The differences between U.S. state laws can be considerable. For many observers from abroad, this is one of the most striking features of the American legal system.
Understanding these differences is key for the success of foreign businesses that want to establish a presence in the United States. One key consideration is taxes. Most states impose their own income taxes (separate from the federal income tax), at varying rates, but some states do not impose an income tax at all. Company formation requirements also vary according to the state.
In fact, differences between state laws manifest themselves in all sorts of ways. When I was a law student in Indiana, I lived just under three miles away from the Michigan border. Back then, Indiana prohibited the sale of alcohol on Sundays, but Michigan allowed it during certain hours. Indiana residents could, if they chose, cross into Michigan to buy beer (nothing, of course, that my fellow students and I would consider, focused as we were on our law studies).
The border and the different state laws on each side had more serious implications as well. Indiana has capital punishment, while Michigan does not. The consequences of a crime can be radically different for the perpetrator depending on which side of Stateline Road it takes place.
For some, discrepancies between state laws are problematic. Yet, as the expression goes, these differences are a feature, not a bug, of the American system. As Supreme Court Justice Louis Brandeis eloquently put it, “a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” New State Ice Co. v. Liebmann, 285 U.S. 262 (1932).
These days, Michigan is not an outlier when it comes to capital punishment, but it sure was back when it first abolished it, in 1846. For death penalty opponents in the United States, Michigan changed the terms of the debate. While capital punishment remained legal in most of the United States after Michigan’s move, its advocates could no longer assert that it was uniformly the law of the land.
A similar dynamic has taken place with cannabis. Two decades ago, cannabis detractors could make doomful predictions about what legalization would look like, unencumbered by practical experiences. But the courageous steps by legalization pioneers like Washington State provided and continue to provide real-life case studies for other states to consider.
And there is now considerable divergence between states regarding abortion laws, in the aftermath of the Supreme Court’s decision in the Dobbs case. While abortion remains legal in many states, it has quickly become outlawed in many others.
There are of course those who reject Brandeis’ vision and call for greater consistency between state laws, at least when it comes to certain topics. I suspect that, often, these calls are driven by a belief that the resulting legal situation will be to their liking. However, the result of one-size-fits-all rules could be the opposite.
Regardless of where you stand on these issues at a theoretical level, the fact is that differences exist between state laws, and these differences matter. For foreign businesses, this can lead to some challenges, but also to opportunities.