New Energy Co. of Indiana v. Limbach

Background

An Indiana ethanol maker, New Energy Company of Indiana, sold ethanol into Ohio and sought an Ohio tax credit available to gasohol sellers. Ohio changed its law in 1984 to deny that credit to ethanol produced outside Ohio unless the producing State gave similar tax advantages to Ohio-made ethanol. After Indiana altered its tax rules, New Energy’s ethanol lost eligibility and sued in Ohio courts; state courts issued conflicting rulings before the Ohio Supreme Court upheld the provision and the case reached this Court.

Reasoning

The Court asked whether Ohio’s reciprocity rule discriminated against interstate commerce by favoring in-state producers and burdening out-of-state competitors. The opinion found the statute facially discriminatory. The market-participant defense did not apply because setting and computing taxes is a governmental function, not ordinary market activity. Ohio’s claimed goals — improving health by encouraging ethanol use and promoting interstate ethanol trade through reciprocity — were judged speculative and unrelated to the discriminatory structure. The Court relied on prior decisions condemning protectionist state measures and concluded the statute lacked adequate nondiscriminatory justification.

Real world impact

The Court reversed the Ohio Supreme Court and invalidated the reciprocity tax provision. The decision protects out-of-state ethanol sellers from being penalized by state tax rules that explicitly favor local producers. It signals that states cannot use tax credits or reciprocity clauses to give local industry an unfair advantage; discriminatory tax schemes will face close scrutiny under the Commerce Clause.