PREEMPTION MONITOR
An information service of the NCSL Law & Criminal Justice Committee

Introduction

The Preemption Monitor reviews recently enacted federal legislation that preempts state authority, describes pending legislation that would preempt state authority if enacted, and examines U.S. Supreme Court cases that have implications for state authority. NCSL’s cornerstone policy on federalism states that federal legislation should be based on broad principles, not upon specific mandates that commonly lead to a one-size-fits-all approach. NCSL’s federalism policy promotes good governance at both the state and federal levels.  

The volume of federal legislation that preempts state authority has not subsided in the administration. Pressure continues to mount for Congress and the White House to support federal usurpation of state authority in a variety of areas such as criminal law, insurance regulation, and the environment. Although preemption is hard to quantify because it does not always impose a cost to states, it can be harmful because it can eliminate state innovation and creativity. Often, federal preemptions seek uniformity when uniformity is not necessarily the most effective means for resolving issues. This document provides an update and analysis of pending and recently-finalized federal preemption proposals.

Preemption Victories

Legislative

[UN]HEALTHY FOR STATES.Thanks in part to a states’ rights and federalism letter sent by NCSL, H.R. 5, the “Help, Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2011” has lost significant momentum in the U.S. House. “The adoption of a one-size-fits-all approach to medical malpractice envisioned in H.R. 5 and other related measures would undermine state diversity and disregard factors unique to each particular state,” wrote Assemblyman William Horne of Nevada and Representative Jerry Madden of Texas, the chair and immediate past-chair of NCSL’s Committee on Law and Criminal Justice, respectively. The letter was sent to the House Judiciary Committee and the Subcommittee on Health within the House Committee on Energy and Commerce.

Judicial

Nevada Commission on Ethics v. CarriganThe Supreme Court upheld the Nevada Ethics in Government Law, which prohibits a legislator who has a conflict of interest from both voting on a proposal and from advocating its passage or failure, is not unconstitutionally overbroad. This case presents a win for states who have recusal laws on the books.

Chamber of Commerce v. Whiting By a 5-3 vote, the Court held that federal law does not preempt the “Legal Arizona Workers Act,” which sanctions employers who knowingly hire unauthorized aliens by suspending and revoking their licenses to do business in the state, and requires all employers to participate in the federal E-Verify program to confirm whether their new employees are authorized to work in this country, even though federal law makes the use of E-Verify voluntary for federal purposes.  The Court reasoned that (1) the Arizona law’s sanctions fall within the exception to the Immigration Reform and Control Act’s express preemption provision, as a “licensing [or] similar law”; and (2) the federal law establishing the E-Verify system “contains no language circumscribing state action” and its aims are not obstructed by Arizona’s requirement.

Supreme Court Cases and Other Legal Challenges

Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett To conclude its term, the U.S. Supreme Court ruled against two state laws. In a 5-4 decision, the Court found the Arizona law, which triggers public “matching funds” for candidates being outspent by privately financed opponents or outside groups, violates the First Amendment. Although Chief Justice John Roberts chose not to “call into question the wisdom of public financing,” he did affirm First Amendment free speech protections in his majority opinion on Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett. Several previous Court decisions have also favored free speech rights over campaign financing laws.

Sorrell v. IMS Health In the case, Sorrell v. IMS Health, the court struck downVermont’s Prescription Confidentiality Law. This law prohibits, absent the prescriber’s consent, the sale of prescriber-identifying information, as well as the disclosure or use of that information for marketing purposes, is subject to heightened judicial scrutiny because it imposes content- and speaker-based burdens on protected expression. The creation and dissemination of information are speech for First Amendment purposes. Vermont’s justifications for the prohibition cannot withstand such heightened scrutiny.

Brown v. Entertainment Merchants Association This case favored free speech rights over campaign financing laws. Coming up on the short end of a 7-2 Court decision, was this California ban against the sale or rental of violent video games to children. In Brown v. Entertainment Merchants Association, Justice Antonin Scalia’s majority opinion relied heavily on First Amendment protections.

