486 U.S. 269 (U.S. Supreme Court 1988)
New Energy Co. of Indiana v.
Does an Ohio motor-fuel tax credit for gasohol that applies only when the ethanol is produced in Ohio or in a state that grants reciprocal treatment to Ohio ethanol violate the Dormant Commerce Clause by discriminating against interstate commerce?
Under the Dormant Commerce Clause, state taxes and regulations that discriminate on their face against interstate commerce are per se invalid unless the state can demonstrate that they serve a legitimate local purpose that cannot be adequately served by reasonable, nondiscriminatory alternatives. Reciprocity provisions do not cure discrimination; they replicate protectionism and impermissibly condition access to state benefits on the policies of other states. The market-participant exception applies only when the state acts as a buyer/seller or proprietor in the market, not when it regulates private market activity through taxation. The compensatory tax doctrine is a narrow exception that allows a state to impose on interstate commerce a tax burden that merely compensates for an equivalent, substantially similar burden already borne by intrastate commerce; it does not justify discriminatory tax credits or exemptions that favor in-state goods based on origin.
Yes. Ohio's ethanol tax credit, limited to ethanol produced in Ohio or in reciprocating states, is facially discriminatory and violates the Dormant Commerce Clause. It is not saved by reciprocity, the market-participant doctrine, or the compensatory tax doctrine.
New Energy reinforces core Dormant Commerce Clause principles: (1) facial discrimination based on origin is virtually per se invalid; (2) reciprocity requirements are themselves discriminatory and risk economic Balkanization; (3) the market-participant and compensatory tax doctrines are narrow and inapplicable to regulatory tax incentives tied to origin; and (4) legitimate local interests must be pursued through nondiscriminatory means. For law students, the case is a go-to authority for striking down state tax credits or exemptions that condition benefits on in-state manufacture or retaliatory reciprocity, and it provides a clean template for issue-spotting and analysis on exams involving protectionist state tax schemes.