In The

Supreme Court of the United States




Decided March 26, 1985

Justice O’Connor, Dissenting

Topic: Economic Activity*Court vote: 5–4
Click any Justice for detail
Joining O'Connor opinion: Justice BRENNAN Justice BRENNAN Justice MARSHALL Justice MARSHALL Justice REHNQUIST Justice REHNQUIST
Citation: 470 U.S. 869 Docket: 83–1274Audio: Listen to this case's oral arguments at Oyez

* As categorized by the Washington University Law Supreme Court Database

Next opinion >< Previous opinion

DISCLAIMER: Only United States Reports are legally valid sources for Supreme Court opinions. The text below is provided for ease of access only. If you need to cite the exact text of this opinion or if you would like to view the opinions of the other Justices in this case, please view the original United States Report at the Library of Congress or Justia. The Sandra Day O'Connor Institute does not in any way represent, warrant, or guarantee that the text below is accurate."



This case presents a simple question: is it legitimate for a State to use its taxing power to promote a domestic insurance industry and to encourage capital investment within its borders? In a holding that can only be characterized as astonishing, the Court determines that these purposes are illegitimate. This holding is unsupported by precedent and subtly distorts the constitutional balance, threatening the freedom of both state and federal legislative bodies to fashion appropriate classifications in economic legislation. Because I disagree with both the Court's method of analysis and its conclusion, I respectfully dissent.


Alabama's legislature has chosen to impose a higher tax on out-of-state insurance companies and insurance companies incorporated in Alabama that do not maintain their principal place of business or invest assets within the State. Ala.Code § 27-4-4 et seq. (1975). This tax seeks to promote both a domestic insurance industry and capital investment in Alabama. App. to Juris. Statement 20a-21a. Metropolitan Life Insurance Company, joined by many other out-of-state insurers, alleges that this discrimination violates its rights under the Equal Protection Clause of the Fourteenth Amendment, which provides that a State shall not "deny to any person within its jurisdiction the equal protection of the laws." Appellants rely on the Equal Protection Clause because, as corporations, they are not "citizens" protected by the Privileges and Immunities Clauses of the Constitution. Hemphill v. Orloff, 277 U. S. 537, 277 U. S. 548 -550 (1928). Similarly, they cannot claim Commerce Clause protection because Congress, in the McCarran-Ferguson Act, 59 Stat. 33, as amended, 15 U.S.C. § 1011 et seq., explicitly suspended Commerce Clause restraints on state taxation of insurance, and placed insurance regulation firmly within the purview of the several States. Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U. S. 648, 451 U. S. 655 (1981).

Our precedents impose a heavy burden on those who challenge local economic regulation solely on Equal Protection Clause grounds. In this context, our long-established jurisprudence requires us to defer to a legislature's judgment if the classification is rationally related to a legitimate state purpose. Yet the Court evades this careful framework for analysis, melding the proper two-step inquiry regarding the State's purpose and the classification's relationship to that purpose into a single unarticulated judgment. This tactic enables the Court to characterize state goals that have been legitimated by Congress itself as improper solely because it disagrees with the concededly rational means of differential taxation selected by the legislature. This unorthodox approach leads to further error. The Court gives only the most cursory attention to the factual and legal bases supporting the State's purposes, and ignores both precedent and significant evidence in the record establishing their legitimacy. Most troubling, the Court discovers in the Equal Protection Clause an implied prohibition against classifications whose purpose is to give the "home team" an advantage over interstate competitors even where Congress has authorized such advantages. Ante at 470 U. S. 878.

The Court overlooks the unequivocal language of our prior decisions.

Unless a classification trammels fundamental personal rights or is drawn upon inherently suspect distinctions such as race, religion, or alienage, our decisions presume the constitutionality of the statutory discriminations, and require only that the classification challenged be rationally related to a legitimate state interest.

New Orleans v. Dukes, 427 U. S. 297, 427 U. S. 303 (1976). See, e.g., Lehnhasen v. Lake Shore Auto Parts Co., 410 U. S. 356 (1973). Judicial deference is strongest where a tax classification is alleged to infringe the right to equal protection. "[I]n taxation, even more than in other fields, legislatures possess the greatest freedom in classification." Madden v. Kentucky, 309 U. S. 83, 309 U. S. 88 (1940).

Where the public interest is served, one business may be left untaxed and another taxed, in order to promote the one or to restrict or suppress the other.

