NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
COMPTROLLER OF THE TREASURY OF MARYLAND,PETITIONER v.
BRIAN WYNNE et ux.
on writ of certiorari to the court of appeals of maryland
[May 18, 2015]
Justice Alito delivered the opinion of the Court.
This case involves the constitutionality of an unusual feature of Maryland’s personal income tax scheme. Like many other States, Maryland taxes the income its residents earn both within and outside the State, as well as the income that nonresidents earn from sources within Maryland. But unlike most other States, Maryland does not offer its residents a full credit against the income taxes that they pay to other States. The effect of this scheme is that some of the income earned by Maryland residents outside the State is taxed twice. Maryland’s scheme creates an incentive for taxpayers to opt for intrastate rather than interstate economic activity.
We have long held that States cannot subject corporate income to tax schemes similar to Maryland’s, and we see no reason why income earned by individuals should be treated less favorably. Maryland admits that its law has the same economic effect as a state tariff, the quintessential evil targeted by the dormant Commerce Clause. We therefore affirm the decision of Maryland’s highest court and hold that this feature of the State’s tax scheme vio-lates the Federal Constitution.
Maryland, like most States, raises revenue in part by levying a personal income tax. The income tax that Maryland imposes upon its own residents has two parts: a “state” income tax, which is set at a graduated rate, Md. Tax-Gen. Code Ann. §10–105(a) (Supp. 2014), and a so-called “county” income tax, which is set at a rate that varies by county but is capped at 3.2%, §§10–103, 10–106 (2010). Despite the names that Maryland has assigned to these taxes, both are State taxes, and both are collected by the State’s Comptroller of the Treasury. Frey
v. Comptroller of Treasury
, 422 Md. 111, 125, 141–142, 29 A. 3d 475, 483, 492 (2011). Of course, some Maryland residents earn income in other States, and some of those States also tax this income. If Maryland residents pay income tax to another jurisdiction for income earned there, Maryland allows them a credit against the “state” tax but not the “county” tax. §10–703; 431 Md. 147, 156–157, 64 A. 3d 453, 458 (2013) (case below). As a result, part of the income that a Maryland resident earns outside the State may be taxed twice.
Maryland also taxes the income of nonresidents. This tax has two parts. First, nonresidents must pay the “state” income tax on all the income that they earn from sources within Maryland. §§10–105(d) (Supp. 2014), 10–210 (2010). Second, nonresidents not subject to the county tax must pay a “special nonresident tax” in lieu of the “county” tax. §10–106.1; Frey
, at 125–126, 29 A. 3d, at 483. The “special nonresident tax” is levied on income earned from sources within Maryland, and its rate is “equal to the lowest county income tax rate set by any Maryland county.” §10–106.1. Maryland does not tax the income that nonresidents earn from sources outside Maryland. See §10–210.
Respondents Brian and Karen Wynne are Maryland residents. In 2006, the relevant tax year, Brian Wynne owned stock in Maxim Healthcare Services, Inc., a Subchapter S corporation.[1
] That year, Maxim earned income in States other than Maryland, and it filed state income tax returns in 39 States. The Wynnes earned income passed through to them from Maxim. On their 2006 Mary-land tax return, the Wynnes claimed an income tax credit for income taxes paid to other States.
Petitioner, the Maryland State Comptroller of the Treasury, denied this claim and assessed a tax deficiency. In accordance with Maryland law, the Comptroller allowed the Wynnes a credit against their Maryland “state” income tax but not against their “county” income tax. The Hearings and Appeals Section of the Comptroller’s Office slightly modified the assessment but otherwise affirmed. The Maryland Tax Court also affirmed, but the Circuit Court for Howard County reversed on the ground that Maryland’s tax system violated the Commerce Clause.
The Court of Appeals of Maryland affirmed. 431 Md. 147, 64 A. 3d 453. That court evaluated the tax under the four-part test of Complete Auto Transit, Inc.
, 430 U. S. 274 (1977), which asks whether a “tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.” Id.,
at 279. The Court of Appeals held that the tax failed both the fair apportionment and nondiscrimination parts of the Complete Auto
test. With respect to fair apportionment, the court first held that the tax failed the “internal consistency” test because if every State adopted Maryland’s tax scheme, interstate commerce would be taxed at a higher rate than intrastate commerce. It then held that the tax failed the “external consistency” test because it created a risk of multiple taxation. With respect to nondiscrimination, the court held that the tax discriminated against interstate commerce because it denied residents a credit on income taxes paid to other States and so taxed income earned interstate at a rate higher than income earned intrastate. The court thus concluded that Maryland’s tax scheme was unconstitutional insofar as it denied the Wynnes a credit against the “county” tax for income taxes they paid to other States. Two judges dissented and argued that the tax did not violate the Commerce Clause. The Court of Appeals later issued a brief clarification that “[a] state may avoid discrimination against interstate commerce by providing a tax credit, or some other method of apportionment, to avoid discriminating against interstate commerce in violation of the dormant Commerce Clause.” 431 Md., at 189, 64 A. 3d at 478.
We granted certiorari. 572 U. S. ___ (2014).
