Facts
- Several states entered the Multistate Tax Compact to coordinate aspects of state and local taxation of multistate businesses, including improving accuracy, uniformity, and avoiding duplicative taxation.
- The Compact created the Multistate Tax Commission, which could conduct audits at a member state’s request and seek compulsory process in state courts where state law permitted.
- Member states retained full control over tax rates, tax bases, and collection methods; states could adopt or reject Commission rules and could withdraw from the Compact at any time.
- United States Steel Corporation and other multistate corporate taxpayers filed a federal class action seeking declaratory and injunctive relief, alleging the Compact was unconstitutional.
- Plaintiffs argued the Compact lacked required congressional consent under the Compact Clause and also violated the Commerce Clause and the Fourteenth Amendment.
- A three-judge federal district court granted summary judgment for defendants, upholding the Compact; plaintiffs appealed directly to the U.S. Supreme Court.
Issues
- Whether the Multistate Tax Compact required congressional consent under the Compact Clause to be valid.
- Whether the Compact or the Commission’s activities imposed an unconstitutional burden on interstate commerce.
- Whether the Compact or the Commission violated multistate taxpayers’ rights under the Fourteenth Amendment.
Decision
- The Court affirmed the judgment for defendants in a 7–2 decision (Powell, J.).
- Congressional consent was not required because the Compact did not increase state political power in a manner that could encroach on federal supremacy.
- The Commerce Clause challenge failed because the Compact’s cooperative mechanisms were administrative tools and did not impose an unconstitutional burden on interstate commerce.
- The Fourteenth Amendment claims failed because states retained control over their tax laws and procedures; any improper applications were matters for case-specific challenges, not a facial invalidation of the Compact.
Legal Principles
- The Compact Clause requires congressional consent only for interstate agreements that tend to increase state political power in a way that may encroach upon or interfere with federal supremacy.
- The existence of a multistate agreement and an ongoing administrative body does not, by itself, trigger the Compact Clause.
- An interstate cooperative scheme is less likely to implicate the Compact Clause where member states retain legislative and administrative control, may reject the body’s rules, and may withdraw at will.
- Alleged abuses in implementation do not establish facial unconstitutionality of an otherwise valid interstate compact; remedies generally lie in challenges to particular state actions.
- Cooperative tax-administration arrangements that leave substantive taxing authority with the states do not necessarily impose an unconstitutional burden on interstate commerce.
Conclusion
The Court upheld the Multistate Tax Compact and Commission, holding that the agreement did not require congressional consent under the Compact Clause and did not violate the Commerce Clause or the Fourteenth Amendment.