author: Chief Justice Burger

text:
    TEXAS INDUSTRIES, INC. v. RADCLIFF MATERIALS, INC., et al.
    No. 79-1144.
    Argued March 3, 1981
    Decided May 26, 1981

      BurgeR, C. J., delivered the opinion for a unanimous Court.

      Benjamin R. Slater, Jr., argued the cause for petitioner. With him on the briefs was William J. Hamlin.

      Dando B. Cellini argued the cause for respondents. With him on the brief were James A. Babst, Ewell P. Walther, Jr., and Stephen H. Kupperman.

      Solicitor General McCree argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Assistant Attorney General Litvack, Deputy Solicitor General Wallace, Stephen M.' Shapiro, Barry Grossman, and Bruce E. Fein.

      Briefs of amici curiae urging reversal were filed by Eugene Driker for Borman’s Inc.; by Denis Mclnerney, William T. Lifland, and Allen S. Joslyn for CPC International Inc.; by Cloyd R. Mellott, J. Gary Kosinski, Ray C. Stoner, Michael R. Borasky, James M. Nicholson, and William E. Craig for Georgia-Pacific Corp. et al.; by Harold F. Baker, Alan M. Wiseman, and Gaspare J. Bono for Mead Corp.; and by Leslie H. Arps, Kenneth A. Plevan, John M. Nannes, Richard M. Schwartz, and Thomas R. Long for Westvaco Corp.
      Briefs of amici curiae urging affirmance were filed by R. Clifford Potter for Boise Cascade Corp.; by Lowell E. Sachnoff and Stephen D. Susman for the Corrugated Container Class in M. D. L. 310; by David L. Foster and John W. Malley for Duplan Corp.; and by Robert M. Johnson for River Cement Co.
      Briefs of amici curiae were filed by James W. Witherspoon for A. L. Black et ah; by Harold G. Christensen, Michael R. Carlston, and Craig S. Cook for Olson Farms, Inc.; by Earl E. Pollock for Owens-Illinois, Inc., et al.; by Richard W. Odgers and C. Douglas Floyd for Safeway Stores, Inc.; and by Donald G. Kempf, Jr., and Hammond E. Chaffetz for Weyerhaeuser Co. et al.

   Chief Justice Burger

delivered the opinion of the Court.

This case presents the question whether the federal antitrust laws allow a defendant, against whom civil damages, costs, and attorney’s fees have been assessed, a right to contribution from other participants in the unlawful conspiracy on which recovery was based. We granted certiorari to resolve a conflict in the Circuits. 449 U. S. 949 (1980). We affirm.

I

Petitioner and the three respondents manufacture and sell ready-mix concrete in the New Orleans, La., area. In 1975, the Wilson P. Abraham Construction Corp., which had purchased concrete from petitioner, filed a civil action in the United States District Court for the Eastern District of Louisiana naming petitioner as defendant; the complaint alleged that petitioner and certain unnamed concrete firms had conspired to raise prices in violation of § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. § 1, which provides in relevant part:

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

The complaint sought treble damages plus attorney’s fees under § 4 of the Clayton Act, 38 Stat. 731, 15 U. S. C. § 15, which provides:

“Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.”

Through discovery, petitioner learned that Abraham believed respondents were the other concrete producers that had participated in the alleged price-fixing scheme. Petitioner then filed a third-party complaint against respondents seeking contribution from them should it be held liable in the action filed by Abraham. The District Court dismissed the third-party complaint for failure to state a claim upon which relief could be granted, holding that federal law does not allow an antitrust defendant to recover in contribution from co-conspirators. The District Court also determined there was no just reason for delay with respect to that aspect of the case and entered final judgment under Federal Rule of Civil Procedure 54 (b).

On appeal, the Court of Appeals for the Fifth Circuit affirmed, holding that, although the Sherman and the Clayton Acts do not expressly afford a right to contribution, the issue should be resolved as a matter of federal common law. Wilson P. Abraham Construction Corp. v. Texas Industries, Inc., 604 F. 2d 897 (1979). The court then examined what it perceived to be the benefits and the difficulties of contribution and concluded that no common-law rule of contribution should be fashioned by the courts.

II

The common Jaw provided no right to contribution among joint tortfeasors. Union Stock Yards Co. v. Chicago, B. & Q. R. Co., 196 U. S. 217 (1905); W. Prosser, Law of Torts § 50, pp. 305-307 (4th ed. 1971). See Merryweather v. Nixan, 8 Term Rep. 186, 101 Eng. Rep. 1337 (K B. 1799). See also Northwest Airlines, Inc. v. Transport Workers, ante, at 86-87, n. 16. In part, at least, this common-law rule rested on the idea that when several tortfeasors have caused damage, the law should not lend its aid to have one tortfeasor compel others to share in the sanctions imposed by way of damages intended to compensate the victim. E. g., Atkins v. Johnson, 43 Vt. 78, 81-82 (1870). See Leflar, Contribution and Indemnity Between Tortfeasors, 81 U. Pa. L. Rev. 130, 130-134 (1932). Since the turn of the century, however, 39 states and the District of Columbia have fashioned rules of contribution in one form or another, 10 initially through judicial action and the remainder through legislation. See Northwest Airlines, Inc. v. Transport Workers, ante, at 86-87, and n. 16. Because courts generally have acknowledged that treble-damages actions under the antitrust laws are analogous to common-law actions sounding in tort, we are urged to follow this trend and adopt contribution for antitrust violators.

The parties and amici representing a variety of business interests — as well as a legion of commentators — have thoroughly addressed the policy concerns implicated in the creation of a right to contribution in antitrust cases. With potentially large sums at stake, it is not surprising that the numerous and articulate amici disagree strongly over the basic issue raised: whether sharing of damages liability will advance or impair the objectives of the antitrust laws.

Proponents of a right to contribution advance concepts of fairness and equity in urging that the often massive judgments in antitrust actions be shared by all the wrongdoers. In the abstract, this position has a certain appeal: collective fault, collective responsibility. But the efforts of petitioner and supporting amid to invoke principles of equity presuppose a legislative intent to allow parties violating the law to draw upon equitable principles to mitigate the consequences of their wrongdoing. Moreover, traditional equitable standards have something to say about the septic state of the hands of such a suitor in the courts, and, in the context of one wrongdoer suing a co-conspirator, these standards similarly suggest that parties generally in pari delicto should be left where they are found. See supra, at 634.

The proponents of contribution also contend that, by allowing one violator to recover from co-conspirators, there is a greater likelihood that most or all wrongdoers will be held liable and thus share the consequences of the wrongdoing. It is argued that contribution would thus promote more vigorous private enforcement of the antitrust laws and thereby deter violations, one of the important purposes of the treble-damages action under § 4 of the Clayton Act. See, e. g., Reiter v. Sonotone Corp., 442 U. S. 330, 344 (1979); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U. S. 477, 485 (1977); Hawaii v. Standard Oil Co., 405 U. S. 251, 262 (1972) ; Perma Life Mufflers, Inc. v. International Parts Corp., 392 U. S. 134, 139 (1968). Independent of this effect, a right to contribution may increase the incentive of a single defendant to provide evidence against co-conspirators so as to avoid bearing the full weight of the judgment. Realization of this possibility may also deter one from joining an antitrust conspiracy.

Respondents and amici opposing contribution point out that an even stronger deterrent may exist in the possibility, even if more remote, that a single participant could be held fully liable for the total amount of the judgment. In this view, each prospective co-conspirator would ponder long and hard before engaging in what may be called a game of “Russian roulette.” Moreover, any discussion of this problem must consider the problem of “overdeterrence,” i. e., the possibility that severe antitrust penalties will chill wholly legitimate business agreements. See United States v. United States Gypsum Co., 438 U. S. 422, 441-442 (1978).

The parties and amici also discuss at length how a right to contribution should be structured and, in particular, how to treat problems that may arise with the allocation of damages among the wrongdoers and the effect of settlements. Dividing or apportioning damages among a cluster of co-conspirators presents difficult issues, for the participation of each in the conspiracy may have varied. Some may have profited more than others; some may have caused more damage to the injured plaintiff. Some may have been “leaders” and others “followers”; one may be a “giant,” others “pygmies.”. Various formulae are suggested: damages may be allocated according to market shares, relative profits, sales to the particular plaintiff, the role in the organization and operation of the conspiracy, or simply pro rata, assessing an equal amount against each participant on the theory that each one is equally liable for the injury caused by collective action. In addition to the question of allocation, a right to contribution may have a serious impact on the incentive of defendants to settle. Some amici and commentators have suggested that the total amount of the plaintiff’s claim should be reduced by the amount of any settlement with any one co-conspirator; others strongly disagree. Similarly, vigorous arguments can be made for and against allowing a losing defendant to seek contribution from co-conspirators who settled with the plaintiff before trial. Regardless of the particular rule adopted for allocating damages or enforcing settlements, the complexity of the issues involved may result in additional trial and pretrial proceedings, thus adding new complications to what already is complex litigation. See, e. g., Illinois Brick Co. v. Illinois, 431 U. S. 720, 737-747 (1977).

Ill

The contentions advanced indicate how views diverge as to the “unfairness” of not providing contribution, the risks and trade-offs perceived by decisionmakers in business, and the various patterns for contribution that could be devised. In this vigorous debate over the advantages and disadvantages of contribution and various contribution schemes, the parties, amici, and commentators have paid less attention to a very significant and perhaps dispositive threshold question: whether courts have the po'wer to create such a cause of action absent legislation and, if so, whether that authority should be exercised in this context.

Earlier this Term, in Northwest Airlines, Inc. v. Transport Workers, ante, p. 77, we addressed the similar question of a right to contribution under the Equal Pay Act of 1963, 29 U. S. C. § 206 (d), and Title VII of the Civil Rights Act of 1964, 42 U. S. C. § 2000e et seq. We concluded that a right to contribution may arise in either of two ways: first, through the affirmative creation of a right of action by Congress, either expressly or by clear implication; or, second, through the power of federal courts to fashion a federal common law of contribution. Ante, at 90-91.