Carmichael v. Southern Coal & Coke Co., 301 U. S. 495, 301 U. S. 512 (1937) (citations omitted). As the Court emphatically noted in Allied Stores of Ohio, Inc. v. Bowers, 358 U. S. 522, 358 U. S. 528 (1959) (citations omitted):

[I]t has repeatedly been held, and appears to be entirely settled, that a statute which encourages the location within the State of needed and useful industries by exempting them, though not also others, from its taxes is not arbitrary, and does not violate the Equal Protection Clause of the Fourteenth Amendment. Similarly, it has long been settled that a classification, though discriminatory, is not arbitrary or violative of the Equal Protection Clause of the Fourteenth Amendment if any state of facts reasonably can be conceived that would sustain it.

See also Western & Southern Life Ins. Co. v. State Board of Equalization of California, supra, at 451 U. S. 674 ; Minnesota v. Clover Leaf Creamery Co., 449 U. S. 456, 449 U. S. 464 (1981).

Appellants waived their right to an evidentiary hearing and conceded that Alabama's classification was rationally related to its purposes of encouraging the formation of domestic insurance companies and bringing needed services and capital to the State. Thus the only issue in dispute is the legitimacy of these purposes. Yet it is obviously legitimate for a State to seek to promote local business and attract capital investment, and surely those purposes animate a wide range of legislation in all 50 States.

The majority evades the obvious by refusing to acknowledge the factual background bearing on the legitimacy of the State's purpose or to address the many collateral public benefits advanced by Alabama. Instead, the Court dismisses appellees' arguments by merely stating that they were not ruled on by the courts below. Ante at 470 U. S. 875 -876, n. 5. In point of fact, the full range of purposes documented before this Court was also argued and documented before the Alabama Circuit Court. See Record, Vols. 6-8. That court found

at least two purposes, in addition to raising revenue: (1) encouraging the formation of new insurance companies in Alabama, and (2) encouraging capital investment by foreign insurance companies in the Alabama assets and governmental securities set forth in the statute.

App. to Juris. Statement 20a-21a (emphasis added). As appellants concede, these purposes are simply a step in achieving the

larger set of purposes [whose] premise... is that domestic insurance companies, on the whole, benefit the state in ways which foreign companies do not.

Brief for Appellants 31.

In any event, it is settled law that the appellee may assert any argument in support of the judgment in his favor, regardless of whether it was relied upon by the court below. Dandridge v. Williams, 397 U. S. 471, 397 U. S. 475, n. 6 (1970). The Court's failure actually to resolve whether Alabama may continue to collect its tax, see ante at 470 U. S. 882, n. 10, is all the more baffling, since appellants took the exceptional step of conceding the factual issues to assure a speedy resolution of numerous pending lawsuits disruptive of industry stability. See Brief for State of Alaska et al. as Amici Curiae 1-2. Our precedents do not condone such a miserly approach to review of statutes adjusting economic burdens. See, e.g., Allied Stores of Ohio, Inc. v. Bowers, supra, at 358 U. S. 528 -529; McGowan v. Maryland, 366 U. S. 420, 366 U. S. 425 (1961); United States v. Carolene Products Co., 304 U. S. 144, 304 U. S. 152 -153 (1938); Borden's Farm Products Co. v. Baldwin, 293 U. S. 194, 293 U. S. 209 (1934). The Court has consistently reviewed the validity of such statutes based on whatever "may reasonably have been the purpose and policy of the State Legislature, in adopting the proviso." Allied Stores of Ohio, Inc. v. Bowers, supra, at 358 U. S. 528 -529. It is to that inquiry that I now turn.

Appellees claim that Alabama's insurance tax, in addition to raising revenue and promoting investment, promotes the formation of new domestic insurance companies and enables them to compete with the many large multistate insurers that currently occupy some 75% to 85% of the Alabama insurance market. App. 80. Economic studies submitted by the State document differences between the two classes of insurers that are directly relevant to the wellbeing of Alabama's citizens. See id. at 46-129. Foreign insurers typically concentrate on affluent, high volume, urban markets and offer standardized national policies. In contrast, domestic insurers such as intervenors American Educators Life Insurance Company and Booker T. Washington Life Insurance Company are more likely to serve Alabama's rural areas, and to write low-cost industrial and burial policies not offered by the larger national companies. [ Footnote 2/1 ] Additionally, appellees argue persuasively that Alabama can more readily regulate domestic insurers and more effectively safeguard their solvency than that of insurers domiciled and having their principal places of business in other States.

