470 U.S.

869
105 S.Ct. 1676
84 L.Ed.2d 751

METROPOLITAN LIFE INSURANCE COMPANY, et al.,

Appellants
v.
W.G. WARD, Jr., et al.
No. 83-1274.
Argued Oct. 31, 1984.
Decided March 26, 1985.
Rehearing Denied May 20, 1985.

See 471 U.S. 1120, 105 S.Ct. 2370.

Syllabus
An Alabama statute imposes a substantially lower gross premiums tax rate
on domestic insurance companies than on out-of-state (foreign) insurance
companies. The statute permits foreign companies to reduce but not to
eliminate the differential by investing in Alabama assets and securities.
Appellant foreign insurance companies filed claims for refunds of taxes
paid, contending that the statute, as applied to them, violated the Equal
Protection Clause. The State Commissioner of Insurance denied the
claims. On consolidated appeals to a county Circuit Court, in which
several domestic companies intervened, the statute was upheld on
summary judgment. The court ruled that the statute did not violate the
Equal Protection Clause because, in addition to raising revenue, it served
the legitimate state purposes of encouraging the formation of new
insurance companies in Alabama and capital investment by foreign
insurance companies in Alabama assets and securities, and that the
distinction between foreign and domestic companies was rationally related
to those purposes. The Alabama Court of Civil Appeals affirmed the
finding as to legitimate state purposes, but remanded for an evidentiary
hearing on the issue of rational relationship. On certiorari to the Alabama
Supreme Court, appellants waived their rights to such an evidentiary
hearing, and the court entered judgment for the State and the intervenors
on appellants' equal protection challenge to the statute.

Held: The Alabama domestic preference tax statute violates the Equal
Protection Clause as applied to appellants. Pp. 874-883.
(a) Under the circumstances of this case, promotion of domestic business
by discriminating against nonresidents is not a legitimate state purpose.
Western & Southern Life Ins. Co. v. State Board of Equalization of
California, 451 U.S. 648, 101 S.Ct. 2070, 68 L.Ed.2d 514 distinguished.
Alabama's aim to promote domestic industry is purely and completely
discriminatory, designed only to favor domestic industry within the State,
no matter what the cost to foreign corporations also seeking to do business
there. Alabama's purpose constitutes the very sort of parochial
discrimination that the Equal Protection Clause was intended to prevent.
A State may not constitutionally favor its own residents by taxing foreign
corporations at a higher rate solely because of their residence. Although
the McCarran-Ferguson Act exempts the insurance industry from
Commerce Clause restrictions, it does not purport to limit the applicability
of the Equal Protection Clause. Equal protection restraints are applicable
even though the effect of the discrimination is similar to the type of burden
with which the Commerce Clause also would be concerned. Pp. 876-882.
(b) Nor is the encouragement of the investment in Alabama assets and
securities a legitimate state purpose. Domestic insurers remain entitled to
the more favorable tax rate regardless of whether they invest in Alabama
assets. Moreover, since the investment incentive provision does not enable
foreign insurers to eliminate the statute's discriminatory effect, it does not
cure but reaffirms the impermissible classification based solely on
residence. Pp. 882-883.
447 So.2d 142 (Ala.), reversed and remanded.
Matthew J. Zinn, Washington, D.C., for appellants.
Warren B. Lightfoot, Birmingham, Ala., for appellees.
Justice POWELL delivered the opinion of the Court.

This case presents the question whether Alabama's domestic preference tax
statute, Ala.Code 27-4-4 and 27-4-5 (1975), that taxes out-of-state insurance
companies at a higher rate than domestic insurance companies, violates the
Equal Protection Clause.
* Since 1955, 1 the State of Alabama has granted a preference to its domestic

insurance companies by imposing a substantially lower gross premiums tax rate

on them than on out-of-state (foreign) companies.2 Under the current statutory
provisions, foreign life insurance companies pay a tax on their gross premiums
received from business conducted in Alabama at a rate of three percent, and
foreign companies selling other types of insurance pay at a rate of four percent.
Ala.Code 27-4-4(a) (1975). All domestic insurance companies, in contrast,
pay at a rate of only one percent on all types of insurance premiums. 27-45(a).3 As a result, a foreign insurance company doing the same type and
volume of business in Alabama as a domestic company generally will pay three
to four times as much in gross premiums taxes as its domestic competitor.
Alabama's domestic preference tax statute does provide that foreign companies
may reduce the differential in gross premiums taxes by investing prescribed
percentages of their worldwide assets in specified Alabama assets and
securities. 27-4-4(b). By investing 10 percent or more of its total assets in
Alabama investments, for example, a foreign life insurer may reduce its gross
premiums tax rate from 3 to 2 percent. Similarly, a foreign property and
casualty insurer may reduce its tax rate from four to three percent. Smaller tax
reductions are available based on investment of smaller percentages of a
company's assets. Ibid. Regardless of how much of its total assets a foreign
company places in Alabama investments, it can never reduce its gross
premiums tax rate to the same level paid by comparable domestic companies.
These are entitled to the one-percent tax rate even if they have no investments
in the State. Thus, the investment provision permits foreign insurance
companies to reduce, but never to eliminate, the discrimination inherent in the
domestic preference tax statute.

II
4

Appellants, a group of insurance companies incorporated outside of the State of

Alabama, filed claims with the Alabama Department of Insurance in 1981,
contending that the domestic preference tax statute, as applied to them, violated
the Equal Protection Clause. They sought refunds of taxes paid for the tax
years 1977 through 1980. The Commissioner of Insurance denied all of their
claims on July 8, 1981.

Appellants appealed to the Circuit Court for Montgomery County, seeking a

judgment declaring the statute to be unconstitutional and requiring the
Commissioner to make the appropriate refunds. Several domestic companies
intervened, and the court consolidated all of the appeals, selecting two claims
as lead cases4 to be tried and binding on all claimants. On cross-motions for
summary judgment, the court ruled on May 17, 1982, that the statute was

constitutional. Relying on this Court's opinion in Western & Southern Life Ins.
Co. v. State Board of Equalization of California, 451 U.S. 648, 101 S.Ct. 2070,
68 L.Ed.2d 514 (1981), the court ruled that the Alabama statute did not violate
the Equal Protection Clause because it served "at least two purposes, in
addition to raising revenue: (1) encouraging the formation of new insurance
companies in Alabama, and (2) encouraging capital investment by foreign
insurance companies in the Alabama assets and governmental securities set
forth in the statute." App. to Juris. Statement 20a-21a. The court also found that
the distinction the statute created between foreign and domestic companies was
rationally related to those two purposes and that the Alabama Legislature
reasonably could have believed that the classification would have promoted
those purposes. Id., at 21a.
6

After their motion for a new trial was denied, appellants appealed to the Court
of Civil Appeals. It affirmed the Circuit Court's rulings as to the existence of
the two legitimate state purposes, but remanded for an evidentiary hearing on
the issue of rational relationship, concluding that summary judgment was
inappropriate on that question because the evidence was in conflict. 437 So.2d
535 (1983). Appellants petitioned the Supreme Court of Alabama for certiorari
on the affirmance of the legitimate state purpose issue, and the State and the
intervenors petitioned for review of the remand order. Appellants then waived
their right to an evidentiary hearing on the issue whether the statute's
classification bore a rational relationship to the two purposes found by the
Circuit Court to be legitimate, and they requested a final determination of the
legal issues with respect to their equal protection challenge to the statute. The
Supreme Court denied certiorari on all claims. Appellants again waived their
rights to an evidentiary hearing on the rational relationship issue and filed a
joint motion with the other parties seeking rehearing and entry of a final
judgment. The motion was granted, and judgment was entered for the State and
the intervenors. 447 So.2d 142 (1983). This appeal followed, and we noted
probable jurisdiction. 466 U.S. 935, 104 S.Ct. 1905, 80 L.Ed.2d 455 (1984).
We now reverse.

