the logic of congressional power over commerce between the states. The idea is that, just as Congress may regulate interstate commerce, states may not enact regulations that penalize or discriminate against interstate commerce. This inference from the commerce clause is called “dormant” because it's passive or sleeping. Another name for it is the negative commerce clause.

Dormant commerce clause doctrine is extraordinarily complicated, and I'm not going to bore you with it. What you need to know is that, to the court's majority, the decision to prohibit Maryland from double taxing was straightforward. “Our existing dormant commerce clause cases,” Alito wrote, “all but dictate the result in this case.” The logic of those cases, and of the court, is that states may not discriminate against interstate commerce by giving an advantage to local business over interstate business.

The discrimination in this case, for the majority, came because Maryland is in effect taxing income earned by its residents out-of-state at a higher rate than income earned by those same residents in the state. Most states tax their residents for income earned out-of-state, but those states also give you a tax credit for the tax you paid elsewhere. Maryland doesn't, at least in part. The majority reasoned that this gives Maryland residents an incentive to do business in state, where their taxes will be lower, rather than out-of-state, where the double taxation will reduce their incentive. The distortion incentives, the court held, amounted to discrimination.

At the level of constitutional philosophy, the majority's view draws an analogy between the U.S. and an economic union like the European Union. According to this logic, one purpose of the U.S., from the ratification of the Constitution until the present, is to draw us ever closer into a common economic union. Discriminatory state regulation stands in the way of economic union. It's therefore not simply a bad idea, but a constitutional violation.

The fact that the Constitution never mentions the dormant commerce clause is, for Scalia, a profound provocation. In a classically pugnacious opinion, Scalia called the negative commerce clause “a judicial fraud” invented by the courts in contravention of the original meaning of the Constitution. He dismissed the court's doctrine as “ad hocery.” And he created two new names for the negative commerce clause, which he capitalized in derision: the “Synthetic Commerce Clause” and the “Imaginary Commerce Clause.”

Scalia nevertheless takes the relatively moderate view that, despite the wrongfulness of commerce clause doctrine, he nevertheless will vote to strike down a tax under the negative commerce clause if it facially discriminates against interstate commerce or if it should be struck down under existing doctrine. Thomas rejects this deviation from the originalist faith, and wrote separately to remind us that he will never strike down a law based on the dormant commerce clause because it has “no basis in the text of the Constitution.”

Yet this still leaves Ginsburg's dissent, which was joined by Scalia but also by Kagan, a liberal justice. Ginsburg didn't repudiate the dormant commerce clause or even division of national unity. But Ginsburg read existing precedent to allow Maryland’s taxation approach. The core of her argument was that, although Maryland was indeed taxing out-of-state income without any offsetting credit, it was reciprocally true that the other states were denying a credit for taxes paid to Maryland. She acknowledged that states ordinarily do provide the credit Maryland denies. But she said that they do so as a matter of tax policy, “not because the Constitution compels the course.”

I can't say for sure why Ginsburg and Kagan dissented, but here's unwarranted speculation for you: They're both native New Yorkers (as is Justice Scalia). New York City (and New York State) has a long-term interest in being able to tax out-of-staters differentially to compensate for services that are used by commuters from New Jersey. I don't mean that they were voting in naked self-interest. Rather, as New Yorkers, these justices can be expected to understand that there are circumstances where a pure neutrality rule for state taxation makes no sense.

Meanwhile Alito, who might otherwise have been expected to share Scalia's originalism in this case, is from -- wait for it -- New Jersey. His chambers were in Newark when he was on the appeals court. The only deviation from what would otherwise be a perfect geographical lineup in this case is Sotomayor, who according to my crackpot theory should've joined her fellow New Yorkers. But hey, no theory is perfect.

  1. The fifth, San Francisco v. Sheehan, would've been unanimous except that Justices Antonin Scalia and Elena Kagan were angry about the city of San Francisco's bait and switch during litigation and so didn't want the court to decide any part of the case.

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To contact the author on this story:
Noah Feldman at nfeldman7@bloomberg.net

To contact the editor on this story:
Stacey Shick at sshick@bloomberg.net