The relation of nation and states in a federal system - Fede...

Learning Outcomes

This article explains the doctrine of federal immunity from state law within the federal system, including:

• distinguishing when states may and may not tax the United States, federal agencies, instrumentalities, and federal employees;
• separating direct from indirect state burdens by focusing on the legal incidence rather than economic burden of a tax;
• evaluating state regulatory schemes that purport to license, permit, or supervise federal operations, and spotting unconstitutional direct control;
• applying the Supremacy Clause and the main forms of preemption—express, conflict, obstacle, and field—to invalidate conflicting state laws;
• determining when Congress has clearly waived federal immunity or authorized state taxation and regulation of federal instrumentalities;
• assessing the extent to which neutral, generally applicable state laws may govern federal contractors and private users of federal property;
• analyzing how federal law may regulate states themselves, distinguishing valid generally applicable regulation from unconstitutional commandeering;
• using a stepwise framework on MBE questions to identify the actor regulated, the source of law, and the controlling doctrine;
• avoiding common MBE traps involving discrimination against federal employees, overbroad preemption arguments, and confusion between federal and state immunities.

MBE Syllabus

For the MBE, you are required to understand the constitutional principles governing the relationship between the federal government and the states, with a focus on the following syllabus points:

• The doctrine of federal immunity from state taxation and regulation
• The Supremacy Clause and its effect on conflicting state and federal laws
• The scope of state power to regulate or tax federal instrumentalities
• The distinction between direct and indirect state burdens on the federal government
• The limits of state immunity from federal regulation, including the anti-commandeering doctrine
• The interaction between intergovernmental immunity and statutory preemption
• The symmetry and asymmetry of federal and state immunities in a federal system

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is most accurate regarding state taxation of federal employees?
   1. States may never tax federal employees.
   2. States may tax the income of federal employees if the tax is nondiscriminatory.
   3. States may tax the United States directly if Congress consents.
   4. States may only tax federal instrumentalities with federal approval.
2. A state passes a law requiring all federal agencies operating in the state to obtain a state license and pay a fee. Is this law constitutional?
   1. Yes, if the fee is reasonable.
   2. Yes, if the law applies equally to state agencies.
   3. No, because it directly regulates the federal government.
   4. No, unless the federal government consents.
3. Under the Supremacy Clause, which statement is correct?
   1. State law always prevails over federal law.
   2. Federal law is supreme only if Congress says so.
   3. Federal law preempts conflicting state law, even if state law was enacted first.
   4. State courts may ignore federal law if it burdens state interests.

Introduction

The U.S. Constitution creates a federal system in which both the national government and the states possess significant powers. That shared sovereignty creates the possibility of conflict: can a state tax federal property, or force a federal agency to obtain a state license? May a state regulate federal contractors? On the Multistate Bar Examination, these questions appear under federalism and the relation of nation and states.

The starting point is that the federal government is protected—within limits—from certain forms of state interference in order to preserve the effectiveness of federal law.

Key Term: Federal Immunity from State Law
The constitutional principle that states may not directly tax or regulate the federal government or its instrumentalities, unless Congress clearly consents.

This immunity is rooted in both the structure of the Constitution and the Supremacy Clause.

Key Term: Supremacy Clause
The provision in Article VI declaring that the Constitution, federal statutes, and treaties are the “supreme Law of the Land,” such that valid federal law overrides conflicting state law.

Federal immunity questions on the MBE typically combine three ideas:

• Intergovernmental tax immunity (who can tax whom, and how)
• Limits on state regulation of federal activities
• Supremacy Clause preemption (when a federal statute or scheme displaces state law)

Understanding how these doctrines interact is key to avoiding common traps and to choosing the best outcome-determinative answer on the MBE.

The Doctrine of Federal Immunity

Historically, the Court emphasized that “the power to tax involves the power to destroy.” In McCulloch v. Maryland, the Court struck down a Maryland tax on the Bank of the United States and announced that a state cannot tax the federal government in a way that allows the state to control or impede federal operations. The core idea is structural: states should not be able to frustrate national policy by targeting federal functions.

Modern doctrine is more refined, but the core idea remains: states cannot directly control or discriminate against the federal government.

