Division of Alcoholic Beverages and Tobacco v. McKesson Corp., 70368

• Decision Date: 15 January 1991
• Docket Number: No. 70368,70368
• Citation: 16 Fla. L. Weekly 90,574 So.2d 114
• Parties: 16 Fla. L. Weekly 90 DIVISION OF ALCOHOLIC BEVERAGES AND TOBACCO, et al., Appellants/Cross-Appellees, v. McKESSON CORPORATION, et al., Appellees/Cross-Appellants.
• Court: Florida Supreme Court

Page 114

574 So.2d 114

16 Fla. L. Weekly 90

DIVISION OF ALCOHOLIC BEVERAGES AND TOBACCO, et al., Appellants/Cross-Appellees, v. McKESSON CORPORATION, et al., Appellees/Cross-Appellants.

No. 70368.

Supreme Court of Florida.

Jan. 15, 1991.

Robert A. Butterworth, Atty. Gen. and Joseph C. Mellichamp, III, Sr. Asst. Atty. Gen., and Gary R. Rutledge, Marguerite H. Davis and Paul R. Ezatoff, Jr. of Katz, Kutter, Haigler, Alderman, Davis, Marks & Rutledge, P.A., Tallahassee, for Jacquin-Florida Distilling Co., Inc. and Todhunter Intern., Inc.,

Thomas T. Steele and Charles A. Wachter of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., Tampa, and David G. Robertson and Neal S. Berinhout of Morrison & Foerster, San Francisco, Cal., for appellee/cross-appellant.

Wilbur E. Brewton and J. Riley Davis of Taylor, Brion, Buker & Greene, Tallahassee, Amicus Curiae for Nat. Distributing Co., Inc.

Michael P. McMahon and Gregory J. Kelly of Akerman, Senterfitt & Eidson, Orlando, Amicus Curiae for Orlando Holding, Inc.

Geoffrey Todd Hodges and Raymond T. Elligett, Jr. of Shackleford, Farrior, Stallings & Evans, P.A., Tampa, Amicus Curiae for The House of Midulla, Inc.

ON REMAND

EHRLICH, Senior Justice.

In Division of Alcoholic Beverages & Tobacco v. McKesson Corp., 524 So.2d 1000 (Fla.1988), rev'd in part, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), this Court affirmed a summary judgment ruling that Florida's alcoholic beverage tax scheme, as set forth in sections 564.06 and 565.12, Florida Statutes (1985), which gave tax preferences and exemptions to certain alcoholic beverages made from crops which are adapted to growing in Florida, unconstitutionally discriminated against interstate commerce. ¹ We also affirmed that portion of the judgment giving the ruling prospective effect, thereby denying McKesson a refund of the difference between the tax rate of the disfavored beverages and that of those favored. ²

The United States Supreme Court, in McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), reversed that portion of this Court's decision affirming the denial of postpayment relief and remanded to this Court for further proceedings consistent with its opinion. The Supreme Court held that

if a State places a taxpayer under duress promptly to pay a tax when due and relegates him to a postpayment refund action in which he can challenge the tax's legality, the Due Process Clause of the Fourteenth Amendment obligates the State to provide meaningful backward-looking relief to rectify any unconstitutional deprivation.

110 S.Ct. at 2247 (footnote omitted). In this case, Florida required taxpayers to raise their objections to the tax at issue in a postdeprivation refund action pursuant to section 215.26, Florida Statutes (1985). Therefore, the Court reasoned that to satisfy due process, the state must provide McKesson with "not only a fair opportunity to challenge the accuracy and legal validity of [its] tax obligation, but also a 'clear and certain remedy' for any erroneous or unlawful tax collection to ensure that the opportunity to contest the tax is a meaningful one." Id. 110 S.Ct. at 2251 (footnote and citation omitted). After looking to a line of cases dealing with the issue, the Court explained that because

a State found to have imposed an impermissibly discriminatory tax retains flexibility in responding to this determination[,] Florida may reformulate and enforce the Liquor Tax during the contested tax period in any way that treats petitioner and its competitors in a manner consistent with the dictates of the Commerce Clause.

Id. 110 S.Ct. at 2252. Under the Court's opinion, the state may meet its obligation of providing "meaningful backward-looking relief," id. 110 S.Ct. at 2247, for the unconstitutional deprivation which occurred in this case by

refunding to petitioner the difference between the tax it paid and the tax it would have been assessed were it extended the same rate reductions that its competitors actually received.... Alternatively, to the extent consistent with other constitutional restrictions, the State may assess and collect back taxes from petitioner's competitors who benefited from the rate reductions during the contested tax period, calibrating the retroactive assessment to create in hindsight a nondiscriminatory scheme.... Finally, a combination of a partial refund to petitioner and a partial retroactive assessment of tax increases on favored competitors, so long as the resultant tax actually assessed during the contested tax period reflects a scheme that does not discriminate against interstate commerce.

