The statute permitted these out-of-state companies to invest in Alabama assets and securities, which could reduce (though not eliminate) the higher tax.

The Court reasoned that, among the legitimate state purposes are encouraging the formation of new insurance companies in Alabama and capital investment by foreign insurance companies in Alabama assets and securities, not to mention raising revenue via taxation.

First, under the circumstances of the case, promotion of domestic business by discriminating against nonresidents is not a legitimate state purpose.

All insurance companies, domestic and foreign, were entitled to the tax breaks for the investment credits.

It argued that promoting domestic industry was a legitimate state interest, and the tax scheme was related to this purpose.