South Carolina v. Baker

Summary

The Supreme Court upheld Section 310(b)(1) of the Tax Equity and Fiscal Responsibility Act of 1982 against a Tenth Amendment challenge. The Court held that the provision's effective requirement that States issue registered bonds was a generally applicable regulation of state activity, not an unconstitutional commandeering of state regulatory machinery. The Court also overruled Pollock v. Farmers' Loan & Trust Co. to the extent it recognized constitutional immunity for interest earned on state bonds.

Holdings

1. Section 310(b)(1) does not violate the Tenth Amendment. Congress may impose generally applicable federal regulations on state activities, and the fact that a State must take legislative or administrative action to comply with regulation of its own activity does not constitute unconstitutional commandeering.
2. A nondiscriminatory federal tax imposed on bondholders' interest from state bonds does not violate intergovernmental tax immunity when the tax is not imposed directly on a State and applies equally in substance to comparable federal, state, local, and private bonds.
3. Section 310(b)(1) is not unconstitutional merely because it serves a regulatory purpose, does not seek to raise revenue, or conditions a tax exemption on compliance with a requirement that Congress could have imposed directly.

Questions Presented

1. Whether § 310(b)(1) of TEFRA violates the Tenth Amendment or constitutional principles of federalism by effectively requiring States to issue publicly offered long-term bonds in registered form.
2. Whether § 310(b)(1) violates the doctrine of intergovernmental tax immunity by subjecting interest on unregistered state bonds to federal income taxation.
3. Whether § 310(b)(1) is an impermissible regulatory tax because Congress allegedly lacked power to regulate the underlying state bond activity directly.

Disposition

approved