A

There is no allegation that the antitrust laws expressly establish a right of action for contribution. Nothing in these statutes refers to contribution, and if such a right exists it must be by implication. Our focus, as it is in any case involving the implication of a right of action, is on the intent of Congress. E. g., California v. Sierra Club, ante, p. 287; Universities Research Assn. v. Coutu, 450 U. S. 754 (1981); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U. S. 11 (1979); Touche Ross & Co. v. Redington, 442 U. S. 560 (1979). Congressional intent may be discerned by looking to the legislative history and other factors: e. g., the identity of the class for whose benefit the statute was enacted, the overall legislative scheme, and the traditional role of the states in providing relief. See California v. Sierra Club, supra; Cort v. Ash, 422 U. S. 66 (1975).

Petitioner readily concedes that “there is nothing in the legislative history of the Sherman Act or the Clayton Act to indicate that Congress considered whether contribution was available to defendants in antitrust actions.” Brief for Petitioner 10. Moreover, it is equally clear that the Sherman Act and the provision for treble-damages actions under the Clayton Act were not adopted for the benefit of the participants in a conspiracy to restrain trade. On the contrary, petitioner “is a member of the class whose activities Congress intended to regulate for the protection and benefit of an entirely distinct class,” Piper v. Chris-Craft Industries, Inc., 430 U. S. 1, 37 (1977) (emphasis added). The very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers. The absence of any reference to contribution in the legislative history or of any possibility that Congress was concerned with softening the blow on joint wrongdoers in this setting makes examination of other factors unnecessary. California v. Sierra Club, ante, at 298; Touche Ross & Co. v. Redington, supra, at 574-576. We therefore conclude that Congress neither expressly nor implicitly intended to create a right to contribution. If any right to contribution exists, its source must be federal common law.

B

There is, of course, “no federal general common law.” Erie R. Co. v. Tompkins, 304 U. S. 64, 78 (1938). Nevertheless, the Court has recognized the need and authority in some limited areas to formulate what has come to be known as “federal common law.” See United States v. Standard Oil Co., 332 U. S. 301, 308 (1947). These instances are “few and restricted,” Wheeldin v. Wheeler, 373 U. S. 647, 651 (1963), and fall into essentially two categories: those in which a federal rule of decision is “necessary to protect uniquely federal interests,” Banco Nacional de Cuba v. Sabbatino, 376 U. S. 398, 426 (1964), and those in which Congress has given the courts the power to develop substantive law, Wheeldin v. Wheeler, supra, at 652.

(1)

The vesting of jurisdiction in the federal courts does not in and of itself give rise to authority to formulate federal common law, United States v. Little Lake Misere Land Co., 412 U. S. 580, 591 (1973), nor does the existence of congressional authority under Art. I mean that federal courts are free to develop a common law to govern those areas until Congress acts. Rather, absent some congressional authorization to formulate substantive rules of decision, federal common law exists only in such narrow areas as those concerned with the rights and obligations of the United States, interstate and international disputes implicating the conflicting rights of States or our relations with foreign nations, and admiralty cases. In these instances, our federal system does not permit the controversy to be resolved under state law, either because the authority and duties of the United States as sovereign are intimately involved or because the interstate or international nature of the controversy makes it inappropriate for state law to control.

In areas where federal common law applies, the creation of a right to contribution may fall within the power of the federal courts. For example, in Cooper Stevedoring Co. v. Fritz Kopke, Inc., 417 U. S. 106 (1974), we held that contribution is available among joint tortfeasors for injury to a longshoreman. But that claim arose within admiralty jurisdiction, one of the areas long recognized as subject to federal common law, see Edmonds v. Compagnie Generate Transatlantique, 443 U. S. 256, 259 (1979); our decision there was based, at least in part, on the traditional division of damages in admiralty not recognized at common law, see 417 U. S., at 110. Cooper Stevedoring thus does not stand for a general federal common-law right to contribution. See Northwest Airlines, Inc. v. Transport Workers, ante, at 96-97.

The antitrust laws were enacted pursuant to the power of Congress under the Commerce Clause, Art. I, § 8, cl. 3, to regulate interstate and foreign trade, and the case law construing the Sherman Act now spans nearly a century. Nevertheless, a treble-damages action remains a private suit involving the rights and obligations of private parties. Admittedly, there is a federal interest in the sense that vindication of rights arising out of these congressional enactments supplements federal enforcement and fulfills the objects of the statutory scheme. Notwithstanding that nexus, contribution among antitrust wrongdoers does not involve the duties of the Federal Government, the distribution of powers in our federal system, or matters necessarily subject to federal control even in the absence of statutory authority. Cf. Bank of America v. Parnell, 352 U. S. 29, 33 (1956). In short, contribution does not implicate “uniquely federal interests” of the kind that oblige courts to formulate federal common law.

(2)

Federal common law also may come into play when Congress has vested jurisdiction in the federal courts and empowered them to create governing rules of law. See Wheeldin v. Wheeler, supra, at 652. In this vein, this Court has read § 301 (a) of the Labor Management Relations Act, 29 U. S. C. § 185 (a), not only as granting jurisdiction over defined areas of labor law but also as vesting in the courts the power to develop a common law of labor-management relations within that jurisdiction. Textile Workers v. Lincoln Mills, 353 U. S. 448 (1957). A similar situation arises with regard to the first two sections of the Sherman Act, which in sweeping language forbid “[e]very contract, combination ... , or conspiracy, in restraint of trade” and “monopolizing], or attempt [ing] to monopolize, . . . any part of the trade or commerce . . . .” 15 U. S. C. §§ 1, 2. We noted in National Society of Professional Engineers v. United States, 435 U. S. 679, 688 (1978):

“Congress, however, did not intend the text of the Sherman Act to delineate the full meaning of the statute or its application in concrete situations. The legislative history makes it perfectly clear that it expected the courts to give shape to the statute’s broad mandate by drawing on common-law tradition.”

Accord, United States v. United States Gypsum Co., 438 U. S., at 438, and n. 14; 2 P. Areeda & D. Turner, Antitrust Law ¶ 302 (1978). See 21 Cong. Rec. 2456, 2460, 3149, 3152 (1890).

It does not necessarily follow, however, that Congress intended to give courts as wide discretion in formulating remedies to enforce the provisions of the Sherman Act or the kind of relief sought through contribution. The intent to allow courts to develop governing principles of law, so unmistakably clear with regard to substantive violations, does not appear in debates on the treble-damages action created in § 7 of the original Act, 26 Stat. 210. Floyd, supra n. 6, at 228. In the Senate debates of 1890, Senator Morgan described the type of authority given the courts:

“Now, whoever recovers upon this statute, in whatever court he may go to, will recover upon the statute. It is very true that we use common-law terms here and common-law definitions in order to define an offense which is in itself comparatively new, but it is not a common-law jurisdiction that we are conferring upon the circuit courts of the United States.” 21 Cong. Rec. 3149 (1890) (emphasis added).

The Senator added that common-law actions in state courts might still exist, but recovery of treble damages would not be available, for its source is federal, not state, law. Ibid. This description of the power of federal courts under the Act suggests a sharp distinction between the lawmaking powers conferred in defining violations and the ability to fashion the relief available to parties claiming injury.

In contrast to the sweeping language of §§ 1 and 2 of the Sherman Act, the remedial provisions defined in the antitrust laws are detailed and specific: (1) violations of §§ 1 and 2 are crimes; (2) Congress has expressly authorized a private right of action for treble damages, costs, and reasonable attorney’s fees; (3) other remedial sections also provide for suits by the United States to enjoin violations or for injury to its “business or property,” and parens patriae suits by state attorneys general; (4) Congress has provided that a final judgment or decree of an antitrust violation in one proceeding will serve as prima facie evidence in any subsequent action or proceeding; and (5) the remedial provisions in the antimerger field, not at issue here, are also quite detailed.

“The presumption that a remedy was deliberately omitted from a statute is strongest when Congress has enacted a comprehensive legislative scheme including an integrated system of procedures for enforcement.” Northwest Airlines, Inc. v. Transport Workers, ante, at 97.

That presumption is strong indeed in the context of antitrust violations; the continuing existence of this statutory scheme for 90 years without amendments authorizing contribution is not without significance. There is nothing in the statute itself, in its legislative history, or in the overall regulatory scheme to suggest that Congress intended courts to have the power to alter or supplement the remedies enacted.

Our cases interpreting the treble-damages action, see, e. g., Hawaii v. Standard Oil Co., 405 U. S. 251 (1972); Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U. S. 321 (1971); Perma Life Mufflers, Inc. v. International Parts Corp., 392 U. S. 134 (1968), do not suggest that, in the past, we have invoked some broad-ranging common-law source for creating a cause of action. Nor does the judicial determination that defendants should be jointly and severally liable suggest that courts also may order contribution, since joint and several liability simply ensures that the plaintiffs will be able to recover the full amount of damages from some, if not all, participants. See Atlanta v. Chattanooga Foundry & Pipeworks, 127 F. 23, 26 (CA6 1903), aff’d, 203 U. S. 390 (1906). These cases do no more than identify the scope of the remedy Congress itself has provided. See Floyd, supra n. 6, at 227-231.

“In almost any statutory scheme, there may be a need for judicial interpretation of ambiguous or incomplete provisions. But the authority to construe a statute is fundamentally different from the authority to fashion a new rule or to provide a new remedy which Congress has decided not to adopt.” Northwest Airlines, Inc. v. Transport Workers, ante, at 97.

We are satisfied that neither the Sherman Act nor the Clayton Act confers on federal courts the broad power to formulate the right to contribution sought here.

IV

The policy questions presented by petitioner’s claimed right to contribution are far-reaching. In declining to provide a right to contribution, we neither reject the validity of those arguments nor adopt the views of those opposing contribution. Rather, we recognize that, regardless of the merits of the conflicting arguments, this is a matter for Congress, not the courts, to resolve.

The range of factors to be weighed in deciding whether a right to contribution should exist demonstrates the inappropriateness of judicial resolution of this complex issue. Ascertaining what is “fair” in this setting calls for inquiry into the entire spectrum of antitrust law, not simply the elements of a particular case or category of cases. Similarly, whether contribution would strengthen or weaken enforcement of the antitrust laws, or what form a right to contribution should take, cannot be resolved without going beyond the record of a single lawsuit. As in Diamond v. Chakrabarty, 447 U. S. 303, 317 (1980):

“The choice we are urged to make is a matter of high policy for resolution within the legislative process after the kind of investigation, examination, and study that legislative bodies can provide and courts cannot. That process involves the balancing of competing values and interests, which in our democratic system is the business of elected representatives. Whatever their validity, the contentions now pressed on us should be addressed to the political branches of the Government, the Congress and the Executive, and not to the courts.”

