Constitutional Authorities Under Which Congress Regulates State Taxation (CRS Report for Congress)
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| Release Date |
Jan. 2, 2015 |
| Report Number |
R43842 |
| Report Type |
Report |
| Authors |
Erika K. Lunder, Legislative Attorney; Kenneth R. Thomas, Legislative Attorney |
| Source Agency |
Congressional Research Service |
Summary:
A variety of clauses in the U.S. Constitution provide direct and implicit authority for Congress to enact legislation affecting the ability of states to impose taxes, and Congress has acted under several of them. In some situations, Congress has restricted the states' taxing power, such as by prohibiting them from taxing certain activities. In others, it has expanded the states' ability to tax, such as by waiving federal immunity to state taxation in specific circumstances.
Chief among these authorities is the Commerce Clause, which provides Congress with the authority to regulate interstate and foreign commerce. It has long been interpreted by the courts to contain an implicit restriction on state regulation and taxation that unduly burden interstate commerceâthis is known as the dormant Commerce Clause. Under its commerce power, Congress can enact laws affecting state taxation of interstate commerce. In general, Congress has used this authority to limit state taxation, but it can also use it to expand the states' taxing power by authorizing state taxation that would otherwise violate the dormant Commerce Clause.
Other provisions in the Constitution that appear to contain an implicit authority for Congress to enact laws affecting state taxation include the Supremacy Clause and similar provisions in the Seat of Government Clause and the authority to erect forts, magazines, and arsenals. These provisions implicitly prohibit states from taxing federal entities. Congress has acted under them to waive the federal immunity and permit state taxation in certain circumstances, as well as to restrict states from taxing entities and activities that fall within the federal immunity. Similarly, Congress's War Powers could provide authority for legislation affecting state taxation of members of the Armed Forces.
Importantly, even if Congress has the constitutional authority to exercise legislative power over the states, other provisions of the Constitution may limit those powers. Two examples of the limitations that can be discussed in this context are the Tenth Amendment and the Spending Clause. In general, however, the Tenth Amendment, which prevents commandeering of state legislatures or executive branch officials to implement federal programs, has not been interpreted by the courts to represent a significant limit on Congress's ability to regulate state taxing authority. Nor have courts found there to be significant limits to Congress's power under the Spending Clause to encourage state behavior by conditioning the provision of federal money to the states. Most instances of grant conditioning by Congress appear to be constitutionally uncontroversial, so long as the grant conditions are related to the underlying grant and the amount of grant money conditioned is not so large as to be coercive.
Finally, two relatively obscure provisions of the Constitutionâthe Import-Export Clause and the Tonnage Clauseâare also relevant. These prohibit states from enacting taxes on imports or exports and taxes based on tonnage, respectively. Both clauses expressly permit Congress to authorize what would otherwise be unconstitutional state taxation. However, it does not appear Congress has ever acted under these authorities.
