State taxation on interstate commerce must be what?

State taxation on interstate commerce must be what?

• A. Tax must be substantially connected to the state and proportional to in-state activity
• B. Tax may burden interstate commerce if it applies equally to all taxpayers
• C. Tax may burden interstate commerce in all situations
• D. Tax must be based on in-state residence only

Answer: (A)

State taxes on interstate commerce must have a substantial nexus with the state and be fairly apportioned in proportion to the in-state activity. There has to be a real connection to the state, not just incidental contact, and the tax should reflect the portion of the business that operates within the state so as not to overburden or discriminate against out-of-state commerce. Even a neutral, uniform tax can violate this if there’s no proper nexus or fair apportionment. A tax tied only to in-state residence would distort the reach of interstate activity and is not appropriate.

State taxes on interstate commerce must have a substantial nexus with the state and be fairly apportioned in proportion to the in-state activity. There has to be a real connection to the state, not just incidental contact, and the tax should reflect the portion of the business that operates within the state so as not to overburden or discriminate against out-of-state commerce. Even a neutral, uniform tax can violate this if there’s no proper nexus or fair apportionment. A tax tied only to in-state residence would distort the reach of interstate activity and is not appropriate.