Today, the doctrine has two main strands:

• Intergovernmental tax immunity: limits on state taxation of the federal government and federal actors
• Supremacy-based regulatory immunity: limits on state regulation that interferes with federal functions or conflicts with federal law

Key Term: Intergovernmental Tax Immunity
A constitutional doctrine that prohibits a state from imposing a tax whose legal incidence falls on the United States or its agencies, unless Congress clearly waives that immunity.

Note that the immunity is primarily about who bears the legal obligation to pay the tax or comply with the regulation, not just who ultimately feels the economic burden.

Key Term: Legal Incidence
The person or entity on whom the law treats the tax or regulatory duty as falling—i.e., who is legally obligated to pay the tax or comply with the requirement.

For exam purposes, federal immunity is:

• Targeted: it protects federal operations themselves, not everyone who happens to do business with the federal government.
• Limited: it does not exempt federal actors from all state law; neutral, generally applicable state laws often apply.
• Controllable by Congress: Congress can waive or modify federal immunity when it chooses, so statutory text is critical.

It is also asymmetric: in general, the federal government can regulate and tax states when acting within its enumerated powers, but states have very limited ability to tax or regulate the federal government. Questions about state immunity from federal regulation are mainly governed by the Tenth Amendment and the anti-commandeering doctrine, discussed later.

Exam strategy: whenever you see a state tax or regulatory requirement, ask:

• Who is being taxed or regulated as a matter of law?
• Is that entity the United States or a federal instrumentality, or is it a private party?
• Is there discrimination against the federal government or its employees?
• Has Congress expressly authorized the state action?

If you answer those questions methodically, you will almost always land on the correct MBE choice.

State Taxation of the Federal Government

States are constitutionally barred from directly taxing the United States itself, its property, or its agencies, unless Congress clearly provides otherwise. That principle comes directly from McCulloch and remains good law.

To apply the rule, you must distinguish between direct and indirect taxes.

Key Term: Direct Tax
A tax whose legal incidence is placed on the United States, a federal agency, or a federal instrumentality (for example, a property tax on land owned by a federal agency).

Key Term: Indirect Tax
A tax whose legal incidence falls on private parties, even if the economic cost is ultimately passed on to the federal government (for example, a sales tax on a private contractor selling goods to a federal agency).

The basic rules:

• No direct state taxes on the federal government

  • A state may not levy property taxes on federal buildings, vehicles, or land.
  • A state may not impose a gross receipts tax on a federal agency.
  • A state may not tax the federal Treasury or impose a special “federal operations tax.”
  • A state may not structure a tax so that the legal obligation to pay is placed on “the United States” or a named federal entity.

• Indirect, nondiscriminatory taxes on private parties are generally valid

  • A state may impose a generally applicable sales tax on items federal agencies purchase, so long as the tax legally falls on the seller or the individual purchaser, not the federal government as such.
  • A state may tax federal contractors, vendors, and lessees under neutral income, franchise, or property taxes.
  • A state may tax a private company that leases space in a federal building on its leasehold interest or business income, even though the land itself is federally owned.

The key is the legal incidence: if the statute makes the United States or its agency the taxpayer, the tax is invalid absent congressional consent. If the statute taxes a private actor who does business with the federal government, it will usually be upheld, provided it is nondiscriminatory.

Distinguishing Legal Incidence from Economic Burden

Many MBE questions are written to tempt you to focus on who ultimately bears the economic burden (who ends up out of pocket), rather than on the legal incidence. That is a trap.

• A tax whose legal incidence falls on a private seller is valid even if the seller passes the cost forward in higher prices to the federal government.
• A tax whose legal incidence falls on the federal government is invalid even if, economically, the state is just trying to recoup costs in proportion to federal activity.

Always start by reading the statutory description in the fact pattern:

• If it says “all sales of widgets are subject to a 5% tax, payable by the seller,” the incidence is on the seller.
• If it says “federal agencies located in this state shall pay an annual operations tax,” the incidence is on the federal government.

On the MBE, if you see language like “tax on all federal agencies,” “tax on federal property,” or “tax on the United States,” you should immediately think “impermissible direct tax” unless Congress has clearly authorized it.

Types of State Taxes Frequently Tested

Although the doctrine is the same across tax types, most exam questions involve a few familiar categories:

• Property taxes:

  • Direct property taxes on federally owned land or buildings are invalid.
  • Property taxes on private leasehold interests in federal land are generally valid.