Id. 110 S.Ct. at 2252 (footnote and citation omitted). The Court has expressly provided that it is the state which has the option of choosing which form of relief it will provide, so long as that relief satisfies the minimum federal requirements outlined in the Court's opinion. Id. 110 S.Ct. at 2258.

Accordingly, the Division of Alcoholic Beverages and Tobacco (DABT) was granted leave to advise this Court of the form of relief the state wishes to provide. The state proposes to retroactively assess and collect taxes from those of McKesson's competitors who benefited from tax rate reductions during the contested tax period. DABT seeks to implement the scheme by promulgating an emergency rule setting forth the procedure for the retroactive assessment and collection of the tax.

McKesson contends that a tax refund is the only "clear and certain remedy" because the retroactive taxation of its competitors would, among other things, violate the due process rights of those sought to be taxed and therefore would not be "consistent with other constitutional restrictions." (Quoting 110 S.Ct. at 2252). Amici, National Distributing Company, Inc., Orlando Holding, Inc., and House of Midulla, Inc., all wholesale distributors of alcoholic beverages that will be subject to the retroactive tax, agree with McKesson that the state's chosen remedy will violate various state and federal restrictions.

In light of the state's proposal, we remand to the trial court for further proceedings on McKesson's claim for a refund. While McKesson may not necessarily be entitled to a refund, it is entitled to a "clear and certain remedy," as outlined in the Supreme Court's opinion. Because nonparties, such as amici, will be directly affected by the retroactive tax scheme proposed by the state, all affected by the proposed emergency rule must be given notice and an opportunity to intervene in this action. Therefore, on remand, the trial court not only must determine whether the state's proposal meets "the minimum federal requirements" outlined in the Supreme Court's opinion, it also must determine whether the proposal comports with federal and state protections afforded those against whom the proposed tax will be assessed.

We emphasize that the state has the option of choosing the manner in which it will reformulate the alcoholic beverage tax during the contested period so that the resultant tax actually assessed during that period reflects a scheme which does not discriminate against interstate commerce. Therefore, if the trial court should rule that the state's proposal to retroactively assess and collect taxes from McKesson's competitors does not meet constitutional muster and such ruling is upheld on appeal, the state may offer an alternative remedy for the trial court's review. However, any such proposal likewise must satisfy the standards set forth by the Supreme Court as well as be consistent with other constitutional restrictions.

Accordingly, that portion of the trial court's judgment denying McKesson postpayment relief is reversed and the cause is remanded for further proceedings consistent with this opinion and that of the United States Supreme Court.

It is so ordered.

SHAW, C.J., and McDONALD and KOGAN, JJ., concur.

OVERTON, J., concurs with an opinion.

BARKETT, J., concurs specially with an opinion.

GRIMES, J., concurs with an opinion, in which BARKETT, J., concurs.

OVERTON, Justice, concurring.

As explained in the majority opinion, the United States Supreme Court has given the state three alternatives to right the unconstitutional exemption:

(1) The state may refund to McKesson and like-positioned distributors the difference between the tax they paid and the tax they would have been assessed. In this instance, the state would be required to refund possibly $285 million to McKesson and like-positioned distributors. I agree with Justice Ehrlich's statement in our initial opinion ³ that this result would constitute a windfall to McKesson and the other distributors since they have already collected the bulk of this tax from the public through the sale of alcoholic beverages.

(2) The state may assess and collect back taxes from the beneficiaries of the tax exemption as long as such assessment comports with other constitutional restrictions, including that it is not harsh or oppressive. This alternative would result in the state's seeking to recover $8.1 million in back taxes from the beneficiaries of the tax exemption. In this instance, these distributors would not have an opportunity to collect this additional tax from the public to which they sold the alcoholic beverages.

(3) The state may utilize a combination of a partial refund and a partial retroactive tax assessment. I have no idea how a scheme could be devised to make this alternative work under the circumstances of this case.

It is important to note that this case was not remanded to the Supreme Court of Florida in order for this Court to decide which alternative means should be chosen to rectify this wrong. The case was remanded for the "state" to decide. Since the executive branch is charged with implementing the tax laws, collecting the taxes, and operating the government in accordance with those laws, I find that it is a clear function of the executive branch...