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UC Law Business Journal

Abstract

The Complete Auto four-prong test is the modern analytical framework for courts to analyze whether a state-level tax discriminates against interstate commerce in violation of the Dormant Commerce Clause. The test asks whether (i) the taxpayer has substantial nexus to the taxing state, (ii) the tax is fairly apportioned to reflect the taxpayer’s activities in the state, (iii) the tax discriminates against interstate economic activity in favor of local activity, and (iv) the tax is fairly related to the goods and services provided by the state. The Complete Auto test faces critiques from both judges and scholars for its inconsistent application and duplicative analysis. As a result, many have called for reforms to the Complete Auto test while some have proposed replacing the Complete Auto test entirely.

This Paper will argue that the Dormant Commerce Clause limitations under Complete Auto should no longer apply to state tax laws. This is because the longstanding analytical challenges associated with Complete Auto’s framework will be amplified as generational policy problems loom over state legislatures. To address these impending challenges, states will need a full arsenal of tax policy tools to raise revenue and adopt tax policies that appropriately reflect modern economic activity. The continued adherence to Complete Auto will interject the federal judiciary into these important state tax policy decisions. This is problematic as judges lack the technical and economic expertise to appropriately analyze the interaction between state taxes, and courts are less able to respond to changing economics. Additionally, outsized judicial influence over state tax policy under Complete Auto risks judges ignoring local concerns in favor of laissez faire tax policy preferences focused on interstate commerce. The only way to ensure that tax policy experts and state legislatures accountable to the voting public are the ultimate decisionmakers on twenty-first century state tax policy is to eliminate the Complete Auto test and the Dormant Commerce Clause’s restrictions on state taxes.

Removing Complete Auto will both further foundational constitutional principles and more closely align with courts’ deference to state economic legislation in other areas of constitutional analysis. Additionally, it will NOT open the floodgates to discriminatory state tax policy because the Complete Auto test is duplicative of other constitutional protections that will still remain in place to police overly discriminatory state taxes.

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