## Facts

- Ohio imposed a motor fuel sales tax and created a per-gallon tax credit for “gasohol” containing ethanol.
- The 1984 statute limited eligibility for the credit to gasohol made with ethanol that was either (a) produced in Ohio or (b) produced in another state only to the extent that the other state granted similar tax advantages to ethanol produced in Ohio (a reciprocity condition).
- New Energy Company of Indiana manufactured ethanol in Indiana and sold ethanol used in gasohol sold in Ohio.
- Indiana did not provide comparable tax advantages to Ohio-produced ethanol, so New Energy’s ethanol did not qualify for Ohio’s credit.
- New Energy sought declaratory and injunctive relief, alleging the credit discriminated against out-of-state ethanol in violation of the dormant Commerce Clause.
- Ohio courts denied relief and upheld the statute.

## Issues

1. Whether Ohio’s tax credit, limited to in-state ethanol or ethanol from states providing reciprocal tax advantages, facially discriminates against interstate commerce in violation of the dormant Commerce Clause.
2. Whether asserted justifications—encouraging other states to adopt similar incentives or advancing health and environmental goals—can save a facially discriminatory tax scheme.
3. Whether the market participant doctrine shields Ohio’s tax credit from dormant Commerce Clause scrutiny.

## Decision

- The Supreme Court unanimously reversed the Ohio Supreme Court.
- The Court held the credit discriminated against interstate commerce by conditioning generally available tax treatment on the geographic origin of ethanol and on other states’ conferral of reciprocal benefits.
- The reciprocity condition did not cure discrimination; it operated as an attempt to induce other states to favor Ohio products.
- Environmental and health rationales did not justify discrimination among chemically indistinguishable ethanol products based solely on where they were produced.
- The market participant doctrine did not apply because Ohio acted as a regulator through its tax system, not as a participant in the market.

## Legal Principles

- The dormant Commerce Clause restricts state measures that discriminate against interstate commerce and targets economic protectionism that benefits in-state interests by burdening out-of-state competitors.
- A statute that is facially discriminatory is presumptively invalid unless the state shows a valid, non-protectionist justification and that the discriminatory means are necessary to achieve that end.
- Discrimination is not validated by offering to remove it upon reciprocity; conditioning equal treatment on other states’ policy choices remains discriminatory.
- Claimed public health or environmental objectives cannot justify origin-based discrimination where the products are functionally and chemically equivalent.
- The market participant exception does not apply to tax incentives structured as regulatory measures.

## Conclusion

Ohio’s ethanol tax credit violated the dormant Commerce Clause because it granted favorable tax treatment to in-state ethanol and penalized out-of-state ethanol through an origin-based and reciprocity-conditioned scheme lacking a sufficient non-protectionist justification.


New Energy Co. of Ind. v. Limbach, 486 U.S. 269 (1988)