The Supreme Courts Municipal Bond Decision and the Market-Participant Exception to the Dormant Commerce Clause
Originally uploaded at SSRN.
Does it violate the dormant Commerce Clause for a state to exempt interest earned on its own bonds, but no others, from income taxation? In a recent decision, the Supreme Court answered this question in the negative. Six members of the Court found the case controlled by the state-self-promotion exception to the dormancy doctrine's antidiscrimination rule. Three of those Justices, however, went further by also invoking the longstanding market participant exception to sustain the discriminatory state tax break. This Essay challenges that alternative line of analysis. According to the author, the plurality's effort to apply the market-participant principle: (1) invites a problematic reframing of basic market-participant rhetoric, (2) threatens ill-advised changes in longstanding Commerce Clause doctrine, and (3) injects far-reaching uncertainty into an already complex field of constitutional law. For all these reasons, a majority of the Court should reject the plurality's approach, and lower courts should refuse to follow it in the meantime.