Ignoring these policy considerations, the Court insists that Alabama seeks only to benefit local business, a purpose the Court labels invidious. Yet if the classification chosen by the State can be shown actually to promote the public welfare, this is strong evidence of a legitimate state purpose. See Note, Taxing Out-of-State Corporations After Western & Southern: An Equal Protection Analysis, 34 Stan.L.Rev. 877, 896 (1982). In this regard, Justice Frankfurter wisely observed:

[T]he great divide in the [equal protection] decisions lies in the difference between emphasizing the actualities or the abstractions of legislation.... To recognize marked differences that exist in fact is living law; to disregard practical differences and concentrate on some abstract identities is lifeless logic.

Morey v. Doud, 354 U. S. 457, 354 U. S. 472 (1957) (dissenting). A thoughtful look at the "actualities of [this] legislation" compels the conclusion that the State's goals are legitimate by any test.


The policy of favoring local concerns in state regulation and taxation of insurance, which the majority condemns as illegitimate, is not merely a recent invention of the States. The States initiated regulation of the business of insurance as early as 1851. See Report of the Comptroller General, Issues and Needed Improvements in State Regulation of the Insurance Business, GAO Report B-192813, p. 5 (Oct. 9, 1979) (GAO Report). In 1944, however, this Court overruled a long line of cases holding that the business of insurance was an intrastate activity beyond the scope of the Commerce Clause. United States v. South-Eastern Underwriters Assn., 322 U. S. 533.

The decision provoked widespread concern that the States would no longer be able to engage in taxation and effective regulation of the insurance industry. Congress moved quickly, enacting the McCarran-Ferguson Act within a year of the decision in South-Eastern Underwriters.

St. Paul Fire & Marine Insurance Co. v. Barry, 438 U. S. 531, 438 U. S. 539 (1978). See H.R.Rep. No. 143, 79th Cong., 1st Sess., 2 (1945); 91 Cong.Rec. 479-480 (1945) (remarks of Sen. Ferguson); id. at 487 (remarks of Sen. Ellender).

The drafters of the Act were sensitive to the same concerns Alabama now vainly seeks to bring to this Court's attention: the greater responsiveness of local insurance companies to local conditions, the different insurance needs of rural and industrial States, the special advantages and constraints of state-by-state regulation, and the importance of insurance license fees and taxes as a major source of state revenues. See, e.g., Hearings on S. 1362 before the Senate Subcommittee on the Judiciary, 78th Cong., 1st Sess., 3, 10, 16-17 (1943) (letter of Gov. Sharpe of South Dakota stressing role of domestic insurers that provide "poor man" and rural policies adapted to farming concerns); 90 Cong.Rec. 6564 (1944) (remarks of Rep. Vorhis).

As this Court observed shortly afterward, [o]bviously, Congress' purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. Prudential Insurance Co. v. Benjamin, 328 U. S. 408, 328 U. S. 429 (1946).

St. Paul Fire & Marine Insurance Co. v. Barry, supra, at 438 U. S. 539.

The majority opinion correctly notes that Congress did not intend the McCarran-Ferguson Act to give the States any power to tax or regulate the insurance industry other than they already possessed. But the legislative history cited by the majority, ante at 470 U. S. 879, n. 7, relates not to differential taxation, but to decisions of this Court that had invalidated state taxes on contracts of insurance entered into outside the State's jurisdiction. See H.R.Rep. No. 143, 79th Cong., 1st Sess., 3 (1945). The Court fails to mention that, at the time the Act was under consideration, the taxing schemes of Alabama, Arizona, Arkansas, Illinois, Kansas, Kentucky, Maine, Michigan, Mississippi, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Washington, and Wisconsin all incorporated tax differentials favoring domestic insurers. See App. 377-379.

