West Lynn Creamery, Inc. v. Healy
512 U.S. 186 (1994)

  • In response to Massachusetts farmers losing market share to lower cost producers from outside, the Massachusetts Legislature passed a law that required every dealer in the State to make a monthly premium payment based on the amount of milk sales into a fund which distributed money to local dairy farmers proportionate to their contribution into the State’s production of milk.
  • West Lynn was a dealer that bought most of their milk out of State. They sued Healy (the Massachusetts Commissioner of Food and Agriculture), on the grounds that this law interfered with interstate commerce.
    • West Lynn argued that the premium payments are effectively a tax that makes milk produced out of the State more expensive.
    • Healy argued that the State can impose a valid tax on dealers, so long as it is not discriminatory, and it is free to use the proceeds as it chooses, then it is free to subsidize local farmers with the proceeds out of the general fund.
      • Both parts of the law (the tax, the subsidy) were completely constitutional when taken independently, so they aggregate must be constitutional too!
  • The Massachusetts Supreme Court found that the law was fine. West Lynn appealed.
  • US Supreme Court reversed and found the law unconstitutional.
    • The US Supreme Court found that the Dormant Commerce Clause limits the power of Massachusetts to adopt regulations that discriminate against interstate commerce.
      • Under the Dormant Commerce Clause Statutes that clearly discriminate against interstate commerce should be struck down unless the discrimination is demonstrably justified by a valid factor unrelated to economic protectionism.
    • The Court found that “premium payments” are effectively a tax which makes milk produced out of State more expensive.
      • Although the tax also applies to milk produced in Massachusetts, its effect on Massachusetts producers is entirely offset by the subsidy provided exclusively to Massachusetts dairy farmers.
      • Like an ordinary tariff, the tax is thus effectively imposed only on out-of-state products. It simultaneously burdens interstate commerce and discriminates in favor of local producers.
    • The Court proposed 4 devices that a State could use to helping in-state industry:
      • Discriminator tax (higher liability for out of state).
      • Tax upon industry with an instate exemption.
      • Non-discriminatory tax where the funds are given back to in-state industry.
      • Subsidy for in-state industry funded from a State’s general fund.
      • The Court noted that 1, 2, and 3 would be discriminatory, but 4 would be ok.
        • Using State general funds to support an industry sector is limited because local voters don’t want to see their tax dollars support only one sector of the local economy (in theory).