The Meaning of Fair Apportionment and the Prohibition on Extraterritorial State Taxation

Abstract

This article discusses the purposes of the fair apportionment requirement for state taxes under the dormant Commerce Clause and explains how it is actually a "lower order" constitutional norm. It then sets out how some of the Supreme Court's recent decisions have not actually required the fair apportionment of state taxes, even while nominally imposing the test. These cases reveal that fair apportionment is more of a constitutional preference than a requirement. Finally, the article explores the implications of this understanding of fair apportionment in state taxation. Significantly, it demonstrates that states are not always limited to taxing only that activity occurring within their borders, the Court's many assertions to the contrary notwithstanding. In truth, the supposedly "fundamental" postulate that states cannot tax extraterritorial values is not a rigid prohibition but a flexible principle, one that the Court has pragmatically bent to accommodate the states' need to protect their fiscal authority. This insight could become increasingly important to preserving the practical values of federalism in a world where more and more commercial transactions lack clear territorial locations.

Keywords: Federalism, State and local taxation, Commerce Clause