The Commerce Clause grants Congress power to “regulate Commerce . . . among the several States.” Art. I, § 8, cl. 3. These “few simple words . . . reflected a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation.” Hughes
441 U. S. 322
–326 (1979). Although the Clause is framed as a positive grant of power to Congress, “we have consistently held this language to contain a further, negative command, known as the dormant Commerce Clause, prohibiting certain state taxation even when Congress has failed to legislate on the subject.” Oklahoma Tax Comm’n
v. Jefferson Lines, Inc.
514 U. S. 175,
This interpretation of the Commerce Clause has been disputed. See Camps Newfound/Owatonna, Inc.
v. Town of Harrison
520 U. S. 564
–620 (1997) (Thomas, J., dissenting); Tyler Pipe Industries, Inc.
v. Washington State Dept. of Revenue
483 U. S. 232
–265 (1987) (Scalia, J., concurring in part and dissenting in part); License Cases
, 5 How. 504, 578–579 (1847) (Taney, C. J.). But it also has deep roots. See, e.g., Case of the State Freight Tax
, 15 Wall. 232, 279–280 (1873); Cooley
v. Board of Wardens of Port of Philadelphia ex rel. Soc. for Relief of Distressed Pilots
, 12 How. 299, 318–319 (1852); Gibbons
, 9 Wheat. 1, 209 (1824) (Marshall, C. J.). By prohibiting States from discriminating against or imposing excessive burdens on interstate commerce without congressional approval, it strikes at one of the chief evils that led to the adoption of the Constitution, namely, state tariffs and other laws that burdened interstate commerce. Fulton Corp.
516 U. S. 325
–331 (1996); Hughes
, at 325; Welton
91 U. S. 275,
; see also The Federalist Nos. 7, 11 (A. Hamilton), and 42 (J. Madison).
Under our precedents, the dormant Commerce Clause precludes States from “discriminat[ing] between transactions on the basis of some interstate element.” Boston Stock Exchange
v. State Tax Comm’n
429 U. S. 318
, n. 12 (1977). This means, among other things, that a State “may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.” Armco Inc.
467 U. S. 638,
. “Nor may a State impose a tax which discriminates against interstate commerce either by providing a direct commercial advantage to local business, or by subjecting interstate commerce to the burden of ‘multiple taxation.’ ” Northwestern States Portland Cement Co.
358 U. S. 450,
Our existing dormant Commerce Clause cases all but dictate the result reached in this case by Maryland’s highest court. Three cases involving the taxation of the income of domestic corporations are particularly instructive.
In J. D. Adams Mfg. Co.
304 U. S. 307 (1938)
, Indiana taxed the income of every Indiana resident (including individuals) and the income that every nonresident derived from sources within Indiana. Id.,
at 308. The State levied the tax on income earned by the plaintiff Indiana corporation on sales made out of the State. Id.,
at 309. Holding that this scheme violated the dormant Commerce Clause, we explained that the “vice of the statute” was that it taxed, “without apportionment, receipts derived from activities in interstate commerce.” Id
., at 311. If these receipts were also taxed by the States in which the sales occurred, we warned, interstate commerce would be subjected “to the risk of a double tax burden to which intrastate commerce is not exposed, and which the commerce clause forbids.” Ibid.
The next year, in Gwin, White & Prince, Inc.
305 U. S. 434 (1939)
, we reached a similar result. In that case, the State of Washington taxed all the income of persons doing business in the State. Id.,
at 435. Washington levied that tax on income that the plaintiff Washington corporation earned in shipping fruit from Washington to other States and foreign countries. Id.,
at 436–437. This tax, we wrote, “discriminates against interstate commerce, since it imposes upon it, merely because interstate commerce is being done, the risk of a multiple burden to which local commerce is not exposed.” Id.,
In the third of these cases involving the taxation of a domestic corporation, Central Greyhound Lines, Inc.
334 U. S. 653 (1948)
, New York sought to tax the portion of a domiciliary bus company’s gross receipts that were derived from services provided in neighboring States. Id.,
at 660; see also id.,
at 665 (Murphy, J., dissenting) (stating that the plaintiff was a New York corporation). Noting that these other States might also attempt to tax this portion of the company’s gross receipts, the Court held that the New York scheme violated the dormant Commerce Clause because it imposed an “unfair burden” on interstate commerce. Id
., at 662 (majority opinion).
In all three of these cases, the Court struck down a state tax scheme that might have resulted in the double taxation of income earned out of the State and that discriminated in favor of intrastate over interstate economic activity. As we will explain, see Part II–F, infra
, Maryland’s tax scheme is unconstitutional for similar reasons.
The principal dissent distinguishes these cases on the sole ground that they involved a tax on gross receipts rather than net income. We see no reason why the distinction between gross receipts and net income should matter, particularly in light of the admonition that we must consider “not the formal language of the tax statute but rather its practical effect.” Complete Auto
, 430 U. S., at 279. The principal dissent claims, post
, at 13 (opinion of Ginsburg, J.), that “[t]he Court, historically
, has taken the position that the difference between taxes on net income and taxes on gross receipts from interstate commerce warrants different results.” 2 C. Trost & P. Hartman, Federal Limitations on State and Local Taxation 2d §10:1, p. 251 (2003) (emphasis added) (hereinafter Trost). But this historical point is irrelevant. As the principal dissent seems to acknowledge, our cases rejected this formal distinction some time ago. And the distinction between gross receipts and net income taxes was not the basis for our decisions in J. D. Adams
, Gwin, White
, and Central Greyhound
, which turned instead on the threat of multiple taxation.