Any doubt that Congress' intent encompassed taxes that discriminate in favor of local insurers was dispelled in Prudential Insurance Co. v. Benjamin, 328 U. S. 408 (1946). Cf. Note, Congressional Consent to Discriminatory State Legislation, 45 Colum.L.Rev. 927 (1945) (discussing the issues of constitutional power posed by the Act). There, a foreign insurer challenged a tax on annual gross premiums imposed on foreign, but not domestic, insurers as a condition for renewal of its license to do business. Congress, the foreign insurer argued, was powerless to sanction the tax at issue because "the commerce clause, by its own force,' forbids discriminatory state taxation." 328 U.S. at 328 U. S. 426. A unanimous Court rejected the argument that exacting a 3% gross premium tax from foreign insurers was invalid as "somehow technically of an inherently discriminatory character." Id. at 328 U. S. 432. The Court concluded that the McCarran-Ferguson Act's effect was "clearly to sustain the exaction and that this can be done without violating any constitutional provision." Id. at 328 U. S. 427 (emphasis added).

Benjamin expressly noted that nothing in the Equal Protection Clause forbade the State to enact a law such as the tax at issue. Id. at 328 U. S. 438, and n. 50. In this regard, the Court relied in part on Hanover Fire Ins. Co. v. Harding, 272 U. S. 494 (1926), a decision that explicitly recognized that differential taxation of revenues of foreign corporations may not be arbitrary or without reasonable basis. See Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U.S. at 451 U. S. 664, n. 17. The Commerce Clause, Benjamin emphasized, is not a "one-way street," but encompasses congressional power "to discriminate against interstate commerce and in favor of local trade," "subject only to the restrictions placed upon its authority by other constitutional provisions." 328 U.S. at 328 U. S. 434. Where the States and Congress have acted in concert to effect a policy favoring local concerns, their action must be upheld unless it unequivocally exceeds

some explicit and compelling limitation imposed by a constitutional provision or provisions designed and intended to outlaw the action taken entirely from our constitutional framework.

Id. at 328 U. S. 435 -436.

Our more recent decision in Western & Southern in no way undermines the force of the analysis in Benjamin. Western & Southern confirms that differential premium taxes are not immune from review as "privilege" taxes, but it also teaches that the Constitution requires only that discrimination between domestic and foreign corporations bear a rational relationship to a legitimate state purpose. Benjamin clearly recognized that differentially taxing foreign insurers to promote a local insurance industry was a legitimate state purpose completely consonant with Congress' purpose in the McCarran-Ferguson Act.

The contemporary realities of insurance regulation and taxation continue to justify a uniquely local perspective. Insurance regulation and taxation must serve local social policies including assuring the solvency and reliability of companies doing business in the State and providing special protection for those who might be denied insurance in a free market, such as the urban poor, small businesses, and family farms. GAO Report 10-13; State Insurance Regulation, Hearing before the Subcommittee on Antitrust, Monopoly and Business Rights of the Senate Committee on the Judiciary, 96th Cong., 1st Sess., 19-21 (1979) (hereinafter Insurance Regulation). Currently, at least 28 of the 50 States employ a combination of investment incentives and differential premium taxes favoring domestic insurers to encourage local investment of policyholders' premiums and to partially shelter smaller domestic insurers from competition with the large multistate companies. App. 66.

State insurance commissions vary widely in manpower and expertise. GAO Report 14. In practice, the State of incorporation exercises primary oversight of the solvency of its insurers. Id. at 36-38. See generally Dunne, Risk, Reality, and Reason in Financial Services Deregulation: A State Legislative Perspective, 2 J.Ins.Reg. 342 (1984) (prepared by the Conference of Insurance Legislators). See, e.g., Ala.Code § 27-2-21 (Supp.1984); Ill.Rev.Stat., ch. 73, 745 (1983) (power to examine books of domestic insurers); Ala.Code § 27-32-1 et seq. (1975); Ill.Rev.Stat., ch. 73, 799, 800 (1983) (commissioner's authority to assume control to prevent insolvency); see generally Wis.Stat.Ann., ch. 620, Prefatory Committee Comment -1971, pp. 536, 546 (1980) (noting lesser control over nondomestic's financial operations). Even the State of incorporation's efforts to regulate a multistate insurer may be seriously hampered by the difficulty of gaining access to records and assets in 49 other States. Dunne, supra, at 356. Thus the security of Alabama's citizens who purchase insurance from out-of-state companies may depend in part on the diligence of another State's insurance commissioner, over whom Alabama has no authority and limited influence. In the event of financial failure of a foreign insurer, the State may have difficulty levying on out-of-state assets. See, e.g., South Carolina ex rel. Phoenix Life Ins. Co. v. McMaster, 237 U. S. 63, 237 U. S. 73 (1915). Since each State maintains its own insurance guarantee fund, the domestic insurers of the States where a multistate insurer is admitted to do business may ultimately be forced to absorb local policyholders' losses. Dunne, supra, at 372-373.

