An Alabama statute imposes a substantially lower gross premiums
tax rate on domestic insurance companies than on out-of-state
(foreign) insurance companies. The statute permits foreign
companies to reduce but not to eliminate the differential by
investing in Alabama assets and securities. Appellant foreign
insurance companies filed claims for refunds of taxes paid,
contending that the statute, as applied to them, violated the Equal
Protection Clause. The State Commissioner of Insurance denied the
claims. On consolidated appeals to a county Circuit Court, in which
several domestic companies intervened, the statute was upheld on
summary judgment. The court ruled that the statute did not violate
the Equal Protection Clause because, in addition to raising
revenue, it served the legitimate state purposes of encouraging the
formation of new insurance companies in Alabama and capital
investment by foreign insurance companies in Alabama assets and
securities, and that the distinction between foreign and domestic
companies was rationally related to those purposes. The Alabama
Court of Civil Appeals affirmed the finding as to legitimate state
purposes, but remanded for an evidentiary hearing on the issue of
rational relationship. On certiorari to the Alabama Supreme Court,
appellants waived their rights to such an evidentiary hearing, and
the court entered judgment for the State and the intervenors on
appellants' equal protection challenge to the statute.
The Alabama domestic preference tax statute
violates the Equal Protection Clause as applied to appellants. Pp.
470 U. S.
(a) Under the circumstances of this case, promotion of domestic
business by discriminating against nonresidents is not a legitimate
state purpose. Western & Southern Life Ins. Co. v. State
Board of Equalization of California, 451 U.
, distinguished. Alabama's aim to promote domestic
industry is purely and completely discriminatory, designed only to
favor domestic industry within the State, no matter what the cost
to foreign corporations also seeking to do business there.
Alabama's purpose constitutes the very sort of parochial
discrimination that the Equal Protection Clause was intended to
prevent. A State may not constitutionally favor its own residents
by taxing foreign corporations at a higher rate solely because of
their residence. Although the McCarran-Ferguson Act exempts the
insurance industry from Commerce Clause
Page 470 U. S. 870
restrictions, it does not purport to limit the applicability of
the Equal Protection Clause. Equal protection restraints are
applicable even though the effect of the discrimination is similar
to the type of burden with which the Commerce Clause also would be
concerned. Pp. 470 U. S.
(b) Nor is the encouragement of the investment in Alabama assets
and securities a legitimate state purpose. Domestic insurers remain
entitled to the more favorable tax rate regardless of whether they
invest in Alabama assets. Moreover, since the investment incentive
provision does not enable foreign insurers to eliminate the
statute's discriminatory effect, it does not cure, but reaffirms,
the impermissible classification based solely on residence. Pp.
470 U. S.
447 So. 2d 142, reversed and remanded.
POWELL, J., delivered the opinion of the Court, in which BURGER,
C.J., and WHITE, BLACKMUN, and STEVENS, JJ., joined. O'CONNOR, J.,
filed a dissenting opinion, in which BRENNAN, MARSHALL, and
REHNQUIST, JJ., joined, post
p. 470 U. S.
Page 470 U. S. 871
JUSTICE POWELL delivered the opinion of the Court.
This case presents the question whether Alabama's domestic
preference tax statute, Ala.Code §§ 27-4-4 and 27-4-5 (1975), that
taxes out-of-state insurance companies at a higher rate than
domestic insurance companies, violates the Equal Protection
Since 1955, [Footnote 1
State of Alabama has granted a preference to its domestic insurance
companies by imposing a substantially lower gross premiums tax rate
on them than on out-of-state (foreign) companies. [Footnote 2
] Under the current statutory
provisions, foreign life insurance companies pay a tax on their
gross premiums received from business conducted in Alabama at a
rate of three percent, and foreign companies selling other types of
insurance pay at a rate of four percent. Ala.Code § 27-4-4(a)
(1975). All domestic insurance companies, in contrast, pay at a
rate of only one percent on all types of insurance premiums. §
27-4-5(a). [Footnote 3
] As a
result, a foreign
Page 470 U. S. 872
insurance company doing the same type and volume of business in
Alabama as a domestic company generally will pay three to four
times as much in gross premiums taxes as its domestic
Alabama's domestic preference tax statute does provide that
foreign companies may reduce the differential in gross premiums
taxes by investing prescribed percentages of their worldwide assets
in specified Alabama assets and securities. § 27-4-4(b). By
investing 10 percent or more of its total assets in Alabama
investments, for example, a foreign life insurer may reduce its
gross premiums tax rate from 3 to 2 percent. Similarly, a foreign
property and casualty insurer may reduce its tax rate from four to
three percent. Smaller tax reductions are available based on
investment of smaller percentages of a company's assets.
Regardless of how much of its total assets a foreign
company places in Alabama investments, it can never reduce its
gross premiums tax rate to the same level paid by comparable
domestic companies. These are entitled to the one-percent tax rate
even if they have no investments in the State. Thus, the investment
provision permits foreign insurance companies to reduce, but never
to eliminate, the discrimination inherent in the domestic
preference tax statute.
Appellants, a group of insurance companies incorporated outside
of the State of Alabama, filed claims with the Alabama Department
of Insurance in 1981, contending that the domestic preference tax
statute, as applied to them, violated the Equal Protection Clause.
They sought refunds of taxes paid for the tax years 1977 through
1980. The Commissioner of Insurance denied all of their claims on
July 8, 1981.
Page 470 U. S. 873
Appellants appealed to the Circuit Court for Montgomery County,
seeking a judgment declaring the statute to be unconstitutional and
requiring the Commissioner to make the appropriate refunds. Several
domestic companies intervened, and the court consolidated all of
the appeals, selecting two claims as lead cases [Footnote 4
] to be tried and binding on all
claimants. On cross-motions for summary judgment, the court ruled
on May 17, 1982, that the statute was constitutional. Relying on
this Court's opinion in Western & Southern Life Ins. Co. v.
State Board of Equalization of California, 451 U.
(1981), the court ruled that the Alabama statute
did not violate the Equal Protection Clause because it served
"at least two purposes, in addition to raising revenue: (1)
encouraging the formation of new insurance companies in Alabama,
and (2) encouraging capital investment by foreign insurance
companies in the Alabama assets and governmental securities set
forth in the statute."
App. to Juris. Statement 20a-21a. The court also found that the
distinction the statute created between foreign and domestic
companies was rationally related to those two purposes, and that
the Alabama Legislature reasonably could have believed that the
classification would have promoted those purposes. Id.
After their motion for a new trial was denied, appellants
appealed to the Court of Civil Appeals. It affirmed the Circuit
Court's rulings as to the existence of the two legitimate state
purposes, but remanded for an evidentiary hearing on the issue of
rational relationship, concluding that summary judgment was
inappropriate on that question because the evidence was in
conflict. 437 So.
(1983). Appellants petitioned the Supreme Court of
Alabama for certiorari on the affirmance of the legitimate state
purpose issue, and the State and the intervenors petitioned for
Page 470 U. S. 874
the remand order. Appellants then waived their right to an
evidentiary hearing on the issue whether the statute's
classification bore a rational relationship to the two purposes
found by the Circuit Court to be legitimate, and they requested a
final determination of the legal issues with respect to their equal
protection challenge to the statute. The Supreme Court denied
certiorari on all claims. Appellants again waived their rights to
an evidentiary hearing on the rational relationship issue and filed
a joint motion with the other parties seeking rehearing and entry
of a final judgment. The motion was granted, and judgment was
entered for the State and the intervenors. 447 So. 2d 142 (1983).