The discarded distinction between taxes on gross receipts and net income was based on the notion, endorsed in some early cases, that a tax on gross receipts is an impermissible “direct and immediate burden” on interstate commerce, whereas a tax on net income is merely an “indirect and incidental” burden. United States Glue Co.
v. Town of Oak Creek
247 U. S. 321
–329 (1918); see also Shaffer
252 U. S. 37,
. This arid distinction between direct and indirect burdens allowed “very little coherent, trustworthy guidance as to tax valid-ity.” 2 Trost §9:1, at 212. And so, beginning with Justice Stone’s seminal opinion in Western Live Stock
v. Bureau of Revenue
303 U. S. 250 (1938)
, and continuing through cases like J. D. Adams
and Gwin, White
, the direct-indirect burdens test was replaced with a more practical approach that looked to the economic impact of the tax. These cases worked “a substantial judicial reinterpretation of the power of the States to levy taxes on gross income from interstate commerce.” 1 Trost §2:20, at 175.
After a temporary reversion to our earlier formalism, see Spector Motor Service, Inc.
340 U. S. 602
(1951), “the gross receipts judicial pendulum has swung in a wide arc, recently reaching the place where taxation of gross receipts from interstate commerce is placed on an equal footing with receipts from local business, in Complete Auto Transit Inc. v
,” 2 Trost §9:1, at 212. And we have now squarely rejected the argument that the Commerce Clause distinguishes between taxes on net and gross income. See Jefferson Lines
, 514 U. S., at 190 (explaining that the Court in Central Greyhound
“understood the gross receipts tax to be simply a variety of tax on income”); Moorman Mfg. Co.
437 U. S. 267,
(rejecting a suggestion that the Commerce Clause distinguishes between gross receipts taxes and net income taxes); id.,
at 281 (Brennan, J., dissenting) (“I agree with the Court that, for purposes of constitutional review, there is no distinction between a corporate income tax and a gross-receipts tax”); Complete Auto
, at 280 (upholding a gross receipts tax and rejecting the notion that the Commerce Clause places “a blanket prohibition against any state taxation imposed directly on an interstate transaction”).[2
For its part, petitioner distinguishes J. D. Adams
, Gwin, White
, and Central Greyhound
on the ground that they concerned the taxation of corporations, not individuals. But it is hard to see why the dormant Commerce Clause should treat individuals less favorably than corporations. See Camps Newfound
, 520 U. S., at 574 (“A tax on real estate, like any other tax
, may impermissibly burden interstate commerce” (emphasis added)). In addition, the distinction between individuals and corporations cannot stand because the taxes invalidated in J. D. Adams
and Gwin, White
applied to the income of both individuals and corporations. See Ind. Stat. Ann., ch. 26, §64–2602 (Burns 1933) (tax in J. D. Adams
); 1935 Wash. Sess. Laws ch. 180, Tit. II, §4(e), pp. 710–711 (tax in Gwin, White
Attempting to explain why the dormant Commerce Clause should provide less protection for natural persons than for corporations, petitioner and the Solicitor General argue that States should have a free hand to tax their residents’ out-of-state income because States provide their residents with many services. As the Solicitor General puts it, individuals “reap the benefits of local roads, local police and fire protection, local public schools, [and] local health and welfare benefits.” Brief for United States as Amicus Curiae
This argument fails because corporations also benefit heavily from state and local services. Trucks hauling a corporation’s supplies and goods, and vehicles transporting its employees, use local roads. Corporations call upon local police and fire departments to protect their facilities. Corporations rely on local schools to educate prospective employees, and the availability of good schools and other government services are features that may aid a corporation in attracting and retaining employees. Thus, disparate treatment of corporate and personal income cannot be justified based on the state services enjoyed by these two groups of taxpayers.
The sole remaining attribute that, in the view of petitioner, distinguishes a corporation from an individual for present purposes is the right of the individual to vote. The principal dissent also emphasizes that residents can vote to change Maryland’s discriminatory tax law. Post
, at 3–4.
The argument is that this Court need not be concerned about state laws that burden the interstate activities of individuals because those individuals can lobby and vote against legislators who support such measures. But if a State’s tax unconstitutionally discriminates against interstate commerce, it is invalid regardless of whether the plaintiff is a resident voter or nonresident of the State. This Court has thus entertained and even sustained dormant Commerce Clause challenges by individual residents of the State that imposed the alleged burden on interstate commerce, Department of Revenue of Ky.
553 U. S. 328,
544 U. S. 460,
, and we have also sustained such a challenge to a tax whose burden was borne by in-state consumers, Bacchus Imports, Ltd.
468 U. S. 263,
The principal dissent and Justice Scalia respond to these holdings by relying on dictum in Goldberg
488 U. S. 252,
, that it is not the purpose of the dormant Commerce Clause “ ‘to protect state residents from their own state taxes.’ ” Post
, at 3 (Ginsburg, J., dissenting); post,
5 (Scalia, J., dissenting). But we repudiated that dictum in West Lynn Creamery, Inc.