Accord, United States v. Topco Associates, 405 U. S. 596, 611-612 (1972).

Because we are unable to discern any basis in federal statutory or common law that allows federal courts to fashion the relief urged by petitioner, the judgment of the Court of Appeals is

Affirmed.

       Compare Wilson P. Abraham Construction Corp. v. Texas Industries, Inc., 604 F. 2d 897 (CA5 1979) (this ease), and Olson Farms, Inc. v. Safeway Stores, Inc., 1979-2 Trade Cases ¶ 62,995 (CA10), rehearing en banc granted (Dec. 27, 1979), with Professional Beauty Supply, Inc. v. National Beauty Supply, Inc., 594 F. 2d 1179 (CA8 1979).

       The complaint also named one of petitioner’s former employees as a codefendant; this employee has never been served.

       The phrase “antitrust laws” includes the Sherman Act and the Clayton Act. 15 U. S. C. §12 (a).

       In 1973, a federal grand jury in Louisiana issued indictments against petitioner, respondents (or their corporate predecessors), and certain employees charging a price-fixing conspiracy in violation of § 1 of the Sherman Act. Each defendant ultimately entered a plea of nolo contendere.

       See, e. g., Solomon v. Houston Corrugated Box Co., 526 F. 2d 389, 392, n. 4 (CA5 1976); Simpson v. Union Oil Co., 311 F. 2d 764, 768 (CA9 1963); Northwestern Oil Co. v. Socony-Vacuum Oil Co., 138 F. 2d 967, 970 (CA7), cert. denied, 321 U. S. 792 (1943); Williamson v. Columbia Gas & Elec. Corp., 110 F. 2d 15, 18 (CA3 1939), cert. denied, 310 U. S. 639 (1940). Cf. Connolly v. Union Sewer Pipe Co., 184 U. S. 540, 552 (1902). Although not expressly characterizing antitrust violations as tortious, our opinion in Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U. S. 321, 342-348 (1971), repeatedly referred to common-law rules and trends regarding release of joint tortfeasors in determining the validity of a release of an alleged antitrust violator.

       See, e. g., Cirace, A Game Theoretic Analysis of Contribution and Claim Reduction in Antitrust Treble Damage Suits, 55 St. John’s L. Rev. 42 (1980); Corbett, Apportionment of Damages and Contribution Among Coconspirators in Antitrust Treble Damage Actions, 31 Ford. L. Rev. 111 (1962); Easterbrook, Landes, & Posner, Contribution Among Antitrust Defendants: A Legal and Economic Analysis, 23 J. Law & Econ. 331 (1980); Floyd, Contribution Among Antitrust Violators: A Question of Legal Process, 1980 B. Y. U. L. Rev. 183; Polinsky & Sha-vell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 Stan. L. Rev. 447 (1981); Note, 63 Cornell L. Rev. 682 (1978); Note, 48 Geo. Wash. L. Rev. 749 (1980); Note, 93 Harv. L. Rev. 1540 (1980); Note, 78 Mich. L. Rev. 892 (1980); Note, 58 Texas L. Rev. 961 (1980); Recent Developments, 33 Vand. L. Rev. 979 (1980); Note, 66 Va. L. Rev. 797 (1980).

       Of course, not all equitable principles apply in antitrust cases. For example, in Perma Life Mufflers, Inc. v. International Parts Corp., 392 U. S. 134 (1968), the Court held that traditional notions of in pari delicto would not bar a franchisee from recovering from its franchisor even though the franchisee had sought a franchise and thus, to some degree, acquiesced in the scheme alleged to be illegal.

       Economists disagree over whether business decisionmakers, be they the high-level or the middle-level management, are “risk averse”; i. e., they would prefer a greater certainty of a small loss to a less certain chance of a greater loss. Compare K. Elzinga & W. Breit, The Antitrust Penalties 126-129 (1976), with Easterbrook, Landes, & Posner, supra n. 6, at 352, n. 50. See also Polinsky & Shavell, supra n. 6, at 452-455; Shavell, Risk Sharing and Incentives in the Principal and Agent Relationship, 10 Bell J. Econ. 55 (1979).

       A small business that mimics the practices of larger companies may be participating directly in the conspiracy or simply “tagging along” with larger companies. See, e. g., Markham, The Nature and Significance of Price Leadership, 41 Amer. Econ. Rev. 891 (1951); Posner, Oligopoly and the Antitrust Laws: A Suggested Approach, 21 Stan. L. Rev. 1562, 1582 (1969); Washburn, Price Leadership, 64 Va. L. Rev. 691, 693-697, 708-712 (1978). Although following industry leaders may help support an inference of agreement, “this Court has never held that proof of parallel business behavior [by itself] conclusively establishes agreement or, phrased differently, that such behavior itself constitutes a Sherman Act offense.” Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U. S. 537, 541 (1954).

       In Northwest Airlines, we decided that no such right .exists under the Equal Pay Act or Title VII, and we declined to fashion such a right from federal common law.

       That Congress knows how to define a right to contribution is shown by the express actions for contribution under § 11 (f) of the Securities Act of 1933, 15 U. S. C. § 77k (f), and §§ 9 (e) and 18 (b) of the Securities Exchange Act of 1934, 15 U. S. C. §§ 78i (e) and 78r (b). Some courts have extrapolated from these provisions that when an implied right of action exists under the securities laws, there also is an implied right to contribution. See, e. g., Heizer Corp. v. Boss, 601 F. 2d 330 (CA7 1979); Globus, Inc. v. Law Research Service, Inc., 318 F. Supp. 955 (SDNY), aff’d, 442 F. 2d 1346 (CA2), cert. denied, 404 U. S. 941 (1971); De Haas v. Empire Petroleum Co., 286 F. Supp. 809 (Colo. 1968), aff’d in part, rev’d in part, 435 F. 2d 1223 (CA10 1970). We intimate no view as to the correctness of these decisions; in any event, they do not support implication of a right to contribution when a statute expressly creates a damages action but does not provide for contribution. See Northwest Airlines, Inc. v. Transport Workers, ante, at 91-92, n. 24.

       See, e. g., United States v. Little Lake Misere Land Co., 412 U. S. 580 (1973); Clearfield Trust Co. v. United States, 318 U. S. 363 (1943).

       See, e. g., Illinois v. Milwaukee, 406 U. S. 91 (1972); Banco Nacional de Cuba v. Sabbatino, 376 U. S. 398 (1964); Hinderlider v. La Plata River & Cherry Creek Ditch Co., 304 U. S. 92 (1938). Many of these eases arise from interstate water disputes. Such cases do not directly involve state boundaries, disputes over which more often come to this Court under our original jurisdiction; they\nonetheless involve especial federal concerns to which federal common law applies. In Hinderlider v. La Plata River & Cherry Creek Ditch Co., supra, at 110, decided the same day as Erie, the Court observed:
      “Jurisdiction over controversies concerning rights in interstate streams is not different from those concerning boundaries. These have been recognized as presenting federal questions.”

       See, e. g., Edmonds v. Compagnie Generale Transatlantique, 443 U. S. 256 (1979); Fitzgerald v. United States Lines Co., 374 U. S. 16 (1963).

       Congress assumed the courts would refer to the existing law of monopolies and restraints on trade. See, e. g., Mitchel v. Reynolds, 1 P. Wms. 181, 24 Eng. Rep. 347 (K. B. 1711); Darcy v. Allein, 11 Co. Rep. 84, 77 Eng. Rep. 1260 (K. B. 1603). See generally P. Areeda, Antitrust Analysis 44 — 46 (3d ed. 1981); Letwin, The English Common Law Concerning Monopolies, 21 U. Chi. L. Rev. 355 (1954).

       Section 4 of the Clayton Act, 15 U. S. C. § 15, which provides the private treble-damages action, derives from §7 of the Sherman Act as originally enacted. See H. R. Rep. No. 627, 63d Cong., 2d Sess., pt. 1, p. 14 (1914). Congress repealed the original § 7 in 1955, Act of July 7, 1955, ch. 283, 69 Stat. 282, as being redundant of Clayton Act § 4, H. R. Rep. No. 422, 84th Cong., 1st Sess., 2 (1955); S. Rep. No. 619, 84th Cong., 1st Sess., 2 (1955).

       Courts, of course, should be wary of relying on the remarks of a single legislator, and Senator Morgan’s comments are not unambiguous. Yet it is clear that when the Sherman Act was adopted the common law did not provide a right to contribution among tortfeasors participating in proscribed conduct. One permissible, though not mandatory, inference is that Congress relied on courts’ continuing to apply principles in effect at the time of enactment. See, e. g., Edmonds v. Compagnie Generale Transatlantique, 443 U. S., at 273.

       Clayton Act § 4 (original version at Sherman Act § 7).

       Sherman Act § 4, 15 U. S. C. § 4.

       Clayton Act §4A, 15 U. S. C. § 15a.

       Clayton Act §§ 4C-4H, 15 U. S. C. §§ 15c-15h.

       Clayton Act §5 (a), 15 U. S. C. § 16 (a).

       Clayton Act §§ 7-11, 15 U. S. C. §§ 18-21.


source: Caselaw Access Project

author: Justice Brennan Justice Stevens,

license: Public Domain

text:
    WESTERN & SOUTHERN LIFE INSURANCE CO. v. STATE BOARD OF EQUALIZATION OF CALIFORNIA
    No. 79-1423.
    Argued January 12, 1981
    Decided May 26, 1981

      Brennan, J., delivered the opinion of the Court, in which Burger, C. J., and Stewart, White, Marshall, Powell, and Rehnquist, JJ., joined. Stevens, J., filed a dissenting opinion, in which Blackmun, J., joined, post, p. 674.

      Alan R. Vogeler argued the cause and filed briefs for appellant.

      Timothy G. Laddish, Deputy Attorney General of California, argued the cause for appellee. With him on the brief was George Deukmejian, Attorney General.