• Sales and use taxes:

  • A generally applicable sales tax on retailers, including those who sell to the federal government, is valid when the retailer is the legal taxpayer.
  • A tax structured to be imposed on the federal purchaser (e.g., “all purchases by federal agencies are subject to a 5% tax”) is invalid absent congressional consent.

• Excise or gross receipts taxes:

  • A neutral gross receipts tax on all businesses operating in the state that applies to private federal contractors is generally valid.
  • A special gross receipts tax imposed only on entities “doing business with the United States” is likely unconstitutional as discriminatory.

• Income and franchise taxes:

  • States may tax the income of private parties who earn money from federal contracts or leases, as long as the tax is generally applicable and nondiscriminatory.
  • States may not impose a franchise tax that is higher for federally chartered corporations than for comparable state-chartered corporations, absent congressional permission.

Because these tax types are heavily tested elsewhere under the Commerce Clause, it is useful to keep the doctrines distinct:

• A tax must satisfy both intergovernmental immunity limits (it cannot directly tax the United States) and Commerce Clause limits (it cannot discriminate against or unduly burden interstate commerce).
• Exam questions will usually focus on one doctrine at a time; read the call of the question carefully.

Taxes on Private Use of Federal Property

A common MBE pattern involves private entities using federal land or facilities—for example, a restaurant operating on a military base or a concessionaire in a national park.

• A state may tax the private lessee’s interest in the property (for example, by taxing the leasehold or the lessee’s business income) because the legal incidence is on the private party.
• The state may not tax the federal government’s ownership interest in the land or the building.

So if the fact pattern stresses “property tax on the federal courthouse” the tax is invalid. If it stresses “property tax on the private bookstore’s leasehold interest in space within the courthouse,” the tax is likely valid.

Some questions go further and describe ad valorem taxes on personal property such as trucks or equipment used on federal land. The same principles apply:

• The state may not tax trucks owned by a federal agency.
• The state may tax trucks owned by a private contractor, even if those trucks are used exclusively on a federal installation.

Congressional Waiver of Tax Immunity

Congress can also waive immunity, but the waiver must be clear.

• Congress sometimes authorizes state and local taxation of certain federal instrumentalities (for example, by providing that a federally chartered corporation is “subject to state and local taxation to the same extent as other corporations”).
• Congress has permitted some state taxation of national banks and federal savings associations, while forbidding other taxes.

Courts apply a clear-statement rule: they will not infer a waiver of immunity from silence or ambiguity. Language such as “subject to state taxation” is treated as a waiver for neutral, generally applicable taxes; language simply authorizing the entity to “sue and be sued” is not usually construed as a blanket consent to taxation.

Unless Congress clearly says otherwise, courts presume that states may not tax the federal government directly.

Taxation of Federal Employees

States today may tax the income of federal employees, but only on a nondiscriminatory basis. Earlier case law treated such taxes with suspicion; Congress later codified the modern rule.

• A uniform state income tax that applies to all residents, including federal employees, is valid.
• A state may not single out federal employees for higher tax rates or deny them exemptions available to state employees.

Under a federal statute (4 U.S.C. § 111), the United States consents to state income taxation of federal employees so long as the tax does not discriminate based on the source of the compensation.

On the MBE:

• A state may impose a general income tax on federal employees on the same terms as state and private workers.
• A state may not exempt its own employees from income tax while taxing federal employees, or otherwise impose an additional tax burden on federal employees because they work for the United States.

The most common exam patterns are:

• A state income tax that exempts state and local pensions but taxes federal pensions; this violates the nondiscrimination rule.
• A state income tax that taxes federal and state pensions alike; this is permissible.

When you see a question about federal employee taxes, immediately ask: “Are federal employees being treated worse than comparable state employees or private workers solely because of the federal employment relationship?”

State Regulation of the Federal Government

States may not regulate the federal government or its instrumentalities in a way that directly controls federal operations or discriminates against them. This flows both from the Supremacy Clause and the structural principle that federal law must remain effective nationwide.