Many have sharply criticized this piecemeal system, see, e.g., GAO Report i-iii; Schmalz, The Insurance Exemption: Can it be Modified Successfully?, 48 ABA Antitrust L.J. 579 (1979), but Congress has resisted suggestions that it modify the McCarran-Ferguson Act to permit greater federal intervention. See GAO Report 1; Insurance Regulation, supra. This Court cannot ignore the exigencies of contemporary insurance regulation outlined above simply because it might prefer uniform federal regulation. Given the distinctions in ease of regulation and services rendered by foreign and domestic insurers, we cannot dismiss as illegitimate the State's goal of promoting a healthy local insurance industry sensitive to regional differences and composed of companies that agree to subordinate themselves to the Alabama Commissioner's control and to maintain a principal place of business within Alabama's borders. Though economists might dispute the efficacy of Alabama's tax,

[p]arties challenging legislation under the Equal Protection Clause cannot prevail so long as it is evident from all the considerations presented to [the legislature], and those of which we may take judicial notice, that the question is at least debatable.

Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U.S. at 451 U. S. 674, quoting United States v. Carolene Products Co., 304 U.S. at 304 U. S. 154. Moreover, appellants waived their right to challenge the tax measure's effectiveness.


Despite abundant evidence of a legitimate state purpose, the majority condemns Alabama's tax as "purely and completely discriminatory," and "the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent." Ante at 470 U. S. 878. Apparently, the majority views any favoritism of domestic commercial entities as inherently suspect. The majority ignores a long line of our decisions. In the past, this Court has not hesitated to apply the rational basis test to regulatory classifications that distinguish between domestic and out-of-state corporations or burden foreign interests to protect local concerns. The Court has always recognized that there are certain legitimate restrictions or policies in which, "[b]y definition, discrimination against nonresidents would inhere." Arlington County Board v. Richards, 434 U. S. 5, 434 U. S. 7 (1977) (per curiam). For example, where State of incorporation or principal place of business affect the State's ability to regulate or exercise its jurisdiction, a State may validly discriminate between foreign and domestic entities. See G. D. Searle & Co. v. Cohn, 455 U. S. 404 (1982) (difficulty of obtaining jurisdiction over nonresident corporation provides a rational basis for excepting such corporations from statute of limitations); Metropolitan Casualty Ins. Co. v. Brownell, 294 U. S. 580 (1935) (domicile of insurer relevant to statute of limitations as foreign insurers' offices and funds generally located outside State); Board of Education v. Illinois, 203 U. S. 553, 203 U. S. 562 (1906) (State's greater control over domestic than foreign nonprofit corporations justifies discriminatory tax).

A State may use its taxing power to entice useful foreign industry, see Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. at 358 U. S. 528, or to make residence within its boundaries more attractive, see Zobel v. Williams, 457 U. S. 55, 457 U. S. 67 -68 (1982) (BRENNAN, J., concurring). Though such measures might run afoul of the Commerce Clause,

[n]o one disputes that a State may enact laws pursuant to its police powers that have the purpose and effect of encouraging domestic industry.

Bacchus Imports, Ltd. v. Dias, 468 U. S. 263, 468 U. S. 271 (1984); Western & Southern Life Ins. Co. v. State Board of Equalization of California, supra, at 451 U. S. 668. Cf. Edgar v. MITE Corp., 457 U. S. 624, 457 U. S. 646 (1982) (POWELL, J., concurring in part) (noting State's interest in protecting regionally based corporations from acquisition by foreign corporations).

Moreover, the Court has held in the dormant Commerce Clause context that a State may provide subsidies or rebates to domestic, but not to foreign, enterprises if it rationally believes that the former contribute to the State's welfare in ways that the latter do not. Hughes v. Alexandria Scrap Corp., 426 U. S. 794 (1976). Although the Court has divided on the circumstances in which the dormant Commerce Clause allows such measures, see id. at 426 U. S. 817 (BRENNAN, J., dissenting), surely there can be no dispute that they are constitutionally permitted where Congress itself has affirmatively authorized the States to promote local business concerns free of Commerce Clause constraints. Neither the Commerce Clause nor the Equal Protection Clause bars Congress from enacting or authorizing the States to enact legislation to protect industry in one State "from disadvantageous competition" with less stringently regulated businesses in other States. Hodel v. Indiana, 452 U. S. 314, 452 U. S. 329 (1981). See also Western & Southern, supra, at 451 U. S. 669 (with congressional approval, States may promote domestic insurers by seeking to deter other States from enacting discriminatory or excessive taxes).