This appeal followed, and we noted probable jurisdiction. 466 U.S.
935 (1984). We now reverse.
Prior to our decision in Western & Southern Life Ins.
Co. v. State Board of Equalization of California, supra,
jurisprudence of the applicability of the Equal Protection Clause
to discriminatory tax statutes had a somewhat checkered history.
Lincoln National Life Ins. Co. v. Read, 325 U.
(1945), held that so-called "privilege" taxes,
required to be paid by a foreign corporation before it would be
permitted to do business within a State, were immune from equal
protection challenge. That case stood in stark contrast, however,
to the Court's prior decisions in Southern R. Co. v.
Greene, 216 U. S. 400
(1910), and Hanover Fire Ins. Co. v. Harding, 272 U.
(1926), as well as to later decisions, in which
the Court had recognized that the Equal Protection Clause placed
limits on other forms of discriminatory taxation imposed on
out-of-state corporations solely because of their residence.
See, e.g., WHYY, Inc. v. Glassboro, 393 U.
(1968); Allied Stores of Ohio, Inc. v.
Bowers, 358 U. S. 522
(1959); Wheeling Steel Corp. v. Glander, 337 U.
In Western & Southern, supra,
we reviewed all of
these cases for the purpose of deciding whether to permit an
Page 470 U. S. 875
protection challenge to a California statute imposing a
retaliatory tax on foreign insurance companies doing business
within the State, when the home States of those companies imposed a
similar tax on California insurers entering their borders. We
concluded that Lincoln
was no more than "a surprising
throwback" to the days before enactment of the Fourteenth Amendment
and in which incorporation of a domestic corporation or entry of a
foreign one had been granted only as a matter of privilege by the
State in its unfettered discretion. 451 U.S. at 451 U. S. 665
We therefore rejected the longstanding but "anachronis[tic]" rule
and explicitly held that the Equal Protection
Clause imposes limits upon a State's power to condition the right
of a foreign corporation to do business within its borders. 451
U.S. at 451 U. S. 667
We held that
"[w]e consider it now established that, whatever the extent of a
State's authority to exclude foreign corporations from doing
business within its boundaries, that authority does not justify
imposition of more onerous taxes or other burdens on foreign
corporations than those imposed on domestic corporations, unless
the discrimination between foreign and domestic corporations bears
a rational relation to a legitimate state purpose."
at 451 U. S.
Because appellants waived their right to an evidentiary hearing
on the issue whether the classification in the Alabama domestic
preference tax statute bears a rational relation to the two
purposes upheld by the Circuit Court, the only question before us
is whether those purposes are legitimate. [Footnote 5
Page 470 U. S. 876
The first of the purposes found by the trial court to be a
legitimate reason for the statute's classification between foreign
and domestic corporations is that it encourages the formation of
new domestic insurance companies in Alabama. The State, agreeing
with the Court of Civil Appeals, contends that this Court has long
held that the promotion of domestic industry, in and of itself, is
a legitimate state purpose that will survive equal protection
scrutiny. In so contending, it relies on a series of cases,
including Western & Southern,
that are said to have
upheld discriminatory taxes. See Bacchus Imports, Ltd. v.
Dias, 468 U. S. 263
(1984); Pike v. Bruce Church, Inc., 397 U.
(1970); Allied Stores of Ohio, Inc. v.
Bowers, supra; Parker v. Brown, 317 U.
(1943); Carmichael v. Southern Coal &
Coke Co., 301 U. S. 495
(1937); Board of Education v. Illinois, 203 U.
The cases cited lend little or no support to the State's
contention. In Western & Southern,
principally relied upon, we did not hold as a general rule that
promotion of domestic industry is a legitimate state purpose under
equal protection analysis. [Footnote 6
] Rather, we held that California's purpose
Page 470 U. S. 877
in enacting the retaliatory tax -- to promote the
business of domestic insurers by deterring
from enacting discriminatory or excessive
taxes -- was a legitimate one. 451 U.S. at 451 U. S. 668
In contrast, Alabama asks us to approve its purpose of promoting
the business of its domestic insurers in Alabama
penalizing foreign insurers who also want to do business in the
State. Alabama has made no attempt, as California did, to influence
the policies of
Page 470 U. S. 878
other States in order to enhance its domestic companies' ability
to operate interstate; rather, it has erected barriers to foreign
companies who wish to do interstate business in order to improve
its domestic insurers' ability to compete at home.
The crucial distinction between the two cases lies in the fact
that Alabama's aim to promote domestic industry is purely and
completely discriminatory, designed only to favor domestic industry
within the State, no matter what the cost to foreign corporations
also seeking to do business there. Alabama's purpose, contrary to
California's, constitutes the very sort of parochial discrimination
that the Equal Protection Clause was intended to prevent. As
JUSTICE BRENNAN, joined by Justice Harlan, observed in his
concurrence in Allied Stores of Ohio, Inc. v. Bowers,
358 U. S. 522
(1959), this Court always has held that the Equal Protection Clause
forbids a State to discriminate in favor of its own residents
solely by burdening "the residents of other state members of our
at 358 U. S. 533
Unlike the retaliatory tax involved in Western &
which only burdens residents of a State that imposes
its own discriminatory tax on outsiders, the domestic preference
tax gives the "home team" an advantage by burdening all
foreign corporations seeking to do business within the State, no
matter what they or their States do.
The validity of the view that a State may not constitutionally
favor its own residents by taxing foreign corporations at a higher
rate solely because of their residence is confirmed by a long line
of this Court's cases so holding. WHYY, Inc. v. Glassboro,
393 U.S. at 393 U. S.
-120; Wheeling Steel Corp. v. Glander,
U.S. at 337 U. S. 571
Hanover Fire Ins. Co. v. Harding,
272 U.S. at 272 U. S. 511
Southern R. Co. v. Greene,
216 U.S. at 216 U. S. 417
See Reserve Life Ins. Co. v. Bowers, 380 U.
(1965) (per curiam). As the Court stated in
Hanover Fire Ins. Co.
with respect to general tax burdens
on business, "the foreign corporation stands equal, and is to be
classified with domestic corporations of the same kind."
Page 470 U. S. 879
272 U.S. at 272 U. S. 511
In all of these cases, the discriminatory tax was imposed by the
State on foreign corporations doing business within the State
solely because of their residence, presumably to promote domestic
industry within the State. [Footnote 7
] In relying on these cases and rejecting
in Western & Southern,
the continuing viability of the Equal Protection Clause as a means
of challenging a statute that seeks to benefit domestic industry
within the State only by grossly discriminating against foreign
The State contends that Allied Stores of Ohio, Inc. v.
shows that this principle has not always held
true. In that case, a domestic merchandiser challenged on equal
protection grounds an Ohio statute that exempted foreign
corporations from a tax on the value of merchandise held for
storage within the State. The Court upheld the tax, finding that
the purpose of encouraging foreign companies to build warehouses
within Ohio was a legitimate state purpose. The State contends that
this case shows that promotion of domestic business is a legitimate
state purpose under equal protection analysis.
We disagree with the State's interpretation of Allied
and find that the case is not inconsistent with the
other cases on which we rely. We agree with the holding of
that a State's goal of bringing in new
business is legitimate, and often admirable. Allied Stores
does not, however, hold that promotion of domestic business by
against foreign corporations is legitimate.