      Briefs of amici curiae urging reversal were filed by Solicitor General McCree, Assistant Attorney General Ferguson, Stuart A. Smith, Michael L. Paup, and Ernest J. Brown for the United States; by Robert Abrams, Attorney General, Shirley AdelsonJSiegel, Solicitor General, and Jeremiah Jochnowitz, Assistant Solicitor General, for the State of New York; and by Jerome R. Hellerstein and William B. Randolph for the Life Insurance Council of New York.
      Briefs of amici curiae urging affirmance were filed by Robert K. Corbin, Attorney General of Arizona, Edwin P. Lee, and Bronson C. La Follette, Attorney General of Wisconsin, for the State of Arizona et al.; by William M. Leech, Jr., Attorney General, Jimmy G. Creecy, Deputy Attorney General, and Kate Eyler, Assistant Attorney General, for the State of Tennessee; and by Matthew J. Zinn for the American Insurance Association et al.

   Justice Brennan

delivered the opinion of the Court.

California imposes two insurance taxes on insurance companies doing business in the State. A premiums tax, set at a fixed percentage of premiums paid on insurance policies issued in the State, is imposed on both foreign and domestic insurance companies and a “retaliatory” tax, set in response to the insurance tax laws of the insurer’s home State, is imposed on some foreign insurance companies. This case presents the question of the constitutionality of retaliatory taxes assessed by the State of California against appellant Western & Southern Life Insurance Co., an Ohio corporation, and paid under protest for the years 1965 through 1971.

I

Section 685 of the California Insurance Code imposes a retaliatory tax on out-of-state insurers doing business in California, when the insurer’s State of incorporation imposes higher taxes on California insurers doing business in that State than California would otherwise impose on that State’s insurers doing business in California. In computing the retaliatory tax owed by a given out-of-state insurer, California subtracts the California taxes otherwise due from the total taxes that would be imposed on a hypothetical similar California company doing business in the out-of-state insurer’s State of incorporation. If the other State’s taxes on the hypothetical California insurer would be greater than California’s taxes on the other State’s insurer, a retaliatory tax in the amount of the difference is imposed. If the other State’s taxes on the hypothetical California insurer would be less than or equal to California’s taxes, however, California exacts no retaliatory tax from the other State’s insurer.

Western & Southern, an Ohio corporation headquartered in Ohio, has engaged in the business of insurance in California since 1955. During the years in question, the company paid a total of $977,853.57 to the State in retaliatory taxes. After unsuccessfully filing claims for refunds with appellee Board of Equalization, Western & Southern initiated this refund suit in Superior Court, arguing that California’s retaliatory tax violates the Commerce and Equal Protection Clauses of the United States Constitution.

The Superior Court tried the case on stipulated facts without a jury, and ruled that the retaliatory tax is unconstitutional. It ordered a full refund of retaliatory taxes paid, plus interest and costs. App. 78-79. The California Court of Appeal reversed, upholding the retaliatory tax. 99 Cal. App. 3d 410, 159 Cal. Rptr. 539. The California Supreme Court denied Western & Southern’s petition for hearing. App. 89. Western & Southern filed a notice of appeal in this Court, and we noted probable jurisdiction. 449 U. S. 817 (1980). We affirm.

II

The Commerce Clause provides that “The Congress shall have Power ... To regulate Commerce . . . among the several States.” U. S. Const., Art. I, § 8, cl. 3. In terms, the Clause is a grant of authority to Congress, not an explicit limitation on the power of the States. In a long line of cases stretching back to the early days of the Republic, however, this Court has recognized that the Commerce Clause contains an implied limitation on the power of the States to interfere with or impose burdens on' interstate commerce. Even in the absence of congressional action, the courts may decide whether state regulations challenged under the Commerce Clause impermissibly burden interstate commerce. See, e. g., Minnesota v. Clover Leaf Creamery Co., 449 U. S. 456 (1981); Philadelphia v. New Jersey, 437 U. S. 617 (1978).

Our decisions do not, however, limit the authority of Congress to regulate commerce among the several States as it sees fit. In the exercise of this plenary authority, Congress may “confe [r] upon the States an ability to restrict the flow .of interstate commerce that they would not otherwise enjoy.” Lewis v. BT Investment Managers, Inc., 447 U. S. 27, 44 (1980); see H. P. Hood & Sons, Inc. v. Du Mond, 336 U. S. 525, 542-543 (1949). If Congress ordains that the States may freely regulate an aspect of interstate commerce, any action taken by a State within the scope of the congressional authorization is rendered invulnerable to Commerce Clause challenge.

Congress removed all Commerce Clause limitations on the authority of the States to regulate and tax the business of insurance when it passed the McCarran-Ferguson Act, 59 Stat. 33, 15 U. S. C. § 1011 et seq., as this Court acknowledged in State Board of Insurance v. Todd Shipyards Corp., 370 U. S. 451, 452 (1962). See also Group Life & Health Ins. Co. v. Royal Drug Co., 440 U. S. 205, 219, n. 18 (1979); Wilburn Boat Co. v. Firemen’s Fund Ins. Co., 348 U. S. 310, 319 (1955). Nevertheless, Western & Southern, joined by the Solicitor General as amicus curiae, argues that the McCarran-Fergu-son Act does not permit “anti-competitive state taxation that discriminates against out-of-state insurers.” Brief for Appellant 28; Brief for United States as Amicus Curiae 16. We find no such limitation in the language or history of the Act.

Section 1 of the Act, 59 Stat. 33, 15 U. S. C. § 1011, contains a declaration of policy:

“Congress declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.”

Section 2 (a), 59 Stat. 33, 15 U. S. C. § 1012 (a), declares: “The business of insurance . . . shall be subject to the laws of the several States which relate to the regulation or taxation of such business.” The unequivocal language of the Act suggests no exceptions.

The McCarran-Ferguson Act was passed in the wake of United States v. South-Eastern Underwriters Assn., 322 U. S. 533 (1944), which held that insurance is “commerce” within the meaning of the Commerce Clause. Prior to South-East ern Underwriters, insurance was not considered to be commerce within the meaning of the Commerce Clause, New York Life Ins. Co. v. Deer Lodge County, 231 U. S. 495 (1913); Paul v. Virginia, 8 Wall. 168 (1869), and thus “negative implication from the commerce clause was held not to place any limitation upon state power over the [insurance] business.” Prudential Ins. Co. v. Benjamin, 328 U. S. 408, 414 (1946) (emphasis added). Believing that the business of insurance is “a local matter, to be subject to and regulated by the laws of the several States,” H. R. Rep. No. 143, 79th Cong., 1st Sess., 2 (1945), Congress explicitly intended the McCarran-Ferguson Act to restore state taxing and regulatory powers over the insurance business to their pre-South-Eastern Underwriters scope. H. R. Rep. No. 143, supra, at 3; see SEC v. National Securities, Inc., 393 U. S. 453, 459 (1969); Maryland Casualty Co. v. Cushing, 347 U. S. 409, 412-413 (1954).

The Court has squarely rejected the argument that discriminatory state insurance taxes may be challenged under the Commerce Clause despite the McCarran-Ferguson Act. Prudential Ins. Co. v. Benjamin, supra; Prudential Ins. Co. v. Hobbs, 328 U. S. 822 (1946) (per curiam). In Benjamin, the Court considered a South Carolina insurance premiums tax imposed solely on foreign insurance companies. The Court found it unnecessary to decide whether the tax “would be valid in the dormancy of Congress’ power,” 328 U. S., at 427, or whether the tax “would be discriminatory in the sense of an exaction forbidden by the commerce clause,” id., at 428. Expressly assuming that the tax would be discriminatory, id., at 429, the Court held that enactment of the McCarran-Ferguson Act “put the full weight of [Congress’] power behind existing and future state legislation to sustain it from any attack under the commerce clause to whatever extent this may be done with the force of that power behind it, subject only to the exceptions expressly provided for.” Id., at 431. In Hobbs, this Court sustained against a Commerce Clause challenge a Kansas retaliatory insurance tax indistinguishable from California’s. The Kansas Supreme Court, upholding the retaliatory tax, had held that the McCarran-Ferguson Act “left the matter of regulation and taxation of insurance companies to the states.” In re Insurance Tax Cases, 160 Kan. 300, 313, 161 P. 2d 726, 735 (1945). This Court summarily affirmed, citing Benjamin and its companion case, Robertson v. California, 328 U. S. 440 (1946). Prudential Ins. Co. v. Hobbs, supra, at 822.

We must therefore reject Western & Southern’s Commerce Clause challenge to the California retaliatory tax: the Mc-Carran-Ferguson Act removes entirely any Commerce Clause restriction upon California’s power to tax the insurance business.

Ill

Ordinarily, there are three provisions of the Constitution under which a taxpayer may challenge an allegedly discriminatory state tax: the Commerce Clause, see, e. g., Complete Auto Transit, Inc. v. Brady, 430 U. S. 274 (1977); the Privileges and Immunities Clause of Art. IV, § 2, see, e. g., Toomer v. Witsell, 334 U. S. 385 (1948); and the Equal Protection Clause, see, e. g., Wheeling Steel Corp. v. dander, 337 U. S. 562 (1949). This case assumes an unusual posture, however, because the Commerce Clause is inapplicable to the business of insurance, see Part II, supra, and the Privileges and Immunities Clause is inapplicable to corporations, see Hemphill v. Orloff, 277 U. S. 537, 548-550 (1928). Only the Equal Protection Clause remains as a possible ground for invalidation of the California tax.

The Fourteenth Amendment forbids the States to “deny to any person within [their] jurisdiction the equal protection of the laws/’ but does not prevent the States from making reasonable classifications among such persons. See Lehnhausen v. Lake Shore Auto Parts Co., 410 U. S. 356, 359-360 (1973); Allied Stores of Ohio v. Bowers, 358 U. S. 522, 526-527 (1959). Thus, California’s retaliatory insurance tax should be sustained if we find that its classification is rationally related to achievement of a legitimate state purpose.

But as appellee points out, state tax provisions directed against out-of-state parties have not always been subjected to such scrutiny. Rather, a line of Supreme Court cases most recently exemplified by Lincoln National Life Ins. Co. v. Read, 325 U. S. 673 (1945), holds that a State may impose a tax on out-of-state corporations for the “privilege” of doing business in the State, without any requirement of a rational basis. Since the California courts have defined the retaliatory tax as a “privilege” tax, Western & Southern Life Ins. Co. v. State Board of Equalization, 4 Cal. App. 3d 21, 35, 84 Cal. Rptr. 88, 97-98 (1970), application of the reasoning of these cases would require us to sustain the tax without further inquiry into its rational basis. We must therefore decide first whether California’s retaliatory tax is subject to such further inquiry.