512 U. S. 186 (1994)
, where we stated that “[s]tate taxes are ordinarily paid by in-state businesses and consumers, yet if they discriminate against out-of-state products, they are unconstitutional.” Id.,
at 203. And, of course, the dictum must bow to the holdings of our many cases entertaining Commerce Clause challenges brought by residents. We find the dissents’ reliance on Goldberg
’s dictum particularly inappropriate since they do not find themselves similarly bound by the rule of that case, which applied the internal consistency test to determine whether the tax at issue violated the dormant Commerce Clause. 488 U. S., at 261.
In addition, the notion that the victims of such discrimination have a complete remedy at the polls is fanciful. It is likely that only a distinct minority of a State’s residents earns income out of State. Schemes that discriminate against income earned in other States may be attractiveto legislators and a majority of their constituents for precisely this reason. It is even more farfetched to suggest that natural persons with out-of-state income are better able to influence state lawmakers than large corporations headquartered in the State. In short, petitioner’s argument would leave no security where the majority of voters prefer protectionism at the expense of the few who earn income interstate.
It would be particularly incongruous in the present case to disregard our prior decisions regarding the taxation of corporate income because the income at issue here is a type of corporate income, namely, the income of a Subchapter S corporation. Only small businesses may incorporate under Subchapter S, and thus acceptance of petitioner’s submission would provide greater protection for income earned by large Subchapter C corporations than small businesses incorporated under Subchapter S.
In attempting to justify Maryland’s unusual tax scheme, the principal dissent argues that the Commerce Clause imposes no limit on Maryland’s ability to tax the income of its residents, no matter where that income is earned. It argues that Maryland has the sovereign power to tax all of the income of its residents, wherever earned, and it there-fore reasons that the dormant Commerce Clause cannot constrain Maryland’s ability to expose its residents (and nonresidents) to the threat of double taxation.
This argument confuses what a State may do without violating the Due Process Clause of the
Fourteenth Amendment with what it may do without violating the Commerce Clause. The Due Process Clause allows a State to tax “all
the income of its residents, even income earned outside the taxing jurisdiction.” Oklahoma Tax Comm’n
v. Chickasaw Nation
515 U. S. 450
–463 (1995). But “while a State may, consistent with the Due Process Clause, have the authority to tax a particular taxpayer, imposition of the tax may nonetheless violate the Commerce Clause.” Quill Corp.
v. North Dakota
504 U. S. 298,
(rejecting a due process challenge to a tax before sustaining a Commerce Clause challenge to that tax).
Our decision in Camps Newfound
illustrates the point. There, we held that the Commerce Clause prohibited Maine from granting more favorable tax treatment to charities that operated principally for the benefit of Maine residents. 520 U. S., at 580–583. Because the plaintiff charity in that case was a Maine nonprofit corporation, there is no question that Maine had the raw jurisdictional power to tax the charity. See Chickasaw Nation
, at 462–463. Nonetheless, the tax failed scrutiny under the Commerce Clause. Camps Newfound
, at 580–581. Similarly, Maryland’s raw power to tax its residents’ out-of-state income does not insulate its tax scheme from scrutiny under the dormant Commerce Clause.
Although the principal dissent claims the mantle of precedent, it is unable to identify a single case that endorses its essential premise, namely, that the Commerce Clause places no constraint on a State’s power to tax the income of its residents wherever earned. This is unsurprising. As cases like Quill Corp.
and Camps Newfound
recognize, the fact that a State has the jurisdictional power to impose a tax says nothing about whether that tax violates the Commerce Clause. See also, e.g., Barclays Bank PLC
v. Franchise Tax Bd. of Cal.
512 U. S. 298 (1994)
(separately addressing due process and Commerce Clause challenges to a tax); Moorman
437 U. S. 267
(same); Standard Pressed Steel Co.
v. Department of Revenue of Wash.
419 U. S. 560 (1975)
v. State Tax Comm’n of Miss.
286 U. S. 276 (1932)
(separately addressing due process and equal protection challengesto a tax); Travis
v. Yale & Towne Mfg. Co.
252 U. S. 60 (1920)
(separately addressing due process and privileges-and-immunities challenges to a tax).
One good reason why we have never accepted the principal dissent’s logic is that it would lead to plainly untenable results. Imagine that Maryland taxed the income that its residents earned in other States but exempted income earned out of State from any business that primarily served Maryland residents. Such a tax would violate the dormant Commerce Clause, see Camps Newfound
, and it cannot be saved by the principal dissent’s admonition that Maryland has the power to tax all the income of its residents. There is no principled difference between that hypothetical Commerce Clause challenge and this one.
The principal dissent, if accepted, would work a sea change in our Commerce Clause jurisprudence. Legion are the cases in which we have considered and even upheld dormant Commerce Clause challenges brought by residents to taxes that the State had the jurisdictional power to impose. See, e.g., Davis
553 U. S. 328
; Camps Newfound
520 U. S. 564
; Fulton Corp.
