CELLARMASTER WINES OF MISSOURI v. Kennedy

• Decision Date: 22 January 1985
• Docket Number: Civ. A. No. 84-4113.
• Parties: CELLARMASTER WINES OF MISSOURI, INC., Plaintiff, v. Thomas J. KENNEDY, Director, Alcoholic Beverage Control Div., Kansas Department of Revenue, Defendant.
• Court: U.S. District Court — District of Kansas

603 F. Supp. 793

CELLARMASTER WINES OF MISSOURI, INC., Plaintiff, v. Thomas J. KENNEDY, Director, Alcoholic Beverage Control Div., Kansas Department of Revenue, Defendant.

Civ. A. No. 84-4113.

United States District Court, D. Kansas.

January 22, 1985.

Michael W. Merriam, of Colmery, McClure, Letourneau, Entz & Merriam, Topeka, Kan., for plaintiff.

Richard Hodson, Asst. Atty. Gen., Topeka, Kan., for defendant.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Chief Judge.

This matter comes before the court on the motion of plaintiff Cellarmaster Wines of Missouri, Inc., (Cellarmaster) for a preliminary injunction. Cellarmaster and defendant Thomas J. Kennedy, Director of the Kansas Department of Revenue's Alcoholic Beverage Control Division, (the Director) have submitted a "Stipulation of Facts" to accompany the motion. For the reasons set out below, we will deny the injunction.

I. Facts.

The following nine paragraphs constitute the Stipulation of Facts submitted by the parties. (We note that the ninth Stipulation of Fact is immaterial to our decision in this matter.)

1. That plaintiff, Cellarmaster, is a Missouri corporation licensed to do business at 6942-6942 ½ North Oak Traffic Way, Gladstone, Missouri, and is engaged in the business of intrastate and interstate commerce as a retailer of alcoholic liquor, principally wine, from its licensed premises, as above.

2. Defendant Kennedy, acting in his capacity as the Director of Alcoholic Beverage Control Division of the Kansas Department of Revenue (hereinafter "Director"), is charged with the duty of regulating the distribution and sale of intoxicating liquor within the State of Kansas and in accordance with the laws of the State of Kansas, including the Kansas Liquor Control Act, K.S.A. 41-101 et seq.

3. Cellarmaster is a licensed retailer of alcoholic liquor in the State of Missouri —Division of Liquor Control. Cellarmaster is a wholly owned subsidiary of Cellarmaster Wines, Inc., a Florida corporation, which is a wholly owned subsidiary of Aura Promotions Ltd., a Delaware corporation.

4. The State of Missouri has authorized the sale of distilled spirits, wine and beer through private enterprise pursuant to the Twenty-First Amendment to the United States Constitution. Cellarmaster is licensed by the State of Missouri to sell distilled spirits, wine and beer from its retail outlets in the State of Missouri.

5. Cellarmaster has and does sell wine to Kansas residents from its licensed premise in Gladstone, Missouri.

6. On or about August 3, 1983, Cellarmaster, through its counsel, Mr. Morton Siegel, was notified by Mr. Richard Hodson, Assistant Attorney General, on behalf of the Director, that the activities of Cellarmaster were considered to be illegal under the laws of the State of Kansas. Such notification was based upon the assertion that Cellarmaster was selling alcoholic liquor in Kansas without a license and in violation of K.S.A. 41-104, K.S.A. 41-301, K.S.A. 41-308 and K.S.A. 41-901; that Cellarmaster was selling untaxed liquor in violation of K.S.A. 41-501 and K.S.A. 41-901 and that Cellarmaster was transporting liquor into the State of Kansas in violation of K.S.A. 41-724.

7. By letter dated September 23, 1983, the Director requested from Cellarmaster restitution of gallonage and enforcement taxes, including penalty and interest, on estimated sales in Kansas for the previous twelve months. In exchange for this payment, the Director agreed not to pursue other legal remedies against Cellarmaster for any prior illegal acts in Kansas. Payment was made on or around September 29, 1983.

8. Cellarmaster has, and does, and stands prepared to, voluntarily collect and remit the gallonage tax collectible pursuant to K.S.A. 41-501.

9. Sometime in March, 1978, a gift consisting of 15 cases of wine was delivered to the City of Wichita, Kansas, from Orleans, France. Special legislation was passed to allow the city to pay the gallonage tax upon that wine, which action the legislature felt was necessary to allow the city to possess this wine.

II. Statutory Framework.

Before summarizing the respective positions of the parties, it seems wise to lay out the statutory framework at issue here. The Kansas Liquor Control Act, K.S.A. 41-101 et seq., contains the following general prohibition:

No person shall manufacture, bottle, blend, sell, barter, transport, deliver, furnish or possess any alcoholic liquor for beverage purposes, except as specifically provided in this act.

