Camps Newfound/Owatonna, Inc. v. Town of Harrison (1997)

Camps Newfound/Owatonna, Inc. v. Town of Harrison (1997)

520 U.S. 564

Under the Maine statute at issue in this case, “benevolent and charitable institutions” incorporated in the state received a general exemption from real estate and personal property taxes if conducted principally for the benefit of residents of the state. However, institutions “conducted or operated principally for the benefit of persons who are not residents of Maine” received a reduced exemption, and they received that only if the weekly charge for services provided did not exceed $30 per person. Camps Newfound/Owatonna, a Maine nonprofit corporation, operated a church camp for children of the Christian Science faith, 95 percent of whom were not residents of Maine. The camp was financed through camper tuition and other revenues. From 1989 to 1991, the camp paid more than $20,000 per year in real estate and personal property taxes. When the camp’s request for a refund of taxes paid from 1989 through 1991 and for a continuing exemption from future property taxes was denied, the camp filed suit in the Superior Court against the Town of Harrison and its tax assessors and collectors, claiming that the tax-exemption statute violated the Commerce Clause. The superior court ruled for Camps Newfound /Owatonna, but the Maine Supreme Judicial Court reversed, and the U.S. Supreme Court granted certiorari.

Opinion of the Court: Stevens, O’Connor, Kennedy, Souter, Breyer.

Dissenting opinions: Scalia, Rehnquist, Thomas, Ginsburg; Thomas, Scalia, Rehnquist (in part).

JUSTICE STEVENS delivered the opinion of the Court.

The question presented is whether an otherwise generally applicable state property tax violates the Commerce Clause of the United States Constitution, because its exemption for property owned by charitable institutions excludes organizations operated principally for the benefit of nonresidents.

During the first years of our history as an independent confederation, the National Government lacked the power to regulate commerce among the States. Because each State was free to adopt measures fostering its own local interests without regard to possible prejudice to nonresidents, what JUSTICE JOHNSON characterized as a “conflict of commercial regulations, destructive to the harmony of the States” ensued. See Gibbons v. Ogden (1824). We have subsequently endorsed JUSTICE JOHNSON’S appraisal of the central importance of federal control over interstate and foreign commerce and, more narrowly, his conclusion that the Commerce Clause had not only granted Congress express authority to override restrictive and conflicting commercial regulations adopted by the States, but that it also had immediately effected a curtailment of state power. In short, the Commerce Clause even without implementing legislation by Congress is a limitation upon the power of the States.

This case involves an issue that we have not previously addressed—the disparate real estate tax treatment of a nonprofit service provider based on the residence of the consumers that it serves. The Town argues that our dormant Commerce Clause jurisprudence is wholly inapplicable to this case, because interstate commerce is not implicated here and Congress has no power to enact a tax on real estate. We are unpersuaded by the Town’s argument that the dormant Commerce Clause is inapplicable here, either because campers are not “articles of commerce,” or more generally because the camp’s “product is delivered and ‘consumed’ entirely within Maine.” Even though petitioner’s camp does not make a profit, it is unquestionably engaged in commerce, not only as a purchaser, see Katzenbach v. McClung (1964); United States v. Lopez (1995), but also as a provider of goods and services. It markets those services, together with an opportunity to enjoy the natural beauty of an inland lake in Maine, to campers who are attracted to its facility from all parts of the Nation. The record reflects that petitioner “advertises for campers in [out-of-state] periodicals and sends its Executive Director annually on camper recruiting trips across the country.” Petitioner’s efforts are quite successful; 95 percent of its campers come from out of State. The attendance of these campers necessarily generates the transportation of persons across state lines that has long been recognized as a form of “commerce.”

Summer camps are comparable to hotels that offer their guests goods and services that are consumed locally. In Heart of Atlanta Motel, Inc. v. United States (1964), we recognized that interstate commerce is substantially affected by the activities of a hotel that “solicits patronage from outside the State of Georgia through various national advertising media, including magazines of national circulation.” In that case, we held that commerce was substantially affected by private race discrimination that limited access to the hotel and thereby impeded interstate commerce in the form of travel. Official discrimination that limits the access of nonresidents to summer camps creates a similar impediment. Even when business activities are purely local, if “‘it is interstate commerce that feels the pinch, it does not matter how local the operation which applies the squeeze.’” Heart of Atlanta.