Some past decisions of this Court have held that a State may exclude a foreign corporation from doing business or acquiring or holding property within its borders. E. g., Asbury Hospital v. Cass County, 326 U. S. 207, 211 (1945); Bank of Augusta v. Earle, 13 Pet. 519, 588-589, 592 (1839). From this principle has arisen the theory that a State may attach such conditions as it chooses upon the grant of the privilege to do business within the State. Paul v. Virginia, 8 Wall., at 181. While this theory would suggest that a State may exact any condition, no matter how onerous or otherwise unconstitutional, from a foreign corporation desiring to do business within it, this Court has also held that a State may not impose unconstitutional conditions on the grant of a privilege. E. g., Sherbert v. Verner, 374 U. S. 398, 404 (1963); Wiernan v. Updegraff, 344 U. S. 183, 192 (1962); Frost & Frost Trucking Co. v. Railroad Comm’n, 271 U. S. 583, 592-593 (1926).

These two principles are in obvious tension. If a State cannot impose unconstitutional conditions on the grant of a privilege, then its right to withhold the privilege is less than absolute. But if the State’s right to withhold the privilege is absolute, then no one has the right to challenge the terms under which the State chooses to exercise that right. In view of this tension, it is not surprising that the Court’s attempt to accommodate both principles has produced results that seem inconsistent or illogical. Compare Doyle v. Continental Ins. Co., 94 U. S. 535 (1877), with Insurance Co. v. Morse, 20 Wall. 445 (1874); and compare Lincoln National Life Ins. Co. v. Read, supra, with Hanover Fire Ins. Co. v. Harding, 272 U. S. 494 (1926).

The doctrine that a State may impose taxes and conditions at its unfettered discretion on foreign corporations, in return for granting the “privilege” of doing business within the State, originated in Paul v. Virginia, supra, a case decided only 15 months after the effective date of the Fourteenth Amendment. A Virginia statute required foreign insurance companies to purchase and file a specified amount of bonds as security for the protection of persons insured. No such requirement was imposed on domestic insurers. Several New York insurance companies refused to comply, and their agent was accordingly denied a license to engage in the insurance business in Virginia. The agent was prosecuted for selling insurance without a license; he defended on the ground that the statute was unconstitutional under the Privileges and Immunities Clause of Art. IV, § 2, and the Commerce Clause.

This Court sustained the Virginia statute. Viewing corporations as recipients of “special privileges,” 8 Wall., at 181, and believing that “it might be of the highest public interest that the number of corporations in the State should be limited,” id., at 182, the Court held that a State’s assent to the creation of a domestic corporation or the entry of a foreign corporation “may be granted upon such terms and conditions as those States may think proper to impose.” Id., at 181. Under this view, there was no need for the Court to consider whether the statute was arbitrary, irrational, or discriminatory.

“[The States] may exclude the foreign corporation entirely; they may restrict its business to particular localities, or they may exact such security for the performance of its contracts with their citizens as in their judgment will best promote the public interest. The whole matter rests in their discretion.” Ibid.

In two important respects, the legal underpinnings of Paul v. Virginia were soon eroded. First, the advent of laws of general incorporation, which swept the country in the late 19th century, see Louis K. Liggett Co. v. Lee, 288 U. S. 517, 557-564 (1933) (Brandeis, J., dissenting), altered the very nature of the corporation. Such laws, stimulated largely by “the desire for equality and the dread of special privilege [s],” id., at 549, n. 4, permitted persons to form corporations freely, subject only to generally applicable requirements and limitations. Incorporation lost its status as a special privilege. See Henderson 68. Second, the Fourteenth Amendment, ratified in 1868, introduced the constitutional requirement of equal protection, prohibiting the States from acting arbitrarily or treating similarly situated persons differently, even with respect to privileges formerly dispensed at the State’s discretion. The combination of general incorporation laws and equal protection necessarily undermined the doctrine of Paul v. Virginia. If the right to incorporate or to do business within a State ceases to be a privilege to be dispensed by the State as it sees fit, and becomes a right generally available to all on equal terms, then the argument for special ex-actions as “privilege taxes” is destroyed.

The Court was slow to recognize the consequences of these developments. In Philadelphia Fire Assn. v. New York, 119 U. S. 110 (1886), the first relevant decision governed by the Fourteenth Amendment, the Court unhesitatingly applied the doctrine of Paul v. Virginia to sustain a New York retaliatory insurance tax against an equal protection challenge. The Court held that a corporation is not a “person within [the State’s] jurisdiction,” 119 U. S., at 116, for purposes of the Equal Protection Clause unless it is in compliance with the conditions placed upon its entry into the State, and that a corporation assents to all state laws in effect at the time of its entry. Id., at 119.

“The State, having the power to exclude entirely, has the power to change the conditions of admission at anytime, for the future, and to impose as a condition the payment of a new tax, or a further tax, as a license fee. If it imposes such license fee as a prerequisite for the future, the foreign corporation, until it pays such license fee, is not admitted within the State or within its jurisdiction. It is outside, at the threshold, seeking admission, with consent not yet given. ... By going into the State of New York in 1872, [the Philadelphia Fire Association] assented to such prerequisite as a condition of its admission within the jurisdiction of New York.” Id., at 119-120.

Justice Harlan dissented. Acknowledging that a State may prescribe certain conditions upon the entry of a foreign corporation, he insisted “that it is the settled doctrine of this court, that the terms and conditions so prescribed must not be repugnant to the Constitution of the United States, or inconsistent with any right granted or secured by that instrument.” Id., at 125. “Can it be,” he asked, “that a corporation is estopped to claim the benefit of the constitutional provision securing to it the equal protection of the laws simply because it voluntarily entered and remained in a State which has enacted a statute denying such protection to it and to like corporations from the same State?” Id., at 127.

Although dicta in several cases supported Justice Harlan’s view that a State may not impose conditions repugnant to the Constitution upon the grant of a privilege, see, e. g., Ducat v. Chicago, 10 Wall. 410, 415 (1871); Doyle v. Continental Ins. Co., 94 U. S., at 540, the Court continued to reject constitutional claims by corporations challenging conditions to entry. E. g., New York v. Roberts, 171 U. S. 658, 665-666 (1898); Horn Silver Mining Co. v. New York, 143 U. S. 305, 312-315 (1892); Pembina Consol. Silver Mining & Milling Co. v. Pennsylvania, 125 U. S. 181, 184-185 (1888). Nonetheless, the first quarter of this century saw “an almost complete disintegration” of the doctrine of Paul v. Virginia. Henderson 111. The change became evident in the October Term 1909, when the Court decided four cases in conflict with the principle that the States possess unlimited power to condition the entry of foreign corporations. The most significant of these decisions for our purposes is Southern R. Co. v. Greene, 216 U. S. 400 (1910), which expressly rejected the contention “that the imposition of special taxes upon foreign corporations for the privilege of doing business within the State is sufficient to justify such different taxation.” Id., at 417.

The plaintiff, Southern Railway, had been admitted to do business in Alabama and had invested in permanent facilities in the State. At that time, franchise taxes imposed on domestic corporations were equal to privilege taxes imposed on foreign corporations. Later, Alabama imposed an additional privilege tax on foreign corporations, which Southern Railway challenged on equal protection grounds. The Court held that classifications among corporations for purposes of taxation are constitutional under the Equal Protection Clause only if they bear a “reasonable and just relation” to the purpose for which they are imposed. Ibid. Noting that there were domestic corporations in Alabama whose business was indistinguishable from that of Southern Railway, the Court stated that “[i]t would be a fanciful distinction to say that there is any real difference in the burden imposed because the one is taxed for the privilege of a foreign corporation to do business in the State and [the] other for the right to be a corporation.” Id., at 417-418. The Court held that “to tax the foreign corporation for carrying on business under the circumstances shown, by a different and much more onerous rule than is used in taxing domestic corporations for the same privilege, is a denial of the equal protection of the laws.” Id., at 418.

In Hanover Fire Ins. Co. v. Harding, 272 U. S. 494 (1926), the Court extended the protections of Southern Railway against discriminatory taxation to corporations holding short-term licenses, and to those without substantial permanent property in the State. 272 U. S., at 508, 509, 514-515. With respect to the general tax burden on business, “the foreign corporation stands equal, and is to be classified with domestic corporations of the same kind.” Id., at 511.

After Hanover Fire Ins. Co., little was left of the doctrine of Paul v. Virginia and Philadelphia Fire Assn. v. New York, 119 U. S. 110 (1886). It was replaced by a new doctrine:

“It is not necessary to challenge the proposition that, as a general rule, the state, having power to deny a privilege altogether, may grant it upon such conditions as it sees fit to impose. But the power of the state in that respect is not unlimited; and one of the limitations is that it may not impose conditions which require the relinquishment of constitutional rights. If the state may compel the surrender of one constitutional right as a condition of its favor, it may, in like manner, compel a surrender of all. It is inconceivable that guaranties embedded in the Constitution of the “United States may thus be manipulated out of existence.” Frost & Frost Trucking Co. v. Railroad Comm’n, 271 U. S., at 593-594.

See also Power Manufacturing Co. v. Saunders, 274 U. S. 490, 497 (1927).

The decision in Lincoln National Life Ins. Co. v. Read, 325 U. S. 673 (1945), thus stands as a surprising throwback to the doctrine of Paul v. Virginia and Philadelphia Fire Assn. v. New York. There, the Court seemed to adopt precisely the argument that was rejected in Hanover Fire Ins. Co.: “that a State may discriminate against foreign corporations by admitting them under more onerous conditions than it exacts from domestic companies . . . 325 U. S., at 677; cf. 272 U. S., at 507. The Court stated that the argument that a State may not impose unconstitutional conditions to entry “proves too much.” 325 U. S., at 677. “If it were adopted,” the Court said, “then the long-established rule that a State may discriminate against foreign corporations by admitting them under more onerous conditions than it exacts from dome,stic companies would go into the discard.” Ibid. So long as a tax is “levied upon the privilege of entering the State and engaging in business there,” it may not be challenged under the Equal Protection Clause, even though it may impose a burden greater and more discriminatory than was imposed at the date of the corporation’s entry into the State. Id., at 678.