III
7

Prior to our decision in Western & Southern Life Ins. Co. v. State Board of
Equalization of California, supra, the jurisprudence of the applicability of the
Equal Protection Clause to discriminatory tax statutes had a somewhat
checkered history. Lincoln National Life Ins. Co. v. Read, 325 U.S. 673, 65
S.Ct. 1220, 89 L.Ed. 1861 (1945), held that so-called "privilege" taxes,
required to be paid by a foreign corporation before it would be permitted to do
business within a State, were immune from equal protection challenge. That

case stood in stark contrast, however, to the Court's prior decisions in Southern
R. Co. v. Greene, 216 U.S. 400, 30 S.Ct. 287, 54 L.Ed. 536 (1910), and
Hanover Fire Ins. Co. v. Harding, 272 U.S. 494, 47 S.Ct. 179, 71 L.Ed. 372
(1926), as well as to later decisions, in which the Court had recognized that the
Equal Protection Clause placed limits on other forms of discriminatory taxation
imposed on out-of-state corporations solely because of their residence. See,
e.g., WHYY, Inc. v. Glassboro, 393 U.S. 117, 89 S.Ct. 286, 21 L.Ed.2d 242
(1968); Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 79 S.Ct. 437, 3
L.Ed.2d 480 (1959); Wheeling Steel Corp. v. Glander, 337 U.S. 562, 69 S.Ct.
1291, 93 L.Ed. 1544 (1949).
8

In Western & Southern, supra, we reviewed all of these cases for the purpose of
deciding whether to permit an equal protection challenge to a California statute
imposing a retaliatory tax on foreign insurance companies doing business
within the State, when the home States of those companies imposed a similar
tax on California insurers entering their borders. We concluded that Lincoln
was no more than "a surprising throwback" to the days before enactment of the
Fourteenth Amendment and in which incorporation of a domestic corporation
or entry of a foreign one had been granted only as a matter of privilege by the
State in its unfettered discretion. 451 U.S., at 665, 101 S.Ct., at 2081. We
therefore rejected the longstanding but "anachronis[tic]" rule of Lincoln and
explicitly held that the Equal Protection Clause imposes limits upon a State's
power to condition the right of a foreign corporation to do business within its
borders. 451 U.S., at 667, 101 S.Ct., at 2082. We held that "[w]e consider it
now established that, whatever the extent of a State's authority to exclude
foreign corporations from doing business within its boundaries, that authority
does not justify imposition of more onerous taxes or other burdens on foreign
corporations than those imposed on domestic corporations, unless the
discrimination between foreign and domestic corporations bears a rational
relation to a legitimate state purpose." Id., at 667-668, 101 S.Ct., at 2082-2083.

Because appellants waived their right to an evidentiary hearing on the issue

whether the classification in the Alabama domestic preference tax statute bears
a rational relation to the two purposes upheld by the Circuit Court, the only
question before us is whether those purposes are legitimate.5

* (1)
10
11

The first of the purposes found by the trial court to be a legitimate reason for
the statute's classification between foreign and domestic corporations is that it
encourages the formation of new domestic insurance companies in Alabama.
The State, agreeing with the Court of Civil Appeals, contends that this Court

has long held that the promotion of domestic industry, in and of itself, is a
legitimate state purpose that will survive equal protection scrutiny. In so
contending, it relies on a series of cases, including Western & Southern, that are
said to have upheld discriminatory taxes. See Bacchus Imports, Ltd. v. Dias,
468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984); Pike v. Bruce Church,
Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970); Allied Stores of Ohio,
Inc. v. Bowers, supra; Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed.
315 (1943); Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 57 S.Ct.
868, 81 L.Ed. 1245 (1937); Board of Education v. Illinois, 203 U.S. 553, 27
S.Ct. 171, 51 L.Ed. 314 (1906).
12

The cases cited lend little or no support to the State's contention. In Western &
Southern, the case principally relied upon, we did not hold as a general rule that
promotion of domestic industry is a legitimate state purpose under equal
protection analysis.6 Rather, we held that California's purpose in enacting the
retaliatory taxto promote the interstate business of domestic insurers by
deterring other States from enacting discriminatory or excessive taxeswas a
legitimate one. 451 U.S., at 668, 101 S.Ct., at 2083. In contrast, Alabama asks
us to approve its purpose of promoting the business of its domestic insurers in
Alabama by penalizing foreign insurers who also want to do business in the
State. Alabama has made no attempt, as California did, to influence the policies
of other States in order to enhance its domestic companies' ability to operate
interstate; rather, it has erected barriers to foreign companies who wish to do
interstate business in order to improve its domestic insurers' ability to compete
at home.

13

The crucial distinction between the two cases lies in the fact that Alabama's aim
to promote domestic industry is purely and completely discriminatory, designed
only to favor domestic industry within the State, no matter what the cost to
foreign corporations also seeking to do business there. Alabama's purpose,
contrary to California's, constitutes the very sort of parochial discrimination that
the Equal Protection Clause was intended to prevent. As Justice BRENNAN,
joined by Justice Harlan, observed in his concurrence in Allied Stores of Ohio,
Inc. v. Bowers, 358 U.S. 522, 79 S.Ct. 437, 3 L.Ed.2d 480 (1959), this Court
always has held that the Equal Protection Clause forbids a State to discriminate
in favor of its own residents solely by burdening "the residents of other state
members of our federation." Id., at 533, 79 S.Ct., at 444. Unlike the retaliatory
tax involved in Western & Southern, which only burdens residents of a State
that imposes its own discriminatory tax on outsiders, the domestic preference
tax gives the "home team" an advantage by burdening all foreign corporations
seeking to do business within the State, no matter what they or their States do.

14

The validity of the view that a State may not constitutionally favor its own
residents by taxing foreign corporations at a higher rate solely because of their
residence is confirmed by a long line of this Court's cases so holding. WHYY,
Inc. v. Glassboro, 393 U.S., at 119-120, 89 S.Ct., at 287; Wheeling Steel Corp.
v. Glander, 337 U.S., at 571, 69 S.Ct., at 1296; Hanover Fire Ins. Co. v.
Harding, 272 U.S., at 511, 47 S.Ct., at 183; Southern R. Co. v. Greene, 216
U.S., at 417, 30 S.Ct., at 291. See Reserve Life Ins. Co. v. Bowers, 380 U.S.
258, 85 S.Ct. 951 (1965) (per curiam ). As the Court stated in Hanover Fire
Ins. Co., with respect to general tax burdens on business, "the foreign
corporation stands equal, and is to be classified with domestic corporations of
the same kind." 272 U.S., at 511, 47 S.Ct., at 183. In all of these cases, the
discriminatory tax was imposed by the State on foreign corporations doing
business within the State solely because of their residence, presumably to
promote domestic industry within the State.7 In relying on these cases and
rejecting Lincoln in Western & Southern, we reaffirmed the continuing viability
of the Equal Protection Clause as a means of challenging a statute that seeks to
benefit domestic industry within the State only by grossly discriminating
against foreign competitors.

15

The State contends that Allied Stores of Ohio, Inc. v. Bowers, supra, shows that
this principle has not always held true. In that case, a domestic merchandiser
challenged on equal protection grounds an Ohio statute that exempted foreign
corporations from a tax on the value of merchandise held for storage within the
State. The Court upheld the tax, finding that the purpose of encouraging foreign
companies to build warehouses within Ohio was a legitimate state purpose. The
State contends that this case shows that promotion of domestic business is a
legitimate state purpose under equal protection analysis.

