DEPT. OF REVENUE v. JAMES BEAM CO.
Legal provision: Article 1, Section 10, Paragraph 2: Export-Import Clause
Argument of William S. Riley
Chief Justice Earl Warren: Number 389, Department of Revenue versus James B. Beam Distilling Company.
Mr. William S. Riley: Mr. Chief Justice.
Chief Justice Earl Warren: Mr. Riley.
Mr. William S. Riley: Mr. Chief Justice, may it please the Court.
The issue in our case is fairly simple.
Can the Commonwealth of Kentucky levy an occupational or a license control tax on the business of respondent that bid is being the bringing of Scotch whisky into the Commonwealth which is complementary to a like tax on the business of distilling or manufacturing whisky in the Commonwealth without violating the Import-Export Clause of the Federal Constitution.
Now, by regulation, this tax is made payable at the time the import permits are obtained from the Commonwealth.
But the statute provides that the tax could be paid as late as 15 days after the whisky had reached the respondent's bonded warehouse, his private bonded warehouse.
But as a matter of control, it's made payable at the time of entry.
As briefly the facts in this case are that the respondent had contracted with a Scotch distiller to purchase several thousand gallons of Scotch whisky in the original casks and some in bottles, already cased for the consumer market, shipped from the port of Glasgow, Scotland moved to ports of Chicago and New Orleans.
There it was unloaded in customs bond, placed on an approved bonded carrier and transported to Louisville, Kentucky.
From there, it was picked up by another approved bonded carrier and moved to the respondent's place of business in Clermont, Kentucky, his private bonded warehouse.
Now, some of this whisky was in about 185% proof, it's not drinkable until it's removed from the cask, distilled water is added, in other word, is cut.
Some of it of course was already bottled.
As early as 1890, in the Wilson Act in 1913 and in the Webb-Kenyon Act, Congress gave its consent to state regulation of liquor regardless of whether or not it was in the original package.
And this Court affirmed that grant of power in 1913, De Bary against Louisiana.
But be that as it may, we believe that the Twenty-first Amendment has treated this type of product of -- as a unique type of product and has reserved to the States the absolute control up to the point of prohibiting it.
And as Your Honors know in many States, there is local option which absolutely prohibits liquor in many counties and that's true in Kentucky.
The only thing that Kentucky is doing here is attempting to control the entry of this whisky into the State, as this Court permitted in Gordon against Texas.
In fact, the Gordon case is absolute on all force with what Kentucky is trying to do here.
There, the State of Texas was permitted to collect its import tax on several gallons of rum in an individual's car which he was carrying across the State of Texas into his home in North Carolina.
Chief Justice Earl Warren: Was it in bond?
Mr. William S. Riley: No, sir, it was not in bond but that the principle is the same, if Your Honor please.
The individual was arrested and required to pay a fine and pay the tax as a matter of control.
That's what Kentucky is trying to do here and of course, this Court affirmed the case per curiam, citing Carter against Virginia, where this Court permitted that very same thing to take place.
The State of Virginia to seize whisky moving across that State from a point outside of Virginia to a point in North Carolina because the bonding and moving requirements had not been met with and it cited, of course, the Carter case cites Ziffrin against Reeves which arose in the Commonwealth of Kentucky where Kentucky was permitted to seize whisky that was moving on routes in the State which had been approved by Kentucky's Alcoholic Beverage Control Board.
Chief Justice Earl Warren: Did the liquor leaves the private bonding warehouse of the respondent?
Mr. William S. Riley: Yes.
Chief Justice Earl Warren: Does it leave in bond also?
Mr. William S. Riley: Well, it maybe withdrawn from bond and sold.
Chief Justice Earl Warren: In -- in Kentucky?
Mr. William S. Riley: In Kentucky, yes.
Chief Justice Earl Warren: Well, is there any dispute as to whether you can levy a tax on that amount or not?
Mr. William S. Riley: Not that I'm aware of.
Chief Justice Earl Warren: Alright, then are we dealing here only with that which will be -- be transported from the bonded warehouse in bond through Kentucky?
Mr. William S. Riley: No, we're dealing only with that that is being brought into Kentucky in bond and put in the private bonded warehouse.
Chief Justice Earl Warren: I -- only -- only that comes in?
Mr. William S. Riley: Yes, from a -- from a foreign country.
Chief Justice Earl Warren: I see.