The holding in Lincoln National has been implicitly rejected in at least three subsequent cases. In Wheeling Steel Corp. v. Glander, 337 U. S. 562 (1949), the Court struck down a provision of Ohio’s ad valorem tax law that subjected certain intangible property of non-Ohio corporations to a tax not applied to identical property of Ohio corporations. The Court concluded that the provision violated the Equal Protection Clause on the ground that the inequality of treatment was “not because of the slightest difference in Ohio’s relation to the decisive transaction, but solely because of the different residence of the owner.” Id., at 572. The decision in Wheeling Steel was not directly in conflict with that in Lincoln National, because the Ohio courts had held the tax in Wheeling Steel an “ad valorem property tax, . . . and in no sense a franchise, privilege, occupation, or income tax.” 337 U. S., at 572. However, the Wheeling Steel decision rejected the principle of Lincoln National: the opinion declared that a State’s power to exclude out-of-state corporations is limited by the Constitution; the State may not “exac[t] surrender of rights derived from the Constitution of the United States.” 337 U. S., at 571 (citing Hanover Fire Ins. Co. v. Harding, supra, at 507).

In Allied Stores of Ohio, Inc. v. Bowers, 358 U. S. 522 (1959), this Court sustained an Ohio statute exempting nonresidents from an ad valorem tax on certain property held in a storage warehouse, but not exempting Ohio residents from the tax. Without alluding to any possibility that legislative classifications based on State of incorporation should be subject to a different standard from other classifications, the Court held that state tax laws “must proceed upon a rational basis and may not resort to a classification that is palpably arbitrary.” Id., at 527.

Finally, in WHYY, Inc. v. Glassboro, 393 U. S. 117 (1968), this Court struck down a New Jersey statute exempting nonprofit corporations incorporated in New Jersey from tax, but denying a similar exemption to nonprofit corporations incorporated in other States. Disregarding Lincoln National, the Court stated the applicable principle of law as follows:

“This Court has consistently held that while a State may impose conditions on the entry of foreign corporations to do business in the State, once it has permitted them to enter, 'the adopted corporations are entitled to equal protection with the state’s own corporate progeny, at least to the extent that their property is entitled to an equally favorable ad valorem tax basis.’ Wheeling Steel Corp. v. Glander, 337 U. S. 662, 571-572. See Reserve Life Ins. Co. v. Bowers, 380 U. S. 258; Hanover Fire Ins. Co. v. Harding, 272 U. S. 494; Southern R. Co. v. Greene, 216 U. S. 400.” 393 U. S., at 119-120.

In view of the decisions of this Court both before and after Lincoln National, it is difficult to view that decision as other than an anachronism. We 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. As we held in Power Manufacturing Co. v. Saunders, 274 U. S., at 493-494:

“No doubt there are . . . subjects as to which foreign corporations may be classified separately from both individuals and domestic corporations and dealt with differently. But there are other subjects as to which such a course is not admissible, the distinguishing principle being that classification must rest on differences pertinent to the subject in respect of which the classification is made.”

IV

In determining whether a challenged classification is rationally related to achievement of a legitimate state purpose, we must answer two questions: (1) Does the challenged legislation have a legitimate purpose? and (2) Was it reasonable for the lawmakers to believe that use of the challenged classification would promote that purpose? See Minnesota v. Clover Leaf Creamery Co., 449 U. S., at 461-463; Vance v. Bradley, 440 U. S. 93, 97-98 (1979).

The legislative purpose of California’s retaliatory tax is not difficult to discern, for such taxes have been a common feature of insurance taxation for over a century. Although variously expressed, the principal purpose of retaliatory tax laws is to promote the interstate business of domestic insurers by deterring other States from enacting discriminatory or excessive taxes. A survey of state retaliatory tax laws summarized:

“[WJhatever their character, it is obvious . . . that their ultimate object is not to punish foreign corporations doing business in the state, or retort the action of the foreign state in placing upon corporations of the enacting state doing business therein burdens heavier than those imposed upon corporations of such foreign state doing business in the enacting state, but to induce such foreign state to show the same consideration to corporations of the enacting state doing business therein as is shown to corporations of such foreign state doing business in the enacting state.” Annot., 91 A. L. R. 795 (1934).

Accord, Bankers Life Co. v. Richardson, 192 Cal. 113, 124-125, 218 P. 586, 591 (1923); State ex rel. Crittenberger v. Continental Ins. Co., 67 Ind. App. 536, 542, 116 N. E. 929, 936 (1917); Phoenix Ins. Co. v. Welch, 29 Kan. 672, 674-675 (1883); Life & Cas. Ins. Co. v. Coleman, 233 Ky. 350, 351-352, 25 S. W. 2d 748, 749-750 (1930); State v. Ins. Co. of North America, 71 Neb. 320, 324, 99 N. W. 36, 38 (1904); Massachusetts Mut. Ins. Co. v. Knowlton, 94 N. H. 409, 412, 54 A. 2d 163, 165 (1947); Commonwealth v. Fireman’s Fund Ins. Co., 369 Pa. 560, 565-566, 87 A. 2d 255, 258 (1952); Pacific Mut. Life Ins. Co. v. State, 161 Wash. 135, 137-138, 296 P. 813, 814-815 (1931).

California’s retaliatory tax is based upon a model statute drafted by the insurance industry, and is virtually identical to that enacted by many other States. 4 California Assembly Interim Committee on Revenue and Taxation, The Insurance Tax, No. 15, pp. 64, 66 (1964) (hereafter Insurance Tax). Since the amount of revenue raised by the retaliatory tax is relatively modest, id., at 65, and the impetus for passage of the tax comes from the nationwide insurance industry, it is clear that the purpose is not to generate revenue at the expense of out-of-state insurers, but to apply pressure on other States to maintain low taxes on California insurers. As a committee of the California Assembly has said: “The actual rationale for the provision is that the application of the retaliatory laws acts as a deterrent to state taxation on the insurance industry.” Id., at 66.

Decisions by the California courts lend weight to this analysis. The Court of Appeal in the instant case held that the purpose of the retaliatory tax “is to put pressure on the several states to impose the same tax burden on all insurance companies, foreign or domestic, and thereby encourage the doing of interstate business.” 99 Cal. App. 3d, at 413, 159 Cal. Rptr., at 541. Accord, Western & Southern Life Ins. Co. v. State Board of Equalization, 4 Cal. App. 3d, at 34, 84 Cal. Rptr., at 96; Atlantic Ins. Co. v. State Board of Equalization, 255 Cal. App. 2d 1, 4, 62 Cal. Rptr. 784, 786 (1967), cert. denied and appeal dism’d, 390 U. S. 529 (1968).

Many may doubt the wisdom of California’s retaliatory tax; indeed, the retaliatory tax has often been criticized as a distortion of the tax system and an impediment to the raising of revenue from the taxation of insurance. See, e. g., Council of State Governments, State Retaliatory Taxation of the Insurance Industry 12-13 (1977); Task Force Renort, Statement of Policy on Insurance Premium Taxation, 1 Proc. Nat. Assn, of Ins. Comm’rs 71 (1971); Report of New Jersey Tax Policy Comm., Pt. Y, pp. 47-48 (1972); Strickler, The Mess in State Premium Taxation of Insurance Companies, 69 Best’s Rev. 34, 38 (1969). But the courts are not empowered to second-guess the wisdom of state policies. Ferguson v. Skrupa, 372 U. S. 726, 729 (1963). Our review is confined to the legitimacy of the purpose.

There can be no doubt that promotion of domestic industry by deterring barriers to interstate business is a legitimate state purpose. This Court has recognized the legitimacy of state efforts to maintain the profit level of a domestic industry, Parker v. Brown, 317 U. S. 341, 363-367 (1943), and of efforts to “protect and enhance the reputation” of a domestic industry so that it might compete more effectively in the interstate market, Pike v. Bruce Church, Inc., 397 U. S. 137, 143 (1970). California’s effort on behalf of its domestic insurance industry is no less legitimate.

The mere fact that California seeks to promote its insurance industry by influencing the policies of other States does not render the purpose illegitimate. As we said in United States Steel Corp. v. Multistate Tax Comm’n, 434 U. S. 452, 478 (1978):

“Any time a State adopts a fiscal or administrative policy that affects the programs of a sister State, pressure to modify those programs may result. Unless that pressure transgresses the bounds of the Commerce Clause or the Privileges and Immunities Clause of Art. IY, § 2, see, e. g., Austin v. New Hampshire, 420 U. S. 656 (1975), it is not clear how our federal structure is implicated.”

Having established that the purpose of California’s lawmakers in enacting the retaliatory tax was legitimate, we turn to the second element in our analysis: whether it was reasonable for California’s lawmakers to believe that use of the challenged classification would promote that purpose. We acknowledge at the outset that many persons believe that retaliatory taxes are not an effective means for accomplishment of the goal of deterring discriminatory and excessive taxation of insurance companies by the various States. See, e. g., Bodily, The Effects of Retaliation on the State Taxation of Life Insurers, 44 J. of Risk & Ins. 21 (1977); Pelletier, Insurance Retaliatory Laws, 39 Notre Dame Law. 243, 268-269 (1964); Task Force Report, supra, at 71. But whether in fact the provision will accomplish its objectives is not the question: the Equal Protection Clause is satisfied if we conclude that the California Legislature rationally could have believed that the retaliatory tax would promote its objective. Minnesota v. Clover Leaf Creamery Co., 449 U. S., at 466; Vance v. Bradley, 440 U. S., at 111; United States v. Carolene Products Co., 304 U. S. 144, 154 (1938).

The Interim Committee on Revenue and Taxation of the California Assembly conducted a major study of the State’s tax system before recommending passage of a constitutional amendment permitting enforcement of the present retaliatory tax. That study found:

“It is true that insurers are disadvantaged by retaliatory taxation provisions in the short run, for they usually result in some insurers paying more in taxes in retaliating states. But, in the long run, insurers as a group pay less in taxes because of these provisions, since legislators, when considering measures affecting insurers, do consider retaliatory effects in instance after instance.” Insurance Tax, at 66.

The study concluded that retaliatory taxes “have kept premiums lower and insurers’ profits higher than would otherwise have been the case.” Id., at 67. It therefore recommended passage of the proposed constitutional amendment. See ibid.

