West Lynn Creamery, Inc. v. Healy
512 U.S. 186 (1994)
In response to Massachusetts
farmers losing market share to lower cost producers from outside, the
Massachusetts Legislature passed a law that required every dealer in the
State to make a monthly premium payment based on the amount of milk sales
into a fund which distributed money to local dairy farmers proportionate
to their contribution into the State's production of milk.
West Lynn was a dealer that
bought most of their milk out of State. They sued Healy (the
Massachusetts Commissioner of Food and Agriculture), on the grounds that
this law interfered with interstate commerce.
West Lynn argued that the
premium payments are effectively a tax that makes milk produced out of
the State more expensive.
Healy argued that the State
can impose a valid tax on dealers, so long as it is not discriminatory,
and it is free to use the proceeds as it chooses, then it is free to
subsidize local farmers with the proceeds out of the general fund.
Both parts of the law (the
tax, the subsidy) were completely constitutional when taken
independently, so they aggregate must be constitutional too!
The Massachusetts Supreme
Court found that the law was fine. West Lynn appealed.
US Supreme Court reversed and
found the law unconstitutional.
The US Supreme Court found
that the Dormant Commerce Clause
limits the power of Massachusetts to adopt regulations that discriminate
against interstate commerce.
Under the Dormant
Commerce Clause Statutes that
clearly discriminate against interstate commerce should be struck down
unless the discrimination is demonstrably justified by a valid factor
unrelated to economic protectionism.
The Court found that
"premium payments" are effectively a tax which makes milk
produced out of State more expensive.
Although the tax also
applies to milk produced in Massachusetts, its effect on Massachusetts
producers is entirely offset by the subsidy provided exclusively to
Massachusetts dairy farmers.
Like an ordinary tariff,
the tax is thus effectively imposed only on out-of-state products. It
simultaneously burdens interstate commerce and discriminates in favor of
The Court proposed 4 devices
that a State could use to helping in-state industry:
Discriminator tax (higher
liability for out of state).
Tax upon industry with an
where the funds are given back to in-state industry.
Subsidy for in-state
industry funded from a State's general fund.
The Court noted that 1, 2,
and 3 would be discriminatory, but 4 would be ok.
Using State general funds
to support an industry sector is limited because local voters don't
want to see their tax dollars support only one sector of the local
economy (in theory).