Waking a Light-Sleeping Giant: The Restrictive Power of the Dormant Commerce Clause and the States' Discriminatory Bond Taxing Systems

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The Commerce Clause of the United States Constitution implicitly prohibits the individual States from taxing the interest on municipal bonds issued under the authority of their sister states while simultaneously exempting the interest accruing on bonds issued under their own authority. Under the Commerce Clause, Congress is granted the authority to regulate Commerce... among the several states. The Supreme Court interprets this provision to include a negative component, or dormant power, forbidding the individual states from regulating interstate commerce to further an economic protectionist agenda. Because extra-territorial bond taxing statutes on their face give preferential treatment to the home State to the material disadvantage of sister states, these statutes are invalid under the Commerce Clause. Even though these statutes exist in the majority of States, to date only two State's appellate courts have ruled on this issue. While the Ohio Court of Appeals upheld the statute against the weight of traditional Commerce Clause analysis, the Kentucky Court of Appeals invalidated the statute as protectionist in violation of the dormant Commerce Clause.