We cannot say that the California Legislature’s conclusions were irrational, or even unreasonable. Assuming that the lawmakers of each State are motivated in part by a desire to promote the interests of their domestic insurance industry, it is reasonable to suppose that California’s retaliatory tax will induce other States to lower the burdens on California insurers in order to spare their domestic insurers the cost of the retaliatory tax in California.

In any event, we do not find the evidence against the retaliatory tax overwhelming. The California Department of Finance evaluated the effect of the retaliatory laws:

“Whether the insurance companies have sponsored this legislation or not, in their resistance to tax change they have benefitted by it. The home-owned companies in all but a half dozen states are able to say, ‘Don’t raise our taxes. If you do, we will have to pay more in other states.’ The effectiveness of this barrier is demonstrated by the fact that of the 48 states, only 9 increased their insurance tax rates in the last twelve years. . . . None of these is an outstanding insurance state.” State Department of Finance, Budget Div., Highlights of Proposal for Quarterly Insurance Tax Payments 3 (1963).

The California courts examined the issue, and found:

“The common purpose of [retaliatory tax] legislation in the several states has been to discourage any state from imposing discriminatory taxes or other burdens upon out-of-state companies. The effort seems to have been very largely successful; in any event taxes on insurance premiums have stayed close to 2 percent in most states, for both domestic and out-of-state insurers.” Atlantic Ins. Co. v. State Board of Equalization, 255 Cal. App. 2d, at 4, 62 Cal. Rptr., at 786.

Authorities in the field have found the evidence mixed. The leading empirical study of the effect of retaliatory tax laws examined tax rates on life insurance premiums from 1936 through 1972, and found: (1) that tax rates have not increased significantly in absolute terms over the period; (2) that life insurance premiums taxes have declined as a percentage of total state tax revenues; and (3) that discrimination against foreign insurance companies has declined over the period. Bodily, 44 J. of Risk & Ins., at 27-32. These results are precisely those that advocates of the retaliatory tax would predict, and thus provide some support for that theory. Statistical analysis of the available data, however, failed to verify this conclusion: the correlation between retaliatory tax laws and the observed results was not found to be statistically significant. Id., at 30-31. The author therefore concluded that retaliatory taxes have been “of questionable value.” Id., at 34. Cf. Pelletier, 39 Notre Dame Law., at 267-269; Felton, Retaliatory Insurance Company Taxation: An Evaluation, 28 J. of Ins. 71, 77-78 (1961).

Parties 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.” United States v. Carotene Products Co., supra, at 154. On this standard, we cannot but conclude that the California retaliatory insurance tax withstands the strictures of the Fourteenth Amendment.

Affirmed.

Justice Stevens,

with whom Justice Blackmun joins, dissenting.

The practice of holding hostages to coerce another sovereign to change its policies is not new; nor, in my opinion, is it legitimate. California acknowledges that its discrimination against Ohio citizens within its jurisdiction is specifically intended to coerce the Ohio Legislature into enacting legislation favored by California. Today the Court holds that this state purpose is legitimate. In my opinion that coercive motivation is not an acceptable justification for California’s discriminatory treatment of nonresidents.

The discrimination disclosed by this record is much more irregular than a simple preference for domestic corporations over foreign corporations. Some foreign insurance companies pay the same tax that domestic companies pay. Those that pay higher taxes than California companies do not all pay the same tax. Thus, for example, California taxes insurance companies incorporated in Ohio at a 2.5% rate, Montana companies at a 2.75% rate, and West Virginia and Idaho companies at a 3% rate. The prevailing tax rate in California for domestic companies and most foreign companies is 2.35%. Thus the insurance companies competing in the California market are subjected to flagrant discrimination.

A desire to eliminate discrimination in other States does not justify the discrimination practiced by California. All insurance companies that do business in Ohio are taxed at the 2.5% rate and all those that compete in the West Virginia market pay the 3% rate. Neither of those States has meddled in California’s affairs, or taken any action that has a special impact in California. California’s justification for its retaliatory tax scheme is simply to apply pressure on other States to lower their tax rates to the level that California considers acceptable. The possibility that different States may have different fiscal needs is a matter of no concern to California.

Furthermore, the discrimination is not justified by any actions taken in California. The State has not pointed to any significant difference in the way different taxpayers conduct their business in California. No administrative problems justify charging residents of some States higher taxes than others. The mere difference in residence is admittedly an insufficient reason for disparate treatment, and the incremental tax collected from out-of-state companies is not justified as a revenue measure. Thus the retaliatory increment is in the nature of a monetary penalty imposed on foreign citizens to apply pressure to their sovereign. Analytically, pressure of that kind is comparable to ransom.

The Fourteenth Amendment to the United States Constitution provides that no State may “deny to any person within its jurisdiction the equal protection of the laws.” The federal interest vindicated by this provision requires every State to respect the individuality and the essential equality of every person subject to its jurisdiction; it forbids disparate treatment that is unrelated to any difference in the character or the behavior of persons subject to the State’s jurisdiction. California’s disapproval of the official policies of the State of Ohio cannot justify the exaction of special payments from individuals who come from that State, even though such ex-actions may cause them to plead with their legislature to conform to California’s will.

In my opinion the federal interest in the impartial administration of the laws of the several States is unquestionably paramount to any one State’s parochial interest in applying pressure to its neighbors by use of “retaliatory” legislation. This discriminatory legislation is not justified by a legitimate purpose and therefore violates the Equal Protection Clause.

I respectfully dissent.

       “When by or pursuant to the laws of any other state or foreign country any taxes, licenses and other fees, in the aggregate, and any fines, penalties, deposit requirements' or other material obligations, prohibitions or restrictions are or would be imposed upon California insurers, or upon the agents or representatives of such insurers, which are in excess of such taxes, licenses and other fees, in the aggregate, or which are in excess of the fines, penalties, deposit requirements or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers, of such other state or country under the statutes of this State, so long as such laws of such other state or country continue in force or are so applied, the same taxes, licenses and other fees, in the aggregate, or fines, penalties or deposit requirements or other material obligations, prohibitions, or restrictions, of whatever kind shall be imposed upon the insurers, or upon the agents or representatives of such insurers, of such other state or country doing business or seeking to do business in California. Any tax, license or other fee or other obligation imposed by any city, county, or other political subdivision or agency of such other state or country on California insurers or their agents or representatives shall be deemed to be imposed by such state or country within the meaning of this article.” Cal. Ins. Code Ann. § 685 (West 1972).
      This provision was enacted in present form in 1959, pursuant to the California Constitution, Art. XIII, § 14-4/5 (f) (3). At that time, the California Constitution permitted imposition of the retaliatory tax only when the other State taxed California insurers at a higher rate than it taxed its own insurers. See Cal. Const., Art. XIII, § 14-4/5 (f) (3) (West Supp. 1964). In 1964, however, the California Constitution was amended to permit the imposition of the retaliatory tax whenever the other State’s taxes on California insurers are higher than California taxes on similar insurers. Cal. Const., Art. XIII, § 14-4/5 (f) (3) (West. Supp. 1966). See Franklin Life Ins. Co. v. State Board of Equalization, 63 Cal. 2d 222, 225-227, 404 P. 2d 477, 480-481 (1965).

       Western & Southern also challenges a provision of California’s property tax law, since repealed, which permitted certain domestic insurance companies to credit a greater portion of property tax paid on their principal offices against their premiums tax liability than foreign insurers could credit. Cal. Rev. & Tax. Code Ann. §§ 12241 (a) and (b) (West 1970). We need not consider this challenge, because any increase in the property tax deduction would merely trigger an offsetting increase in the retaliatory tax. See App. 86-87.

       See Cooley v. Board of Wardens, 12 How. 299 (1852); Gibbons v. Ogden, 9 Wheat. 1, 209 (1824).

       The California courts have described the Kansas retaliatory insurance tax as “substantially identical” to § 685. Atlantic Ins. Co. v. State Board of Equalization, 255 Cal. App. 2d 1, 10, 62 Cal. Rptr. 784, 790 (1967), cert. denied and appeal dism’d, 390 U. S. 529 (1968).

       Western & Southern argues that the instant ease is not controlled by Hobbs because the Kansas Supreme Court said in Hobbs: “We are unable to find in the record evidence to support the view that the tax in question upon foreign insurance companies is greater than that levied on the home insurance companies.” 160 Kan., at 311, 161 P. 2d, at 734. But the principle of Benjamin, applied in Hobbs, was that it was unnecessary for the Court to decide whether the challenged tax was discriminatory, since the McCarran-Ferguson Act simply made the Commerce Clause inapplicable. Thus, Western & Southern’s reliance on this purported distinction carries no weight.

       We reject appellee’s argument that the McCarran-Ferguson Act altered constitutional standards other than those derived from the Commerce Clause. The House Report states:
      “It is not the intention of Congress in the enactment of this legislation to clothe the States with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the Southeastern Under

        writers Association case. Briefly, your committee is of the opinion that we should provide for the continued regulation and taxation of insurance by the States, subject always, however, to the limitations set out in the controlling decisions of the United States Supreme Court . . . .” H. R. Rep. No. 143, 79th Cong., 1st Sess., 3 (1945).
      In State Board of Insurance v. Todd Shipyards Corp., 370 U. S. 451 (1962), we said:
      “Congress, of course, does not have the final say as to what constitutes due process under the Fourteenth Amendment. And while Congress has authority by § 5 of that Amendment to enforce its provisions [citing cases], the McCarran-Ferguson Act does not purport to do so.” Id., at 457.

       Although Western & Southern raises a due process claim in its statement of questions presented, it does not separately address that claim in its brief. We therefore assume that any due process argument is subsumed in the equal protection issue. See Minnesota v. Clover Leaf Creamery Co., 449 U. S. 456, 470, n. 12 (1981).

        Prudential Ins. Co. v. Benjamin, 328 U. S. 408 (1946), did not resolve the equal protection issue. The Court stated in reference to the South Carolina tax challenged in that case:
      “No conceivable violation of the commerce clause, in letter or spirit, is presented. Nor is contravention of any other limitation.” Id., at 436.
      The appellant in that case, however, challenged the South Carolina tax under the Commerce Clause, id., at 411, and nothing in the opinion of the Court suggests that the Court considered or decided any equal protection issue.

       The Court disposed of plaintiff in error’s Commerce Clause argument on the ground that the business of insurance is not commerce. 8 Wall., at 183. See supra, at 653-654.

