A state tax upon merchandise brought in from another state, or upon its sales, whether in original packages or not, after it has reached its destination and is in a state of rest, is lawful only when the tax is not discriminating in its incidence against the merchandise because of its origin in another state. In brief, the test of the original package is not an ultimate principle. It is an illustration of a principle. It marks a convenient boundary and one sufficiently precise save in exceptional conditions. What is ultimate is the principle that one state in its dealings with another may not place itself in a position of economic isolation. Formulas and catchwords are subordinate to this overmastering requirement. Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents.
The New York Milk Control Act (Act), 1933 N.Y. Laws 158, 1934 N.Y. Laws 126, established a system of minimum prices to be paid by milk dealers to producers in New York. The milk dealer bought its milk in Vermont at prices lower than the New York minimum and refused to agree to conform to the New York statute and regulations in the sale of the imported product. The milk dealer was thus unable to obtain a New York business license. Eventually, the milk dealer sought to restrain state officials from prosecuting it for selling milk imported from Vermont without a license in New York.
Is it valid for a New York state law to prohibit sale of milk imported from Vermont if it does not conform to a pricing criteria?
The Court held that the district court properly restrained the enforcement of the Act in its application to sales in the original packages but erred in refusing to grant an injunction with respect to milk in bottles. The form of the packages was immaterial. New York's attempt to regulate the price to be paid for milk acquired in Vermont had the same unconstitutional effect as a customs duty. The Court rejected the state officials' arguments that the purpose of the Act was not to protect its farmers from competition but to ensure an adequate supply of milk and to avoid tempting farmers to save the expense of sanitary precautions. Allowing a health exception would have destroyed the rule, and the relation was too indirect to obstruct interstate commerce.