16

We disagree with the State's interpretation of Allied Stores and find that the
case is not inconsistent with the other cases on which we rely. We agree with
the holding of Allied Stores that a State's goal of bringing in new business is
legitimate and often admirable. Allied Stores does not, however, hold that
promotion of domestic business by discriminating against foreign corporations
is legitimate. The case involves instead a statute that encourages
nonresidentswho are not competitors of residents to build warehouses within
the State. The discriminatory tax involved did not favor residents by burdening
outsiders; rather, it granted the nonresident business an exemption that
residents did not share. Since the foreign and domestic companies involved
were not competing to provide warehousing services, granting the former an
exemption did not even directly affect adversely the domestic companies
subject to the tax. On its facts, then, Allied Stores is not inconsistent with our
holding here that promotion of domestic business within a State, by

discriminating against foreign corporations that wish to compete by doing

business there, is not a legitimate state purpose. See 358 U.S., at 532-533, 79
S.Ct., at 443-444 (BRENNAN, J., concurring).
(2)
17
18

The State argues nonetheless that it is impermissible to view a discriminatory

tax such as the one at issue here as violative of the Equal Protection Clause.
This approach, it contends, amounts to no more than "Commerce Clause
rhetoric in equal protection clothing." Brief for Appellee Ward 22. The State
maintains that because Congress, in enacting the McCarran-Ferguson Act, 15
U.S.C. 1011-1015, intended to authorize States to impose taxes that burden
interstate commerce in the insurance field, the tax at issue here must stand. Our
concerns are much more fundamental than as characterized by the State.
Although the McCarran-Ferguson Act exempts the insurance industry from
Commerce Clause restrictions, it does not purport to limit in any way the
applicability of the Equal Protection Clause. As noted above, our opinion in
Western & Southern expressly reaffirmed the viability of equal protection
restraints on discriminatory taxes in the insurance context.8

19

Moreover, the State's view ignores the differences between Commerce Clause
and equal protection analysis and the consequent different purposes those two
constitutional provisions serve. Under Commerce Clause analysis, the State's
interest, if legitimate, is weighed against the burden the state law would impose
on interstate commerce. In the equal protection context, however, if the State's
purpose is found to be legitimate, the state law stands as long as the burden it
imposes is found to be rationally related to that purpose, a relationship that is
not difficult to establish. See Western & Southern, 451 U.S., at 674, 101 S.Ct.,
at 2086 (if purpose is legitimate, equal protection challenge may not prevail so
long as the question of rational relationship is " 'at least debatable' " (quoting
United States v. Carolene Products Co., 304 U.S. 144, 154, 58 S.Ct. 778, 784,
82 L.Ed. 1234 (1938)).

20

The two constitutional provisions perform different functions in the analysis of

the permissible scope of a State's powerone protects interstate commerce,
and the other protects persons9 from unconstitutional discrimination by the
States. See Bethlehem Motors Corp. v. Flynt, 256 U.S. 421, 423-424, 41 S.Ct.
571, 572, 65 L.Ed. 1029 (1921). The effect of the statute at issue here is to
place a discriminatory tax burden on foreign insurers who desire to do business
within the State, thereby also incidentally placing a burden on interstate
commerce. Equal protection restraints are applicable even though the effect of
the discrimination in this case is similar to the type of burden with which the

Commerce Clause also would be concerned. We reaffirmed the importance of

the Equal Protection Clause in the insurance context in Western & Southern and
see no reason now for reassessing that view.
21

In whatever light the State's position is cast, acceptance of its contention that
promotion of domestic industry is always a legitimate state purpose under equal
protection analysis would eviscerate the Equal Protection Clause in this
context. A State's natural inclination frequently would be to prefer domestic
business over foreign. If we accept the State's view here, then any
discriminatory tax would be valid if the State could show it reasonably was
intended to benefit domestic business.10 A discriminatory tax would stand or
fall depending primarily on how a State framed its purposeas benefiting one
group or as harming another. This is a distinction without a difference, and one
that we rejected last Term in an analogous context arising under the Commerce
Clause. Bacchus Imports, Ltd. v. Dias, 468 U.S., at 273, 104 S.Ct., at 3056. See
n. 6, supra. We hold that under the circumstances of this case, promotion of
domestic business by discriminating against nonresident competitors is not a
legitimate state purpose.

B
22

The second purpose found by the courts below to be legitimate was the
encouragement of capital investment in the Alabama assets and governmental
securities specified in the statute. We do not agree that this is a legitimate state
purpose when furthered by discrimination. Domestic insurers remain entitled to
the more favorable rate of tax regardless of whether they invest in Alabama
assets. Moreover, the investment incentive provision of the Alabama statute
does not enable foreign insurance companies to eliminate the discriminatory
effect of the statute. No matter how much of their assets they invest in
Alabama, foreign insurance companies are still required to pay a higher gross
premiums tax than domestic companies. The State's investment incentive
provision therefore does not cure, but reaffirms, the statute's impermissible
classification based solely on residence. We hold that encouraging investment
in Alabama assets and securities in this plainly discriminatory manner serves no
legitimate state purpose.

IV
23

We conclude that neither of the two purposes furthered by the Alabama

domestic preference tax statute and addressed by the Circuit Court for
Montgomery County, see supra, at 873, is legitimate under the Equal
Protection Clause to justify the imposition of the discriminatory tax at issue

here. The judgment of the Alabama Supreme Court accordingly is reversed, and
the case is remanded for further proceedings not inconsistent with this opinion.
24

It is so ordered.

25

Justice O'CONNOR, with whom Justice BRENNAN, Justice MARSHALL,

and Justice REHNQUIST join, dissenting.

26

This case presents a simple question: Is it legitimate for a State to use its taxing
power to promote a domestic insurance industry and to encourage capital
investment within its borders? In a holding that can only be characterized as
astonishing, the Court determines that these purposes are illegitimate. This
holding is unsupported by precedent and subtly distorts the constitutional
balance, threatening the freedom of both state and federal legislative bodies to
fashion appropriate classifications in economic legislation. Because I disagree
with both the Court's method of analysis and its conclusion, I respectfully
dissent.

27

* Alabama's legislature has chosen to impose a higher tax on out-of-state

insurance companies and insurance companies incorporated in Alabama that do
not maintain their principal place of business or invest assets within the State.
Ala.Code 27-4-4 et seq. (1975). This tax seeks to promote both a domestic
insurance industry and capital investment in Alabama. App. to Juris. Statement
20a-21a. Metropolitan Life Insurance Company, joined by many other out-ofstate insurers, alleges that this discrimination violates its rights under the Equal
Protection Clause of the Fourteenth Amendment, which provides that a State
shall not "deny to any person within its jurisdiction the equal protection of the
laws." Appellants rely on the Equal Protection Clause because, as corporations,
they are not "citizens" protected by the Privileges and Immunities Clauses of
the Constitution. Hemphill v. Orloff, 277 U.S. 537, 548-550, 48 S.Ct. 577, 579,
72 L.Ed. 978 (1928). Similarly, they cannot claim Commerce Clause
protection because Congress in the McCarran-Ferguson Act, 59 Stat. 33, as
amended 15 U.S.C. 1011 et seq., explicitly suspended Commerce Clause
restraints on state taxation of insurance and placed insurance regulation firmly
within the purview of the several States. Western & Southern Life Ins. Co. v.
State Board of Equalization of California, 451 U.S. 648, 655, 101 S.Ct. 2070,
2076, 68 L.Ed.2d 514 (1981).

28

Our precedents impose a heavy burden on those who challenge local economic
regulation solely on Equal Protection Clause grounds. In this context, our longestablished jurisprudence requires us to defer to a legislature's judgment if the

classification is rationally related to a legitimate state purpose. Yet the Court

evades this careful framework for analysis, melding the proper two-step inquiry
regarding the State's purpose and the classification's relationship to that purpose
into a single unarticulated judgment. This tactic enables the Court to
characterize state goals that have been legitimated by Congress itself as
improper solely because it disagrees with the concededly rational means of
differential taxation selected by the legislature. This unorthodox approach leads
to further error. The Court gives only the most cursory attention to the factual
and legal bases supporting the State's purposes and ignores both precedent and
significant evidence in the record establishing their legitimacy. Most troubling,
the Court discovers in the Equal Protection Clause an implied prohibition
against classifications whose purpose is to give the "home team" an advantage
over interstate competitors even where Congress has authorized such
advantages. Ante, at 878.
29

