The Supreme Court's Municipal Bond Decision and the Market-Participant Exception to the Dormant Commerce Clause

Abstract

Does it violate the dormant Commerce Clause for a state to exempt interest earned on its own bonds, but no others, from income taxation? In a recent decision, the Supreme Court answered this question in the negative. Six members of the Court found the case controlled by the state-self-promotion exception to the dormancy doctrine\u27s antidiscrimination rule. Three of those Justices, however, went further by also invoking the longstanding market-participant exception to sustain the discriminatory state tax break. This Essay challenges that alternative line of analysis. According to the author, the plurality\u27s effort to apply the market-participant principle: (1) invites a problematic reframing of basic market-participant rhetoric, (2) threatens ill-advised changes in longstanding Commerce Clause doctrine, and (3) injects far-reaching uncertainty into an already complex field of constitutional law. For all these reasons, a majority of the Court should reject the plurality\u27s approach, and lower courts should refuse to follow it in the meantime