The majority's attempts to distinguish these precedents are unconvincing. First, the majority suggests that a state purpose might be legitimate for purposes of the Commerce Clause but somehow illegitimate for purposes of the Equal Protection Clause. No basis is advanced for this theory, because no basis exists. The test of a legitimate state purpose must be whether it addresses valid state concerns. To suggest that the purpose's legitimacy, chameleon-like, changes according to the constitutional clause cited in the complaint is merely another pretext to escape the clear message of this Court's precedents.

Next, the majority asserts that

a State may not constitutionally favor its own residents by taxing foreign corporations at a higher rate solely because of their residence,

citing cases that rejected discriminatory ad valorem property taxes, defended as taxes on the "privilege" of doing business. Ante at 470 U. S. 878 -879. See, e.g., WHYY, Inc. v. Glassboro, 393 U. S. 117 (1968); Wheeling Steel Corp. v. Glander, 337 U. S. 562 (1949); Hanover Fire Ins. Co. v. Harding, 272 U. S. 494 (1926); Southern R. Co. v. Greene, 216 U. S. 400 (1910). These decisions were addressed in Western & Southern, and the classifications were characterized as impermissibly discriminatory because they did not " rest on differences pertinent to the subject in respect of which the classification is made.'" 451 U.S. at 451 U. S. 668, quoting Power Manufacturing Co. v. Saunders, 274 U. S. 490, 274 U. S. 494 (1927). As the majority concedes, none of these decisions intimates that the tax statutes at issue in the decisions rested on relevant differences between domestic and foreign corporations or had purposes other than the raising of revenue at the out-of-state corporations' expense.

In fact, the Court noted in several of these opinions that foreign corporations may validly be taxed at a higher rate if the classification is based on some relevant distinction. No such distinction, however, had been demonstrated or even alleged. See WHYY, Inc. v. Glassboro, supra, at 393 U. S. 120 ("This is not a case in which the exemption was withheld by reason of the foreign corporation's failure or inability to benefit the State in the same measure as do domestic nonprofit corporations"); Wheeling Steel Corp. v. Glander, supra, at 337 U. S. 572 ("[T]he inequality is not because of the slightest difference in Ohio's relation to the decisive transaction"); Southern R. Co. v. Greene, supra, at 216 U. S. 416 -417 (parties conceded that the business of the foreign and domestic corporations was precisely the same). [ Footnote 2/2 ] Lacking the threshold requirement of an articulated distinction relevant to an asserted purpose, the classifications at issue in these decisions could never have survived rational basis scrutiny, and no such analysis was even attempted. These precedents do not answer the question posed by this case: whether a legislature may adopt differential tax treatment of domestic and foreign insurers not simply to raise additional revenue, but with the purpose of affecting the market as an "instrument of economic and social engineering." P. Hartman, Federal Limitations on State and Local Taxation § 3:2 (1981). The majority's suggestion that these cases necessarily decided the issue before us, as promotion of domestic business is "logically the primary reason for enacting discriminatory taxes such as those at issue [in the cited cases]," is mere speculation. See ante at 470 U. S. 879, n. 7.

In treating these cases as apposite authority, the majority again closes its eyes to the facts. Alabama does not tax at a higher rate solely on the basis of residence; it taxes insurers, domestic as well as foreign, who do not maintain a principal place of business or substantial assets in Alabama, based on conceded distinctions in the contributions of these insurers as a class to the State's insurance objectives. The majority obscures the issue by observing that a given "foreign insurance company doing the same type and volume of business in Alabama as a domestic company" will pay a higher tax. Ante at 470 U. S. 871 -872. Under our precedents, tax classifications need merely "res[t] upon some reasonable consideration of difference or policy." Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. at 358 U. S. 527. Rational basis scrutiny does not require that the classification be mathematically precise, or that every foreign insurer or every domestic company fit to perfection the general profile on which the classification is based. "[T]he Equal Protection Clause does not demand a surveyor's precision" in fashioning classifications. Hughes v. Alexandria Scrap Corp., 426 U.S. at 426 U. S. 814.