Mr. William S. Riley: And as a matter of control, as a revenue measure, it is Kentucky's position that in conformity with the Gordon case, that Kentucky has the absolute right to or to apply the tax, its regulatory tax, its license tax on the business of bringing this whisky into the State.
Now, as Your Honors know, Kentucky is a large producer of bourbon whisky.
This tax is a complementary tax which is required to be paid by the bourbon distillers on whisky that is produced in the tax -- in the State.
It is the Commonwealth's position therefore that the State should not be -- that Scotch whisky should not be given a tax advantage over Kentucky whisky, Kentucky bourbon whisky.
And as a matter of control, as a matter of keeping under regulation this unique type of property that the imported whisky should be held liable to this tax, that the Twenty-first Amendment gives the State the absolute power to do so and that Gordon against Texas is an expression of this Court in giving the State that power.
Justice Potter Stewart: How does this whisky get to Kentucky?
Through one of the ports I suppose.
Mr. William S. Riley: It comes in through New Orleans or Chicago.
Justice Potter Stewart: And let's say it comes to New Orleans, it comes by a ship and it's unloaded in New Orleans?
Mr. William S. Riley: It's unloaded with water.
It went under the dock and placed on -- in a through customs-bonded transporter.
Justice Potter Stewart: Is it bonded, bonded all the way?
Mr. William S. Riley: It's bonded all the way.
It's covered by -- it's in federal bond all the way.
Justice Potter Stewart: Who have -- does the -- does the respondent have title to (Voice Overlap) Scotland?
Mr. William S. Riley: To my understanding, the respondent has title to the whisky.
Justice Potter Stewart: From the time in the Scotland?
Mr. William S. Riley: Yes.
Justice Hugo L. Black: Oh, if Kentucky would decide that it doesn't want any type of whisky coming in that, it wants to sell only bourbon made in Kentucky, is it your contention that the Twenty-first Amendment would permit that?
Mr. William S. Riley: It is my contention, if Your Honor please, that the Twenty-first Amendment which -- would permit that.
Justice Hugo L. Black: The -- before Twenty-first Amendment, of course, they took a Webb-Kenyon Act to do it --
Mr. William S. Riley: Yes.
Justice Hugo L. Black: -- is it not?
But when the -- this Amendment came on, in fact, they codified the Webb-Kenyon Act, did it not, in that respect?
Mr. William S. Riley: In that respect.
Justice Hugo L. Black: That was your understanding, was it not, in connection with the passage of the Amendment?
Mr. William S. Riley: That is my understanding, if the Court please.
Now, of course, as Mr. Goff (ph) pointed out here, Mr. Justice Frankfurter has in his -- in the opinion -- in the concurring opinion, he has pointed out that the State could levy any tax or any regulatory measure that it so desires under the --
Justice Hugo L. Black: Permitted to be brought in or not brought in?
Mr. William S. Riley: Are brought -- are not brought in.
Justice Hugo L. Black: They have it all made in the States if it has to have complete control --
Mr. William S. Riley: Absolute control.
Justice Hugo L. Black: -- of the liquor transaction in the State?
Mr. William S. Riley: In the State.
Chief Justice Earl Warren: Is there any difference between transporting it through the State in bonded trucks and -- and on the other hand, having it remain in bonded warehouses in Kentucky?
Mr. William S. Riley: No.
It -- as I understand it, the State -- the Alcoholic Beverage Control Board must be advised of all whisky that moves in Kentucky in any fashion through the State or to warehouses in the State.
And it must determine -- it must -- a route must be given and the exact movement of that whisky must be known at all times.
Chief Justice Earl Warren: Because you tax it.
That's the question we got here.
Mr. William S. Riley: I believe under the Gordon case, yes, we could.
Chief Justice Earl Warren: So if -- if it's an in bond going from -- from New York, port of New York to -- to Illinois, passes through Kentucky, you can tax it (Voice Overlap)?
Mr. William S. Riley: Under the Gordon case, yes.
Justice Hugo L. Black: You mean a lot is moving?
Mr. William S. Riley: No, if it comes -- well, it's in the possession of the individual in Kentucky.
Chief Justice Earl Warren: While it's traveling in bond through -- through Kentucky.
Mr. William S. Riley: Well, whether we could tax it or not as a matter of control, probably, not but we can control its movement, absolutely, yes, I believe we could.
Now, whether this is a tax on the possession of the whisky, first possession of the whisky in Kentucky, if Your Honor please, not on the movement over -- to the State.