516 U. S. 325
; Bacchus Imports
468 U. S. 263
; Central Greyhound
334 U. S. 653
; Gwin, White
305 U. S. 434
; J. D. Adams
304 U. S. 307
. If the principal dissent were to prevail, all of these cases would be thrown into doubt. After all, in those cases, as here, the State’s decision to tax in a way that allegedly discriminates against interstate commerce could be justified by the argument that a State may tax its residents without any Commerce Clause constraints.
While the principal dissent claims that we are departing from principles that have been accepted for “a century” and have been “repeatedly acknowledged by this Court,” see post
, at 1, 2, 19, when it comes to providing supporting authority for this assertion, it cites exactly two Commerce Clause decisions that are supposedly inconsistent with our decision today. One is a summary affirmance, West Publishing Co.
328 U. S. 823 (1946)
, and neither actually supports the principal dissent’s argument.
In the first of these cases, Shaffer
252 U. S. 37
, a resident of Illinois who earned income from oil in Oklahoma unsuccessfully argued that his Oklahoma income tax assessment violated several provisions of the Federal Constitution. His main argument was based on due process, but he also raised a dormant Commerce Clause challenge. Although the principal dissent relies on Shaffer
for the proposition that a State may tax the income of its residents wherever earned, Shaffer
did not reject the Commerce Clause challenge on that basis.
The dormant Commerce Clause challenge in Shaffer
was nothing like the Wynnes’ challenge here. The tax-payer in Shaffer
argued that “[i]f the tax is considered an excise tax on business, rather than an income tax proper,” it unconstitutionally burdened interstate commerce. Brief for Appellant, O. T. 1919, No. 531, p. 166. The taxpayer did not argue that this burden occurred because he was subject to double taxation; instead, he argued that the tax was an impermissible direct “tax on interstate business.” Ibid.
That argument was based on the notion that States may not impose a tax “directly” on interstate commerce. See supra,
at 8–9. After assuming that the taxpayer’s business was engaged in interstate commerce, we held that “it is sufficient to say that the tax is imposed not upon the gross receipts, but only upon the net proceeds, and is plainly sustainable, even if it includes net gains from interstate commerce. [United States Glue Co.
v. Town of Oak Creek
247 U. S. 321
, at 57 (citation omitted).
thus did not adjudicate anything like the double taxation argument that was accepted in later cases and is before us today. And the principal dissent’s suggestion that Shaffer
allows States to levy discriminatory net income taxes is refuted by a case decided that same day. In Travis
, a Connecticut corporation challenged New York’s net income tax, which allowed residents, but not nonresidents, certain tax exemptions. The Court first rejected the taxpayer’s due process argument as “settled by our decision in Shaffer
.” 252 U. S., at 75. But that due process inquiry was not the end of the matter: the Court then separately considered—and sustained—the argument that the net income tax’s disparate treatment of residents and nonresidents violated the Privileges and Immunities Clause. Id.,
The second case on which the principal dissent relies, West Publishing
, is a summary affirmance and thus has “considerably less precedential value than an opinion on the merits.” Illinois Bd. of Elections
v. Socialist Workers Party
440 U. S. 173
–181 (1979). A summary affirmance “ ‘is not to be read as a renunciation by this Court of doctrines previously announced in our opinions after full argument.’ ” Mandel
432 U. S. 173,
) (quoting Fusari
419 U. S. 379,
(Burger, C. J., concurring)). The principal dissent’s reliance on the state-court decision below in that case is particularly inappropriate because “a summary affirmance is an affirmance of the judgment only,” and “the rationale of the affirmance may not be gleaned solely from the opinion below.” 432 U. S., at 176.
Moreover, we do not disagree with the result of West Publishing
. The tax in that case was levied only on “ ‘the net income of every corporation derived from sources within this State
,’ ” and thus was an internally consistent and nondiscriminatory tax scheme. See West Publishing Co.
, 27 Cal. 2d 705, 707, n., 166 P. 2d 861, 862, n. (1946) (emphasis added). Moreover, even if we did disagree with the result, the citation in our summary affirmance to United States Glue Co.
suggests that our decision was based on the since-discarded distinction between net income and gross receipts taxes. West Publishing
did not—indeed, it could not—repudiate the double taxation cases upon which we rely.
The principal dissent also finds it significant that, when States first enacted modern income taxes in the early 1900’s, some States had tax schemes similar to Maryland’s. This practice, however, was by no means universal. A great many States—such as Alabama, Colorado, Georgia, Kentucky, and Maryland—had early income tax schemes that allowed their residents a credit against taxes paid to other States. See Ala. Code, Tit. 51, ch. 17, §390 (1940); Colo. Stat. Ann., ch. 84A, §38 (Cum. Supp. 1951); Ga. Code Ann. §92–3111 (1974); Carroll’s Ky. Stat. Ann., ch. 108, Art. XX, §4281b–15 (Baldwin rev. 1936); Md. Ann. Code, Art. 81, ch. 277, §231 (1939). Other States also adopted internally consistent tax schemes. For example, Massachusetts and Utah taxed only the income of residents, not nonresidents. See Mass. Gen. Laws, ch. 62 (1932); Utah Rev. Stat. §80–14–1 et seq.