Because Alabama's classification bears a rational relationship to a legitimate purpose, our precedents demand that it be sustained. The Court avoids this clear directive by a remarkable evasive tactic. It simply declares that the ends of promoting a domestic insurance industry and attracting investments to the State, when accomplished through the means of discriminatory taxation, are not legitimate state purposes. This bold assertion marks a drastic and unfortunate departure from established equal protection doctrine. By collapsing the two prongs of the rational basis test into one, the Court arrives at the ultimate issue -whether the means are constitutional -without ever engaging in the deferential inquiry we have adopted as a brake on judicial impeachment of legislative policy choices. In addition to unleashing an undisciplined form of Equal Protection Clause scrutiny, the Court's approach today has serious implications for the authority of Congress under the Commerce Clause. Groping for some basis for this radical departure from equal protection analysis, the Court draws heavily on JUSTICE BRENNAN's concurring opinion in Allied Stores of Ohio, Inc. v. Bowers, supra, at 358 U. S. 530, as support for its argument that

the Equal Protection Clause forbids a State to discriminate in favor of its own residents solely by burdening 'the residents of other state members of our federation.'

Ante at 470 U. S. 878, quoting 358 U.S. at 358 U. S. 533.

As noted in Western & Southern, JUSTICE BRENNAN's interpretation has not been adopted by the Court,

which has subsequently required no more than a rational basis for discrimination by States against out-of-state interests in the context of equal protection litigation.

451 U.S. at 451 U. S. 667, n. 21. More importantly, to the extent the Court today purports to find in the Equal Protection Clause an instrument of federalism, it entirely misses the point of JUSTICE BRENNAN's analysis. JUSTICE BRENNAN reasoned that

[t]he Constitution furnishes the structure for the operation of the States with respect to the National Government and with respect to each other

and that "the Equal Protection Clause, among its other roles, operates to maintain this principle of federalism." 358 U.S. at 358 U. S. 532. Favoring local business as an end in itself might be "rational," but would be antithetical to federalism. Accepting arguendo this interpretation, we have shown that the measure at issue here does not benefit local business as an end in itself, but serves important ulterior goals. Moreover, any federalism component of equal protection is fully vindicated where Congress has explicitly validated a parochial focus. Surely the Equal Protection Clause was not intended to supplant the Commerce Clause, foiling Congress' decision under its commerce powers to "affirmatively permit [some measure of] parochial favoritism" when necessary to a healthy federation. White v. Massachusetts Council of Construction Employers, Inc., 460 U. S. 204, 460 U. S. 213 (1983). Such a view of the Equal Protection Clause cannot be reconciled with the McCarran-Ferguson Act and our decisions in Western & Southern and Benjamin.

Western & Southern established that a State may validly tax out-of-state corporations at a higher rate if its goal is to promote the ability of its domestic businesses to compete in interstate markets. Nevertheless, the Court today concludes that the converse policy is forbidden, striking down legislation whose purpose is to encourage the intrastate activities of local business concerns by permitting them to compete effectively on their home turf. In essence, the Court declares:

We will excuse an unequal burden on foreign insurers if the State's purpose is to foster its domestic insurers' activities in other States, but the same unequal burden will be unconstitutional when employed to further a policy that places a higher social value on the domestic insurer's home State than interstate activities.

This conclusion is not drawn from the Commerce Clause, the textual source of constitutional restrictions on state interference with interstate competition. Reliance on the Commerce Clause would, of course, be unavailing here in view of the McCarran-Ferguson Act. Instead the Court engrafts its own economic values on the Equal Protection Clause. Beyond guarding against arbitrary or irrational discrimination, as interpreted by the Court today, this Clause now prohibits the effectuation of economic policies, even where sanctioned by Congress, that elevate local concerns over interstate competition. Ante at 470 U. S. 876 -878.

But a constitution is not intended to embody a particular economic theory.... It is made for people of fundamentally differing views.

Lochner v. New York, 198 U. S. 45, 198 U. S. 75 -76 (1905) (Holmes, J., dissenting). In the heyday of economic due process, Justice Holmes warned:

Courts should be careful not to extend [the express] prohibitions [of the Constitution] beyond their obvious meaning by reading into them conceptions of public policy that the particular Court may happen to entertain.