The case involves instead a statute that encourages
-- who are not competitors of residents -- to
build warehouses within the State. The discriminatory tax involved
did not favor residents by burdening outsiders; rather, it granted
Page 470 U. S. 880
nonresident businesses an exemption that residents did not
share. Since the foreign and domestic companies involved were not
competing to provide warehousing services, granting the former an
exemption did not even directly affect adversely the domestic
companies subject to the tax. On its facts, then, Allied Stores is
not inconsistent with our holding here that promotion of domestic
business within a State, by discriminating against foreign
corporations that wish to compete by doing business there, is not a
legitimate state purpose. See
358 U.S. at 358 U. S.
-533 (BRENNAN, J., concurring).
The State argues nonetheless that it is impermissible to view a
discriminatory tax such as the one at issue here as violative of
the Equal Protection Clause. This approach, it contends, amounts to
no more than "Commerce Clause rhetoric in equal protection
clothing." Brief for Appellee Ward 22. The State maintains that,
because Congress, in enacting the McCarran-Ferguson Act, 15 U.S.C.
§§ 1011-1015, intended to authorize States to impose taxes that
burden interstate commerce in the insurance field, the tax at issue
here must stand. Our concerns are much more fundamental than as
characterized by the State. Although the McCarran-Ferguson Act
exempts the insurance industry from Commerce Clause restrictions,
it does not purport to limit in any way the applicability of the
Equal Protection Clause. As noted above, our opinion in Western
expressly reaffirmed the viability of equal
protection restraints on discriminatory taxes in the insurance
context. [Footnote 8
Page 470 U. S. 881
Moreover, the State's view ignores the differences between
Commerce Clause and equal protection analysis, and the consequent
different purposes those two constitutional provisions serve. Under
Commerce Clause analysis, the State's interest, if legitimate, is
weighed against the burden the state law would impose on interstate
commerce. In the equal protection context, however, if the State's
purpose is found to be legitimate, the state law stands as long as
the burden it imposes is found to be rationally related to that
purpose, a relationship that is not difficult to establish. See
Western & Southern,
451 U.S. at 451 U. S. 674
(if purpose is legitimate, equal protection challenge may not
prevail so long as the question of rational relationship is "at
least debatable'" (quoting United States v. Carolene Products
Co., 304 U. S. 144,
304 U. S. 154
The two constitutional provisions perform different functions in
the analysis of the permissible scope of a State's power -- one
protects interstate commerce, and the other protects persons
unconstitutional discrimination by the States. See Bethlehem
Motors Corp. v. Flynt, 256 U. S. 421
256 U. S.
-424 (1921). The effect of the statute at issue here
is to place a discriminatory tax burden on foreign insurers who
desire to do business within the State, thereby also incidentally
placing a burden on interstate commerce. Equal protection
restraints are applicable even though the effect of the
discrimination in this case is similar to the type of burden with
which the Commerce Clause also would be concerned. We reaffirmed
the importance of the Equal Protection Clause in the insurance
context in Western & Southern,
and see no reason now
for reassessing that view.
Page 470 U. S. 882
In whatever light the State's position is cast, acceptance of
its contention that promotion of domestic industry is always a
legitimate state purpose under equal protection analysis would
eviscerate the Equal Protection Clause in this context. A State's
natural inclination frequently would be to prefer domestic business
over foreign. If we accept the State's view here, then any
discriminatory tax would be valid if the State could show it
reasonably was intended to benefit domestic business. [Footnote 10
] A discriminatory tax
would stand or fall depending primarily on how a State framed its
purpose -- as benefiting one group or as harming another. This is a
distinction without a difference, and one that we rejected last
Term in an analogous context arising under the Commerce Clause.
Bacchus Imports, Ltd. v. Dias,
468 U.S. at 468 U. S. 273
We hold that, under the circumstances of this case,
promotion of domestic business by discriminating against
nonresident competitors is not a legitimate state purpose.
The second purpose found by the courts below to be legitimate
was the encouragement of capital investment in the Alabama assets
and governmental securities specified in the statute. We do not
agree that this is a legitimate state purpose when furthered by
discrimination. Domestic insurers remain entitled to the more
favorable rate of tax regardless of whether they invest in Alabama
assets. Moreover, the investment incentive provision of the Alabama
statute does not enable foreign insurance companies to eliminate
the discriminatory effect of the statute. No matter how much of
Page 470 U. S. 883
their assets they invest in Alabama, foreign insurance companies
are still required to pay a higher gross premiums tax than domestic
companies. The State's investment incentive provision therefore
does not cure, but reaffirms, the statute's impermissible
classification based solely on residence. We hold that encouraging
investment in Alabama assets and securities in this plainly
discriminatory manner serves no legitimate state purpose.
We conclude that neither of the two purposes furthered by the
Alabama domestic preference tax statute and addressed by the
Circuit Court for Montgomery County, see supra
470 U. S. 873
is legitimate under the Equal Protection Clause to justify the
imposition of the discriminatory tax at issue here. The judgment of
the Alabama Supreme Court accordingly is reversed, and the case is
remanded for further proceedings not inconsistent with this
It is so ordered.
The origins of Alabama's domestic preference tax statute date
back to 1849, when the first tax on premiums earned by insurance
companies doing business in the State was limited to companies not
chartered by the State. Act No. 1, 1849 Ala. Acts 5. A domestic
preference tax was imposed on and off throughout the years until
1945, when the State restored equality in taxation of insurance
companies in response to this Court's decision in United States
v. South-Eastern Underwriters Assn., 322 U.
(1944). Act No. 156, 1945 Ala. Acts 196-197. In
1955, the tax was reinstated, Act No. 77, 1955 Ala. Acts 193 (2d
Spec. Sess.), and with minor amendments, has remained in effect
until the present.
For domestic preference tax purposes, Alabama defines a domestic
insurer as a company that both is incorporated in Alabama and has
its principal office and chief place of business within the State.
Ala.Code § 27-4-1(3) (1975). A corporation that does not meet both
of these criteria is characterized as a foreign insurer. §
There are two exceptions to these general rules concerning the
rates of taxation of insurance companies. For annuities, the tax
rate is one percent for both foreign and domestic insurers,
Ala.Code § 27-4-4(a) (1975), and for wet marine and transportation
insurance, the rate is three-quarters of one percent for both
foreign and domestic insurance companies, § 27-4-6(a).
Metropolitan Life Insurance Co., a New York corporation, was
chosen to represent the life insurance claimants, and Prudential
Property and Casualty Co., a New Jersey corporation, was chosen as
representative of the nonlife claimants. See
The State and the intervenors advanced some 15 additional
purposes in support of the Alabama statute. As neither the Circuit
Court nor the Court of Civil Appeals ruled on the legitimacy of
those purposes, that question is not before us, and we express no
view as to it. On remand, the State will be free to advance again
its arguments relating to the legitimacy of those purposes.
As the dissent finds our failure to resolve whether Alabama may
continue to collect its tax "baffling," post
470 U. S. 887
we reemphasize the procedural posture of the case: it arose on a
motion for summary judgment. The Court of Civil Appeals upheld the
Circuit Court's ruling that the two purposes identified by it were
legitimate, but the appellate court remanded on the issue of
rational relationship as to those purposes because it found the
evidence in conflict. In order to obtain an expedited ruling,
appellants waived their right to an evidentiary hearing only as to
the purposes "which the lower courts have determined to be
legitimate." 447 So. 2d 142, 143 (Ala.1983). Thus, for this Court
to resolve whether Alabama may continue to collect the tax, it
would have to decide de novo
whether any of the other
purposes was legitimate, and also whether the statute's
classification bore a rational relationship to any of these
purposes -- all this, on a record that the Court of Civil Appeals
We find the other cases on which the State relies also to be
inapposite to this inquiry. Bacchus Imports, Pike,
discussed whether promotion of local industry is a
valid state purpose under the Commerce Clause. The Commerce Clause,
unlike the Equal Protection Clause, is integrally concerned with
whether a state purpose implicates local or national interests. The
Equal Protection Clause, in contrast, is concerned with whether a
state purpose is impermissibly discriminatory; whether the
discrimination involves local or other interests is not central to
the inquiry to be made. Thus, the fact that promotion of local
industry is a legitimate state interest in the Commerce Clause
context says nothing about its validity under equal protection
analysis. See infra
at 470 U. S.