In any event, it is hardly surprising that these early state ventures into the taxation of income included some protectionist regimes that favored the local economy over interstate commerce. What is much more significant is that over the next century, as our Commerce Clause juris-prudence developed, the States have almost entirely abandoned that approach, perhaps in recognition of their doubtful constitutionality. Today, the near-universal state practice is to provide credits against personal income taxes for such taxes paid to other States. See 2 J. Hellerstein & W. Hellerstein, State Taxation, ¶20.10, pp. 20–163 to 20–164 (3d ed. 2003).[4
As previously noted, the tax schemes held to be unconstitutional in J. D. Adams
, Gwin, White
, and Central Greyhound
, had the potential to result in the discriminatory double taxation of income earned out of state and created a powerful incentive to engage in intrastate rather than interstate economic activity. Although we did not use the term in those cases, we held that those schemes could be cured by taxes that satisfy what we have subsequently labeled the “internal consistency” test. See Jefferson Lines
, 514 U. S., at 185 (citing Gwin, White
as a case requiring internal consistency); see also 1 Trost §2:19, at 122–123, and n. 160 (explaining that the internal consistency test has its origins in Western Live Stock
, J. D. Adams
, and Gwin, White
). This test, which helps courts identify tax schemes that discriminate against interstate commerce, “looks to the structure of the tax at issue to see whether its identical application by every State in the Union would place interstate commerce at a disadvantage as compared with commerce intrastate.” 514 U. S., at 185.
See also, e.g., Tyler Pipe
, 483 U. S., at 246–248; Armco
, 467 U. S., at 644–645; Container Corp. of America
v. Franchise Tax Bd.
463 U. S. 159,
By hypothetically assuming that every State has the same tax structure, the internal consistency test allows courts to isolate the effect of a defendant State’s tax scheme. This is a virtue of the test because it allows courts to distinguish between (1) tax schemes that inherently discriminate against interstate commerce without regard to the tax policies of other States, and (2) tax schemes that create disparate incentives to engage in interstate commerce (and sometimes result in double taxation) only as a result of the interaction of two different but nondiscriminatory and internally consistent schemes. See Armco
, at 645–646; Moorman
, 437 U. S., at 277, n. 12; Brief for Tax Economists as Amici Curiae
23–24 (hereinafter Brief for Tax Economists); Brief for Michael S. Knoll & Ruth Mason as Amici Curiae
18–23 (hereinafter Brief for Knoll & Mason). The first category of taxes is typically unconstitutional; the second is not.[5
] See Armco
, at 644–646; Moorman
, at 277, and n. 12. Tax schemes that fail the internal consistency test will fall into the first category, not the second: “[A]ny cross-border tax disadvantage that remains after application of the [test] cannot be due to tax disparities”[6
] but is instead attributable to the taxing State’s discriminatory policies alone.
Neither petitioner nor the principal dissent questions the economic bona fides of the internal consistency test. And despite its professed adherence to precedent, the principal dissent ignores the numerous cases in which we have applied the internal consistency test in the past. The internal consistency test was formally introduced more than three decades ago, see Container Corp.
, and it has been invoked in no fewer than seven cases, invalidating the tax in three of those cases. See American Trucking Assns., Inc.
v. Michigan Pub. Serv. Comm’n
545 U. S. 429 (2005)
] Jefferson Lines, Inc.
514 U. S. 175
, 488 U. S. 252; American Trucking Assns., Inc.
483 U. S. 266 (1987)
; Tyler Pipe
483 U. S. 232
467 U. S. 638
; Container Corp.
Maryland’s income tax scheme fails the internal consistency test.[8
] A simple example illustrates the point. Assume that every State imposed the following taxes, which are similar to Maryland’s “county” and “special nonresident” taxes: (1) a 1.25% tax on income that residents earn in State, (2) a 1.25% tax on income that residents earn in other jurisdictions, and (3) a 1.25% tax on income that nonresidents earn in State. Assume further that two taxpayers, April and Bob, both live in State A, but that April earns her income in State A whereas Bob earns his income in State B. In this circumstance, Bob will pay more income tax than April solely because he earns income interstate. Specifically, April will have to pay a 1.25% tax only once, to State A. But Bob will have to pay a 1.25% tax twice: once to State A, where he resides, and once to State B, where he earns the income.
Critically—and this dispels a central argument made by petitioner and the principal dissent—the Maryland scheme’s discriminatory treatment of interstate commerce is not simply the result of its interaction with the taxing schemes of other States. Instead, the internal consistency test reveals what the undisputed economic analysis shows: Maryland’s tax scheme is inherently discriminatory and operates as a tariff. See Brief for Tax Economists 4, 9; Brief for Knoll & Mason 2. This identity between Maryland’s tax and a tariff is fatal because tariffs are “[t]he paradigmatic example of a law discriminating against interstate commerce.” West Lynn
, 512 U. S., at 193. Indeed, when asked about the foregoing analysis made by amici
Tax Economists and Knoll & Mason, counsel for Maryland responded, “I don’t dispute the mathematics. They lose me when they switch from tariffs to income taxes.” Tr. of Oral Arg. 9. But Maryland has offered no reason why our analysis should change because we deal with an income tax rather than a formal tariff, and we see none. After all, “tariffs against the products of other States are so patently unconstitutional that our cases reveal not a single attempt by any State to enact one. Instead, the cases are filled with state laws that aspire to reap some of the benefits of tariffs by other means.” West Lynn
, at 193.
