Thursday, March 16, 2023
Ruth Mason (Virginia; Google Scholar) presents Bounded Extraterritoriality (with Michael Knoll (Penn)) at UCLA today as part of its Colloquium on Tax Policy and Public Finance hosted by Kirk Stark and Jason Oh:
Politics in the United States is ever more divided, stymying federal legislation. States have responded to this political polarization and congressional gridlock by seeking to impose their policies outside their own borders. Prominent examples include recent California regulation of the composition of corporate boards, including of companies incorporated in Delaware, as well as regulation of the size of cages that confine hogs located in other states. The Supreme Court’s withdrawal of the federal right to abortion likewise has inspired legislative proposals in abortion-restrictive states meant to hamper or forbid residents from seeking abortion services not only at home, but also in abortion-permitting states. The twenty-first century has inspired a new mode of interstate “rivalries and reprisals” consisting not of the tariffs that plagued the Founding, but rather of substantive regulation that state legislatures deliberately target outward, to behavior taking place in other states.
This Article explores dormant Commerce Clause limits on extraterritorial state regulation. We argue that commentators and courts have conflated three distinct strands of dormant Commerce Clause doctrine—nexus, extraterritoriality, and burdens—leading to both under- and over-enforcement of the principle of extraterritoriality. Prior commentators have concluded that, because nearly all regulation has spillover effects in other states, there exists no legally or conceptually defensible limit to extraterritoriality. The absence of a limiting principle has led some lower courts to read extraterritoriality out of the dormant Commerce Clause, while it has led other lower courts to preclude state legislation overzealously, threatening, in the view of some, a new Lochner era.
We provide a limiting principle. A state regulates in an unconstitutionally extraterritorial manner when it uses an internally inconsistent jurisdictional basis. A jurisdictional basis is internally inconsistent when use by all states of that same jurisdictional basis would result in duplicative regulation of interstate commerce. We derive the internal consistency test from the Court’s jurisprudence evaluating the extraterritoriality of tax laws, and we explain why the same approach makes sense in regulation cases. The internal-consistency approach to extraterritoriality forces states to narrow the bases upon which they promulgate rules, which encourages them to select a basis with meaningful local impacts, thereby reducing extraterritorial effects and avoiding interstate animosities.