Justice Byron R. White: The end result of this, I suppose, is that all of the States in the United States passed a law there -- that they're -- no one may have possession or sell any imported liquors within the borders of the State that you would say that each State could do that and the fact was all over and there are being no foreign liquors whatsoever in the United States, that's the Twenty-first Amendment.
Mr. William S. Riley: That's the Twenty-first Amendment.
Justice Byron R. White: Yes.
Justice Hugo L. Black: Have you read the debates in connection with the passage of that Amendment by the Senate and the House?
Mr. William S. Riley: No, I have not.
Justice Hugo L. Black: Not enlighten to your side.
Mr. William S. Riley: Thank you.
Chief Justice Earl Warren: Mr. Cox.
Argument of Millard Cox
Mr. Millard Cox: May it please the Court.
The sole question involved in this case, as I see it, is whether or not the Twenty-first Amendment has repealed pro tanto the Import-Export Clause of the Constitution being Article I, Section 10, Clause 2.
Now, if the Twenty-first Amendment has done that and I have no standing in Court.
But I insist that isn't so, as the authorities would bear me out.
I would like to trace very briefly, as suggested by Justice Stewart a while ago, the movement of this liquor.
The James B. Beam Distilling Company owns and operates a bourbon distillery at Clermont, Kentucky, which is near Bardstown, about 50 miles from Louisville.
It also has a contract with the Gilbey Company of London -- England, William E. Gilbey & Son by which the Beam Company has become the sole distributor of a brand of Scotch whisky known as "Gilbey's Spey Royal" in the United States.
Beam places an order by mail or telegraph or telephone with Gilbey in London.
The whisky is loaded on shipboard in Glasgow, Scotland, proceeds across the Atlantic either through the port of New Orleans but generally, more often through the port of Chicago that is through the Saint Lawrence Seaway down through Lake Michigan to the port of Chicago.
Now, under custom's regulations, that whisky is traveling in bond.
The mast of the ship must present to the customs officer in Chicago a manifest showing just what whisky is on board, what do imported whisky is on board, to whom it is consigned and the quantity in gallons or cases, whatever it happens to be.
At the dock in Chicago has received in customs bond.
Then the next step on the Treasury Regulations, a carrier who has received a permit from the customs official, picks up that liquor, he receives an inventory of it and hauls it down through the State of Indiana under his carrier's permit and with the bill of lading in customs bond, the seal of the Government on the truck to Louisville.
The river -- at the --at the river, the Ohio river, the boundary between Indiana and Kentucky, Kentucky says, “Stop.
You cannot bring this liquor into the State of Kentucky until you obtain from our Department of Revenue a permit for which you have to pay in advance of bringing it into the State the sum of 10 cents a proof gallon.”
Now, in the record --
Justice Potter Stewart: What's a proof gallon mean?
Mr. Millard Cox: The proof gallon is a -- is a gallon of liquor at a 100 degrees proof, the proof being 50% of alcohol per volume.
Justice Potter Stewart: So for every -- every gallon containing 50% alcohol, you pay 10 cents, is that it?
Mr. Millard Cox: 10 cents.
Now, if it's 86 proof, it would be, let's see, I'm (Voice Overlap) --
Justice Potter Stewart: Get a little more a gallon.
Mr. Millard Cox: 13 -- yes, 13.5 cents less.
These permits, if the Court please, all appear in the record as beginning at -- on page 8 and I think my friend, Mr. Riley said that some of this liquor comes in to 185 proof which should be almost pure alcohol a dozen.
It comes in, I think the highest proof you buy is a 120 proof and a great deal of it is in cases.
Well, the Beam Distilling Company, before it can bring that liquor across the river in to Kentucky, must apply to the Department of Revenue at Frankfort for a permit, designated as an import permit, and must describe the number of gallons to be imported and must pay the tax at the rate of 10 cents a gallon.
All of which appear on the photostats of the permits in the record.
This permit is issued in triplicate.
One copy of it goes to the carrier who is going to bring this liquor from the customs depot in Louisville to the distillery of Clermont, Kentucky.
And he presents two -- two documents.
He presents to the customs official his permit to carry the liquor as a registered customs carrier.
And number two, the Kentucky permit which was approved, as this Court will recall in Ziffrin against Reeves, and that's a $10 annual permit which the carrier must have in his possession so that if a Kentucky inspector should come along and say, "By what authority you're hauling this liquor," he can exhibit his permit.