Typical prohibited regulations include:

• State licensing requirements imposed on federal agencies (for example, a state business license or professional license for a federal agency or officer acting in their federal capacity)
• State permit schemes that condition federal operations on state approval (for example, requiring a federal office to secure a state building permit as a precondition to use)
• State inspection or reporting requirements that target federal agencies because they are federal

A classic example is a state law requiring postal truck drivers to hold state-issued driver’s licenses as a condition of carrying the mail on federal routes. The Court has held that while postal drivers must obey neutral state traffic laws (speed limits, stop signs), the state may not insist that a federal employee obtain a state license as a condition of performing federal duties.

Similarly, a state cannot require that a federal agency obtain a state construction permit, even when private builders must obtain such permits. Conditioning federal building on state approval would give states a veto over federal projects.

Permissible regulations include:

• Neutral, generally applicable state laws applied to private parties, even when those parties are federal contractors or operate on federal property (for example, state building codes applied to private contractors constructing a federal building)
• Neutral state tort, contract, health, and safety laws applied to private contractors who perform federal work
• General traffic, environmental, or workplace safety rules enforced against federal employees when they are acting as ordinary citizens (for example, a federal employee speeding in a private car on personal time)

Again, the line turns on who is being regulated:

• If the state law purports to bind the federal government itself or a federal agency in its official capacity, it is invalid (unless Congress clearly authorizes it).
• If the state law binds private actors (including federal contractors) and is generally applicable and nondiscriminatory, it is usually valid, even if it incidentally increases federal costs.

For MBE purposes, be alert to subtle attempts to do indirectly what a state cannot do directly. A law that formally applies to “any entity operating a federal facility” is still targeted at the federal government, even if it technically names private facility managers as regulated parties.

A few additional patterns to recognize:

• State professional licensing for federal functions: a state cannot require a federal official (for example, an attorney for a federal agency) to hold a state license to perform federal duties, though that official might still need a license for purely private work.
• State wage and hour law: a generally applicable state minimum wage law that applies to private federal contractors is valid; but a law that sets special wages only for workers on federal projects is likely invalid as discriminating against federal activities.
• Targeted recordkeeping or reporting: a statute requiring “all entities contracting with the federal government” to file extra reports is suspect; a statute requiring all employers over a certain size to make such reports is more likely valid.

The Supremacy Clause and Preemption

Federal immunity also arises when a federal statute preempts state law. In that setting, it is not so much that the state cannot regulate the federal government directly, but that Congress has spoken and left no room (or limited room) for state regulation.

Key Term: Express Preemption
A form of preemption in which a federal statute explicitly states that state laws on a particular subject are displaced, in whole or in part.

Key Term: Implied Preemption
Preemption inferred from the structure or purpose of federal law, even though Congress did not include an explicit preemption clause. It includes conflict preemption and field preemption.

It is helpful to distinguish the main implied preemption subtypes, even though they are not always labeled in MBE answer choices:

• Conflict preemption: compliance with both federal and state law is impossible, or state law directly contradicts federal commands.
• Obstacle preemption: state law stands as an obstacle to accomplishing federal objectives, even if compliance with both sets of rules is literally possible.
• Field preemption: federal regulation is so pervasive that Congress is understood to have occupied the field.

Key Term: Conflict Preemption
A form of implied preemption where it is impossible to comply with both state and federal requirements, or state law directly contradicts federal commands.

Key Term: Field Preemption
A form of implied preemption where federal regulation is so comprehensive that Congress is deemed to have left no room for supplementary state regulation in that area.

Key Term: Obstacle Preemption
A form of implied preemption in which a state law, while not making compliance with federal law impossible, frustrates or interferes with the achievement of federal objectives.

Express Preemption

Under express preemption:

• The statute may say, for example, “No state may regulate X” or “State requirements inconsistent with this federal standard are preempted.”
• Courts construe express preemption clauses narrowly. If Congress has not clearly preempted particular state rules, courts are reluctant to read preemption into ambiguous language.

On the MBE, if the fact pattern quotes a preemption clause, read it carefully and match the state law to the specific conduct or subject described in the clause. Do not assume that all state law in the area is wiped out.

For example, a statute preempting “state laws based on smoking and health with respect to cigarette advertising” does not necessarily preempt a state consumer protection law that prohibits deceptive advertising generally, because that law is based on deception rather than smoking and health.