The Court overlooks the unequivocal language of our prior decisions. "Unless a
classification trammels fundamental personal rights or is drawn upon inherently
suspect distinctions such as race, religion, or alienage, our decisions presume
the constitutionality of the statutory discriminations and require only that the
classification challenged be rationally related to a legitimate state interest." New
Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 2516, 49 L.Ed.2d 511
(1976). See, e.g., Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 93
S.Ct. 1001, 35 L.Ed.2d 351 (1973). Judicial deference is strongest where a tax
classification is alleged to infringe the right to equal protection. "[I]n taxation,
even more than in other fields, legislatures possess the greatest freedom in
classification." Madden v. Kentucky, 309 U.S. 83, 88, 60 S.Ct. 406, 408, 84
L.Ed. 590 (1940). "Where the public interest is served one business may be left
untaxed and another taxed, in order to promote the one or to restrict or suppress
the other." Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 512, 57
S.Ct. 868, 873, 81 L.Ed. 1245 (1937) (citations omitted). As the Court
emphatically noted in Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 528,
79 S.Ct. 437, 441, 3 L.Ed.2d 480 (1959) (citations omitted):

30

"[I]t has repeatedly been held and appears to be entirely settled that a statute
which encourages the location within the State of needed and useful industries
by exempting them, though not also others, from its taxes is not arbitrary and
does not violate the Equal Protection Clause of the Fourteenth Amendment.
Similarly, it has long been settled that a classification, though discriminatory, is
not arbitrary or violative of the Equal Protection Clause of the Fourteenth
Amendment if any state of facts reasonably can be conceived that would sustain
it." 358 U.S. 522, 528, 79 S.Ct., at 441 (1959) (citations omitted).

31

See also Western & Southern Life Ins. Co. v. State Board of Equalization of
California, supra, 451 U.S., at 674, 101 S.Ct., at 2086; Minnesota v. Clover
Leaf Creamery Co., 449 U.S. 456, 464, 101 S.Ct. 715, 723, 66 L.Ed.2d 659
(1981).

32

Appellants waived their right to an evidentiary hearing and conceded that

Alabama's classification was rationally related to its purposes of encouraging
the formation of domestic insurance companies and bringing needed services
and capital to the State. Thus the only issue in dispute is the legitimacy of these
purposes. Yet it is obviously legitimate for a State to seek to promote local
business and attract capital investment, and surely those purposes animate a
wide range of legislation in all 50 States.

33

The majority evades the obvious by refusing to acknowledge the factual

background bearing on the legitimacy of the State's purpose or to address the
many collateral public benefits advanced by Alabama. Instead, the Court
dismisses appellees' arguments by merely stating that they were not ruled on by
the courts below. Ante, at 875-876, n. 5. In point of fact, the full range of
purposes documented before this Court was also argued and documented before
the Alabama Circuit Court. See Record, Vols. 6-8. That court found "at least
two purposes, in addition to raising revenue: (1) encouraging the formation of
new insurance companies in Alabama, and (2) encouraging capital investment
by foreign insurance companies in the Alabama assets and governmental
securities set forth in the statute." App. to Juris. Statement 20a-21a (emphasis
added). As appellants concede, these purposes are simply a step in achieving
the "larger set of purposes [whose] premise . . . is that domestic insurance
companies, on the whole, benefit the state in ways which foreign companies do
not." Brief for Appellants 31.

34

In any event, it is settled law that the appellee may assert any argument in
support of the judgment in his favor, regardless of whether it was relied upon
by the court below. Dandridge v. Williams, 397 U.S. 471, 475, n. 6, 90 S.Ct.
1153, 1156, n. 6, 25 L.Ed.2d 491 (1970). The Court's failure actually to resolve
whether Alabama may continue to collect its tax, see ante, at 882, n. 10, is all
the more baffling, since appellants took the exceptional step of conceding the
factual issues to assure a speedy resolution of numerous pending lawsuits
disruptive of industry stability. See Brief for State of Alaska et al. as Amici
Curiae 1-2. Our precedents do not condone such a miserly approach to review
of statutes adjusting economic burdens. See, e.g., Allied Stores of Ohio, Inc. v.
Bowers, supra, 358 U.S., at 528-529, 79 S.Ct., at 441-442; McGowan v.
Maryland, 366 U.S. 420, 425, 81 S.Ct. 1101, 1104, 6 L.Ed.2d 393 (1961);

United States v. Carolene Products Co., 304 U.S. 144, 152-153, 58 S.Ct. 778,
783-84, 82 L.Ed. 1234 (1938); Borden's Farm Products Co. v. Baldwin, 293
U.S. 194, 209, 55 S.Ct. 187, 191, 79 L.Ed. 281 (1934). The Court has
consistently reviewed the validity of such statutes based on whatever "may
reasonably have been the purpose and policy of the State Legislature, in
adopting the proviso." Allied Stores of Ohio, Inc. v. Bowers, supra, at 528-529,
79 S.Ct., at 441-442. It is to that inquiry that I now turn.
35

Appellees claim that Alabama's insurance tax, in addition to raising revenue

and promoting investment, promotes the formation of new domestic insurance
companies and enables them to compete with the many large multistate insurers
that currently occupy some 75% to 85% of the Alabama insurance market. App.
80. Economic studies submitted by the State document differences between the
two classes of insurers that are directly relevant to the well-being of Alabama's
citizens. See id., at 46-129. Foreign insurers typically concentrate on affluent,
high volume, urban markets and offer standardized national policies. In
contrast, domestic insurers such as intervenors American Educators Life
Insurance Company and Booker T. Washington Life Insurance Company are
more likely to serve Alabama's rural areas, and to write low-cost industrial and
burial policies not offered by the larger national companies.1 Additionally,
Appellees argue persuasively that Alabama can more readily regulate domestic
insurers and more effectively safeguard their solvency than that of insurers
domiciled and having their principal places of business in other States.

36

Ignoring these policy considerations, the Court insists that Alabama seeks only
to benefit local business, a purpose the Court labels invidious. Yet if the
classification chosen by the State can be shown actually to promote the public
welfare, this is strong evidence of a legitimate state purpose. See Note, Taxing
Out-of-State Corporations After Western & Southern: An Equal Protection
Analysis, 34 Stan.L.Rev. 877, 896 (1982). In this regard, Justice Frankfurter
wisely observed:

37

"[T]he great divide in the [equal protection] decisions lies in the difference
between emphasizing the actualities or the abstractions of legislation.

38

". . . To recognize marked differences that exist in fact is living law; to

disregard practical differences and concentrate on some abstract identities is
lifeless logic." Morey v. Doud, 354 U.S. 457, 472, 77 S.Ct. 1344, 1353, 1
L.Ed.2d 1485 (1957) (dissenting).

39

A thoughtful look at the "actualities of [this] legislation" compels the

conclusion that the State's goals are legitimate by any test.

II
40

The policy of favoring local concerns in state regulation and taxation of

insurance, which the majority condemns as illegitimate, is not merely a recent
invention of the States. The States initiated regulation of the business of
insurance as early as 1851. See Report of the Comptroller General, Issues and
Needed Improvements in State Regulation of the Insurance Business, GAO
Report B-192813, p. 5 (Oct. 9, 1979) (GAO Report). In 1944, however, this
Court overruled a long line of cases holding that the business of insurance was
an intrastate activity beyond the scope of the Commerce Clause. United States
v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed.
1440. "The decision provoked widespread concern that the States would no
longer be able to engage in taxation and effective regulation of the insurance
industry. Congress moved quickly, enacting the McCarran-Ferguson Act within
a year of the decision in South-Eastern Underwriters." St. Paul Fire & Marine
Insurance Co. v. Barry, 438 U.S. 531, 539, 98 S.Ct. 2923, 2928, 57 L.Ed.2d
932 (1978). See H.R.Rep. No. 143, 79th Cong., 1st Sess., 2 (1945); 91
Cong.Rec. 479-480 (1945) (remarks of Sen. Ferguson); id., at 487 (remarks of
Sen. Ellender).

