Tiq Bacchus Imports, Ltd v. Dias, 82-1565

• Decision Date: 29 June 1984
• Docket Number: No. 82-1565,82-1565
• Citation: 468 U.S. 263,82 L.Ed.2d 200,104 S.Ct. 3049
• Parties: [TIQ!]] BACCHUS IMPORTS, LTD. et al. v. Herbert H. DIAS, Director of Taxation of the State of Hawaii, et al
• Court: U.S. Supreme Court

468 U.S. 263

104 S.Ct. 3049

82 L.Ed.2d 200

[TIQ!]] BACCHUS IMPORTS, LTD. et al.

v Herbert H. DIAS, Director of Taxation of the State of Hawaii, et al.

No. 82-1565.

Supreme Court of the United States

Argued Jan. 11, 1984.

Decided June 29, 1984.

Syllabus

Hawaii imposes a 20% excise tax on sales of liquor at wholesale. But to encourage the development of the Hawaiian liquor industry, okolehao, a brandy distilled from the root of an indigenous shrub of Hawaii, and fruit wine manufactured in the State are exempted from the tax. Appellant liquor wholesalers, who sell to retailers at the wholesale price plus the tax, brought an action in the Hawaii Tax Appeal Court seeking a refund of taxes paid under protest and alleging that the tax is unconstitutional because it violates, inter alia, the Commerce Clause. The court rejected this constitutional claim, and the Hawaii Supreme Court affirmed, holding that the tax did not illegally discriminate against interstate commerce because the incidence of the tax is on the wholesalers and the ultimate burden is borne by consumers in Hawaii.

Held:

1. Appellants have standing to challenge the tax in this Court. Although they may pass the tax on to their customers, they are liable for it and must return it to the State whether or not their customers pay their bills. Moreover, even if the tax is passed on, it increases the price as compared to the exempted beverages, and appellants are entitled to litigate whether the tax has had an adverse competitive impact on their business. P. 267.

2. The tax exemption for okolehao and fruit wine violates the Commerce Clause, because it has both the purpose and effect of discriminating in favor of local products. Pp. 268-273.

(a) Neither the fact that sales of the exempted beverages constitute only a small part of the total liquor sales in Hawaii nor the fact that the exempted beverages do not present a "competitive threat" to other liquors is dispositive of the question whether competition exists between the exempt beverages and foreign beverages but only goes to the extent of such competition. On the facts, it cannot be said that no competition exists. Pp. 268-269.

(b) As long as there is some competition between the exempt beverages and nonexempt products from outside the State, there is a discriminatory effect. The Commerce Clause limits the manner in which a State may legitimately compete for interstate trade, for in the process of competition no State may discriminatorily tax products manufactured in any other State. Here, it cannot properly be concluded that there was no improper discrimination against interstate commerce merely because the burden of the tax was borne by consumers in Hawaii. Nor does the propriety of economic protectionism hinge upon characterizing the industry in question as "thriving" or "struggling." And it is irrelevant to the Commerce Clause inquiry that the legislature's motivation was the desire to aid the makers of the locally produced beverages rather than to harm out-of-state producers. Pp. 270-273.

3. The tax exemption is not saved by the Twenty-first Amendment. The exemption violates a central tenet of the Commerce Clause but is not supported by any clear concern of that Amendment in combating the evils of an unrestricted traffic in liquor. The central purpose of the Amendment was not to empower States to favor local liquor industry by erecting barriers to competition. Pp. 274-276.

4. This Court will not address the issues of whether, despite the unconstitutionality of the tax, appellants are entitled to tax refunds because the economic burden of the tax was passed on to their customers. These issues were not addressed by the state courts, federal constitutional issues may be intertwined with issues of state law, and resolution of the issues may necessitate more of a record than so far has been made. Pp. 276-277.

65 Haw. 566, 656 P.2d 724, reversed and remanded.

Frank H. Easterbrook, Chicago, Ill., for appellants.

William David Dexter, Olympia, Wash., for appellees.

Justice WHITE delivered the opinion of the Court.

Appellants challenge the constitutionality of the Hawaii liquor tax, which is a 20% excise tax imposed on sales of liquor at wholesale. Specifically at issue are exemptions from the tax for certain locally produced alcoholic beverages. The Supreme Court of Hawaii upheld the tax against challenges based upon the Equal Protection Clause, the Import-Export Clause, and the Commerce Clause. In re Bacchus Imports, Ltd., 65 Haw. 566, 656 P.2d 724 (1982). We noted probable jurisdiction sub nom. Bacchus Imports, Ltd. v. Freitas,, 462 U.S. 1130, 103 S.Ct. 3109, 77 L.Ed.2d 1365 (1983), and now reverse.

