Full access allows:
- Solve all tests online without limits;
- Remove all advertisements on website;
- Adding questions to favorite list;
- Save learning progress;
- Save results of practice exams;
- Watching all wrong answered questions.
21. In this case, the court should rule
Following prescribed procedure, the company brings an action in proper court asking to have the city's special license tax declared unconstitutional on the ground that it is inconsistent with the negative implications of the commerce clause.
A prominent company assembles computers in the city and sells them from its offices in the city to buyers throughout the United States. All of the components of its computers come from outside the state. Therefore, the company must pay the city license tax in full without receiving any refund. Other city computer assemblers use components manufactured in the state in varying proportions and, therefore, are entitled to partial reductions of their city license tax payments.
The state statute that authorizes municipalities to impose this license tax has a «State content» provision. To comply with this provision of state law, the city license tax ordinance provides that the tax paid by any assembler of computers subject to this tax ordinance will be reduced by a percentage equal to the proportion of computer components manufactured in the state.
A major city in a particular state is a center for businesses that assemble personal computers. Components for these computers are manufactured elsewhere in the state and in other states, then shipped to this city, where the computers are assembled. An ordinance of the city imposes a special license tax on all of the many companies engaged in the business of assembling computers in that city. The tax payable by each such company is a percentage of the company's gross receipts.
Comments (0)
There are no comments at the moment. If you found an error or think question is incorrect, tell everyone about it
Only signed in users can write comments
Signin
The mere existence of the federal commerce power restricts the states from discriminating against, or unduly burdening, interstate commerce. This restriction is called the Dormant Commerce Clause.
When a state regulation affects interstate commerce (and is not otherwise authorized by a federal law), it must satisfy each of these three elements to avoid violating the Dormant Commerce Clause: (i) the regulation must pursue a legitimate state end; (ii) the regulation must be rationally related to that legitimate state end; and (iii) the regulatory burden imposed by the state on interstate commerce must be outweighed by the state's interest in enforcing its regulation.
Courts especially frown on intentional discrimination against out-of-staters. State or local regulations that discriminate against interstate commerce to protect local economic interests are almost always invalid. A discriminatory state or local law may be valid, however, if it: (i) furthers an important, non-economic state interest (e.g., health or safety); and (ii) there are no reasonable alternatives available.
D is correct. The court should rule in favor of the company because the ordinance's imposition of a higher tax on companies using components from out-of-state manufacturers violates the Dormant Commerce Clause. When such a tax penalty is imposed on the use of out-of-state business entities, in service of protecting local economic interests, the regulation is presumptively invalid. To be upheld, a regulation that intentionally discriminates against out-of-state businesses must serve an important, non-economic interest without any reasonable alternatives available. Here, the higher tax on companies that use out-of-state manufactured components is plainly intended to protect local economic interests, without any mention of a non-economic interest, which is unconstitutional under the Dormant Commerce Clause.
A is incorrect. The companies that reside in the major city rely heavily on manufactured components, some of which originate out-of-state. This tax essentially punishes those companies that purchase from out-of-state manufacturers rather than in-state manufacturers. This amounts to discrimination against out-of-state businesses, which adversely affects interstate commerce and is presumptively invalid.
B is incorrect. This is a misstatement of the law. The Commerce Clause has negative implications, called the Dormant Commerce Clause, which limits states' abilities to favor in-state businesses because of the negative impact on interstate commerce. As explained above, when a state discriminates against out-of-state businesses in favor of local economic interests, which is what happened here, it will be presumptively invalid.
C is incorrect. This answer reaches the correct answer with the wrong reasoning. The court should find for the company and hold the tax unconstitutional, but not because any tax on a company engaged in interstate commerce is per se unconstitutional under the Dormant Commerce Clause. Taxes may be imposed on companies engaged in interstate commerce, as long as it pursues a legitimate state end, is rationally related to that end, and the burden on interstate commerce is outweighed by the interest in enforcing it. And taxes may even be imposed solely on out-of-state companies engaged in interstate commerce, as long as an important non-economic interest at stake and no reasonable alternatives exist. The tax in this case, however, will be struck because it fails to serve a non-economic interest.