State Flexibility

Legislative

Ending Federal Marijuana Prohibition Act On June 23, 2011, Congressman Barney Frank (D-MA) and Congressman Ron Paul (R-TX) introduced, H.R.2306, “Ending Federal Marijuana Prohibition Act” which decriminalizes marijuana at the federal level. The bill grants states authority to regulate marijuana without federal interference and amends the Controlled Substance Act of 1970 by removing marijuana from the list of scheduled substances. This is the first bill ever introduced in Congress to end federal marijuana prohibition.

Sponsor: Representative Frank, Barney (MA)

Status: 6/23/2011 Referred to the Committee on Energy and Commerce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Regulatory

“THE WATERS OF THE US” GUIDANCE The U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps), is issuing guidance pursuant to the Clean Water Act (CWA) and is changing the definitions of “Waters of the US”. As more waters are included under federal jurisdiction, state authority to regulate is removed. The implications of the guidance could preempt state and local governments and have an adverse economic impact. Because of its complexity, there may be unintended consequences to state and local programs. States requested and received an extension of time to comment on the proposed guidance. A thirty day extension was granted which expired on July 30, 2011. NCSL submitted comments on the guidance.

Recently Introduced, Pending, and Passed Legislation and Regulations

Children and Families

The Welfare Integrity Now for Children and Families ActS 943, The Welfare Integrity Now for Children and Families Act of 2011 or the WIN for Children and Families Act would require ATMs in liquor stores, casinos/gambling establishments or strip clubs to be inaccessible for Electronic Benefit Transfer (EBT) cards that contain Temporary Assistance for Needy Families (TANF) benefits. The legislation would impose a penalty of 5 percent of the state’s TANF grant for non-compliance.

Sponsor: Senator Orrin Hatch (UT)

Status: 5/11/2011 Referred to the Committee on Finance.

 

The Child Care Protection ActS. 581, The Child Care Protection Act of 2011 would require state agencies to conduct FBI background checks on child care providers and workers whose services are funded by the Child Care Block Grant (CCBG).  States would be allowed to charge fees to child care providers to recoup the costs of conducting the checks.  Additionally, the legislation requires states to provide an appeal process for child care staff members (or prospective members) who wish to challenge the accuracy or completeness of the results of the background check.

Sponsor: Senator Richard Burr (NC)

Status: 3/15/2011 Referred to the Committee on Health, Education, Labor, and Pensions.

 

The Julia Carson Responsible Fatherhood and Healthy Families HR 2193, The Julia Carson Responsible Fatherhood and Healthy Families Act of 2011 would require a state to pass through all monies collected through the Child Support Enforcement system to the family.  Currently, states have the option to retain part or all of the monies collected through the Child Support Enforcement system to reimburse the state for costs of providing cash welfare.

Sponsor: Representative Danny Davis (IL)

Status: 6/27/2011 Referred to the Subcommittee on Nutrition and Horticulture.

Finance 

Business Activity Tax Simplification Act The House Judiciary Committee approved the Business Activity Tax Simplification Act (BATSA) on a bipartisan voice vote. As passed, the bill and report include no information with regard to the cost (revenue loss) to states and local governments—or to the impact on in-state businesses.The bill, HR 1439, would impose a federally-mandated “nexus threshold” for state and local “business activity taxes” (BATs), the  most widely-levied state business activity taxes.  BATSA declares that a business must have a “physical presence” within a state before that jurisdiction may impose a BAT on the business.  This provision would nullify many state laws that assert that a non-physically-present business establishes nexus with the state when it makes economically-significant sales to the state’s resident individuals and/or businesses.  In so doing, the proposed legislation would reverse nearly a dozen state court decisions holding that physical presence is not required to establish nexus under a corporate income tax or other BAT. The preemption bill is intended to substantially raise the nexus threshold for corporate income taxes and other BATs — that is, to make it much more difficult for states or local governments to levy these taxes on out-of-state corporations.

Sponsor: Representative Bob Goodlatte (VA)

Status: 7/7/2011 Ordered to be Reported by Voice Vote.

 

Wireless Tax Fairness Act of 2011 The House Judiciary Committee passed and reported to the full House legislation to prohibit states or local governments from imposing any new discriminatory tax on mobile services, mobile service providers, or mobile service property (i.e., cell phones) for five years. The legislation, H.R. 1002 and S. 543, would define “new discriminatory tax” as a tax imposed on mobile services, providers, or property that is not generally imposed on other types of services or property, or that is generally imposed at a lower rate, unless such tax was imposed and actually enforced prior to the date of enactment of this Act. This legislation does not preempt any existing tax on state and local communications services.

