United States v. STATE TAX COM'N OF STATE OF MISSISSIPPI

• Citation: 378 F. Supp. 558
• Decision Date: 12 June 1974
• Docket Number: Civ. A. No. 4554.
• Parties: UNITED STATES of America, Plaintiff, v. STATE TAX COMMISSION OF the STATE OF MISSISSIPPI et al., Defendants.
• Court: U.S. District Court — Southern District of Mississippi

378 F. Supp. 558

UNITED STATES of America, Plaintiff, v. STATE TAX COMMISSION OF the STATE OF MISSISSIPPI et al., Defendants.

Civ. A. No. 4554.

United States District Court, S. D. Mississippi, Jackson Division.

June 12, 1974.

Robert E. Hauberg, U. S. Atty., Jackson, Miss., for plaintiff.

Guy N. Rogers, Asst. Atty. Gen., Taylor Carlisle, James E. Williams, State Tax Comm., Jackson, Miss., for defendants.

Before CLARK, Circuit Judge, RUSSELL, Chief District Judge, and COX, District Judge.

OPINION

CLARK, Circuit Judge:

We are called upon to solve another of the recurring conflicts between the power to tax and the right to be free from taxation which are inevitable where two governments function at the same time and in the same territory.

In arguing the case of McCulloch v. Maryland, Luther Martin, Attorney General of Maryland, himself a member of the Constitutional Convention, said, "The whole of this subject of taxation is full of difficulties, which the Convention found it impossible to solve, in a manner entirely satisfactory. . . . This was one of the anomalies of the government, the evils of which must be endured, or mitigated by discretion and mutual forbearance." McCulloch v. Maryland, 4 Wheat. 316, 376, 4 L.Ed. 579. Where discretion and forbearance have failed it often has fallen to this Court to determine specific cases for which the Convention was unable to agree upon a general rule. Looking backward it is easy to see that the line between the taxable and the immune has been drawn by an unsteady hand.

United States v. Allegheny County, 322 U.S. 174, 175-176, 64 S.Ct. 908, 910, 88 L.Ed. 1209 (1944).

In the case at bar, the State of Mississippi and the federal government are brought into conflict through exercises of their respective sovereign power, which each claims is paramount to the other under the Constitution. More precisely, our task today is to determine whether the State's exaction of a tax on wholesale sales by independent vendors of liquor to federal military organizations violates the immunity of the United States from state taxation or impermissibly interferes with federal military procurement policy and regulations.

Under the XXI Amendment, the State of Mississippi controls the importation and sale of intoxicating liquor through an integrated statutory scheme under which the State Tax Commission is designated as the sole importer and wholesaler of alcoholic beverages, which may be distributed only to licensed retailers within the state, "including . . . any retail distributors operating within any military post . . . within the boundaries of the state . . . ."¹ The statutory plan directs the Commission to "add to the cost of all alcoholic beverages which it distributes to retailers such . . . markups as in its discretion will be adequate to cover the cost of operation of the state wholesale liquor business, yield a reasonable profit, and be competitive with liquor prices in neighboring states."² Pursuant to its delegated authority, the Commission promulgated Regulation 25,³ which gives military clubs an option to purchase liquor either from the Commission or directly from the distiller. Of the four military organizations involved, two are located on Keesler Air Force Base and the Naval Construction Battalion Center in Harrison County, Mississippi. The United States possesses exclusive jurisdiction over these bases. The remaining two are operated on Columbus Air Force Base and Meridian Naval Air Station in Lauderdale County, Mississippi. The United States and the State of Mississippi exercise concurrent jurisdiction on these bases. All of the clubs have opted to procure their liquor provisions directly from out-of-state distillers and suppliers. Under Regulation 25 these distillers and suppliers must remit the wholesale markup of 17% on distilled spirits and 20% on wine to the Commission or face severe sanctions.⁴ After a considerable period of operations under the regulation, the United States instituted this litigation seeking declaratory and injunctive relief prohibiting application and enforcement of the regulation against purchases by the armed services clubs and a money judgment returning all revenues transmitted by these purchasers through their suppliers to the Commission. The complaint alleged that the State, through enforcement of Regulation 25, had unconstitutionally encroached upon the sovereignty of the United States by (1) legislating as to territory over which the federal government enjoys exclusive jurisdiction, (2) exacting a tax from federal instrumentalities, and (3) obstructing federal military procurement regulations and policy.