Tyson & Brother v. Banton, 273 U. S. 418, 273 U. S. 445 -446 (1927) (Holmes, J., dissenting, joined by Brandeis, J.).

Ignoring the wisdom of this observation, the Court fashions its own brand of economic equal protection. In so doing, it supplants a legislative policy endorsed by both Congress and the individual States that explicitly sanctioned the very parochialism in regulation and taxation of insurance that the Court's decision holds illegitimate. This newly unveiled power of the Equal Protection Clause would come as a surprise to the Congress that passed the McCarran-Ferguson Act and the Court that sustained the Act against constitutional attack. In the McCarran-Ferguson Act, Congress expressly sanctioned such economic parochialism in the context of state regulation and taxation of insurance.

The doctrine adopted by the majority threatens the freedom not only of the States but also of the Federal Government to formulate economic policy. The dangers in discerning in the Equal Protection Clause a prohibition against barriers to interstate business irrespective of the Commerce Clause should be self-evident. The Commerce Clause is a flexible tool of economic policy that Congress may use as it sees fit, letting it lie dormant or invoking it to limit as well as promote the free flow of commerce. Doctrines of equal protection are constitutional limits that constrain the acts of federal and state legislatures alike. See, e.g., Califano v. Webster, 430 U. S. 313 (1977); Cohen, Congressional Power to Validate Unconstitutional State Laws: A Forgotten Solution to an Old Enigma, 35 Stan.L.Rev. 387, 400-413 (1983). The Court's analysis casts a shadow over numerous congressional enactments that adopted as federal policy "the type of parochial favoritism" the Court today finds unconstitutional. White v. Massachusetts Council of Construction Employers, Inc., supra, at 460 U. S. 213. Contrary to the reasoning in Benjamin, the Court today indicates the Equal Protection Clause stands as an independent barrier if courts should determine that either Congress or a State has ventured the "wrong" direction down what has become, by judicial fiat, the one-way street of the Commerce Clause. Nothing in the Constitution or our past decisions supports forcing such an economic straitjacket on the federal system.


Today's opinion charts an ominous course. I can only hope this unfortunate adventure away from the safety of our precedents will be an isolated episode. I had thought the Court had finally accepted that

the judiciary may not sit as a superlegislature to judge the wisdom or desirability of legislative policy determinations made in areas that neither affect fundamental rights nor proceed along suspect lines; in the local economic sphere, it is only the invidious discrimination, the wholly arbitrary act, which cannot stand consistently with the Fourteenth Amendment.

New Orleans v. Dukes, 427 U.S. at 427 U. S. 303 -304 (citations omitted). Because I believe that the Alabama law at issue here serves legitimate state purposes through concededly rational means, and thus is neither invidious nor arbitrary, I would affirm the court below. I respectfully dissent.


[ Footnote 2/1 ]

"Industrial insurance" is the trade term for a low face-value policy typically sold door-to-door and maintained through home collection of monthly or weekly premiums. Alabama currently has more industrial insurance in force than any other State. Burial insurance is another form of insurance popular in rural Alabama that is offered exclusively by local insurers. By contrast, Metropolitan Life, like many multistate insurers, has discontinued writing even whole-life policies with face values below $15,000. App. 173-176.

[ Footnote 2/2 ]

The only cited authority that arguably addressed the issue raised in the instant case is a per curiam reversal and remand without opinion of a decision upholding a discriminatory ad valorem tax on a foreign insurer's fixtures and other tangible property. See Reserve Life Ins. Co. v. Bowers, 380 U. S. 258 (1965). A reversal and remand is more enigmatic even than a summary affirmance, which has precedential value only as to "the precise issues necessarily presented and necessarily decided." Mandel v. Bradley, 432 U. S. 173, 432 U. S. 176 (1977). Decisions without opinion may not be equated with "an opinion by this Court treating the question on the merits." See Edelman v. Jordan, 415 U. S. 651, 415 U. S. 670 -671 (1974).

Indeed, upon fuller consideration of an issue under plenary review, the Court has not hesitated to discard a rule which a line of summary affirmances may appear to have established.

Fusari v. Stenberg, 419 U. S. 379, 419 U. S. 392 (1975) (BURGER, C.J., concurring).

Supreme Court icon marking end of opinion

Header photo: United States Supreme Court. Credit: Patrick McKay / Flickr - CC.