Brief Fact Summary. Hawaii had a 20% liquor taxed but exempted from the tax certain locally produced alcoholic beverages. Bacchus Imports distributed liquor products and had to pay the 20% excise tax.
Synopsis of Rule of Law. No State may impose a tax which discriminates against interstate commerce by providing a direct commercial advantage to local business. The Twenty-first Amendment does not entirely remove state regulation of alcoholic beverages from the ambit of the Commerce Clause.
In 1939 Hawaii imposed a tax on liquor to pay for police and other governmental services that the Hawaii legislature concluded had been increased due to the consumption of liquor. At its inception the tax did not exempt local liquor, but subsequently the legislature wanted to encourage development of the Hawaiian liquor industry so it enacted exemptions for several liquors produced locally. Liquor wholesalers that paid the 20% excise tax sued to recover all the taxes paid, arguing that the Hawaii liquor tax was in violation of both the Import-Export Clause and the Commerce Clause of the United States Constitution. They requested a refund of approximately $45 million.
Issue. There were two issues:
Did Hawaii Liquor Tax exemption violate the Commerce Clause because it had the purpose and effect of discriminating in favor of local products?
Could the Twenty-first Amendment save the statute?
Held. (Justice White) The tax exemptions did violate the Commerce Clause and the Twenty-first Amendment could not save them. The judgment of the Supreme Court of Hawaii was reversed and the case was remanded for further proceedings.
The tax exemption clearly discriminated on its face against interstate commerce by bestowing a commercial advantage to local products. The purpose of the tax was undisputedly aimed at aiding the Hawaiian industry, and the discriminatory effect was obvious.
The Twenty-first Amendment did not entirely remove state regulation of alcoholic beverages from the ambit of the Commerce Clause. The central purpose could not have been to allow States to favor local liquor industries by erecting barriers to competition. The State does not seek to justify its tax by arguing that it was designed to carry out any purpose of the Twenty-first Amendment, but instead acknowledges that the purpose was to promote the local industry.
Dissent. Points of Law - for Law School Success
No State, consistent with the Commerce Clause, may impose a tax which discriminates against interstate commerce by providing a direct commercial advantage to local business. View Full Point of Law
Justice Stevens, Rehnquist and O’Connor.
The Twenty-First Amendment squarely foreclosed the wholesalers’ Commerce Clause claim. The Amendment authorized states to place a burden on intoxicating liquors that were imported into the state and to not impose a tax on liquors that were produced locally. Young’s Market, a case that was decided in 1936, upheld a California statute imposing a similar tax and noted that the statue would have been unconstitutional prior to the Twenty-First Amendment.
Hawaii may constitutionally prohibit the importation of all intoxicating liquors. It could do so without prohibiting the sale of local liquor. If the State has the constitutional power to create a total local monopoly, it may also engage in a less extreme form of discrimination by merely providing a special benefit in the form of a subsidy or tax exemption for locally produced alcoholic beverages.
The majority is taking a completely novel approach by saying that state laws favoring local liquor industries are not entitled to the same deference as laws enacted to combat the perceived evils of unrestricted traffic in liquor. Discussion.
The strongest basis for challenging a tax that would impact interstate commerce is the Commerce Clause. When evaluating such a tax, it is important to determine how much the legislature is discriminating against interstate commerce with its tax, and whether the legislature could gain similar revenue in a less discriminatory manner.