Moreover, neither Bacchus
a State's ability to promote domestic industry was unlimited, even
under the Commerce Clause. Thus, in Bacchus,
observed as a general matter that "a State may enact laws pursuant
to its police powers that have the purpose and effect of
encouraging domestic industry," 468 U.S. at 468 U. S. 271
we held that, in so doing, a State may not constitutionally impose
a discriminatory burden upon the business of other States, merely
to protect and promote local business, id.
at 468 U. S.
-273. Accord, Armco Inc. v. Hardesty,
467 U. S. 638
467 U. S. 642
(1984). Likewise, in Pike,
the Court held that the state
statute promoting a legitimate local interest must "regulat[e]
evenhandedly." 397 U.S. at
397 U. S. 142
Other cases cited by the State are simply irrelevant to the
legitimacy of promoting local business at all. Carmichael
relates primarily to the validity of a state unemployment
compensation scheme, and Board of Education
deals with the
State's ability to regulate matters relating to probate.
is the only one of the State's cases that involves
the validity under the Equal Protection Clause of a tax that
discriminates on the basis of residence of domestic versus
foreign corporations. That case does little, however, to support
the State's contention that promotion of domestic business is a
legitimate state purpose. It was concerned with encouraging
nonresidents -- who are not competitors of residents -- to build
warehouses within the State. See infra
at 470 U. S.
Although the promotion of domestic business was not a purpose
advanced by the States in support of their taxes in these cases,
such promotion is logically the primary reason for enacting
discriminatory taxes such as those at issue there.
In fact, as we noted in Western & Southern,
legislative history of the McCarran-Ferguson Act reveals that the
Act was Congress' response only to United States v.
South-Eastern Underwriters Assn., 322 U.
(1944), and that Congress did not intend thereby
to give the States any power to tax or regulate the insurance
industry other than what they had previously possessed. Thus
Congress expressly left undisturbed this Court's decisions holding
that the Equal Protection Clause places limits on a State's ability
to tax out-of-state corporations. See
451 U.S. at
451 U. S. 655
It is well established that a corporation is a "person" within
the meaning of the Fourteenth Amendment. E.g., Western &
451 U.S. at
451 U. S. 660
, n. 12.
Indeed, under the State's analysis, any discrimination subject
to the rational relation level of scrutiny could be justified
simply on the ground that it favored one group at the expense of
another. This case does not involve or question, as the dissent
470 U. S. 900
-901, the broad authority of a State to
promote and regulate its own economy. We hold only that such
regulation may not be accomplished by imposing discriminatorily
higher taxes on nonresident corporations solely because they are
JUSTICE O'CONNOR, with whom JUSTICE BRENNAN, JUSTICE MARSHALL,
and JUSTICE REHNQUIST join, dissenting.
This case presents a simple question: is it legitimate for a
State to use its taxing power to promote a domestic insurance
industry and to encourage capital investment within its borders? In
a holding that can only be characterized as astonishing, the Court
determines that these purposes are illegitimate. This holding is
unsupported by precedent and subtly distorts the constitutional
balance, threatening the freedom of both state and federal
legislative bodies to fashion appropriate classifications in
economic legislation. Because I disagree with both the Court's
method of analysis and its conclusion, I respectfully dissent.
Alabama's legislature has chosen to impose a higher tax on
out-of-state insurance companies and insurance companies
incorporated in Alabama that do not maintain their principal
Page 470 U. S. 884
place of business or invest assets within the State. Ala.Code §
27-4-4 et seq.
(1975). This tax seeks to promote both a
domestic insurance industry and capital investment in Alabama. App.
to Juris. Statement 20a-21a. Metropolitan Life Insurance Company,
joined by many other out-of-state insurers, alleges that this
discrimination violates its rights under the Equal Protection
Clause of the Fourteenth Amendment, which provides that a State
shall not "deny to any person within its jurisdiction the equal
protection of the laws." Appellants rely on the Equal Protection
Clause because, as corporations, they are not "citizens" protected
by the Privileges and Immunities Clauses of the Constitution.
Hemphill v. Orloff, 277 U. S. 537
277 U. S.
-550 (1928). Similarly, they cannot claim Commerce
Clause protection because Congress, in the McCarran-Ferguson Act,
59 Stat. 33, as amended, 15 U.S.C. § 1011 et seq.,
explicitly suspended Commerce Clause restraints on state taxation
of insurance, and placed insurance regulation firmly within the
purview of the several States. Western & Southern Life Ins.
Co. v. State Board of Equalization of California, 451 U.
, 451 U. S. 655
Our precedents impose a heavy burden on those who challenge
local economic regulation solely on Equal Protection Clause
grounds. In this context, our long-established jurisprudence
requires us to defer to a legislature's judgment if the
classification is rationally related to a legitimate state purpose.
Yet the Court evades this careful framework for analysis, melding
the proper two-step inquiry regarding the State's purpose and the
classification's relationship to that purpose into a single
unarticulated judgment. This tactic enables the Court to
characterize state goals that have been legitimated by Congress
itself as improper solely because it disagrees with the concededly
rational means of differential taxation selected by the
legislature. This unorthodox approach leads to further error. The
Court gives only the most cursory attention to the factual and
legal bases supporting the State's purposes, and ignores both
Page 470 U. S. 885
and significant evidence in the record establishing their
legitimacy. Most troubling, the Court discovers in the Equal
Protection Clause an implied prohibition against classifications
whose purpose is to give the "home team" an advantage over
interstate competitors even where Congress has authorized such
at 470 U. S.
The Court overlooks the unequivocal language of our prior
"Unless a classification trammels fundamental personal rights or
is drawn upon inherently suspect distinctions such as race,
religion, or alienage, our decisions presume the constitutionality
of the statutory discriminations, and require only that the
classification challenged be rationally related to a legitimate
New Orleans v. Dukes, 427 U. S. 297
427 U. S. 303
(1976). See, e.g., Lehnhasen v. Lake Shore Auto Parts Co.,
410 U. S. 356
(1973). Judicial deference is strongest where a tax classification
is alleged to infringe the right to equal protection. "[I]n
taxation, even more than in other fields, legislatures possess the
greatest freedom in classification." Madden v. Kentucky,
309 U. S. 83
309 U. S. 88
"Where the public interest is served, one business may be left
untaxed and another taxed, in order to promote the one or to
restrict or suppress the other."
Carmichael v. Southern Coal & Coke Co.,
301 U. S. 495
301 U. S. 512
(1937) (citations omitted). As the Court emphatically noted in
Allied Stores of Ohio, Inc. v. Bowers, 358 U.
, 358 U. S. 528
(1959) (citations omitted):
"[I]t has repeatedly been held, and appears to be entirely
settled, that a statute which encourages the location within the
State of needed and useful industries by exempting them, though not
also others, from its taxes is not arbitrary, and does not violate
the Equal Protection Clause of the Fourteenth Amendment. Similarly,
it has long been settled that a classification, though
discriminatory, is not arbitrary or violative of the Equal
Protection Clause of the Fourteenth Amendment if any
Page 470 U. S. 886
state of facts reasonably can be conceived that would sustain
See also Western & Southern Life Ins. Co. v. State Board
of Equalization of California, supra,
at 451 U. S. 674
Minnesota v. Clover Leaf Creamery Co., 449 U.