On the basis of the State's express XXI Amendment regulatory dominion over packaged liquor transactions, this court sustained the regulation in the face of the government's constitutional attacks, found it unnecessary to reach the remaining questions and rendered judgment in favor of the defendant Commission. United States v. State Tax Commission, 340 F.Supp. 903 (S.D. Miss.1972). On direct appeal the United States Supreme Court reversed, holding that we erred "in concluding that the Twenty-first Amendment provides the State with sufficient authority over liquor transactions to support the application of the Regulation to the two bases over which the United States exercises exclusive jurisdiction . . . ." 412 U.S. 363, 368, 93 S.Ct. 2183, 2187, 37 L. Ed.2d 1 (1973). The Court's mandate vacated the judgment for the Commission and remanded the cause to us for determination of the issues we declined to reach in our prior decision.⁵

I. Exclusive Federal Enclaves

While acknowledging that it cannot assert its XXI Amendment police powers as to the transportation or importation of intoxicating liquors into exclusively federal enclaves, the Tax Commission nevertheless contends that Congress has, by virtue of the Buck Act, 4 U.S.C. A. §§ 104-110 (Supp.1974), authorized and consented to the application of Mississippi's markup to wholesale liquor transactions between nonresident distillers and suppliers and the federal operatives on such military bases. Section 105(a) of the Act provides:

No person shall be relieved from liability for payment of, collection of, or accounting for any sales or use tax levied by any State, or by any duly constituted taxing authority therein, having jurisdiction to levy such a tax, on the ground that the sale or use, with respect to which such tax is levied, occurred in whole or in part within a Federal Area . . . ."

Act of July 30, 1947, § 1, 61 Stat. 644, 4 U.S.C. § 105(a).⁶ Another provision of the statute, section 107(a), limits section 105(a) by providing that it "shall not be deemed to authorize the levy or collection of any tax on or from the United States or any instrumentality thereof . . . ." 4 U.S.C.A. § 107(a) (Supp.1974). The Supreme Court certified two Buck Act issues for determination by this court on remand: "Whether the markup should be treated as a tax on sales occurring within a federal area within the meaning of § 105(a), . . . and, if so, whether the exception contained in § 107(a) nevertheless serves to remove the markup from the consent provision for purposes of the two exclusively federal enclaves . . . ." 412 U.S. at 379, 93 S.Ct. at 2193. Because we conclude that the first of these questions should be resolved in the affirmative and the second in the negative, we hold that Congress has legislatively acceded to Mississippi's markup on such wholesale liquor transactions.

At the election of the military, every sale at issue here is consummated directly between the military organizations and the out-of-state liquor vendors without recourse to the State's wholesaling, warehousing or delivery service. The post exchanges, ship's stores, and officers' clubs chose the alternative course afforded by regulation 25 of placing their orders directly with the wholesalers, who are required to mail immediately a copy of the order to the Commission.⁷ The base price to the military vendees is determined solely by the vendor. All that Mississippi requires is that the vendor add the prescribed "wholesale markup" of 17% on whiskies or 20% on wines to the base price, and, after payment remit the amount of such markup to the Commission.

Neither party construes the markup as anything other than a tax. Although it serves to defray the cost to the State of its warehousing service and to regulate the traffic in intoxicating beverages, the markup is levied and recovered by compulsion of law in an amount that will, in the Commission's discretion, "yield a reasonable profit and be competitive with liquor prices in neighboring states." Such profits are paid into Mississippi's general revenue fund.⁸ In this factual setting we do not hesitate to denominate the wholesale markup as a tax—"an exaction for the support of the government." United States v. Butler, 297 U.S. 1, 61, 56 S.Ct. 312, 317, 80 L.Ed. 477 (1936).

Similarly, the markup constitutes a "sales or use tax" within the ambit of section 105(a). Although it may more precisely be characterized as an excise or privilege tax on those who wish to distribute distilled spirits within Mississippi, the markup, however labeled, clearly conforms to the Buck Act's definition of a sales or use tax, namely "any tax levied on, with respect to, or measured by, sales, receipts from sales, purchases, storage, or use of tangible personal property." 4 U.S.C.A. § 110(b) (Supp.1974).

With these preliminary issues resolved, we must determine whether Mississippi has attempted to levy or collect a "tax on or from the United States or any instrumentality thereof" as condemned by section 107(a). At the outset of this inquiry, it is clear that the ship's stores, officers' clubs and post exchanges "as now operated are arms of the government deemed by it essential for the performance of governmental functions. They are integral parts of the War Department, share in fulfilling the...