H.R. 1002

Sponsor: Representative Zoe Lofgren (CA)

Status: 7/14/2011 House committee/subcommittee actions. Status: Ordered to be Reported (Amended) by Voice Vote.

S. 543

Sponsor: Senator Ron Wyden (OR)
Status:
3/10/2011 Read twice and referred to the Committee on Finance.

 

Digital Goods and Services Tax Fairness Act of 2011 Digital Goods and Services Tax Fairness Act of 2011, H.R. 1860 and S. 971 - Prohibits a state or local jurisdiction from imposing multiple or discriminatory taxes on or with respect to the sale or use of digital goods or services delivered or transferred electronically to a customer. These bills exclude from the definition of "digital service" telecommunications service, Internet access service, or audio or video programming service which is consistent with the streamlined sales and use tax agreement definitions. H.R. 1860 and S. 971 restrict taxation of digital goods and services by the jurisdiction encompassing a customer's tax address which is consistent with the federal Mobile Sourcing Act which is operational in all 50 states. These bills prohibits the use of existing regulations or administrative rulings relating to the taxation of tangible personal property or other services to impose any tax on the sale or use of digital goods or services. Aggrieved parties may take their case to federal district courts to prevent a violation of this act, without regard to the amount in controversy or the citizenship of the parties. Congress expresses the desire for each state to take reasonable steps to prevent multiple taxation of digital goods and services where a foreign country has imposed a tax on such goods and services.
H.R. 1860
Sponsor:
Representative Lamar Smith (TX)
Status: 5/23/2011 Referred to the Subcommittee on Courts, Commercial and Administrative Law.
S. 971
Sponsor:
Senator Ron Wyden (OR)
Status: 5/12/2011 Read twice and referred to the Committee on Finance.


Office of the Comptroller of the Currency
Preemption of state financial services laws as they might apply to national banks continues. Despite language in last year’s Dodd-Frank financial services reform law, the Office of the Comptroller of the Currency released a final rule on July 20 that confirms that the independent agency did not get or will not heed the message in Dodd-Frank. After stating it would delete a 2004 regulation that created a firewall around national banks from state laws conflicting with OCC’s perceived authority, the agency has returned to its “obstructs, impairs, or conditions” threshold for judging (the agency uses the term “re-examine”) state laws against national bank activities. The new regulation has greater punch since OCC is now vested with regulating thrifts. The OCC’s handiwork.  

The Digital Accountability and Transparency Act State governments will report directly to the federal government on all received grants, contracts and loans if H.R. 2146, the Digital Accountability and Transparency Act of 2011 (DATA Act), passes. This legislation would expand and make permanent the reporting requirements established under the American Recovery and Reinvestment Act. Introduced by California Representative Daniel Issa, the legislation received bipartisan applause at a June 14, 2011, hearing of the House Oversight and Government Reform Committee. Rep. Issa indicated a willingness to consider making federal funding available to states to carry out the legislation.  Virginia Senator Mark Warner introduced companion legislation. These transparency bills appear on their way to the goal line.

Sponsor: Representative Darell Issa (CA-43)

Status: 6/22/2011 Ordered to be reported in the Nature of a Substitute (Amended) by Voice Vote.

Immigration 

E-Verify On June 14, 2011, HR 2164 was introduced to make E-verify a permanent and mandatory verification system for all employers, including federal, state and local government. E-Verify is due to expire September 30, 2012. Under current law, E-Verify is a voluntary program, except for federal contractors, and it applies to newly-hired employees. Current law requires employers to hire applicants before using E-Verify.  The House bill would preempt state laws addressing E-Verify and employer sanctions; require states to use E-Verify; and require states to reverify employees whose employment eligibility has not yet been checked using the E-Verify system.

Sponsor: Congressman Lamar Smith (TX-21)

Status: 6/14/2011 Referred to the Committee on the Judiciary, and in addition to the Committees on Education and the Workforce, and Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.