41

The drafters of the Act were sensitive to the same concerns Alabama now
vainly seeks to bring to this Court's attention: the greater responsiveness of
local insurance companies to local conditions, the different insurance needs of
rural and industrial States, the special advantages and constraints of state-bystate regulation, and the importance of insurance license fees and taxes as a
major source of state revenues. See, e.g., Hearings on S. 1362 before the Senate
Subcommittee on the Judiciary, 78th Cong., 1st Sess., 3, 10, 16-17 (1943)
(letter of Gov. Sharpe of South Dakota stressing role of domestic insurers that
provide "poor man" and rural policies adapted to farming concerns); 90
Cong.Rec. 6564 (1944) (remarks of Rep. Vorhis). "As this Court observed
shortly afterward, '[o]bviously Congress' purpose was broadly to give support
to the existing and future state systems for regulating and taxing the business of
insurance.' Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 429, 66 S.Ct.
1142, 1154, 90 L.Ed. 1342 (1946)." St. Paul Fire & Marine Insurance Co. v.
Barry, supra, 438 U.S., at 539, 98 S.Ct., at 2928.

42

The majority opinion correctly notes that Congress did not intend the
McCarran-Ferguson Act to give the States any power to tax or regulate the
insurance industry other than they already possessed. But the legislative history
cited by the majority, ante, at 879, n. 7, relates not to differential taxation but to

decisions of this Court that had invalidated state taxes on contracts of insurance
entered into outside the State's jurisdiction. See H.R.Rep. No. 143, 79th Cong.,
1st Sess., 3 (1945), U.S.Code Cong. & Admin.Serv.1945, p. 670. The Court
fails to mention that at the time the Act was under consideration the taxing
schemes of Alabama, Arizona, Arkansas, Illinois, Kansas, Kentucky, Maine,
Michigan, Mississippi, Ohio, Oklahoma, Oregon, South Dakota, Tennessee,
Texas, Washington, and Wisconsin all incorporated tax differentials favoring
domestic insurers. See App. 377-379.
43

Any doubt that Congress' intent encompassed taxes that discriminate in favor of
local insurers was dispelled in Prudential Insurance Co. v. Benjamin, 328 U.S.
408, 66 S.Ct. 1142, 90 L.Ed. 1342 (1946). Cf. Note, Congressional Consent to
Discriminatory State Legislation, 45 Colum.L.Rev. 927 (1945) (discussing the
issues of constitutional power posed by the Act). There a foreign insurer
challenged a tax on annual gross premiums imposed on foreign but not
domestic insurers as a condition for renewal of its license to do business.
Congress, the foreign insurer argued, was powerless to sanction the tax at issue
because "the commerce clause 'by its own force' forbids discriminatory state
taxation." 328 U.S., at 426, 66 S.Ct., at 1153. A unanimous Court rejected the
argument that exacting a 3% gross premium tax from foreign insurers was
invalid as "somehow technically of an inherently discriminatory character." Id.,
at 432, 66 S.Ct., at 1156. The Court concluded that the McCarran-Ferguson
Act's effect was "clearly to sustain the exaction and that this can be done
without violating any constitutional provision." Id., at 427, 66 S.Ct., at 1153
(emphasis added).

44

Benjamin expressly noted that nothing in the Equal Protection Clause forbade
the State to enact a law such as the tax at issue. Id., at 438, and n. 50, 66 S.Ct.,
at 1159, and n. 50. In this regard the Court relied in part on Hanover Fire Ins.
Co. v. Harding, 272 U.S. 494, 47 S.Ct. 179, 71 L.Ed. 372 (1926), a decision
that explicitly recognized that differential taxation of revenues of foreign
corporations may not be arbitrary or without reasonable basis. See Western &
Southern Life Ins. Co. v. State Board of Equalization of California, 451 U.S., at
664, n. 17, 101 S.Ct., at 2081, n. 17. The Commerce Clause, Benjamin
emphasized, is not a "one-way street" but encompasses congressional power "to
discriminate against interstate commerce and in favor of local trade," "subject
only to the restrictions placed upon its authority by other constitutional
provisions." 328 U.S., at 434, 66 S.Ct., at 1157. Where the States and Congress
have acted in concert to effect a policy favoring local concerns, their action
must be upheld unless it unequivocally exceeds "some explicit and compelling
limitation imposed by a constitutional provision or provisions designed and
intended to outlaw the action taken entirely from our constitutional

framework." Id., at 435-436, 66 S.Ct., at 1158.

45

Our more recent decision in Western & Southern in no way undermines the
force of the analysis in Benjamin. Western & Southern confirms that
differential premium taxes are not immune from review as "privilege" taxes,
but it also teaches that the Constitution requires only that discrimination
between domestic and foreign corporations bear a rational relationship to a
legitimate state purpose. Benjamin clearly recognized that differentially taxing
foreign insurers to promote a local insurance industry was a legitimate state
purpose completely consonant with Congress' purpose in the McCarranFerguson Act.

46

The contemporary realities of insurance regulation and taxation continue to

justify a uniquely local perspective. Insurance regulation and taxation must
serve local social policies including assuring the solvency and reliability of
companies doing business in the State and providing special protection for
those who might be denied insurance in a free market, such as the urban poor,
small businesses, and family farms. GAO Report 10-13; State Insurance
Regulation, Hearing before the Subcommittee on Antitrust, Monopoly and
Business Rights of the Senate Committee on the Judiciary, 96th Cong., 1st
Sess., 19-21 (1979) (hereinafter Insurance Regulation). Currently at least 28 of
the 50 States employ a combination of investment incentives and differential
premium taxes favoring domestic insurers to encourage local investment of
policyholders' premiums and to partially shelter smaller domestic insurers from
competition with the large multistate companies. App. 66.

47

State insurance commissions vary widely in manpower and expertise. GAO

Report 14. In practice, the State of incorporation exercises primary oversight of
the solvency of its insurers. Id., at 36-38. See generally Dunne, Risk, Reality,
and Reason in Financial Services Deregulation: A State Legislative Perspective,
2 J.Ins.Reg. 342 (1984) (prepared by the Conference of Insurance Legislators).
See, e.g., Ala.Code 27-2-21 (Supp.1984); Ill.Rev.Stat., ch. 73, 745 (1983)
(power to examine books of domestic insurers); Ala.Code 27-32-1 et seq.
(1975); Ill.Rev.Stat., ch. 73, &Par; 799, 800 (1983) (commissioner's authority
to assume control to prevent insolvency); see generally Wis.Stat.Ann., ch. 620,
Prefatory Committee Comment1971, pp. 536, 546 (1980) (noting lesser
control over nondomestic's financial operations). Even the State of
incorporation's efforts to regulate a multistate insurer may be seriously
hampered by the difficulty of gaining access to records and assets in 49 other
States. Dunne, supra, at 356. Thus the security of Alabama's citizens who
purchase insurance from out-of-state companies may depend in part on the
diligence of another State's insurance commissioner, over whom Alabama has

no authority and limited influence. In the event of financial failure of a foreign

insurer the State may have difficulty levying on out-of-state assets. See, e.g.,
South Carolina ex rel. Phoenix Life Ins. Co. v. McMaster, 237 U.S. 63, 73, 35
S.Ct. 504, 507, 59 L.Ed. 839 (1915). Since each State maintains its own
insurance guarantee fund, the domestic insurers of the States where a multistate
insurer is admitted to do business may ultimately be forced to absorb local
policyholders' losses. Dunne, supra, at 372-373.
48

Many have sharply criticized this piecemeal system, see, e.g., GAO Report i-iii;
Schmalz, The Insurance Exemption: Can it be Modified Successfully?, 48
ABA Antitrust L.J. 579 (1979), but Congress has resisted suggestions that it
modify the McCarran-Ferguson Act to permit greater federal intervention. See
GAO Report 1; Insurance Regulation, supra. This Court cannot ignore the
exigencies of contemporary insurance regulation outlined above simply because
it might prefer uniform federal regulation. Given the distinctions in ease of
regulation and services rendered by foreign and domestic insurers, we cannot
dismiss as illegitimate the State's goal of promoting a healthy local insurance
industry sensitive to regional differences and composed of companies that agree
to subordinate themselves to the Alabama Commissioner's control and to
maintain a principal place of business within Alabama's borders. Though
economists might dispute the efficacy of Alabama's tax, "[p]arties challenging
legislation under the Equal Protection Clause cannot prevail so long as 'it is
evident from all the considerations presented to [the legislature], and those of
which we may take judicial notice, that the question is at least debatable.' "
Western & Southern Life Ins. Co. v. State Board of Equalization of California,
451 U.S., at 674, 101 S.Ct., at 2086, quoting United States v. Carolene
Products Co., 304 U.S., at 154, 58 S.Ct., at 784. Moreover, appellants waived
their right to challenge the tax measure's effectiveness.

