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Indiana Law Journal

Document Type

Article

Publication Date

2024

Publication Citation

99 Indiana Law Journal 893 (2024)

Abstract

For many decades, the Supreme Court has applied different doctrinal frameworks in evaluating whether state laws violate the dormant Commerce Clause depending on whether the law at issue was a regulation or a tax. For state regulations, the Court’s test has included asking whether the regulation imposes costs on interstate commerce that are “clearly excessive” relative to its local benefits. But the Court has never applied this so-called “Pike balancing test” to state taxes. In its most recent state tax decision, however—South Dakota v. Wayfair, Inc.—the Court indicated Pike offers a basis for challenging state tax schemes under the Commerce Clause. Wayfair has thus created a puzzle: How should undue burden analysis apply to state taxes?

Contrary to the positions of several courts and scholars, this article contends that the best understanding of governing constitutional law is that state tax liabilities themselves—independent of any costs of compliance—are categorically incapable of imposing burdens that are constitutionally “undue.” A survey of the different types of incidental costs state taxes might impose on interstate commerce shows that those costs cannot be “clearly excessive” in a constitutional sense—either because precedent forecloses that conclusion or because the inquiry Pike posits is not amenable to judicial resolution. This explains why the Court has never invalidated a state tax liability due to its incidental burden on interstate commerce. And it explains why the Court mentioned Pike specifically in Wayfair, which concerned the burden of a tax compliance obligation, not a tax liability.

In short, the only state tax disputes for which undue burden analysis is appropriate are those involving the costs of tax compliance obligations. In every other type of state tax case, “Pike balancing” is beside the point.

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