, 449 U. S. 464
Appellants waived their right to an evidentiary hearing and
conceded that Alabama's classification was rationally related to
its purposes of encouraging the formation of domestic insurance
companies and bringing needed services and capital to the State.
Thus the only issue in dispute is the legitimacy of these purposes.
Yet it is obviously legitimate for a State to seek to promote local
business and attract capital investment, and surely those purposes
animate a wide range of legislation in all 50 States.
The majority evades the obvious by refusing to acknowledge the
factual background bearing on the legitimacy of the State's purpose
or to address the many collateral public benefits advanced by
Alabama. Instead, the Court dismisses appellees' arguments by
merely stating that they were not ruled on by the courts below.
at 470 U. S.
-876, n. 5. In point of fact, the full range of
purposes documented before this Court was also argued and
documented before the Alabama Circuit Court. See
Vols. 6-8. That court found
two purposes, in addition to raising revenue:
(1) encouraging the formation of new insurance companies in
Alabama, and (2) encouraging capital investment by foreign
insurance companies in the Alabama assets and governmental
securities set forth in the statute."
App. to Juris. Statement 20a-21a (emphasis added). As appellants
concede, these purposes are simply a step in achieving the
"larger set of purposes [whose] premise . . . is that domestic
insurance companies, on the whole, benefit the state in ways which
foreign companies do not."
Brief for Appellants 31.
In any event, it is settled law that the appellee may assert any
argument in support of the judgment in his favor, regardless of
whether it was relied upon by the court below.
Page 470 U. S. 887
Dandridge v. Williams, 397 U.
, 397 U. S. 475
n. 6 (1970). The Court's failure actually to resolve whether
Alabama may continue to collect its tax, see ante
470 U. S. 882
n. 10, is all the more baffling, since appellants took the
exceptional step of conceding the factual issues to assure a speedy
resolution of numerous pending lawsuits disruptive of industry
Brief for State of Alaska et al.
as Amici Curiae
1-2. Our precedents do not condone such a
miserly approach to review of statutes adjusting economic burdens.
See, e.g., Allied Stores of Ohio, Inc. v. Bowers, supra,
at 358 U. S.
-529; McGowan v. Maryland, 366 U.
, 366 U. S. 425
(1961); United States v. Carolene Products Co.,
304 U. S. 144
304 U. S.
-153 (1938); Borden's Farm Products Co. v.
Baldwin, 293 U. S. 194
293 U. S. 209
(1934). The Court has consistently reviewed the validity of such
statutes based on whatever "may reasonably have been the purpose
and policy of the State Legislature, in adopting the proviso."
Allied Stores of Ohio, Inc. v. Bowers, supra,
358 U. S.
-529. It is to that inquiry that I now turn.
Appellees claim that Alabama's insurance tax, in addition to
raising revenue and promoting investment, promotes the formation of
new domestic insurance companies and enables them to compete with
the many large multistate insurers that currently occupy some 75%
to 85% of the Alabama insurance market. App. 80. Economic studies
submitted by the State document differences between the two classes
of insurers that are directly relevant to the wellbeing of
Alabama's citizens. See id.
at 46-129. Foreign insurers
typically concentrate on affluent, high volume, urban markets and
offer standardized national policies. In contrast, domestic
insurers such as intervenors American Educators Life Insurance
Company and Booker T. Washington Life Insurance Company are more
likely to serve Alabama's rural areas, and to write low-cost
industrial and burial policies not offered by the larger national
companies. [Footnote 2/1
Additionally, appellees argue
Page 470 U. S. 888
persuasively that Alabama can more readily regulate domestic
insurers and more effectively safeguard their solvency than that of
insurers domiciled and having their principal places of business in
Ignoring these policy considerations, the Court insists that
Alabama seeks only to benefit local business, a purpose the Court
labels invidious. Yet if the classification chosen by the State can
be shown actually to promote the public welfare, this is strong
evidence of a legitimate state purpose. See
Out-of-State Corporations After Western & Southern:
Equal Protection Analysis, 34 Stan.L.Rev. 877, 896 (1982). In this
regard, Justice Frankfurter wisely observed:
"[T]he great divide in the [equal protection] decisions lies in
the difference between emphasizing the actualities or the
abstractions of legislation."
". . . To recognize marked differences that exist in fact is
living law; to disregard practical differences and concentrate on
some abstract identities is lifeless logic."
Morey v. Doud, 354 U. S. 457
354 U. S. 472
(1957) (dissenting). A thoughtful look at the "actualities of
[this] legislation" compels the conclusion that the State's goals
are legitimate by any test.
The policy of favoring local concerns in state regulation and
taxation of insurance, which the majority condemns as illegitimate,
is not merely a recent invention of the States. The States
initiated regulation of the business of insurance as early as 1851.
Report of the Comptroller General,
Page 470 U. S. 889
Issues and Needed Improvements in State Regulation of the
Insurance Business, GAO Report B-192813, p. 5 (Oct. 9, 1979) (GAO
Report). In 1944, however, this Court overruled a long line of
cases holding that the business of insurance was an intrastate
activity beyond the scope of the Commerce Clause. United States
v. South-Eastern Underwriters Assn., 322 U.
"The decision provoked widespread concern that the States would
no longer be able to engage in taxation and effective regulation of
the insurance industry. Congress moved quickly, enacting the
McCarran-Ferguson Act within a year of the decision in
St. Paul Fire & Marine Insurance Co. v. Barry,
438 U. S. 531
438 U. S. 539
H.R.Rep. No. 143, 79th Cong., 1st Sess., 2
(1945); 91 Cong.Rec. 479-480 (1945) (remarks of Sen. Ferguson);
at 487 (remarks of Sen. Ellender).
The drafters of the Act were sensitive to the same concerns
Alabama now vainly seeks to bring to this Court's attention: the
greater responsiveness of local insurance companies to local
conditions, the different insurance needs of rural and industrial
States, the special advantages and constraints of state-by-state
regulation, and the importance of insurance license fees and taxes
as a major source of state revenues. See, e.g.,
on S. 1362 before the Senate Subcommittee on the Judiciary, 78th
Cong., 1st Sess., 3, 10, 16-17 (1943) (letter of Gov. Sharpe of
South Dakota stressing role of domestic insurers that provide "poor
man" and rural policies adapted to farming concerns); 90 Cong.Rec.
6564 (1944) (remarks of Rep. Vorhis).
"As this Court observed shortly afterward,"
"[o]bviously, Congress' purpose was broadly to give support to
the existing and future state systems for regulating and taxing the
business of insurance."
"Prudential Insurance Co. v. Benjamin, 328 U. S.
, 328 U. S. 429
St. Paul Fire & Marine Insurance Co. v. Barry,
at 438 U. S.
The majority opinion correctly notes that Congress did not
intend the McCarran-Ferguson Act to give the States
Page 470 U. S. 890
any power to tax or regulate the insurance industry other than
they already possessed. But the legislative history cited by the
470 U. S. 879
, n. 7, relates not to differential
taxation, but to decisions of this Court that had invalidated state
taxes on contracts of insurance entered into outside the State's
H.R.Rep. No. 143, 79th Cong., 1st Sess.,
3 (1945). The Court fails to mention that, at the time the Act was
under consideration, the taxing schemes of Alabama, Arizona,
Arkansas, Illinois, Kansas, Kentucky, Maine, Michigan, Mississippi,
Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Washington,
and Wisconsin all incorporated tax differentials favoring domestic
Any doubt that Congress' intent encompassed taxes that
discriminate in favor of local insurers was dispelled in
Prudential Insurance Co. v. Benjamin, 328 U.