III
49

Despite abundant evidence of a legitimate state purpose, the majority condemns

Alabama's tax as "purely and completely discriminatory" and "the very sort of
parochial discrimination that the Equal Protection Clause was intended to
prevent." Ante, at 878. Apparently, the majority views any favoritism of
domestic commercial entities as inherently suspect. The majority ignores a long
line of our decisions. In the past this Court has not hesitated to apply the
rational basis test to regulatory classifications that distinguish between
domestic and out-of-state corporations or burden foreign interests to protect
local concerns. The Court has always recognized that there are certain
legitimate restrictions or policies in which, "[b]y definition, discrimination
against nonresidents would inhere." Arlington County Board v. Richards, 434

U.S. 5, 7, 98 S.Ct. 24, 26, 54 L.Ed.2d 4 (1977) (per curiam ). For example,
where State of incorporation or principal place of business affect the State's
ability to regulate or exercise its jurisdiction, a State may validly discriminate
between foreign and domestic entities. See G.D. Searle & Co. v. Cohn, 455
U.S. 404, 102 S.Ct. 1137, 71 L.Ed.2d 250 (1982) (difficulty of obtaining
jurisdiction over nonresident corporation provides a rational basis for excepting
such corporations from statute of limitations); Metropolitan Casualty Ins. Co. v.
Brownell, 294 U.S. 580, 55 S.Ct. 538, 79 L.Ed. 1070 (1935) (domicile of
insurer relevant to statute of limitations as foreign insurers' offices and funds
generally located outside State); Board of Education v. Illinois, 203 U.S. 553,
562, 27 S.Ct. 171, 173, 51 L.Ed. 314 (1906) (State's greater control over
domestic than foreign nonprofit corporations justifies discriminatory tax).
50

A State may use its taxing power to entice useful foreign industry, see Allied
Stores of Ohio, Inc. v. Bowers, 358 U.S., at 528, 79 S.Ct., at 441, or to make
residence within its boundaries more attractive, see Zobel v. Williams, 457 U.S.
55, 67-68, 102 S.Ct. 2309, 2316-2317, 72 L.Ed.2d 672 (1982) (BRENNAN, J.,
concurring). Though such measures might run afoul of the Commerce Clause, "
[n]o one disputes that a State may enact laws pursuant to its police powers that
have the purpose and effect of encouraging domestic industry." Bacchus
Imports, Ltd. v. Dias, 468 U.S. 263, 271, 104 S.Ct. 3049, 3055, 82 L.Ed.2d 200
(1984); Western & Southern Life Ins. Co. v. State Board of Equalization of
California, supra, 451 U.S., at 668, 101 S.Ct., at 2083. Cf. Edgar v. MITE
Corp., 457 U.S. 624, 646, 102 S.Ct. 2629, 2643, 73 L.Ed.2d 269 (1982)
(POWELL, J., concurring in part) (noting State's interest in protecting
regionally based corporations from acquisition by foreign corporations).

51

Moreover, the Court has held in the dormant Commerce Clause context that a
State may provide subsidies or rebates to domestic but not to foreign enterprises
if it rationally believes that the former contribute to the State's welfare in ways
that the latter do not. Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct.
2488, 49 L.Ed.2d 220 (1976). Although the Court has divided on the
circumstances in which the dormant Commerce Clause allows such measures,
see id., at 817, 96 S.Ct., at 2501 (BRENNAN, J., dissenting), surely there can
be no dispute that they are constitutionally permitted where Congress itself has
affirmatively authorized the States to promote local business concerns free of
Commerce Clause constraints. Neither the Commerce Clause nor the Equal
Protection Clause bars Congress from enacting or authorizing the States to
enact legislation to protect industry in one State "from disadvantageous
competition" with less stringently regulated businesses in other States. Hodel v.
Indiana, 452 U.S. 314, 329, 101 S.Ct. 2376, 2385, 69 L.Ed.2d 40 (1981). See
also Western & Southern, supra, 451 U.S., at 669, 101 S.Ct., at 2083 (with

congressional approval, States may promote domestic insurers by seeking to

deter other States from enacting discriminatory or excessive taxes).
52

The majority's attempts to distinguish these precedents are unconvincing. First

the majority suggests that a state purpose might be legitimate for purposes of
the Commerce Clause but somehow illegitimate for purposes of the Equal
Protection Clause. No basis is advanced for this theory because no basis exists.
The test of a legitimate state purpose must be whether it addresses valid state
concerns. To suggest that the purpose's legitimacy, chameleon-like, changes
according to the constitutional clause cited in the complaint is merely another
pretext to escape the clear message of this Court's precedents.

53

Next the majority asserts that "a State may not constitutionally favor its own
residents by taxing foreign corporations at a higher rate solely because of their
residence," citing cases that rejected discriminatory ad valorem property taxes,
defended as taxes on the "privilege" of doing business. Ante, at 878-879. See,
e.g., WHYY, Inc. v. Glassboro, 393 U.S. 117, 89 S.Ct. 286, 21 L.Ed.2d 242
(1968); Wheeling Steel Corp. v. Glander, 337 U.S. 562, 69 S.Ct. 1291, 93 L.Ed.
1544 (1949); Hanover Fire Ins. Co. v. Harding, 272 U.S. 494, 47 S.Ct. 179, 71
L.Ed. 372 (1926); Southern R. Co. v. Greene, 216 U.S. 400, 30 S.Ct. 287, 54
L.Ed. 536 (1910). These decisions were addressed in Western & Southern, and
the classifications were characterized as impermissibly discriminatory because
they did not " 'rest on differences pertinent to the subject in respect of which the
classification is made.' " 451 U.S., at 668, 101 S.Ct., at 2083, quoting Power
Manufacturing Co. v. Saunders, 274 U.S. 490, 494, 47 S.Ct. 678, 679, 71 L.Ed.
1165 (1927). As the majority concedes, none of these decisions intimates that
the tax statutes at issue in the decisions rested on relevant differences between
domestic and foreign corporations or had purposes other than the raising of
revenue at the out-of-state corporations' expense.

54

In fact, the Court noted in several of these opinions that foreign corporations
may validly be taxed at a higher rate if the classification is based on some
relevant distinction. No such distinction, however, had been demonstrated or
even alleged. See WHYY, Inc. v. Glassboro, supra, 393 U.S., at 120, 89 S.Ct., at
287 ("This is not a case in which the exemption was withheld by reason of the
foreign corporation's failure or inability to benefit the State in the same measure
as do domestic nonprofit corporations"); Wheeling Steel Corp. v. Glander,
supra, 337 U.S., at 572, 69 S.Ct., at 1296 ("[T]he inequality is not because of
the slightest difference in Ohio's relation to the decisive transaction"); Southern
R. Co. v. Greene, supra, 216 U.S., at 416-417, 30 S.Ct., at 290-291 (parties
conceded that the business of the foreign and domestic corporations was
precisely the same).2 Lacking the threshold requirement of an articulated

distinction relevant to an asserted purpose, the classifications at issue in these

decisions could never have survived rational basis scrutiny and no such
analysis was even attempted. These precedents do not answer the question
posed by this case: whether a legislature may adopt differential tax treatment of
domestic and foreign insurers not simply to raise additional revenue but with
the purpose of affecting the market as an "instrument of economic and social
engineering." P. Hartman, Federal Limitations on State and Local Taxation
3:2 (1981). The majority's suggestion that these cases necessarily decided the
issue before us, as promotion of domestic business is "logically the primary
reason for enacting discriminatory taxes such as those at issue [in the cited
cases]," is mere speculation. See ante, at 879, n. 7.
55

In treating these cases as apposite authority, the majority again closes its eyes to
the facts. Alabama does not tax at a higher rate solely on the basis of residence;
it taxes insurers, domestic as well as foreign, who do not maintain a principal
place of business or substantial assets in Alabama, based on conceded
distinctions in the contributions of these insurers as a class to the State's
insurance objectives. The majority obscures the issue by observing that a given
"foreign insurance company doing the same type and volume of business in
Alabama as a domestic company" will pay a higher tax. Ante, at 871-872.
Under our precedents, tax classifications need merely "res[t] upon some
reasonable consideration of difference or policy." Allied Stores of Ohio, Inc. v.
Bowers, 358 U.S., at 527, 79 S.Ct., at 441. Rational basis scrutiny does not
require that the classification be mathematically precise or that every foreign
insurer or every domestic company fit to perfection the general profile on
which the classification is based. "[T]he Equal Protection Clause does not
demand a surveyor's precision" in fashioning classifications. Hughes v.
Alexandria Scrap Corp., 426 U.S., at 814, 96 S.Ct., at 2500.

