Opinion ID: 1169485
Heading Depth: 1
Heading Rank: 2

Heading: relation of state and federal law

Text: We begin by outlining the complex structure of the problem before us. The complexity arises from the relation between state and federal law before reaching a question of the relation between church and state. Seen from the national perspective, the Federal Unemployment Tax Act (FUTA), 26 U.S.C. §§ 3301 to 3311 (1982), is a tax law, as its name indicates. The Congress that enacted it in 1935 did not undertake to create a nationally administered unemployment compensation system. Whether by reason of constitutional misgivings, [1] tradition, or policy, the choice was to leave unemployment insurance programs to the states, but to impel them to adopt adequate programs whose costs individual states were reluctant to impose on their domestic enterprises for fear of placing them at a competitive disadvantage. The chosen device was a federal payroll tax on employers, 90 percent of which could be offset by any payments a state might exact for a state unemployment compensation program that met prescribed federal standards. FUTA did not and does not purport to command states to maintain unemployment compensation programs; it relies on the incentive not to expose the state's employers to a federal payroll tax without the credit allowed for a state tax. Nor does FUTA prevent a state from extending the coverage of its unemployment insurance laws beyond federal requirements. Compliance of a state's program with the standards stated in FUTA and interpreted and administered by the United States Department of Labor therefore is not commanded by the Supremacy Clause; [2] constitutionally, compliance is voluntary on the part of the state, though not practically or politically so. FUTA addresses taxpayers, not state legislatures. This view of the scheme was sustained in Steward Machine Co. v. Davis, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. 1279 (1937). Whether a state chooses to conform its law to federal standards is its own business, as far as FUTA is concerned. From the perspective of a state court, accordingly, a taxpayer's challenge to collection of the state's unemployment tax involves in the first instance an interpretation of the state's law. A state law may have been designed to meet the standards that will qualify the state for a federal benefit, in this instance to qualify local employers for a federal tax credit. It is possible, however, that a state law fails to meet federal standards in some respect, or that it originally meets them but federal standards subsequently change. When such a situation presents a conflict between two regulatory statutes, the Supremacy Clause obliges a court to apply the federal law, but as already noted, that obligation is not characteristic of programs sometimes described as cooperative federalism such as unemployment compensation. See Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 525-26, 57 S.Ct. 868, 880, 81 L.Ed. 1245, 1262 (1937). If a state's program fails to meet federal standards, ordinarily this failure neither violates federal law nor invalidates the state's law; it forfeits the federal benefit. Examination of the state's law includes the state's constitution. Again, if federal law imposes a binding obligation on a state, its constitution cannot obstruct that obligation; but a legislature cannot violate the state's constitution in order to qualify for a benefit that Congress leaves optional. The relationship becomes difficult when a court is convinced that the legislature enacted a law with the intent of meeting all applicable federal standards, but there is doubt what those standards are. The law, of course, may leave a state agency sufficient discretion to administer and adapt its program as needed to qualify for federal funds. Even a nondiscretionary statute can be interpreted once to enact whatever the federal law requires at that time. Once interpreted, however, the same statute may fall short of later changes in federal requirements, and legislative amendment may be needed. A court therefore must be cautious in construing the state statute to conform to a federal agency's current views of the corresponding federal standards, if those views are debatable and subject to change by the agency or by a different judicial interpretation of the federal statute. Finally, the federal statute, or its interpretation by the federal agency, may be invalid under the United States Constitution. In consequence, a court seeking to interpret and apply the state's law may find itself obliged to examine the validity of a federal agency's interpretation of a federal statute and even the constitutionality of the federal statute itself. No state court can have the final word on these federal questions; but until the United States Supreme Court decides them, the state court in that respect is in the same position as a lower federal court. And a state supreme court does have to reach a final decision as to the state law that seeks to take advantage of the disputed federal statute. That is the awkward situation presented by this case.