Memphis Retail Liquor Dealers' Ass'n, Inc. v. City of Memphis

• Decision Date: 21 February 1977
• Citation: 547 S.W.2d 244
• Parties: MEMPHIS RETAIL LIQUOR DEALERS' ASSOCIATION, INC., et al., Petitioners, v. CITY OF MEMPHIS et al., Respondents.
• Court: Tennessee Supreme Court

Page 244

547 S.W.2d 244

MEMPHIS RETAIL LIQUOR DEALERS' ASSOCIATION, INC., et al., Petitioners, v. CITY OF MEMPHIS et al., Respondents.

Supreme Court of Tennessee, at Jackson.

Feb. 21, 1977.

George T. Lewis, Jr., Lewis, McKee & Hall, Memphis, for petitioners.

Ross B. Clark, II, Laughlin, Halle, Regan, Clark & Gibson, Memphis, for respondents.

OPINION

FONES, Justice.

Plaintiffs, an unincorporated association of retail liquor dealers, brought this action for declaratory judgment challenging the imposition of a municipal inspection fee and/or privilege taxes. Their contentions are that the inspection fee contravenes the Export-Import Clause, Article 1, Section 10, Clause 2, of the United States Constitution, that it was repealed by implication by a later privilege tax, that if it was not repealed by the later tax, that the privilege tax cannot be applied and lastly that the State has preempted the field of inspections by virtue of a wholesale liquor sales tax act.

Both the Chancellor and Court of Appeals rejected all arguments and found the fee and privilege tax to be valid.

T.C.A. § 57-165, passed by the legislature in 1968, allows municipalities with populations over sixty thousand (60,000) to impose by ordinance an inspection fee on "licensed retailers of alcoholic beverages . . . located within said municipality." The fee is to be no more than five (5%) percent of the wholesale price of alcoholic beverages supplied by a wholesaler. T.C.A. § 57-166 provides that the fee will be collected by the wholesaler "at the time retailer makes payment for the delivery of the alcoholic beverages." T.C.A. § 57-168 further provides:

"Fee to be exclusive. The inspection fee provided for herein shall be in lieu of all other gross receipt or inspection fees imposed upon wholesalers or retailers of alcoholic beverages by municipalities and no other additional or similar fees shall be imposed by ordinance. . . ."

Pursuant to the preceding granted authority, the City of Memphis passed Ordinance No. 478 which implemented the five (5%) percent inspection fee.

In 1972, the legislature passed T.C.A. § 67-5801, et seq., which provided for the collection of certain privilege taxes. The tax specifically included alcoholic beverages and its retail levy on such beverages is one-tenth (1/10) of one percent (1%) of all retail sales. T.C.A. §§ 67-5805 and 5806. T.C.A. § 67-5801 provides, in part:

". . . It is the legislative intent that the taxes imposed by this chapter shall be in lieu of any or all ad valorem taxes on the inventories of merchandise held for sale or exchange by persons taxable under this chapter . . . ."

Plaintiffs first contend that the inspection fee violates the Export-Import clause of the federal constitution. They argue that the fee at times falls to rest on wholesalers who are in actuality importers of foreign goods. Mister Accardi, a Memphis wholesaler of alcoholic beverages, testified that the inspection fee is paid on wines and liquors imported from various countries and shipped directly to his wholesale house in Memphis. However, he acknowledged that the fees were not collected until after retailers had paid for their wholesale purchases.

In Department of Revenue v. James B. Beam Distilling Co., 377 U.S. 341, 84 S.Ct. 1247, 12 L.Ed.2d 362 (1964) the United States Supreme Court examined carefully what types of imposts could be levied on imported liquor. The case involved a Kentucky tax of ten cents on any distilled spirits coming into that state from points without. The tax resulted in Beam having to pay ten cents on each gallon of whiskey imported from Scotland. The Supreme Court held:

"The tax here in question is clearly of a kind prohibited by the Export- Import Clause . . . as this Court stated almost a century ago . . . 'the goods imported do not lose their character as imports . . . until they have passed from the control of the importer or been broken up by him from their original cases.' " 377 U.S. at 344, 84 S.Ct. at 1248 (Quoting Low v. Austin, 13 Wall. 29, 20 L.Ed. 517.

The distinction between Beam and the present case is evident. The tax is never levied upon the wholesaler under § 57-165, because it is paid only after the retailers have purchased and paid for the beverages from the wholesaler. Thus, unlike the wholesaler in Beam, the goods while not necessarily physically broken up have "passed from his control." We, therefore, find no violation of the export-import clause in the municipal inspection fee.

Before proceeding to the remainder of plaintiffs' contentions, we must first determine whether or not the inspection fee is actually what it purports to be, or is in reality a tax. In Tennessee, taxes are distinguished from fees by the objectives for which they are imposed. If the imposition is primarily for the purpose of raising revenue, it is a tax; if its purpose is for the regulation of some activity under the police power of the governing authority, it is a fee. City of Chattanooga v. Veatch, 202 Tenn. 338, 304 S.W.2d 326 (1956); Wright v. Town of Camden, 195 Tenn. 295, 259 S.W.2d 529 (1953); S. E. Greyhound Lines v. Knoxville, 181 Tenn. 622, 184 S.W.2d 4 (1944).

The evidence shows that in fiscal year 1974, the City of Memphis collected $1,678,041.45 from the inspection fee. The total appropriation for the city commission charged with the municipal inspections of sales of alcoholic beverages was only $35,000.00 for the same year.

In City of Chattanooga v. Veatch, supra, this Court held that the amount of revenue raised did not convert a licensing fee into a tax:

"It is no objection to a regulatory license that it produces more income than is required for its administration and enforcement." 202 Tenn. at 340, 304 S.W.2d at 327.

Plaintiffs insist that the bounds of this rationale is exceeded because the revenue generated is two hundred (200) times the cost of regulation. This argument might be valid if the activity regulated was anything other than the liquor business.

It is defendants' position that alcoholic beverages are a special activity and the fees imposed are actually part of the regulation. This theory stems from an old...