As a result of price fluctuation in the milk market, Massachusetts passed a law requiring the state’s distributors of milk to pay into a fund that would then be disbursed to suppliers of milk/milk farmers as a subsidy to lower the price. The intent of the legislation was to allow Massachusetts farmers and milk suppliers to have a competitive edge against lower pricing out of state suppliers. However, nearly 2/3 of the milk distributed within the state was from out of state distributors. In essence, therefore, out of state distributors were being taxed to have their money redistributed to in-state suppliers. Plaintiffs refused to pay the tax and took up the following action. Plaintiffs at trial lost and had their license revoked as a consequence. The Mass Supreme Court affirmed.
Whether a state violates the interstate commerce clause by taxing out of state distributors to the exclusive benefit of in state suppliers for the purpose of price stabilization/local competitive advantage.
Yes, reversed, law held unconstitutional. The commerce clause exists to prevent in state parties from unduly burden out of state competitors for the purpose of gaining a competitive advantage. A state law that clearly discriminates against out of staters will always be struck down unless the state can show a valid legitimate public purpose for its enactment beyond gaining a competitive advantage/having a protectionist purpose.
The court determined that the purpose and impact of the state law was to allow more expensive in state suppliers to compete with most cost efficient out of staters. Additionally, the law was largely discriminatory against out of state distributors/wholesalers, because out of state distributors paid the tax but had none of the proceeds of the fund returned to their suppliers – who were almost always out of state suppliers. The result of the law would be for in state distributors, being the beneficiaries of in state suppliers, to offer cheaper wholesale price, which would in turn result in Massachusetts milk gaining a much larger market share of the state’s milk to the exclusion of outsiders. Preserving the Massachusetts dairy industry is not a valid reason for a protectionist regulation, because the entire purpose of the regulation is protectionist.