Note, Congressional Consent
to Discriminatory State Legislation, 45 Colum.L.Rev. 927 (1945)
(discussing the issues of constitutional power posed by the Act).
There, a foreign insurer challenged a tax on annual gross premiums
imposed on foreign, but not domestic, insurers as a condition for
renewal of its license to do business. Congress, the foreign
insurer argued, was powerless to sanction the tax at issue because
"the commerce clause, by its own force,' forbids discriminatory
state taxation." 328 U.S. at 328 U. S. 426.
A unanimous Court rejected the argument that exacting a 3% gross
premium tax from foreign insurers was invalid as "somehow
technically of an inherently discriminatory character."
Id. at 328 U. S. 432.
The Court concluded that the McCarran-Ferguson Act's effect was
"clearly to sustain the exaction and that this can be done without
violating any constitutional provision." Id. at
328 U. S. 427
expressly noted that nothing in the Equal
Protection Clause forbade the State to enact a law such as the tax
at issue. Id.
at 328 U. S. 438
and n. 50. In this regard, the Court relied in part on
Hanover Fire Ins. Co. v.
Page 470 U. S. 891
272 U. S. 494
(1926), a decision that explicitly recognized that differential
taxation of revenues of foreign corporations may not be arbitrary
or without reasonable basis. See Western & Southern Life
Ins. Co. v. State Board of Equalization of California,
U.S. at 451 U. S. 664
n. 17. The Commerce Clause, Benjamin
emphasized, is not a
"one-way street," but encompasses congressional power "to
discriminate against interstate commerce and in favor of local
trade," "subject only to the restrictions placed upon its authority
by other constitutional provisions." 328 U.S. at 328 U. S. 434
Where the States and Congress have acted in concert to effect a
policy favoring local concerns, their action must be upheld unless
it unequivocally exceeds
"some explicit and compelling limitation imposed by a
constitutional provision or provisions designed and intended to
outlaw the action taken entirely from our constitutional
at 328 U. S.
Our more recent decision in Western & Southern
no way undermines the force of the analysis in Benjamin.
Western & Southern
confirms that differential premium
taxes are not immune from review as "privilege" taxes, but it also
teaches that the Constitution requires only that discrimination
between domestic and foreign corporations bear a rational
relationship to a legitimate state purpose. Benjamin
clearly recognized that differentially taxing foreign insurers to
promote a local insurance industry was a legitimate state purpose
completely consonant with Congress' purpose in the
The contemporary realities of insurance regulation and taxation
continue to justify a uniquely local perspective. Insurance
regulation and taxation must serve local social policies including
assuring the solvency and reliability of companies doing business
in the State and providing special protection for those who might
be denied insurance in a free market, such as the urban poor, small
businesses, and family farms. GAO Report 10-13; State Insurance
Regulation, Hearing before the Subcommittee on Antitrust,
Page 470 U. S. 892
and Business Rights of the Senate Committee on the Judiciary,
96th Cong., 1st Sess., 19-21 (1979) (hereinafter Insurance
Regulation). Currently, at least 28 of the 50 States employ a
combination of investment incentives and differential premium taxes
favoring domestic insurers to encourage local investment of
policyholders' premiums and to partially shelter smaller domestic
insurers from competition with the large multistate companies. App.
State insurance commissions vary widely in manpower and
expertise. GAO Report 14. In practice, the State of incorporation
exercises primary oversight of the solvency of its insurers.
at 36-38. See generally
Dunne, Risk, Reality,
and Reason in Financial Services Deregulation: A State Legislative
Perspective, 2 J.Ins.Reg. 342 (1984) (prepared by the Conference of
Insurance Legislators). See, e.g.,
Ala.Code § 27-2-21
(Supp.1984); Ill.Rev.Stat., ch. 73, 745 (1983) (power to examine
books of domestic insurers); Ala.Code § 27-32-1 et seq.
(1975); Ill.Rev.Stat., ch. 73, �� 799, 800 (1983) (commissioner's
authority to assume control to prevent insolvency); see
Wis.Stat.Ann., ch. 620, Prefatory Committee Comment
-- 1971, pp. 536, 546 (1980) (noting lesser control over
nondomestic's financial operations). Even the State of
incorporation's efforts to regulate a multistate insurer may be
seriously hampered by the difficulty of gaining access to records
and assets in 49 other States. Dunne, supra,
at 356. Thus
the security of Alabama's citizens who purchase insurance from
out-of-state companies may depend in part on the diligence of
another State's insurance commissioner, over whom Alabama has no
authority and limited influence. In the event of financial failure
of a foreign insurer, the State may have difficulty levying on
out-of-state assets. See, e.g., South Carolina ex rel. Phoenix
Life Ins. Co. v. McMaster, 237 U. S. 63
237 U. S. 73
(1915). Since each State maintains its own insurance guarantee
fund, the domestic insurers of the States where a multistate
insurer is admitted to do business may ultimately
Page 470 U. S. 893
be forced to absorb local policyholders' losses. Dunne,
Many have sharply criticized this piecemeal system, see,
GAO Report i-iii; Schmalz, The Insurance Exemption: Can
it be Modified Successfully?, 48 ABA Antitrust L.J. 579 (1979), but
Congress has resisted suggestions that it modify the
McCarran-Ferguson Act to permit greater federal intervention.
GAO Report 1; Insurance Regulation, supra.
This Court cannot ignore the exigencies of contemporary insurance
regulation outlined above simply because it might prefer uniform
federal regulation. Given the distinctions in ease of regulation
and services rendered by foreign and domestic insurers, we cannot
dismiss as illegitimate the State's goal of promoting a healthy
local insurance industry sensitive to regional differences and
composed of companies that agree to subordinate themselves to the
Alabama Commissioner's control and to maintain a principal place of
business within Alabama's borders. Though economists might dispute
the efficacy of Alabama's tax,
"[p]arties challenging legislation under the Equal Protection
Clause cannot prevail so long as"
"it is evident from all the considerations presented to [the
legislature], and those of which we may take judicial notice, that
the question is at least debatable."
Western & Southern Life Ins. Co. v. State Board of
Equalization of California,
451 U.S. at 451 U. S. 674
quoting United States v. Carolene Products Co.,
at 304 U. S. 154
Moreover, appellants waived their right to challenge the tax
Despite abundant evidence of a legitimate state purpose, the
majority condemns Alabama's tax as "purely and completely
discriminatory," and "the very sort of parochial discrimination
that the Equal Protection Clause was intended to prevent."
at 470 U. S. 878
Apparently, the majority views any favoritism of domestic
commercial entities as inherently
Page 470 U. S. 894
suspect. The majority ignores a long line of our decisions. In
the past, this Court has not hesitated to apply the rational basis
test to regulatory classifications that distinguish between
domestic and out-of-state corporations or burden foreign interests
to protect local concerns. The Court has always recognized that
there are certain legitimate restrictions or policies in which,
"[b]y definition, discrimination against nonresidents would
inhere." Arlington County Board v. Richards, 434 U. S.
, 434 U. S. 7
(per curiam). For example, where State of incorporation or
principal place of business affect the State's ability to regulate
or exercise its jurisdiction, a State may validly discriminate
between foreign and domestic entities. See G. D. Searle &
Co. v. Cohn, 455 U. S. 404
(1982) (difficulty of obtaining jurisdiction over nonresident
corporation provides a rational basis for excepting such
corporations from statute of limitations); Metropolitan
Casualty Ins. Co. v. Brownell, 294 U.