None of our dissenting colleagues dispute this economic analysis. The principal dissent focuses instead on a supposed “oddity” with our analysis: The principal dissent can envision other tax schemes that result in double taxation but do not violate the internal consistency test. This would happen, the principal dissent points out, if State A taxed only based on residence and State B taxed only based on source. Post
, at 17 (Ginsburg, J., dissenting); see also post
7 (Scalia, J., dissenting). Our prior decisions have already considered and rejected this precise argument—and for good reason. For example, in Armco
, we struck down an internally inconsistent tax that posed a risk of double taxation even though we recognized that there might be other permissible arrangements that would result in double taxation. Such schemes would be constitutional, we explained, because “such a result would not arise from impermissible discrimination against interstate commerce.” 467 U. S., at 645. The principal dissent’s protest that our distinction is “entirely circular,” post
, at 17–18, n. 10, misunderstands the critical distinction, recognized in cases like Armco
, between discriminatory tax schemes and double taxation that results only from the interaction of two different but nondiscriminatory tax schemes. See also Moorman
, 437 U. S., at 277, n. 12 (distinguishing “the potential consequences of the use of different formulas by the two States,” which is not prohibited by the Commerce Clause, from discrimination that “inhere[s] in either State’s formula,” which is prohibited).
Petitioner and the Solicitor General argue that Maryland’s tax is neutral, not discriminatory, because the same tax applies to all three categories of income. Specifically, they point out that the same tax is levied on (1) residents who earn income in State, (2) residents who earn income out of State, and (3) nonresidents who earn income in State. But the fact that the tax might have “ ‘the advantage of appearing nondiscriminatory’ does not save it from invalidation.” Tyler Pipe
, 483 U. S., at 248 (quoting General Motors Corp.
377 U. S. 436,
(Goldberg, J., dissenting)). See also American Trucking Assns., Inc.
, 483 U. S. at, 281 (dormant Commerce Clause applies to state taxes even when they “do not allocate tax burdens between insiders and outsiders in a manner that is facially discriminatory”); Maine
477 U. S. 131,
(a state law may discriminate against interstate commerce “ ‘either on its face or in practical effect’ ” (quoting Hughes
, 441 U. S., at 336)). In this case, the internal consistency test and economic analysis—indeed, petitioner’s own concession—confirm that the tax scheme operates as a tariff and discriminates against interstate commerce, and so the scheme is invalid.
Petitioner and the principal dissent, post
, at 6, also note that by offering residents who earn income in interstate commerce a credit against the “state” portion of the income tax, Maryland actually receives less tax revenue from residents who earn income from interstate commerce rather than intrastate commerce. This argument is a red herring. The critical point is that the total tax burden
on interstate commerce is higher, not that Maryland may receive more or less tax revenue from a particular tax-payer. See Armco
, at 642–645. Maryland’s tax un-constitutionally discriminates against interstate commerce, and it is thus invalid regardless of how much a particular taxpayer must pay to the taxing State.
Once again, a simple hypothetical illustrates the point. Assume that State A imposes a 5% tax on the income that its residents earn in-state but a 10% tax on income they earn in other jurisdictions. Assume also that State A happens to grant a credit against income taxes paid to other States. Such a scheme discriminates against interstate commerce because it taxes income earned interstate at a higher rate than income earned intrastate. This is so despite the fact that, in certain circumstances, a resident of State A who earns income interstate may pay less tax to State A than a neighbor who earns income intrastate. For example, if Bob lives in State A but earns his income in State B, which has a 6% income tax rate, Bob would pay a total tax of 10% on his income, though 6% would go to State B and (because of the credit) only 4% would go to State A. Bob would thus pay less to State A than his neighbor, April, who lives in State A and earns all of her income there, because April would pay a 5% tax to State A. But Bob’s tax burden to State A is irrelevant; his total tax burden is what matters.
The principal dissent is left with two arguments against the internal consistency test. These arguments are inconsistent with each other and with our precedents.
First, the principal dissent claims that the analysis outlined above requires a State taxing based on residence to “recede” to a State taxing based on source. Post
, at 1–2. We establish no such rule of priority. To be sure, Maryland could remedy the infirmity in its tax scheme by offering, as most States do, a credit against income taxes paid to other States. See Tyler Pipe
, at 245–246, and n. 13. If it did, Maryland’s tax scheme would survive the internal consistency test and would not be inherently discriminatory. Tweak our first hypothetical, supra,
at 21–22, and assume that all States impose a 1.25% tax on all three categories of income but also allow a credit against income taxes that residents pay to other jurisdictions. In that circumstance, April (who lives and works in State A) and Bob (who lives in State A but works in State B) would pay the same tax. Specifically, April would pay a 1.25% tax only once (to State A), and Bob would pay a 1.25% tax only once (to State B, because State A would give him a credit against the tax he paid to State B).