The Town’s arguments that the dormant Commerce Clause is inapplicable to petitioner because the campers are not “articles of commerce,” or more generally that interstate commerce is not at issue here, are therefore unpersuasive. The services that petitioner provides to its principally out-of-state campers clearly have a substantial effect on commerce, as do state restrictions on making those services available to nonresidents.

The Town also argues that the dormant Commerce Clause is inapplicable because a real estate tax is at issue. We disagree. A tax on real estate, like any other tax, may impermissibly burden interstate commerce. A State’s “power to lay and collect taxes, comprehensive and necessary as that power is, cannot be exerted in a way which involves a discrimination against [interstate] commerce.” Pennsylvania v. West Virginia (1923). To allow a State to avoid the strictures of the dormant Commerce Clause by the simple device of labeling its discriminatory tax a levy on real estate would destroy the barrier against protectionism that the Constitution provides. We therefore turn to the question whether our prior cases preclude a State from imposing a higher tax on a camp that serves principally nonresidents than on one that limits its services primarily to residents.

There is no question that were this statute targeted at profit-making entities, it would violate the dormant Commerce Clause. It is not necessary to look beyond the text of this statute to determine that it discriminates against interstate commerce. The Maine law expressly distinguishes between entities that serve a principally interstate clientele and those that primarily serve an intrastate market, singling out camps that serve mostly in-staters for beneficial tax treatment, and penalizing those camps that do a principally interstate business. As a practical matter, the statute encourages affected entities to limit their out-of-state clientele, and penalizes the principally nonresident customers of business catering to a primarily interstate market.

If such a policy were implemented by a statutory prohibition against providing camp services to nonresidents, the statute would almost certainly be invalid. We have “consistently held that the Commerce Clause precludes a state from mandating that its residents be given a preferred right of access, over out-of-state consumers, to natural resources located within its borders or to the products derived therefrom.” New England Power Co. v. New Hampshire (1982). Petitioner’s “product” is in part the natural beauty of Maine itself, and in addition the special services that the camp provides. In this way, the Maine statute is like a law that burdens out-of-state access to domestically generated hydroelectric power, New England Power, or to local landfills, Philadelphia v. New Jersey (1978).

Of course, this case does not involve a total prohibition. Rather, the statute provides a strong incentive for affected entities not to do business with nonresidents if they are able to so avoid the discriminatory tax. That the tax discrimination comes in the form of a deprivation of a generally available tax benefit, rather than a specific penalty on the activity itself, is of no moment. Given the fact that the burden of Maine’s facially discriminatory tax scheme falls by design in a predictably disproportionate way on out-of-staters, the pernicious effect on interstate commerce is the same as in our cases involving taxes targeting out-of-staters alone.

The unresolved question presented by this case is whether a different rule should apply to tax exemptions for charitable and benevolent institutions. Though we have never had cause to address the issue directly, we see no reason why the nonprofit character of an enterprise should exclude it from the coverage of either the affirmative or the negative aspect of the Commerce Clause. Nothing intrinsic to the nature of nonprofit entities prevents them from engaging in interstate commerce. Summer camps may be operated as for-profit or nonprofit entities; nonprofits may depend—as here—in substantial part on fees charged for their services. Whether operated on a for-profit or nonprofit basis, they purchase goods and services in competitive markets, offer their facilities to a variety of patrons, and derive revenues from a variety of sources, some of which are local and some out of State. For purposes of Commerce Clause analysis, any categorical distinction between the activities of profitmaking enterprises and not-for-profit entities is therefore wholly illusory. Entities in both categories are major participants in interstate markets. And, although the summer camp involved in this case may have a relatively insignificant impact on the commerce of the entire Nation, the interstate commercial activities of nonprofit entities as a class are unquestionably significant.

Rather than urging us to create a categorical exception for nonprofit entities, the Town argues that Maine’s exemption statute should be viewed as an expenditure of government money designed to lessen its social service burden and to foster the societal benefits provided by charitable organizations. So characterized, the Town submits that its tax exemption scheme is either a legitimate discriminatory subsidy of only those charities that choose to focus their activities on local concerns, or alternatively a governmental “purchase” of charitable services falling within the narrow exception to the dormant Commerce Clause for States in their role as “market participants,” see, e.g., Hughes v. Alexandria Scrap Corp. (1976).