Conflict and Obstacle Preemption

Under conflict preemption, state law is preempted when:

• It is literally impossible to comply with both state and federal law (for example, one law requires conduct the other forbids).
• Or the state law undermines or frustrates the purposes of the federal scheme, even if simultaneous compliance is physically possible (obstacle preemption).

Examples:

• A federal statute requires that certain goods remain in interstate shipment until inspected by federal officials. A state law requiring earlier local inspection before shipment would present a conflict.
• A state law suspending driver’s licenses until auto accident judgments are paid, even after those debts are discharged in federal bankruptcy, has been held to frustrate the federal goal of giving debtors a “fresh start” and is therefore preempted.

Obstacle preemption is often tested with state tort suits. For instance, a plaintiff might argue that a product label approved by a federal agency was still inadequate under state law. The manufacturer will argue that allowing state juries to impose additional labeling duties would stand as an obstacle to the federal scheme of uniform labeling. In such questions, pay careful attention to whether federal law allows manufacturers to strengthen warnings on their own (in which case state law is less likely to be preempted) or whether it locks in a precise label.

Field Preemption

Under field preemption, the question is whether Congress intended to occupy the entire regulatory field.

Indicators of field preemption include:

• Comprehensive federal regulations and standards in a particular domain
• Creation of a federal agency to oversee the field
• A history of exclusive federal concern (for example, immigration, certain aspects of foreign affairs, national currency)

Examples:

• Federal immigration law preempts many state attempts to create parallel immigration crimes or independent state enforcement schemes.
• Certain aspects of nuclear safety regulation are occupied by federal law, leaving no room for state safety standards in that sphere.

On the exam, remember:

• State law is not preempted merely because it addresses the same topic as federal law.
• There must be some incompatibility or evidence that Congress intended to displace state law.
• There is a presumption against preemption in traditional areas of state regulation (health, safety, welfare), unless Congress’s intent to preempt is clear.

Many federal immunity questions can be analyzed in either way:

• As an intergovernmental immunity problem (states may not directly regulate or tax the federal government), or
• As a preemption problem (a federal statute leaves no room for state regulation).

You should be comfortable spotting both and picking the theory the fact pattern and answer choices emphasize.

State Courts’ Obligation to Apply Federal Law

The Supremacy Clause also means that state courts cannot refuse to hear federal claims they are otherwise competent to hear, simply because those claims are federal.

• A state court that hears comparable state-law claims generally must also hear analogous federal claims.
• A state may apply its own neutral procedural rules, but it may not single out federal causes of action for disfavored treatment or deny them a forum altogether.

If a state court refuses jurisdiction over a federal claim, or closes its doors to a class of cases created by federal law, that refusal can itself violate the Supremacy Clause.

On the MBE, this often appears in questions where a state statute purports to strip state courts of jurisdiction to hear a certain category of federal civil rights claims. Those statutes are invalid to the extent they prevent enforcement of federal rights.

Federal Immunity for Federal Employees

Federal employees are not personally above state law. They must generally comply with nondiscriminatory state criminal and civil laws, especially when acting outside their official duties.

However, two limits are important:

• Tax immunity, as already discussed: a state may tax federal employees only on terms that are nondiscriminatory.
• Supremacy-based functional immunity: a state may not punish a federal officer for conduct that is required or authorized by federal law and is necessary and proper to the performance of their duties.

Examples:

• A federal marshal who uses reasonable force under federal authority is protected from state assault prosecution for that authorized conduct.
• A federal officer executing a federal court order to seize property cannot be prosecuted for trespass for entering the premises as directed.
• A federal officer is not protected from a state prosecution for private, off-duty crimes unrelated to federal duties (for example, assault in a bar fight).

In many tort suits for acts within the scope of federal employment, federal statutes such as the Federal Tort Claims Act and the Westfall Act require substitution of the United States as defendant, giving the employee statutory immunity from personal liability under state tort law. That is a statutory overlay on top of the constitutional immunity principles.

Thus, on the MBE, ask:

• Is the state targeting the employee because they are a federal employee or for actions taken under federal authority?
  • If so, immunity or preemption likely applies.
• Or is the state enforcing neutral laws that apply to everyone?
  • Then the state law probably applies.

Be careful with fact patterns involving federal officers who arguably exceeded their lawful authority. If the officer’s actions were clearly outside the scope of federal authorization, state law is more likely to apply. If the officer reasonably believed the conduct was required by federal law, immunity is more likely.