K.S.A. 41-104. The only exception relevant to this case provides that

nothing contained in this act shall prevent:

(1) The possession and transportation of alcoholic liquor for the personal use of the possessor, his or her family and guests except that the provisions of K.S.A. 41-1103 relating to transportation and the provisions of K.S.A. 41-407 shall be applicable to all persons.

K.S.A. 41-104(1).

Of the two provisions referred to in this exception, K.S.A. 41-1103 was merely transitional and is no longer relevant. The other provision, K.S.A. 41-407, provides that

(a) It shall be unlawful for any person to:

(1) Evade, or attempt to evade, the payment of tax or duty on any alcoholic liquor, in any manner whatever....

(2) Have in his or her possession any cask or package of alcoholic liquor, without having thereon each mark and stamp required therefor by law.

K.S.A. 41-407(a)(1), (2).

Under K.S.A. 41-501, the State of Kansas imposes a tax "upon the manufacturing, using, selling, storing or purchasing of alcoholic liquors in this state...." K.S.A. 41-501(b)(1). Subparagraph (b)(2) of the same section provides, in full, that:

(2) The tax imposed by this section shall be paid only once and shall be paid by the person in this state or federal area who first manufactures, uses, sells, stores, purchases or receives the alcoholic liquors. The tax shall be collected and paid to the director as provided in this act. If the alcoholic liquor is manufactured and sold in this state or a federal area, the tax shall be paid by the manufacturer or farm winery producing it. If the alcoholic liquor is imported into this state by a distributor for the purpose of sale at wholesale in this state or a federal area, the tax shall be paid by the distributor.

Finally, K.S.A. 41-502 provides that "payment of the tax provided for in K.S.A. 41-501 and amendments thereto shall be evidenced by tax stamps or crowns to be affixed to each original package of alcoholic liquor, except wine and brandy, for use in this state." (Emphasis added.)

III. Positions of the Parties.

An explanation of the dispute now existing between these two parties requires resort to sources other than the Stipulation of Facts. In its complaint, for example, Cellarmaster alleges that K.S.A. 41-104(1) permits Kansas residents to purchase wine from Cellarmaster in Missouri and transport that wine into Kansas—so long as (1) the possession and transportation of that wine is for the personal use of the purchaser, his or her family, and guests, and (2) the purchaser complies with the provisions of K.S.A. 41-407. Since wine is exempt from the tax stamp requirement, see K.S.A. 41-502, the mandate of K.S.A. 41-407(a)(2) is automatically satisfied. That leaves only K.S.A. 41-407(a)(1), concerning the evasion of, or attempt to evade, payment of tax on the wine.

The Director contends that the latter requirement simply cannot be met by Kansas residents who choose to purchase wine from nonresident sellers. It is the Director's position that an individual Kansas resident may not pay the applicable taxes directly to the State of Kansas. Relying on K.S.A. 41-501(b)(2), the Director asserts that the only parties eligible to pay such tax are Kansas manufacturers and Kansas distributors of wine.

Cellarmaster seeks to circumvent the Director's interpretation of K.S.A. 41-501(b)(2) by voluntarily collecting the Kansas tax from Kansas wine purchasers at its Missouri store. Cellarmaster would then remit these tax monies directly to the State of Kansas. In its view, the Kansas purchaser would thus not be evading or attempting to evade payment of tax on wine later found to be in his or her possession within the State of Kansas. If Cellarmaster's view were adopted by the Director, Kansas residents who chose to purchase wine from Cellarmaster at its Missouri store could presumably transport that wine into the State of Kansas without fear of prosecution. Cellarmaster concludes that such a change in the Director's interpretation of these statutes would increase its sales of wine to Kansas residents.

Although the parties would presumably agree that the above paragraphs correctly set out their respective positions in this matter, they do not agree on the legal issue presented to the court. According to Cellarmaster's brief, the issue is as follows:

May the Kansas Director of Alcoholic Beverage Control prevent a nonresident retailer of wine products from voluntarily collecting and remitting to the Director applicable Kansas gallonage taxes on wine sold to Kansas residents?

Plaintiff's Brief at 1. Cellarmaster would answer this question in the negative. It asserts that the Director's current interpretation of this Act is beyond his statutory authority, and thus deprives Cellarmaster of its liberty or property without due process of law. (Cellarmaster makes no claim, however, that the Act itself is unconstitutional.)

The Director focuses on quite a different issue. In his view, the Kansas statutes outlined in part II of this Memorandum have no direct effect on Cellarmaster. Subject only to regulation by the Missouri Division of Liquor Control, Cellarmaster is always free to collect from its Kansas customers an amount equal to the Kansas gallonage tax, and even to voluntarily remit that money to the State of Kansas. The dispute is over what effect such collection and voluntary remission of those funds should have on Kansas residents. While Cellarmaster would have its activities...