(1935) (domicile of insurer relevant to statute
of limitations as foreign insurers' offices and funds generally
located outside State); Board of Education v. Illinois,
203 U. S. 553
203 U. S. 562
(1906) (State's greater control over domestic than foreign
nonprofit corporations justifies discriminatory tax).
A State may use its taxing power to entice useful foreign
industry, see Allied Stores of Ohio, Inc. v. Bowers,
U.S. at 358 U. S. 528
or to make residence within its boundaries more attractive, see
Zobel v. Williams, 457 U. S. 55
457 U. S. 67
(1982) (BRENNAN, J., concurring). Though such measures might run
afoul of the Commerce Clause,
"[n]o one disputes that a State may enact laws pursuant to its
police powers that have the purpose and effect of encouraging
Bacchus Imports, Ltd. v. Dias, 468 U.
, 468 U. S. 271
(1984); Western & Southern Life Ins. Co. v. State Board of
Equalization of California, supra,
at 451 U. S. 668
Cf. Edgar v. MITE Corp., 457 U. S. 624
457 U. S. 646
(1982) (POWELL, J., concurring in part) (noting State's interest in
protecting regionally based corporations from acquisition by
Page 470 U. S. 895
Moreover, the Court has held in the dormant Commerce Clause
context that a State may provide subsidies or rebates to domestic,
but not to foreign, enterprises if it rationally believes that the
former contribute to the State's welfare in ways that the latter do
not. Hughes v. Alexandria Scrap Corp., 426 U.
(1976). Although the Court has divided on the
circumstances in which the dormant Commerce Clause allows such
measures, see id.
at 426 U. S. 817
(BRENNAN, J., dissenting), surely there can be no dispute that they
are constitutionally permitted where Congress itself has
affirmatively authorized the States to promote local business
concerns free of Commerce Clause constraints. Neither the Commerce
Clause nor the Equal Protection Clause bars Congress from enacting
or authorizing the States to enact legislation to protect industry
in one State "from disadvantageous competition" with less
stringently regulated businesses in other States. Hodel v.
Indiana, 452 U. S. 314
452 U. S. 329
(1981). See also Western & Southern, supra,
451 U. S. 669
(with congressional approval, States may promote domestic insurers
by seeking to deter other States from enacting discriminatory or
The majority's attempts to distinguish these precedents are
unconvincing. First, the majority suggests that a state purpose
might be legitimate for purposes of the Commerce Clause but somehow
illegitimate for purposes of the Equal Protection Clause. No basis
is advanced for this theory, because no basis exists. The test of a
legitimate state purpose must be whether it addresses valid state
concerns. To suggest that the purpose's legitimacy, chameleon-like,
changes according to the constitutional clause cited in the
complaint is merely another pretext to escape the clear message of
this Court's precedents.
Next, the majority asserts that
"a State may not constitutionally favor its own residents by
taxing foreign corporations at a higher rate solely because of
citing cases that rejected discriminatory ad valorem
Page 470 U. S. 896
defended as taxes on the "privilege" of doing business.
at 470 U. S.
-879. See, e.g., WHYY, Inc. v. Glassboro,
393 U. S. 117
(1968); Wheeling Steel Corp. v. Glander, 337 U.
(1949); Hanover Fire Ins. Co. v.
Harding, 272 U. S. 494
(1926); Southern R. Co. v. Greene, 216 U.
(1910). These decisions were addressed in
Western & Southern,
and the classifications were
characterized as impermissibly discriminatory because they did not
"rest on differences pertinent to the subject in respect of
which the classification is made.'" 451 U.S. at 451 U. S. 668,
quoting Power Manufacturing Co. v. Saunders, 274 U.
S. 490, 274 U. S. 494
(1927). As the majority concedes, none of these decisions intimates
that the tax statutes at issue in the decisions rested on relevant
differences between domestic and foreign corporations or had
purposes other than the raising of revenue at the out-of-state
In fact, the Court noted in several of these opinions that
foreign corporations may validly be taxed at a higher rate if the
classification is based on some relevant distinction. No such
distinction, however, had been demonstrated or even alleged.
See WHYY, Inc. v. Glassboro, supra,
at 393 U. S. 120
("This is not a case in which the exemption was withheld by reason
of the foreign corporation's failure or inability to benefit the
State in the same measure as do domestic nonprofit corporations");
Wheeling Steel Corp. v. Glander, supra,
at 337 U. S. 572
("[T]he inequality is not because of the slightest difference in
Ohio's relation to the decisive transaction"); Southern R. Co.
v. Greene, supra,
at 216 U. S.
-417 (parties conceded that the business of the
foreign and domestic corporations was precisely the same).
] Lacking the
threshold requirement of an articulated
Page 470 U. S. 897
distinction relevant to an asserted purpose, the classifications
at issue in these decisions could never have survived rational
basis scrutiny, and no such analysis was even attempted. These
precedents do not answer the question posed by this case: whether a
legislature may adopt differential tax treatment of domestic and
foreign insurers not simply to raise additional revenue, but with
the purpose of affecting the market as an "instrument of economic
and social engineering." P. Hartman, Federal Limitations on State
and Local Taxation § 3:2 (1981). The majority's suggestion that
these cases necessarily decided the issue before us, as promotion
of domestic business is "logically the primary reason for enacting
discriminatory taxes such as those at issue [in the cited cases],"
is mere speculation. See ante
at 470 U. S. 879
In treating these cases as apposite authority, the majority
again closes its eyes to the facts. Alabama does not tax at a
higher rate solely on the basis of residence; it taxes insurers,
domestic as well as foreign, who do not maintain a principal place
of business or substantial assets in Alabama, based on conceded
distinctions in the contributions of these insurers as a class to
the State's insurance objectives. The majority obscures the issue
by observing that a given "foreign insurance company doing the same
type and volume of business in Alabama as a domestic company" will
pay a higher tax. Ante
at 470 U. S.
-872. Under our precedents, tax classifications need
merely "res[t] upon some reasonable consideration of difference or
policy." Allied Stores of Ohio, Inc. v. Bowers,
Page 470 U. S. 898
358 U.S. at 358 U. S. 527
Rational basis scrutiny does not require that the classification be
mathematically precise, or that every foreign insurer or
domestic company fit to perfection the general
profile on which the classification is based. "[T]he Equal
Protection Clause does not demand a surveyor's precision" in
fashioning classifications. Hughes v. Alexandria Scrap
426 U.S. at 426 U. S.
Because Alabama's classification bears a rational relationship
to a legitimate purpose, our precedents demand that it be
sustained. The Court avoids this clear directive by a remarkable
evasive tactic. It simply declares that the ends of promoting a
domestic insurance industry and attracting investments to the
State, when accomplished through the means of discriminatory
are not legitimate state purposes. This bold
assertion marks a drastic and unfortunate departure from
established equal protection doctrine. By collapsing the two prongs
of the rational basis test into one, the Court arrives at the
ultimate issue -- whether the means
are constitutional --
without ever engaging in the deferential inquiry we have adopted as
a brake on judicial impeachment of legislative policy choices. In
addition to unleashing an undisciplined form of Equal Protection
Clause scrutiny, the Court's approach today has serious
implications for the authority of Congress under the Commerce
Clause. Groping for some basis for this radical departure from
equal protection analysis, the Court draws heavily on JUSTICE
BRENNAN's concurring opinion in Allied Stores of Ohio, Inc. v.
at 358 U. S. 530
as support for its argument that
"the Equal Protection Clause forbids a State to discriminate in
favor of its own residents solely by burdening 'the residents of
other state members of our federation.'"
at 470 U. S. 878
quoting 358 U.S. at 358 U. S.