IV
56

Because Alabama's classification bears a rational relationship to a legitimate

purpose, our precedents demand that it be sustained. The Court avoids this clear
directive by a remarkable evasive tactic. It simply declares that the ends of
promoting a domestic insurance industry and attracting investments to the State
when accomplished through the means of discriminatory taxation are not
legitimate state purposes. This bold assertion marks a drastic and unfortunate
departure from established equal protection doctrine. By collapsing the two
prongs of the rational basis test into one, the Court arrives at the ultimate issue
whether the means are constitutionalwithout ever engaging in the deferential
inquiry we have adopted as a brake on judicial impeachment of legislative
policy choices. In addition to unleashing an undisciplined form of Equal

Protection Clause scrutiny, the Court's approach today has serious implications
for the authority of Congress under the Commerce Clause. Groping for some
basis for this radical departure from equal protection analysis, the Court draws
heavily on Justice BRENNAN's concurring opinion in Allied Stores of Ohio,
Inc., v. Bowers, supra, 358 U.S., at 530, 79 S.Ct., at 442, as support for its
argument that "the Equal Protection Clause forbids a State to discriminate in
favor of its own residents solely by burdening 'the residents of other state
members of our federation.' " Ante, at 878, quoting 358 U.S., at 533, 79 S.Ct.,
at 444.
57

As noted in Western & Southern, Justice BRENNAN's interpretation has not

been adopted by the Court, "which has subsequently required no more than a
rational basis for discrimination by States against out-of-state interests in the
context of equal protection litigation." 451 U.S., at 667, n. 21, 101 S.Ct., at
2082, n. 21. More importantly, to the extent the Court today purports to find in
the Equal Protection Clause an instrument of federalism, it entirely misses the
point of Justice BRENNAN's analysis. Justice BRENNAN reasoned that "[t]he
Constitution furnishes the structure for the operation of the States with respect
to the National Government and with respect to each other" and that "the Equal
Protection Clause, among its other roles, operates to maintain this principle of
federalism." 358 U.S., at 532, 79 S.Ct., at 443. Favoring local business as an
end in itself might be "rational" but would be antithetical to federalism.
Accepting arguendo this interpretation, we have shown that the measure at
issue here does not benefit local business as an end in itself but serves important
ulterior goals. Moreover, any federalism component of equal protection is fully
vindicated where Congress has explicitly validated a parochial focus. Surely
the Equal Protection Clause was not intended to supplant the Commerce
Clause, foiling Congress' decision under its commerce powers to "affirmatively
permit [some measure of] parochial favoritism" when necessary to a healthy
federation. White v. Massachussetts Council of Construction Employers, Inc.,
460 U.S. 204, 213, 103 S.Ct. 1042, 1047, 75 L.Ed.2d 1 (1983). Such a view of
the Equal Protection Clause cannot be reconciled with the McCarran-Ferguson
Act and our decisions in Western & Southern and Benjamin.

58

Western & Southern established that a State may validly tax out-of-state
corporations at a higher rate if its goal is to promote the ability of its domestic
businesses to compete in interstate markets. Nevertheless, the Court today
concludes that the converse policy is forbidden, striking down legislation
whose purpose is to encourage the intrastate activities of local business
concerns by permitting them to compete effectively on their home turf. In
essence, the Court declares: "We will excuse an unequal burden on foreign
insurers if the State's purpose is to foster its domestic insurers' activities in

other States, but the same unequal burden will be unconstitutional when
employed to further a policy that places a higher social value on the domestic
insurer's home State than interstate activities." This conclusion is not drawn
from the Commerce Clause, the textual source of constitutional restrictions on
state interference with interstate competition. Reliance on the Commerce
Clause would, of course, be unavailing here in view of the McCarran-Ferguson
Act. Instead the Court engrafts its own economic values on the Equal
Protection Clause. Beyond guarding against arbitrary or irrational
discrimination, as interpreted by the Court today this Clause now prohibits the
effectuation of economic policies, even where sanctioned by Congress, that
elevate local concerns over interstate competition. Ante, at 876-878. "But a
constitution is not intended to embody a particular economic theory. . . . It is
made for people of fundamentally differing views." Lochner v. New York, 198
U.S. 45, 75-76, 25 S.Ct. 539, 546-547, 49 L.Ed. 937 (1905) (Holmes, J.,
dissenting). In the heyday of economic due process, Justice Holmes warned:
59

"Courts should be careful not to extend [the express] prohibitions [of the
Constitution] beyond their obvious meaning by reading into them conceptions
of public policy that the particular Court may happen to entertain." Tyson &
Brother v. Banton, 273 U.S. 418, 445-446, 47 S.Ct. 426, 433, 71 L.Ed. 718
(1927) (Holmes, J., dissenting, joined by Brandeis, J.).

60

Ignoring the wisdom of this observation, the Court fashions its own brand of
economic equal protection. In so doing, it supplants a legislative policy
endorsed by both Congress and the individual States that explicitly sanctioned
the very parochialism in regulation and taxation of insurance that the Court's
decision holds illegitimate. This newly unveiled power of the Equal Protection
Clause would come as a surprise to the Congress that passed the McCarranFerguson Act and the Court that sustained the Act against constitutional attack.
In the McCarran-Ferguson Act, Congress expressly sanctioned such economic
parochialism in the context of state regulation and taxation of insurance.

61

The doctrine adopted by the majority threatens the freedom not only of the
States but also of the Federal Government to formulate economic policy. The
dangers in discerning in the Equal Protection Clause a prohibition against
barriers to interstate business irrespective of the Commerce Clause should be
self-evident. The Commerce Clause is a flexible tool of economic policy that
Congress may use as it sees fit, letting it lie dormant or invoking it to limit as
well as promote the free flow of commerce. Doctrines of equal protection are
constitutional limits that constrain the acts of federal and state legislatures alike.
See, e.g., Califano v. Webster, 430 U.S. 313, 97 S.Ct. 1192, 51 L.Ed.2d 360
(1977); Cohen, Congressional Power to Validate Unconstitutional State Laws:

A Forgotten Solution to an Old Enigma, 35 Stan.L.Rev. 387, 400-413 (1983).

The Court's analysis casts a shadow over numerous congressional enactments
that adopted as federal policy "the type of parochial favoritism" the Court today
finds unconstitutional. White v. Massachusetts Council of Construction
Employers, Inc., supra, 460 U.S., at 213, 103 S.Ct., at 1047. Contrary to the
reasoning in Benjamin, the Court today indicates the Equal Protection Clause
stands as an independent barrier if courts should determine that either Congress
or a State has ventured the "wrong" direction down what has become, by
judicial fiat, the one-way street of the Commerce Clause. Nothing in the
Constitution or our past decisions supports forcing such an economic
straightjacket on the federal system.
V
62

Today's opinion charts an ominous course. I can only hope this unfortunate
adventure away from the safety of our precedents will be an isolated episode. I
had thought the Court had finally accepted that

63

"the judiciary may not sit as a superlegislature to judge the wisdom or

desirability of legislative policy determinations made in areas that neither affect
fundamental rights nor proceed along suspect lines; in the local economic
sphere, it is only the invidious discrimination, the wholly arbitrary act, which
cannot stand consistently with the Fourteenth Amendment." New Orleans v.
Dukes, 427 U.S., at 303-304, 96 S.Ct., at 2516-2517 (citations omitted).