       This view of the corporation reflected the common understanding through the first three-quarters of the 19th century. As Justice Brandéis has noted, “at first, the corporate privilege was granted sparingly; and only when the grant seemed necessary in order to procure for the community some specific benefit otherwise unavailable.” Louis K. Liggett Co. v. Lee, 288 U. S. 517, 549 (1933) (dissenting opinion). See also 1 W. Fletcher, Cyclopedia of the Law of Private Corporations 5-6 (1974); G. Henderson, The Position of Foreign Corporations in American Constitutional Law 64-68 (1918) (hereafter Henderson).

       In 1869, the year Paul v. Virginia was decided, the Commonwealth of Virginia did not permit general incorporation of insurance companies. Va. Code of 1860, ch. 65, § 4. Thus, the Court’s conception of the corporate franchise in that case as a “grant of special privileges to the corporators,” Paul v. Virginia, 8 Wall., at 181, was an accurate portrayal of the corporation as it existed at that time. This was not to last for long. See Act of Mar. 30, 1871, 1870 Va. Acts, ch. 277 (general incorporation law made applicable to insurance companies).

       As appellee concedes, the theory espoused in Philadelphia Fire Assn. that a foreign corporation is not “a person within [the State’s] jurisdiction” within the meaning of the Equal Protection Clause unless it is in compliance with all conditions imposed on its entry is now discarded. See Kentucky Finance Corp. v. Paramount Auto Exchange Corp., 262 U. S. 544, 549-551 (1923) (holding that a foreign corporation is “within” the State if it files a lawsuit therein); Bethlehem Motors Corp. v. Flynt, 256 U. S. 421, 424 (1921) (holding that “corporations doing business in a State and having an agent there are within the jurisdiction of the State”).

        Southern R. Co. v. Greene, 216 U. S. 400 (1910); Ludwig v. Western Union Telegraph Co., 216 U. S. 146 (1910); Pullman Co. v. Kansas, 216 U. S. 56 (1910); Western Union Telegraph Co. v. Kansas, 216 U. S. 1 (1910) (Western Union I).

        Southern R. Co. relied on two Commerce Clause cases decided earlier in the same Term, in both of which Justice Harlan wrote the plurality opinion. Western Union I, supra, and Pullman Co. v. Kansas, supra, struck down Kansas taxes imposed on the total authorized capital of out-of-state corporations, representing the corporations’ property both within and without Kansas. The State defended the taxes on the strength of Paul v. Virginia and like cases, as conditions imposed on the privilege of doing business within the State. The plurality held that a State may not impose unconstitutional conditions on the privilege of doing business within the State. See 216 U. S., at 33-38, 46-48; Pullman Co. v. Kansas, supra, at 62-63. Accord, Ludwig v. Western Union Telegraph Co., supra. Since a tax imposed on the out-of-state operations of an interstate company violates the Commerce Clause, see 216 U. S., at 38-45, such a tax may not be imposed as a prerequisite to doing business in the State. The plurality opinion distinguished Paul v. Virginia as involving the business of insurance, which was not considered interstate commerce. 216 U. S., at 33-34. Although modified in detail, the principle established in these cases still governs Commerce Clause challenges to state privilege taxes. See Complete Auto Transit, Inc. v. Brady, 430 U. S. 274 (1977).
      Justice Holmes, in dissent in both cases, pointed out that if a State has an “absolute arbitrary power” to exclude foreign corporations, then no conditions imposed on corporations in the exercise of that power could be unconstitutional. 216 U. S., at 54.

        Southern R. Co. did not, however, overrule Philadelphia Fire Assn. v. New York and like cases. Although acknowledging the difference in principle between its decision and that in Philadelphia Fire Assn., 216 U. S., at 416, Southern R. Co. distinguished the earlier case on the ground that the Philadelphia Fire Association, unlike the Southern Railway, held only a one-year license renewable at the State’s discretion.

       This effectively overruled those portions of Baltic Mining Co. v. Massachusetts, 231 U. S. 68, 88 (1913), overruled on other grounds, Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203, 218 (1925), and Cheney Bros. Co. v. Massachusetts, 246 U. S. 147, 156-158 (1918), that appeared to limit Southern B. Co. to cases in which the foreign corporation held substantial permanent property within the State.

        Hanover Fire Ins. Co. also held that, with respect to an admission fee charged to the corporation prior to its entry into the State, “the measure of the burden is in the discretion of the State, and any inequality as between the foreign corporation and the domestic corporation in that regard does not come within the inhibition of the Fourteenth Amendment.” 272 U. S., at 511. The opinion makes clear, however, that a tax on the business of the corporation after its admission may not be imposed in the guise of an admission fee. Ibid.

       The Court in Lincoln National Life Ins. Co. v. Bead erroneously distinguished Hanover Fire Ins. Co. as involving an out-of-state insurance company holding an “unequivocal” license rather than an annual license, renewable only upon satisfaction of the condition precedent of paying the discriminatory tax. 325 U. S., at 676. In fact, the Hanover Fire Insurance Co. held only an annual license. 272 U. S., at 509. The Court in Hanover Fire Ins. Co. explicitly stated that the “principle is the same,” no matter whether the license is annual or indefinite. Ibid.

       The reasoning in Lincoln National Life was virtually identical to that offered by Justice Holmes in his Western Union dissent. See n. 14, supra.

       The State argued that other States could enact similar provisions, and thereby eliminate any inequality. This Court concluded, however, that “[i]t is hard to see that this offer of reciprocity restores to appellants any of the equality which the application of the Ohio tax, considered alone, so obviously denies.” 337 U. S., at 573.

       Justice Harlan and I, concurring, went still further. Arguing that the Equal Protection Clause must be used as “an instrument of federalism,” 358 U. S., at 532, we rejected the Court’s analysis as insufficiently protective of out-of-state interests. We stated that the Equal Protection Clause denies a State “the power constitutionally to discriminate in favor of its own residents against the residents of other state members of our federation.” Id,., at 533. Our position 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. E. g., Baldwin v. Montana Fish and Game Comm’n, 436 U. S. 371, 388-391 (1978); Hughes v. Alexandria Scrap Corp., 426 U. S. 794, 810-814 (1976).

       Although the retaliatory tax is an imposition on interstate insurance companies, it is supported by the industry as a means of fostering uniform and moderate levels of taxation nationwide. See Brief for the American Insurance Association et al. as Amici Curiae; Council of State Governments, State Retaliatory Taxation of the Insurance Industry 12 (1977).

       The nature of the classification supports this conclusion as well. The retaliatory tax is not imposed on foreign corporations qua foreign corporations, as would be expected were the purpose of the tax to raise revenue from noncitizens; rather, it is imposed only on corporations whose home States impose more onerous burdens on California insurers than California otherwise would impose on those corporations.

       See n. 1, supra.

       A large part of this decline may be accounted for by the general decline in the States’ reliance on business taxes. From 1957 to 1972, the proportion of total state tax revenues attributable to general business taxes fell by 17.7%, while the proportion attributable to life insurance premiums taxes fell by 20.0%. Bodily, The Effects of Retaliation on the State Taxation of Life Insurers, 44 J. of Risk & Ins. 21, 31-32 (1977). But see State Department of Finance, Budget Div., Highlights of Proposal for Quarterly Insurance Tax Payments 3-4 (1963) (showing that since 1950, the proportion of California tax revenues attributable to insurance taxes has decreased substantially relative to that attributable to bank and corporate taxes).

       See Cal. Ins. Code Ann. §685 (West 1972); Idaho Code §41-402 (1977); Ohio Rev. Code Ann. § 5729.03 (1973); Mont. Code Ann. § 33-2-705 (1979); W. Va. Code §§ 33-3-14 and 33-3-14a (Supp. 1980). As the Court’s opinion indicates, ante, at 651, the amount of retaliatory taxes reflected by these small percentage differences is significant.

       Cal. Rev. & Tax. Code Ann. §§12201, 12202 (West 1970).

       The United States, as amicus curiae, takes the position that California has no legitimate interest in Ohio’s level of taxation or fiscal structure when no discriminatory action against California citizens or corporations is involved. It states:
      “The several states have different resources, populations, social and economic conditions, levels of public service, fiscal structures, methods and sources of raising revenue, and tax burdens, both in gross and per capita. With respect to other states, where no discriminatory or hostile action is involved, the states are largely autonomous in these matters. And even if another state has engaged in discriminatory action, the Constitution, as this Court has pointed out, does not contemplate the economic warfare of reprisal and retaliation. A&P Tea Co. v. Cottrell, 424 U. S. 366 (1976).” Brief for United States as Amicus Curiae 10.

       As the Court states:
      “We 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.” Ante, at 667-668.
      See also Wheeling Steel Corp. v. Glander, 337 U. S. 562, 572:
      “It seems obvious that appellants are not accorded equal treatment, and the inequality is not because, of the slightest difference in Ohio’s relation to the decisive transaction, but solely because of the different residence of the owner.”

       “[I]t is clear that the purpose is not to generate revenue at the expense of out-of-state insurers, but to apply pressure on other States to maintain low taxes on California insurers.” See ante, at 669-670.

       California’s objective is to confer a limited benefit on a limited group of companies that are incorporated under its laws. This case involves the special interest of insurance companies in paying taxes at a rate no higher than the rate California requires for its budgetary purposes. The next case may involve a different industry with a different special interest. Thus, for example, the trucking industry or the motorcoach industry might favor high speed limits, loose safety inspection laws, and lax emission standards. If their lobbyists could persuade the legislature of a powerful State to adopt rules favorable to their interests, then under today’s holding they may also seek retaliatory programs that would apply pressure to neighboring States to adopt similar rules. Although such a statute might violate other constitutional provisions, such as the Commerce Clause, under today’s holding the Equal Protection Clause would present no impediment.

       In holding that California’s purpose in enacting the discriminatory tax is legitimate, the Court compares this case to state attempts to maintain the profit level of a domestic industry, Parker v. Brown, 317 U. S. 341, 363-367, and efforts to “protect and enhance the reputation” of a domestic industry, enabling it to compete more effectively in the interstate market. Pike v. Bruce Church, Inc., 397 U. S. 137, 143. The enactment of a statute designed to confer a direct benefit or to provide protection for domestic corporations is surely not comparable to California’s imposition of a burden on foreign corporations designed to coerce foreign States to enact legislation which will benefit California corporations at the expense of the interest which motivated the foreign State’s original tax rate.