This is because Congress has the power under the U.S. Constitution to restrict state taxation in certain circumstances. Importantly, even when Congress has the authority to exercise legislative power over the states, other provisions of the Constitution may limit those powers. It also provides examples of where Congress has appeared to act under each authority. Additionally, the Supreme Court has long held that the Commerce Clause, by granting Congress the sole authority to regulate commerce, implicitly prohibits states from unduly burdening such commerce, even in the absence of federal regulation. This restriction is known as the dormant Commerce Clause. Congress can also authorize state taxation that would otherwise be an unconstitutional burden, so long as it is consistent with other provisions in the Constitution—for example, Congress could not use this authority to pass a law that violates taxpayers' due process rights. In 1977, the Supreme Court articulated a four-prong test for determining when a state tax runs afoul of the dormant Commerce Clause: (1) the activity taxed has a substantial nexus with the state; (2) the tax is fairly apportioned to reflect the degree of activity that occurs within the state; (3) the tax does not discriminate against interstate commerce; and (4) the tax is fairly related to benefits provided by the state. Examples of Congressional Action

Below are examples of where it appears Congress has acted under the Commerce Clause to pass legislation affecting state taxation. It implicitly prevents states from taxing federal entities and property. Several other constitutional provisions—the Seat of Government Clause and the authority to erect forts, magazines, and arsenals —are similar in that they give Congress exclusive control over certain places and thus prohibit state taxation. Congress may use these authorities to clarify the scope of the federal tax immunity or to waive the immunity in specific instances. Finally, Congress's power to declare war and to raise and maintain the Armed Forces can also provide authority for legislation affecting state taxation of the Armed Forces. Examples of Congressional Action

The following are examples of Congress apparently acting under the Supremacy Clause or similar provisions to enact laws affecting state taxation. In general, these laws either waive federal immunity to permit state taxation of certain federal entities or clarify the immunity's scope. Tenth Amendment

Even if Congress has the constitutional authority to exercise legislative power over states, other provisions of the Constitution may, in certain instances, limit those powers. In general, however, under the Supreme Court's current interpretation of the Tenth Amendment, the Amendment does not represent a significant limit on Congress's ability to regulate state taxing authority. Spending Clause

The Spending Clause grants Congress the authority "to pay the debts and provide for the common defense and general welfare of the United States.... " One of the more significant ways that the federal government can encourage state behavior is to provide federal money to states and then impose conditions on that federal money. Although these examples, like most instances of grant conditioning by Congress, are constitutionally uncontroversial, the Supreme Court has suggested that there are limits on the Spending Clause authority. Further, the court noted that the grant condition was not a violation of the Tenth Amendment, which generally prevents Congress from "commandeering" state legislatures and executive branch officials to implement federal programs. The Clause expressly grants Congress the power to authorize state taxation that would otherwise be constitutionally impermissible (and is therefore similar to the implicit authority provided by the Commerce Clause, as discussed above). It does not appear that Congress has ever authorized states to tax under the Import-Export Clause.
A variety of clauses in the U.S. Constitution provide direct and implicit authority for Congress to enact legislation affecting the ability of states to impose taxes, and Congress has acted under several of them. In some situations, Congress has restricted the states' taxing power, such as by prohibiting them from taxing certain activities. In others, it has expanded the states' ability to tax, such as by waiving federal immunity to state taxation in specific circumstances.
Chief among these authorities is the Commerce Clause, which provides Congress with the authority to regulate interstate and foreign commerce. It has long been interpreted by the courts to contain an implicit restriction on state regulation and taxation that unduly burden interstate commerce—this is known as the dormant Commerce Clause. Under its commerce power, Congress can enact laws affecting state taxation of interstate commerce. In general, Congress has used this authority to limit state taxation, but it can also use it to expand the states' taxing power by authorizing state taxation that would otherwise violate the dormant Commerce Clause.
Other provisions in the Constitution that appear to contain an implicit authority for Congress to enact laws affecting state taxation include the Supremacy Clause and similar provisions in the Seat of Government Clause and the authority to erect forts, magazines, and arsenals. These provisions implicitly prohibit states from taxing federal entities. Congress has acted under them to waive the federal immunity and permit state taxation in certain circumstances, as well as to restrict states from taxing entities and activities that fall within the federal immunity. Similarly, Congress's War Powers could provide authority for legislation affecting state taxation of members of the Armed Forces.
Importantly, even if Congress has the constitutional authority to exercise legislative power over the states, other provisions of the Constitution may limit those powers. Two examples of the limitations that can be discussed in this context are the Tenth Amendment and the Spending Clause. In general, however, the Tenth Amendment, which prevents commandeering of state legislatures or executive branch officials to implement federal programs, has not been interpreted by the courts to represent a significant limit on Congress's ability to regulate state taxing authority. Nor have courts found there to be significant limits to Congress's power under the Spending Clause to encourage state behavior by conditioning the provision of federal money to the states. Most instances of grant conditioning by Congress appear to be constitutionally uncontroversial, so long as the grant conditions are related to the underlying grant and the amount of grant money conditioned is not so large as to be coercive.
Finally, two relatively obscure provisions of the Constitution—the Import-Export Clause and the Tonnage Clause—are also relevant. These prohibit states from enacting taxes on imports or exports and taxes based on tonnage, respectively. Both clauses expressly permit Congress to authorize what would otherwise be unconstitutional state taxation. However, it does not appear Congress has ever acted under these authorities.