The Town argues that its discriminatory tax exemption is, in economic reality, no different from a discriminatory subsidy of those charities that cater principally to local needs. Noting our statement in West Lynn Creamery that a “pure subsidy funded out of general revenue ordinarily imposes no burden on interstate commerce, but merely assists local business,” the Town submits that since a discriminatory subsidy may be permissible, a discriminatory exemption must be too. Assuming, arguendo, that the Town is correct that a direct subsidy benefiting only those nonprofits serving principally Maine residents would be permissible, our cases do not sanction a tax exemption serving similar ends. In Walz v. Tax Comm’n of City of New York (1970), notwithstanding our assumption that a direct subsidy of religious activity would be invalid, we held that New York’s tax exemption for church property did not violate the Establishment Clause of the First Amendment. That holding rested, in part, on the premise that there is a constitutionally significant difference between subsidies and tax exemptions. We have expressly recognized that this distinction is also applicable to claims that certain state action designed to give residents an advantage in the market place is prohibited by the Commerce Clause. In New Energy Co. of Ind. v. Limbach (1988), we found unconstitutional under the Commerce Clause an Ohio tax scheme that provided a sales tax credit for ethanol produced in State, or manufactured in another State to the extent that State gave similar tax advantages to ethanol produced in Ohio.

We recognized that the party challenging the Ohio scheme was “eligible to receive a cash subsidy” from its home State, and was therefore “the potential beneficiary of a scheme no less discriminatory than the one that it attacks, and no less effective in conferring a commercial advantage over out-of-state competitors.” That was of no importance. We noted: “The Commerce Clause does not prohibit all state action designed to give its residents an advantage in the marketplace, but only action of that description in connection with the State’s regulation of interstate commerce. Direct subsidization of domestic industry does not ordinarily run afoul of that prohibition; discriminatory taxation does.” The Town’s claim that its discriminatory tax scheme should be viewed as a permissible subsidy is therefore unpersuasive.

Finally, the Town argues that its discriminatory tax exemption scheme falls within the “market participant” exception. As we explained in New Energy Co.: “That doctrine differentiates between a State’s acting in its distinctive governmental capacity, and a State’s acting in the more general capacity of a market participant; only the former is subject to the limitations of the negative Commerce Clause.” Maine’s tax exemption statute cannot be characterized as a proprietary activity falling within the market-participant exception. A tax exemption is not the sort of direct state involvement in the market that falls within the market-participation doctrine. Even if we were prepared to expand the exception in the manner suggested by the Town, the Maine tax statute at issue here would be a poor candidate. Like the tax exemption upheld in Walz—which applied to libraries, art galleries, and hospitals as well as churches—the exemption that has been denied to petitioner is available to a broad category of charitable and benevolent institutions. For that reason, nothing short of a dramatic expansion of the “market participant” exception would support its application to this case. Maine’s tax exemption—which sweeps to cover broad swatches of the nonprofit sector—must be viewed as action taken in the State’s sovereign capacity rather than a proprietary decision to make an entry into all of the markets in which the exempted charities function. The Town’s version of the “market participant” exception would swallow the rule against discriminatory tax schemes.

The Judgment of the Maine Supreme Judicial Court is reversed.

JUSTICE SCALIA, with whom THE CHIEF JUSTICE, JUSTICE THOMAS, and JUSTICE GINSBURG join, dissenting.

The Court’s negative-commerce-clause jurisprudence has drifted far from its moorings. Originally designed to create a national market for commercial activity, it is today invoked to prevent a State from giving a tax break to charities that benefit the State’s inhabitants. In my view, Maine’s tax exemption, which excuses from taxation only that property used to relieve the State of its burden of caring for its residents, survives even our most demanding commerce-clause scrutiny.

We have often said that the purpose of our negative-commerce-clause jurisprudence is to create a national market. In our zeal to advance this policy, however, we must take care not to overstep our mandate, for the Commerce Clause was not intended “to cut the States off from legislating on all subjects relating to the health, life, and safety of their citizens, though the legislation might indirectly affect the commerce of the country.” Huron Portland Cement Co. v. Detroit (1960).