I

The Hawaii liquor tax was originally enacted in 1939 to defray the costs of police and other governmental services that the Hawaii Legislature concluded had been increased due to the consumption of liquor. At its inception the statute contained no exemptions. However, because the legislature sought to encourage development of the Hawaiian liquor industry, it enacted an exemption for okolehao from May 17, 1971, until June 20, 1981, and an exemption for fruit wine from May 17, 1976, until June 30, 1981.¹ Haw.Rev.Stat. §§ 244-4(6), (7) (Supp.1983). Okolehao is a brandy distilled from the root of the ti plant, an indigenous shrub of Hawaii. In re Bacchus Imports, Ltd., supra, 65 Haw. at 569, n. 7, 656 P.2d, at 727, n. 7. The only fruit wine manufactured in Hawaii during the relevant time was pineapple wine. Id., at 570, n. 8, 656 P.2d, at 727, n. 8. Locally produced sake and fruit liqueurs are not exempted from the tax.

Appellants—Bacchus Imports, Ltd., and Eagle Distributors, Inc.—are liquor wholesalers who sell to licensed retailers.² They sell the liquor at their wholesale price plus the 20% excise tax imposed by § 244-4, plus a one-half percent tax imposed by Haw.Rev.Stat. § 237-13 (Supp.1983). Pursuant to Haw.Rev.Stat. § 40-35 (Supp.1983), which authorizes a taxpayer to pay taxes under protest and to commence an action in the Tax Appeal Court for the recovery of disputed sums, the wholesalers initiated protest proceedings and sought refunds of all taxes paid.³ Their complaint alleged that the Hawaii liquor tax was unconstitutional because it violates both the Import-Export Clause ⁴ and the Commerce Clause ⁵ of the United States Constitution. The wholesalers sought a refund of approximately $45 million, representing all of the liquor tax paid by them for the years in question.⁶ The Tax Appeal Court rejected both constitutional claims. On appeal, the Supreme Court of Hawaii affirmed the decision of the Tax Appeal Court and rejected an equal protection challenge as well. It held that the exemption was rationally related to the State's legitimate interest in promoting domestic industry and therefore did not violate the Equal Protection Clause. 65 Haw. at 573, 656 P.2d, at 730. It further held that there was no violation of the Import-Export Clause because the tax was imposed on all local sales and uses of liquor, whether the liquor was produced abroad, in sister States, or in Hawaii itself. Id., at 578-579, 656 P.2d, at 732-733. Moreover, it found no evidence that the tax was applied selectively to discourage imports in a manner inconsistent with federal foreign policy or that it had any substantial indirect effect on the demand for imported liquor. Ibid. Turning to the Commerce Clause challenge, the Hawaii court held that the tax did not illegally discriminate against interstate commerce because "incidence of the tax . . . is on wholesalers of liquor in Hawaii and the ultimate burden is borne by consumers in Hawaii." Id., at 581, 656 P.2d, at 734.

II

The State presents a claim not made below that the wholesalers have no standing to challenge the tax because they have shown no economic injury from the claimed discriminatory tax. The wholesalers are, however, liable for the tax. Although they may pass it on to their customers, and attempt to do so, they must return the tax to the State whether or not their customers pay their bills. Furthermore, even if the tax is completely and successfully passed on, it increases the price of their products as compared to the exempted beverages, and the wholesalers are surely entitled to litigate whether the discriminatory tax has had an adverse competitive impact on their business. The wholesalers plainly have standing to challenge the tax in this Court.⁷

III

A cardinal rule of Commerce Clause jurisprudence is that "[n]o State, consistent with the Commerce Clause, may 'impose a tax which discriminates against interstate commerce . . . by providing a direct commercial advantage to local business.' " Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 329, 97 S.Ct. 599, 607, 50 L.Ed.2d 514 (1977) (quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S.Ct. 357, 362, 3 L.Ed.2d 421 (1959). Despite the fact that the tax exemption here at issue seems clearly to discriminate on its face against interstate commerce by bestowing a commercial advantage on okolehao and pineapple wine, the State argues—and the Hawaii Supreme Court held—that there is no improper discrimination.

A.

Much of the State's argument centers on its contention that okolehao and pineapple wine do not compete with the other products sold by the wholesalers.⁸ The State relies in part on statistics showing that for the years in question sales of okolehao and pineapple wine constituted well under one percent of the total liquor sales in Hawaii.⁹ It also relies on the statement by the Hawaii Supreme Court that "[w]e believe we can safely assume these products pose no competitive threat to other liquors produced elsewhere and consumed in Hawaii," In re Bacchus Imports, Ltd., 65 Haw. at 582, n. 21, 656 P.2d, at 735, n. 21, as well as the court's comment that it had "good reason to believe neither okolehao nor pineapple wine is produced elsewhere." Id., at n. 20...