64

Because I believe that the Alabama law at issue here serves legitimate state
purposes through concededly rational means, and thus is neither invidious nor
arbitrary, I would affirm the court below. I respectfully dissent.

The origins of Alabama's domestic preference tax statute date back to 1849,
when the first tax on premiums earned by insurance companies doing business
in the State was limited to companies not chartered by the State. Act No. 1,
1849 Ala.Acts 5. A domestic preference tax was imposed on and off throughout
the years until 1945, when the State restored equality in taxation of insurance
companies in response to this Court's decision in United States v. South-Eastern
Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). Act
No. 156, 1945 Ala.Acts 196-197. In 1955, the tax was reinstated, Act No. 77,
1955 Ala.Acts 193 (2d Spec.Sess.), and with minor amendments, has remained
in effect until the present.

For domestic preference tax purposes, Alabama defines a domestic insurer as a

company that both is incorporated in Alabama and has its principal office and
chief place of business within the State. Ala.Code 27-4-1(3) (1975). A
corporation that does not meet both of these criteria is characterized as a foreign
insurer. 27-4-1(2).
3

There are two exceptions to these general rules concerning the rates of taxation
of insurance companies. For annuities, the tax rate is one percent for both
foreign and domestic insurers, Ala.Code 27-4-4(a) (1975), and for wet marine
and transportation insurance, the rate is three-quarters of one percent for both
foreign and domestic insurance companies, 27-4-6(a).

Metropolitan Life Insurance Co., a New York corporation, was chosen to

represent the life insurance claimants, and Prudential Property and Casualty
Co., a New Jersey corporation, was chosen as representative of the nonlife
claimants. See App. 314-315.

The State and the intervenors advanced some 15 additional purposes in support
of the Alabama statute. As neither the Circuit Court nor the Court of Civil
Appeals ruled on the legitimacy of those purposes, that question is not before
us, and we express no view as to it. On remand, the State will be free to
advance again its arguments relating to the legitimacy of those purposes.
As the dissent finds our failure to resolve whether Alabama may continue to
collect its tax "baffling," post, at 887, we reemphasize the procedural posture of
the case: it arose on a motion for summary judgment. The Court of Civil
Appeals upheld the Circuit Court's ruling that the two purposes identified by it
were legitimate, but the appellate court remanded on the issue of rational
relationship as to those purposes because it found the evidence in conflict. In
order to obtain an expedited ruling, appellants waived their right to an
evidentiary hearing only as to the purposes "which the lower courts have
determined to be legitimate." 447 So.2d 142, 143 (Ala.1983). Thus, for this
Court to resolve whether Alabama may continue to collect the tax, it would
have to decide de novo whether any of the other purposes was legitimate, and
also whether the statute's classification bore a rational relationship to any of
these purposesall this, on a record that the Court of Civil Appeals deemed
inadequate.

We find the other cases on which the State relies also to be inapposite to this
inquiry. Bacchus Imports, Pike, and Parker discussed whether
promotion of local industry is a valid state purpose under the Commerce
Clause. The Commerce Clause, unlike the Equal Protection Clause, is
integrally concerned with whether a state purpose implicates local or national
interests. The Equal Protection Clause, in contrast, is concerned with whether a

state purpose is impermissibly discriminatory; whether the discrimination

involves local or other interests is not central to the inquiry to be made. Thus,
the fact that promotion of local industry is a legitimate state interest in the
Commerce Clause context says nothing about its validity under equal
protection analysis. See infra, at 880-881.
Moreover, neither Bacchus nor Pike ruled that a State's ability to promote
domestic industry was unlimited, even under the Commerce Clause. Thus, in
Bacchus, although we observed as a general matter that "a State may enact laws
pursuant to its police powers that have the purpose and effect of encouraging
domestic industry," 468 U.S., at 271, 104 S.Ct., at 3055, we held that in so
doing, a State may not constitutionally impose a discriminatory burden upon the
business of other States, merely to protect and promote local business, id., at
272-273, 104 S.Ct., at 3055-3056. Accord, Armco Inc. v. Hardesty, 467 U.S.
638, 642, 104 S.Ct. 2620, 2622, 81 L.Ed.2d 540 (1984). Likewise, in Pike, the
Court held that the state statute promoting a legitimate local interest must
"regulat[e] evenhandedly." 397 U.S., at 142, 90 S.Ct., at 847.
Other cases cited by the State are simply irrelevant to the legitimacy of
promoting local business at all. Carmichael relates primarily to the validity of a
state unemployment compensation scheme, and Board of Education deals with
the State's ability to regulate matters relating to probate. Bowers is the only one
of the State's cases that involves the validity under the Equal Protection Clause
of a tax that discriminates on the basis of residence of domestic versus foreign
corporations. That case does little, however, to support the State's contention
that promotion of domestic business is a legitimate state purpose. It was
concerned with encouraging nonresidentswho are not competitors of
residentsto build warehouses within the State. See infra, at 879-880.
7

Although the promotion of domestic business was not a purpose advanced by

the States in support of their taxes in these cases, such promotion is logically
the primary reason for enacting discriminatory taxes such as those at issue here.

In fact, as we noted in Western & Southern, the legislative history of the

McCarran-Ferguson Act reveals that the Act was Congress' response only to
United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S.Ct.
1162, 88 L.Ed. 1440 (1944), and that Congress did not intend thereby to give
the States any power to tax or regulate the insurance industry other than what
they had previously possessed. Thus Congress expressly left undisturbed this
Court's decisions holding that the Equal Protection Clause places limits on a
State's ability to tax out-of-state corporations. See 451 U.S., at 655, n. 6, 101
S.Ct., at 2076, n. 6.

It is well established that a corporation is a "person" within the meaning of the

Fourteenth Amendment. E.g., Western & Southern, 451 U.S., at 660, n. 12, 101
S.Ct., at 2079, n. 12.

10

Indeed, under the State's analysis, any discrimination subject to the rational
relation level of scrutiny could be justified simply on the ground that it favored
one group at the expense of another. This case does not involve or question, as
the dissent suggests, post, at 900-901, the broad authority of a State to promote
and regulate its own economy. We hold only that such regulation may not be
accomplished by imposing discriminatorily higher taxes on nonresident
corporations solely because they are nonresidents.

"Industrial insurance" is the trade term for a low face-value policy typically
sold door-to-door and maintained through home collection of monthly or
weekly premiums. Alabama currently has more industrial insurance in force
than any other State. Burial insurance is another form of insurance popular in
rural Alabama that is offered exclusively by local insurers. By contrast,
Metropolitan Life, like many multistate insurers, has discontinued writing even
whole-life policies with face values below $15,000. App. 173-176.

The only cited authority that arguably addressed the issue raised in the instant
case is a per curiam reversal and remand without opinion of a decision
upholding a discriminatory ad valorem tax on a foreign insurer's fixtures and
other tangible property. See Reserve Life Ins. Co. v. Bowers, 380 U.S. 258, 85
S.Ct. 951 (1965). A reversal and remand is more enigmatic even than a
summary affirmance, which has precedential value only as to "the precise issues
necessarily presented and necessarily decided." Mandel v. Bradley, 432 U.S.
173, 176, 97 S.Ct. 2238, 2240, 53 L.Ed.2d 199 (1977). Decisions without
opinion may not be equated with "an opinion by this Court treating the question
on the merits." See Edelman v. Jordan, 415 U.S. 651, 670-671, 94 S.Ct. 1347,
1359, 39 L.Ed.2d 662 (1974). "Indeed, upon fuller consideration of an issue
under plenary review, the Court has not hesitated to discard a rule which a line
of summary affirmances may appear to have established." Fusari v. Steinberg,
419 U.S. 379, 392, 95 S.Ct. 533, 541, 42 L.Ed.2d 521 (1975) (BURGER, C.J.,
concurring).