But while Maryland could cure the problem with its current system by granting a credit for taxes paid to other States, we do not foreclose the possibility that it could comply with the Commerce Clause in some other way. See Brief for Tax Economists 32; Brief for Knoll & Mason 28–30. Of course, we do not decide the constitutionality of a hypothetical tax scheme that Maryland might adopt because such a scheme is not before us. That Maryland’s existing tax unconstitutionally discriminates against interstate commerce is enough to decide this case.
Second, the principal dissent finds a “deep flaw” with the possibility that “Maryland could eliminate the inconsistency [with its tax scheme] by terminating the special nonresident tax—a measure that would not help the Wynnes at all.” Post
, at 16. This second objection refutes the first. By positing that Maryland could remedy the unconstitutionality of its tax scheme by eliminating the special nonresident tax, the principal dissent accepts that Maryland’s desire to tax based on residence need not “recede” to another State’s desire to tax based on source.
Moreover, the principal dissent’s supposed flaw is simply a truism about every case under the dormant Commerce Clause (not to mention the Equal Protection Clause): Whenever government impermissibly treats like cases differently, it can cure the violation by either “leveling up” or “leveling down.” Whenever a State impermissibly taxes interstate commerce at a higher rate than intrastate commerce, that infirmity could be cured by lowering the higher rate, raising the lower rate, or a combination of the two. For this reason, we have concluded that “a State found to have imposed an impermissibly discriminatory tax retains flexibility in responding to this determination.” McKesson Corp.
v. Division of Alcoholic Beverages and Tobacco, Fla. Dept. of Business Regulation
496 U. S. 18
–40 (1990). See also Associated Industries of Mo.
511 U. S. 641,
; Fulton Corp.
, 516 U. S., at 346–347. If every claim that suffers from this “flaw” cannot succeed, no dormant Commerce Clause or equal protection claim could ever succeed.
Justice Scalia would uphold the constitutionality of the Maryland tax scheme because the dormant Commerce Clause, in his words, is “a judicial fraud.” Post
, at 2. That was not the view of the Court in Gibbons
, 9 Wheat, at 209, where Chief Justice Marshall wrote that there was “great force” in the argument that the Commerce Clause by itself limits the power of the States to enact laws regulating interstate commerce. Since that time, this supposedly fraudulent doctrine has been applied in dozens of our opinions, joined by dozens of Justices. Perhaps for this reason, petitioner in this case, while challenging the interpretation and application of that doctrine by the court below, did not ask us to reconsider the doctrine’s validity.
Justice Scalia does not dispute the fact that State tariffs were among the principal problems that led to the adoption of the Constitution. See post
, at 3. Nor does he dispute the fact that the Maryland tax scheme is tantamount to a tariff on work done out of State. He argues, however, that the Constitution addresses the problem of state tariffs by prohibiting States from imposing “ ‘Imposts or Duties on Imports or Exports.’ ” Ibid.
(quoting Art. I, §10, cl. 2). But he does not explain why, under his interpretation of the Constitution, the Import-Export Clause would not lead to the same result that we reach under the dormant Commerce Clause. Our cases have noted the close relationship between the two provisions. See, e.g., State Tonnage Tax Cases
, 12 Wall. 204, 214 (1871).
Justice Thomas also refuses to accept the dormant Commerce Clause doctrine, and he suggests that the Constitution was ratified on the understanding that it would not prevent a State from doing what Maryland has done here. He notes that some States imposed income taxes at the time of the adoption of the Constitution, and he observes that “[t]here is no indication that those early state income tax schemes provided credits for income taxes paid elsewhere.” Post
, at 2 (dissenting opinion). “It seems highly implausible,” he writes, “that those who ratified the Commerce Clause understood it to conflict with the income tax laws of their States and nonetheless adopted it without a word of concern.” Ibid.
This argument is plainly unsound.
First, because of the difficulty of interstate travel, the number of individuals who earned income out of State in 1787 was surely very small. (We are unaware of records showing, for example, that it was common in 1787 for workers to commute to Manhattan from New Jersey by rowboat or from Connecticut by stagecoach.)
Second, Justice Thomas has not shown that the small number of individuals who earned income out of State were taxed twice on that income. A number of Founding-era income tax schemes appear to have taxed only the income of residents, not nonresidents. For example, in his report to Congress on direct taxes, Oliver Wolcott, Jr., Secretary of Treasury, describes Delaware’s income tax as being imposed only on “the inhabitants of this State,” and he makes no mention of the taxation of nonresidents’ income. Report to 4th Cong., 2d Sess. (1796), concerning Direct Taxes, in 1 American State Papers, Finance 429 (1832). Justice Thomas likewise understands that the Massachusetts and Delaware income taxes were imposed only on residents. Post
, at 2, n. These tax schemes, of course, pass the internal consistency test. Moreover, the difficulty of administering an income tax on nonresidents would have diminished the likelihood of double taxation. See R. Blakey, State Income Taxation 1 (1930).
Third, even if some persons were taxed twice, it is unlikely that this was a matter of such common knowledge that it must have been known by the delegates to the State ratifying conventions who voted to adopt theConstitution.
* * *
For these reasons, the judgment of the Court of Appeals of Maryland is affirmed.
It is so ordered.