Federal Instrumentalities

Key Term: Federal Instrumentality
An entity created or designated by the federal government to carry out federal functions, such as a federal agency, a federally chartered corporation, or certain national banks.

Federal instrumentalities enjoy the same basic protections from state taxation and regulation as the federal government, subject to congressional control:

• States may not impose direct taxes on federal instrumentalities (for example, a state property tax imposed on a Federal Reserve Bank as such), absent clear congressional consent.
• States may not single out federal instrumentalities for special burdens (for example, a higher franchise tax than that imposed on comparable state-chartered entities).
• States may apply general, nondiscriminatory laws to federal instrumentalities to the extent Congress permits (for example, some state taxes on federally chartered banks are expressly allowed by statute).

In practice, whether a particular entity is a “federal instrumentality” and what immunity it enjoys often turns on the governing federal statute:

• Some statutes provide that a federal corporation “shall be subject to state taxation to the same extent as private corporations,” effectively waiving immunity.
• Others expressly preserve broad immunity from state taxation and regulation.

For MBE purposes:

• If the fact pattern calls an entity a “federal agency” or describes it as created by Congress to carry out governmental functions, treat it as an instrumentality.
• Then apply the same legal-incidence and nondiscrimination analysis you would apply to the United States itself, unless the problem describes a specific congressional waiver.

Limits of State Immunity from Federal Regulation

The intergovernmental immunity doctrine is not symmetric. States are not immune from generally applicable federal regulation when Congress acts within its enumerated powers.

Congress can:

• Regulate states directly under, for example, the Commerce Clause or Section 5 of the Fourteenth Amendment (for instance, federal minimum wage and overtime laws applied to state employees).
• Forbid states from engaging in certain conduct (for example, selling motor vehicle data to private entities) when the statute regulates states as participants in commerce, rather than compelling states to legislate.

However, there is an important limit:

Key Term: Anti-Commandeering Doctrine
The principle that Congress may not require states or state officials to enact, administer, or enforce a federal regulatory program.

This means:

• Congress may not compel a state legislature to pass particular laws or repeal existing laws.
• Congress may not require state executive officers (such as sheriffs or DMV officials) to implement or enforce federal regulatory schemes.
• Congress may not directly order state officials to perform background checks, maintain federal databases, or enforce federal regulatory standards.

Congress may:

• Encourage state cooperation by attaching conditions to federal spending (if the conditions are clearly stated, related to the federal program, and not unduly coercive).
• Regulate private conduct directly, even within states, using its enumerated powers.
• Regulate states as market participants or employers (for example, subjecting state-run businesses to generally applicable federal labor or environmental laws).

For the MBE:

• Do not confuse state immunity from federal commandeering (which is real) with a broader, nonexistent immunity of states from generally applicable federal laws.
• If a federal statute simply tells states, “You may not do X” (for example, “States may not sell driver data to marketers”), it is usually valid under the Commerce Clause.
• If a federal statute says, “You, the states, must regulate X in the following way,” or “You, the states, must enforce this federal program,” it likely violates anti-commandeering.

Note that state sovereign immunity from suit (the Eleventh Amendment) is a separate doctrine. The Eleventh Amendment restricts who can sue a state in federal court; it does not prevent Congress from substantively regulating state conduct under valid powers such as Section 5 of the Fourteenth Amendment.

Structured Approach to Exam Questions

Because many MBE questions mix these doctrines, it is useful to have a simple framework:

• Step 1: Identify the actor being regulated or taxed.

  • United States / federal agency / federal corporation?
  • Individual federal employee?
  • Private contractor, vendor, or lessee?
  • State government or state agency?

• Step 2: Identify the source of the rule.

  • State statute, ordinance, regulation, or tax?
  • Federal statute or regulation alleged to preempt state law?

• Step 3: Classify the problem.

  • State taxing/regulating federal government or its instrumentalities → intergovernmental immunity.
  • State law arguably conflicting with federal statute → Supremacy Clause and preemption.
  • Federal law regulating states or state officials → anti-commandeering / Tenth Amendment.

• Step 4: Apply the relevant test.