Our cases have struggled (to put it nicely) to develop a set of rules by which we may preserve a national market without needlessly intruding upon the States’ police powers, each exercise of which no doubt has some effect on the commerce of the Nation. The rules that we currently use can be simply stated, if not simply applied: Where a State law facially discriminates against interstate commerce, we observe what has sometimes been referred to as a “virtually per se rule of invalidity;” where, on the other hand, a state law is nondiscriminatory, but nonetheless adversely affects interstate commerce, we employ a deferential “balancing test,” under which the law will be sustained unless “the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits,” Pike v. Bruce Church, Inc. (1970). While the “virtually per se rule of invalidity” entails application of the “strictest scrutiny,” Hughes v. Oklahoma (1979), it does not necessarily result in the invalidation of facially discriminatory State legislation, for “what may appear to be a ‘discriminatory’ provision in the constitutionally prohibited sense—that is, a protectionist enactment—may on closer analysis not be so,” New Energy Co. of Ind. v. Limbach (1988). Thus, even a statute that erects an absolute barrier to the movement of goods across state lines will be upheld if “the discrimination is demonstrably justified by a valid factor unrelated to economic protectionism,” or to put a finer point on it, if the State law “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.”

In addition to laws that employ suspect means as a necessary expedient to the advancement of legitimate State ends, we have also preserved from judicial invalidation laws that confer advantages upon the State’s residents but do so without regulating interstate commerce. We have therefore excepted the State from scrutiny when it participates in markets rather than regulates them. Likewise, we have said that direct subsidies to domestic industry do not run afoul of the Commerce Clause. In sum, we have declared that “the Commerce Clause does not prohibit all state action designed to give its residents an advantage in the marketplace, but only action of that description in connection with the State’s regulation of interstate commerce.”

In applying the foregoing principles to the case before us, it is of course important to understand the precise scope of the exemption created by [the Maine law]. The Court’s analysis suffers from the misapprehension that [the law] “sweeps to cover broad swatches of the nonprofit sector,” including nonprofit corporations engaged in quintessentially commercial activities. That is not so. A review of Maine law demonstrates that the provision at issue here is a narrow tax exemption, designed merely to compensate or subsidize those organizations that contribute to the public fisc by dispensing public benefits the State might otherwise provide.

I turn next to the validity of this focused tax exemption—applicable only to property used solely for charitable purposes by organizations devoted exclusively to charity—under the negative-commerce-clause principles discussed earlier. The Court readily concludes that, by limiting the class of eligible property to that which is used “principally for the benefit of persons who are Maine residents,” the statute “facially discriminates” against interstate commerce. That seems to me not necessarily true. Disparate treatment constitutes discrimination only if the objects of the disparate treatment are, for the relevant purposes, similarly situated. And for purposes of entitlement to a tax subsidy from the State, it is certainly reasonable to think that property gratuitously devoted to relieving the State of some of its welfare burden is not similarly situated to property used “principally for the benefit of persons who are not residents of [the State].” As we have seen, the theory underlying the exemption is that it is a quid pro quo for uncompensated expenditures that lessen the State’s burden of providing assistance to its residents.

The Court seeks to establish “facial discrimination” by showing that the effect of treating disparate property disparately is to produce higher costs for those users of the property who come from out of State. But that could be regarded as an indirect effect upon interstate commerce produced by a tax scheme that is not facially discriminatory, which means that the proper mode of analysis would be the more lenient “balancing” standard discussed above. Even if, however, the Maine statute displays “facial discrimination” against interstate commerce, that is not the end of the analysis. The most remarkable thing about today’s judgment is that it is rendered without inquiry into whether the purposes of the tax exemption justify its favoritism. If the Court were to proceed with that further analysis it would have to conclude, in my view, that this is one of those cases in which the “virtually per se rule of invalidity” does not apply. Facially discriminatory or not, the exemption is no more an artifice of economic protectionism than any state law which dispenses public assistance only to the State’s residents. Our cases have always recognized the legitimacy of limiting state-provided welfare benefits to bona fide residents.

If the negative Commerce Clause requires the invalidation of a law like [this one], as a logical matter it also requires invalidation of the laws involved in [our earlier] cases. After all, the Court today relies not on any discrimination against out-of-state nonprofits, but on the supposed discrimination against nonresident would-be recipients of charity (the nonprofits’ “customers”); surely those individuals are similarly discriminated against in the direct distribution of state benefits. The problem, of course, is not limited to municipal employment and free public schooling, but extends also to libraries, orphanages, homeless shelters and refuges for battered women. One could hardly explain the constitutionality of a State’s limiting its provision of these to its own residents on the theory that the State is a “market participant.” These are traditional governmental functions, far removed from commercial activity and utterly unconnected to any genuine private market.