As noted in Western & Southern,
interpretation has not been adopted by the Court,
Page 470 U. S. 899
has subsequently required no more than a rational basis for
discrimination by States against out-of-state interests in the
context of equal protection litigation."
451 U.S. at 451 U. S. 667
n. 21. More importantly, to the extent the Court today purports to
find in the Equal Protection Clause an instrument of federalism, it
entirely misses the point of JUSTICE BRENNAN's analysis. JUSTICE
BRENNAN reasoned that
"[t]he Constitution furnishes the structure for the operation of
the States with respect to the National Government and with respect
to each other"
and that "the Equal Protection Clause, among its other roles,
operates to maintain this principle of federalism." 358 U.S. at
358 U. S. 532
Favoring local business as an end in itself might be "rational,"
but would be antithetical to federalism. Accepting
this interpretation, we have shown that the
measure at issue here does not benefit local business as an end in
itself, but serves important ulterior goals. Moreover, any
federalism component of equal protection is fully vindicated where
Congress has explicitly validated a parochial focus. Surely the
Equal Protection Clause was not intended to supplant the Commerce
Clause, foiling Congress' decision under its commerce powers to
"affirmatively permit [some measure of] parochial favoritism" when
necessary to a healthy federation. White v. Massachusetts
Council of Construction Employers, Inc., 460 U.
, 460 U. S. 213
(1983). Such a view of the Equal Protection Clause cannot be
reconciled with the McCarran-Ferguson Act and our decisions in
Western & Southern
Western & Southern
established that a State may
validly tax out-of-state corporations at a higher rate if its goal
is to promote the ability of its domestic businesses to compete in
interstate markets. Nevertheless, the Court today concludes that
the converse policy is forbidden, striking down legislation whose
purpose is to encourage the intrastate
activities of local
business concerns by permitting them to compete effectively on
their home turf. In essence, the Court declares:
"We will excuse an unequal burden on foreign
Page 470 U. S. 900
insurers if the State's purpose is to foster its domestic
insurers' activities in other
States, but the same unequal
burden will be unconstitutional when employed to further a policy
that places a higher social value on the domestic insurer's home
State than interstate activities."
This conclusion is not drawn from the Commerce Clause, the
textual source of constitutional restrictions on state interference
with interstate competition. Reliance on the Commerce Clause would,
of course, be unavailing here in view of the McCarran-Ferguson Act.
Instead the Court engrafts its own economic values on the Equal
Protection Clause. Beyond guarding against arbitrary or irrational
discrimination, as interpreted by the Court today, this Clause now
prohibits the effectuation of economic policies, even where
sanctioned by Congress, that elevate local concerns over interstate
at 470 U. S.
"But a constitution is not intended to embody a particular
economic theory. . . . It is made for people of fundamentally
Lochner v. New York, 198 U. S. 45
198 U. S. 75
(1905) (Holmes, J., dissenting). In the heyday of economic due
process, Justice Holmes warned:
"Courts should be careful not to extend [the express]
prohibitions [of the Constitution] beyond their obvious meaning by
reading into them conceptions of public policy that the particular
Court may happen to entertain."
Tyson & Brother v. Banton, 273 U.
, 273 U. S.
-446 (1927) (Holmes, J., dissenting, joined by
Ignoring the wisdom of this observation, the Court fashions its
own brand of economic equal protection. In so doing, it supplants a
legislative policy endorsed by both Congress and the individual
States that explicitly sanctioned the very parochialism in
regulation and taxation of insurance that the Court's decision
holds illegitimate. This newly unveiled power of the Equal
Protection Clause would come as a surprise to the Congress that
passed the McCarran-Ferguson Act and the Court that sustained the
Act against constitutional attack. In the McCarran-Ferguson Act,
Page 470 U. S. 901
expressly sanctioned such economic parochialism in the context
of state regulation and taxation of insurance.
The doctrine adopted by the majority threatens the freedom not
only of the States but also of the Federal Government to formulate
economic policy. The dangers in discerning in the Equal Protection
Clause a prohibition against barriers to interstate business
irrespective of the Commerce Clause should be self-evident. The
Commerce Clause is a flexible tool of economic policy that Congress
may use as it sees fit, letting it lie dormant or invoking it to
limit as well as promote the free flow of commerce. Doctrines of
equal protection are constitutional limits that constrain the acts
of federal and state legislatures alike. See, e.g., Califano v.
Webster, 430 U. S. 313
(1977); Cohen, Congressional Power to Validate Unconstitutional
State Laws: A Forgotten Solution to an Old Enigma, 35 Stan.L.Rev.
387, 400-413 (1983). The Court's analysis casts a shadow over
numerous congressional enactments that adopted as federal policy
"the type of parochial favoritism" the Court today finds
unconstitutional. White v. Massachusetts Council of
Construction Employers, Inc., supra,
at 460 U. S. 213
Contrary to the reasoning in Benjamin,
the Court today
indicates the Equal Protection Clause stands as an independent
barrier if courts should determine that either Congress or a State
has ventured the "wrong" direction down what has become, by
judicial fiat, the one-way street of the Commerce Clause. Nothing
in the Constitution or our past decisions supports forcing such an
economic straitjacket on the federal system.
Today's opinion charts an ominous course. I can only hope this
unfortunate adventure away from the safety of our precedents will
be an isolated episode. I had thought the Court had finally
"the judiciary may not sit as a superlegislature to judge the
wisdom or desirability of legislative policy determinations
Page 470 U. S. 902
made in areas that neither affect fundamental rights nor proceed
along suspect lines; in the local economic sphere, it is only the
invidious discrimination, the wholly arbitrary act, which cannot
stand consistently with the Fourteenth Amendment."
New Orleans v. Dukes,
427 U.S. at 427 U. S.
-304 (citations omitted). Because I believe that the
Alabama law at issue here serves legitimate state purposes through
concededly rational means, and thus is neither invidious nor
arbitrary, I would affirm the court below. I respectfully
"Industrial insurance" is the trade term for a low face-value
policy typically sold door-to-door and maintained through home
collection of monthly or weekly premiums. Alabama currently has
more industrial insurance in force than any other State. Burial
insurance is another form of insurance popular in rural Alabama
that is offered exclusively by local insurers. By contrast,
Metropolitan Life, like many multistate insurers, has discontinued
writing even whole-life policies with face values below $15,000.
The only cited authority that arguably addressed the issue
raised in the instant case is a per curiam reversal and remand
without opinion of a decision upholding a discriminatory ad
tax on a foreign insurer's fixtures and other tangible
property. See Reserve Life Ins. Co. v. Bowers,
380 U. S. 258
(1965). A reversal and remand is more enigmatic even than a summary
affirmance, which has precedential value only as to "the precise
issues necessarily presented and necessarily decided." Mandel
v. Bradley, 432 U. S. 173
432 U. S. 176
(1977). Decisions without opinion may not be equated with "an
opinion by this Court treating the question on the merits." See
Edelman v. Jordan, 415 U. S. 651
415 U. S.
"Indeed, upon fuller consideration of an issue under plenary
review, the Court has not hesitated to discard a rule which a line
of summary affirmances may appear to have established."
Fusari v. Stenberg, 419 U. S. 379
419 U. S. 392
(1975) (BURGER, C.J., concurring).