  • Intergovernmental tax/regulation: legal incidence, direct vs indirect, discrimination, congressional consent.
  • Preemption: express clause, conflict/obstacle, field, plus presumption against preemption in traditional state areas.
  • Anti-commandeering: distinction between regulating states as sovereigns (problematic) and regulating them as market participants or employers (usually fine).

This structured approach will help keep you from conflating different immunity doctrines when reading dense fact patterns.

Worked Example 1.1

A state imposes a property tax on all vehicles, including those owned by the federal government. The federal government challenges the tax. Is the tax constitutional?

Answer:
No. States may not directly tax federal property or agencies. A property tax whose legal incidence falls on federal vehicles is an unconstitutional direct tax on the federal government.

Worked Example 1.2

A state imposes an income tax on all residents, including federal employees. The tax applies equally to all employees, public and private. Is this tax valid?

Answer:
Yes. States may tax the income of federal employees if the tax is nondiscriminatory and does not single out federal employees for special burdens.

Worked Example 1.3

A state requires all federal agencies operating within its borders to obtain a state business license and pay a fee. The federal government refuses to comply. Is the state law enforceable?

Answer:
No. States may not require federal agencies to obtain state licenses or pay licensing fees. That is a direct attempt to regulate and burden federal operations, which violates federal immunity and the Supremacy Clause.

Worked Example 1.4

A state imposes a general sales tax on all retail sales. A private vendor sells computers to a federal agency. The state seeks to collect the sales tax from the vendor on those sales. The vendor argues that the tax is invalid because the federal agency ultimately bears the economic cost. How should a court rule?

Answer:
The tax is valid. The legal incidence of the tax falls on the private vendor, not the federal government. That the vendor passes the economic cost on to the federal agency through higher prices does not make the tax a direct tax on the United States.

Worked Example 1.5

A federal statute comprehensively regulates the safety standards of aircraft engines and authorizes a federal agency to issue detailed regulations. A state later adopts its own engine-safety standards that conflict with the federal regulations. A manufacturer sues, claiming the state law is preempted. What result?

Answer:
The state law is preempted. The federal regulatory scheme occupies the field of aircraft engine safety and, at a minimum, the conflicting state standards create an obstacle to achieving federal objectives. Under the Supremacy Clause, the federal rules control.

Worked Example 1.6

Congress enacts a federal background-check statute for firearms purchasers but does not specify who must conduct the checks. A later federal amendment commands state sheriffs to process all background checks and report the results to a federal database. A state challenges the amendment. Is the amendment valid?

Answer:
No. Under the anti-commandeering doctrine, Congress may not require state executive officers to administer a federal regulatory program. Congress can regulate private firearm sellers directly, or offer incentives to states, but cannot compel state sheriffs to implement federal law.

Worked Example 1.7

A private company operates a restaurant in space it leases inside a federally owned office building. A state imposes its ordinary property tax on all leasehold interests in commercial property, including the company’s leasehold. The company argues the tax is invalid because the building is federal property. How should a court rule?

Answer:
The tax is valid. The state is taxing the private lessee’s leasehold interest, not the federal government’s ownership interest in the building. The legal incidence of the tax falls on the private company. Indirect, nondiscriminatory taxes on private parties using federal property are permissible.

Worked Example 1.8

A state environmental statute requires all construction contractors to obtain a state environmental permit before beginning any major project. A private contractor building a new federal courthouse fails to obtain the permit. The state seeks to enforce the permit requirement against the contractor. The contractor claims the statute unconstitutionally regulates the federal government. Is the contractor correct?

Answer:
No. The statute is a neutral, generally applicable environmental law applied to a private party. It does not require the federal government or a federal agency to obtain the permit, and it does not single out federal projects. States may enforce such neutral laws against private federal contractors, even if the result is to increase costs or delay for a federal project.

Worked Example 1.9

A federal statute comprehensively regulates the design and labeling of a particular type of medical device. The statute contains no express preemption clause. A state later adopts additional labeling requirements for the same device that differ from the federal labeling rules but are aimed at improving consumer safety. A consumer injured by the device sues under state law, alleging failure to comply with the state labeling requirements. The manufacturer argues that the state labeling rules are preempted. Which analysis is most appropriate?