If, however, a State that provides social services directly may limit its largesse to its own residents, I see no reason why a State that chooses to provide some of its social services indirectly—by compensating or subsidizing private charitable providers—cannot be similarly restrictive. I respectfully dissent.

JUSTICE THOMAS, with whom JUSTICE SCALIA joins, and with whom CHIEF JUSTICE REHNQUIST joins (in part), dissenting.

I write separately because I believe that the improper expansion undertaken today is possible only because our negative Commerce Clause jurisprudence, developed primarily to invalidate discriminatory state taxation of interstate commerce, was already both overbroad and unnecessary. It was overbroad because, unmoored from any constitutional text, it brought within the supervisory authority of the federal courts state action far afield from the discriminatory taxes it was primarily designed to check. It was unnecessary because the Constitution would seem to provide an express check on the States’ power to levy certain discriminatory taxes on the commerce of other States—not in the judicially created negative Commerce Clause, but in the Article I, §10 Import-Export Clause. That the expansion effected by today’s decision finds some support in the morass of our negative Commerce Clause caselaw only serves to highlight the need to abandon that failed jurisprudence and to consider restoring the original Import-Export Clause check on discriminatory state taxation to what appears to be its proper role.

To cover its exercise of judicial power in an area for which there is no textual basis, the Court has historically offered two different theories in support of its negative Commerce Clause jurisprudence. The first theory posited was that the Commerce Clause itself constituted an exclusive grant of power to Congress. The “exclusivity” rationale was likely wrong from the outset, however. See, e.g., The Federalist No. 32. It was seriously questioned even in early cases. And, in any event, the Court has long since “repudiated” the notion that the Commerce Clause operates as an exclusive grant of power to Congress, and thereby forecloses state action respecting interstate commerce. As this Court’s definition of the scope of congressional authority under the positive Commerce Clause has expanded, the exclusivity rationale has moved from untenable to absurd.

The second theory offered to justify creation of a negative Commerce Clause is that Congress, by its silence, pre-empts state legislation. To the extent that the “preemption-by-silence” rationale ever made sense, it too has long since been rejected by this Court in virtually every analogous area of the law. Similarly, even where Congress has legislated in an area subject to its authority, our preemption jurisprudence explicitly rejects the notion that mere congressional silence on a particular issue may be read as preempting state law. To be sure, we have overcome our reluctance to pre-empt state law in two types of situations: (1) where a state law directly conflicts with a federal law; and (2) where Congress, through extensive legislation, can be said to have pre-empted the field. But those two forms of preemption provide little aid to defenders of the negative Commerce Clause. Conflict preemption only applies when there is a direct clash between an Act of Congress and a state statute, but the very premise of the negative Commerce Clause is the absence of congressional action. Field preemption likewise is of little use in areas where Congress has failed to enter the field, and certainly does not support the general proposition of “preemption-by-silence” that is used to provide a veneer of legitimacy to our negative Commerce Clause forays. In sum, neither of the Court’s proffered theoretical justifications—exclusivity or preemption-by-silence—currently supports our negative Commerce Clause jurisprudence, if either ever did. Despite the collapse of its theoretical foundation, I suspect we have nonetheless adhered to the negative Commerce Clause because we believed it necessary to check state measures contrary to the perceived spirit, if not the actual letter, of the Constitution.

Moreover, our negative Commerce Clause jurisprudence has taken us well beyond the invalidation of obviously discriminatory taxes on interstate commerce. We have used the Clause to make policy-laden judgments that we are ill-equipped and arguably unauthorized to make. In so doing, we have developed multifactor tests in order to assess the perceived “effect” any particular state tax or regulation has on interstate commerce. And in an unabashedly legislative manner, we have balanced that “effect” against the perceived interests of the taxing or regulating State. Any test that requires us to assess (1) whether a particular statute serves a “legitimate” local public interest; (2) whether the effects of the statute on interstate commerce are merely “incidental” or “clearly excessive in relation to the putative benefits”; (3) the “nature” of the local interest; and (4) whether there are alternative means of furthering the local interest that have a “lesser impact” on interstate commerce, and even then makes the question “one of degree,” surely invites us, if not compels us, to function more as legislators than as judges. In my view, none of this policy-laden decision making is proper. Rather, the Court should confine itself to interpreting the text of the Constitution, which itself seems to prohibit in plain terms certain of the more egregious state taxes on interstate commerce described above, and leaves to Congress the policy choices necessary for any further regulation of interstate commerce.