Answer:
The court should consider implied preemption, focusing on whether Congress intended to occupy the field of device labeling or whether the state rules conflict with or obstruct federal objectives. The absence of an express preemption clause and the traditional state role in health and safety create a presumption against preemption. If the federal scheme leaves room for additional, consistent state requirements, the state law is not preempted; if the federal regulations are exclusive or the state standards interfere with uniform federal labeling, the state law is preempted.

Worked Example 1.10

Congress passes a statute requiring all employers, including state governments, to pay a federal minimum wage to their employees. A state complains that this statute violates the Tenth Amendment by regulating state employment. Is the statute valid?

Answer:
Yes. Congress may regulate states as employers through generally applicable federal laws enacted under its enumerated powers, such as the Commerce Clause. The statute regulates state and private employers alike and does not require states to enact or administer a federal regulatory program. It therefore does not violate the anti-commandeering doctrine.

Exam Warning

The most common MBE trap is confusing indirect, generally applicable state laws (which may apply to federal employees or contractors) with direct state regulation or taxation of the federal government (which is unconstitutional). Always identify who bears the legal incidence of the tax or regulation, and whether the law targets the federal government or is neutral and broadly applicable.

Additional traps to watch for:

• Treating every burden on a federal contractor as unconstitutional. Neutral state laws that incidentally increase federal costs are usually valid.
• Assuming that states may never be regulated by Congress. States are protected from commandeering, but not from generally applicable federal laws enacted under enumerated powers.
• Overreading preemption clauses: express preemption is narrowly construed; do not assume Congress meant to wipe out all state law unless the statutory text or structure clearly indicates that.
• Ignoring congressional waivers: if the fact pattern quotes a federal statute subjecting an instrumentality to state taxation or regulation “to the same extent as private entities,” that language usually waives immunity for neutral, nondiscriminatory state laws.

Revision Tip

Remember: the Supremacy Clause means valid federal law prevails over conflicting state law, and states cannot directly tax or regulate the federal government or its instrumentalities unless Congress clearly consents. For taxation and regulation questions, always ask:

• Who is being taxed or regulated as a matter of law?
• Is there discrimination against the federal government or its employees?
• Has Congress authorized, limited, or preempted the state action?
• Is the issue better analyzed as intergovernmental immunity or statutory preemption?

Key Point Checklist

This article has covered the following key knowledge points:

• States may not directly tax or regulate the federal government or its instrumentalities without clear congressional consent.
• Direct state taxes whose legal incidence falls on the federal government are invalid; indirect, nondiscriminatory taxes on private parties (including federal contractors and lessees of federal property) are generally valid.
• The legal incidence, not the economic burden, determines whether a tax is a forbidden direct tax on the United States.
• States may tax the income of federal employees if the tax is nondiscriminatory and does not treat federal employees less favorably than similarly situated state or private employees.
• Federal instrumentalities share the federal government’s immunity from direct state taxation and discriminatory state regulation, subject to congressional modification.
• States may not require federal agencies to obtain state licenses or permits, or otherwise subject federal operations to state approval; they may, however, apply neutral, generally applicable laws to private contractors performing federal work.
• The Supremacy Clause makes federal law supreme over conflicting state law; preemption can be express or implied (conflict, obstacle, or field preemption), and there is a presumption against preemption in traditional areas of state regulation.
• State courts must entertain federal claims on the same footing as comparable state claims and may not close their doors selectively to federal causes of action.
• Federal employees must obey neutral, generally applicable state laws, but are protected from state punishment for conduct required or authorized by federal law and necessary to their duties.
• States are not immune from generally applicable federal regulation enacted under enumerated powers but are protected by the anti-commandeering doctrine from being forced to legislate or administer federal programs.
• Neutral state laws may be enforced against private federal contractors and users of federal property, even if such enforcement indirectly affects federal projects or costs.
• On MBE problems, you should distinguish between direct and indirect state burdens, identify whether the state law targets the federal government or operates neutrally on private parties, and consider both intergovernmental immunity and statutory preemption frameworks.

Key Terms and Concepts

• Federal Immunity from State Law
• Supremacy Clause
• Intergovernmental Tax Immunity
• Legal Incidence
• Direct Tax
• Indirect Tax
• Express Preemption
• Implied Preemption
• Conflict Preemption
• Field Preemption
• Obstacle Preemption
• Anti-Commandeering Doctrine
• Federal Instrumentality