And the permit, I brought a copy of it here, is a simple document, $10 a year.
And this one is issued to the one who brought the liquor from the port in Louisville to Clermont, Kentucky known as the Robert Rice Incorporated Trucking Line of Shepherdsville, Kentucky and the permit number is TS-249.
Well, the -- the whisky finally arrives at the distillery in Kentucky.
Unknown Speaker: (Inaudible)
Mr. Millard Cox: No, it's been upheld by the Court here.
We -- we think it's a reasonable -- reasonable regulation and to prevent diversion even though the Federal Government is, even though this whisky is traveling in customs bond, we think the cooperation between the Federal Government and the State Government is perfectly proper to see that this liquor is not diverted to illegal channel.
The whisky arrives in at Shepherdsville at the Beam Distilling Company -- I mean at Clermont, Kentucky, at the Beam Distilling Company and it's immediately put into their Class 2 or Class 8 customs-bonded warehouse.
All of which are -- are provided for in the Treasury Regulations.
The Number 2 house being an import customs bond and the Number 8 being an import customs-bonded warehouse, wherein the manufacture -- the further manufacture may take place, which means in this case, and it's been defined as manufacture by the simply reduction in proof.
If the whisky is 101 proof, sufficient distilled water is added to bring it down to 86.6 proof which is the customary proof at which Scotch whisky is sold in the consumer market in the United States.
Well, when Beam wants to withdraw this whisky from customs bond, he must pay two types of taxes.
He must pay the internal revenue tax of $10.50 proof gallon.
He must also pay the import tax of $1.27 a gallon, the customs officer collecting that tax, the Alcohol and Tobacco Tax Division collecting the other one.
That, in brief, Your Honors, is the method in which this whisky is received and I'd like to emphasize the fact that the taxing point is at the state line.
They say you -- Kentucky says, “You cannot bring this whisky into the State until you pay the 10-cent tax.”
Chief Justice Earl Warren: So the question how this liquor is disposed of after it is in the warehouse is not an issue here in this case?
Mr. Millard Cox: Not an issue here.
Chief Justice Earl Warren: Yes.
Mr. Millard Cox: I might add, however, that once it goes out of the warehouse, it is distributed all over the United States, some of it finds its way to wholesalers in the State of Kentucky.
And there, it becomes, under the decision of Brown against Maryland, it becomes subject to the Kentucky excise tax of $1.28 a gallon.
And it's taxed in the hands of the -- the first -- at the time of the first sale.
And then if it's in the warehouse, after the first sale in a wholesaler's warehouse or retailer's warehouse on the ad valorem assessment date, the first of January in Kentucky, it's subject to ad valorem tax.
But the only tax that we contend it is not subject to is the import tax and we say it cannot be subjected to that tax unless the Twenty-first Amendment has had the effect of repealing pro tanto the Import-Export Clause.
Justice Hugo L. Black: But why does that necessarily follow?
It might have prevented.
It might have left the State free control of liquor, coming and stopping in its borders, staying there, being so aware or anything else --
Mr. Millard Cox: It can --
Justice Hugo L. Black: -- until have left the -- the commerce free to flow through the State.
So (Voice Overlap) --
Mr. Millard Cox: No, Kentucky can prohibit it entirely as could prohibit all liquor.
Justice Hugo L. Black: What?
Mr. Millard Cox: Kentucky could -- could have prohibition if it wanted to.
Justice Hugo L. Black: And it could prohibit any from coming in there, couldn't it?
Mr. Millard Cox: It could prohibit any from coming in.
Justice Hugo L. Black: Contributed it from -- it could prevent its being stored there, couldn't it, in that State of Kentucky?
Mr. Millard Cox: It could prohibit it absolutely.
Justice Hugo L. Black: That's -- that's the way you understand the Twenty-first Amendment, that's the way we held it in the Young's case, wasn't it?
Mr. Millard Cox: Yes, that -- that's correct.
Well, no, the Young case -- no, the -- the Young's Marketing case.
Justice Hugo L. Black: Young and Steiner and -- didn't they hold that?
Mr. Millard Cox: No, I don't think so, Your Honor.
Justice Hugo L. Black: Didn't hold that the State was given complete control of the regulation?
(Voice Overlap) --
Mr. Millard Cox: That was in -- under the interstate -- under the interstate -- under -- in --interstate commerce, not -- not to imports.
And I might -- I'd like to read --
Justice Hugo L. Black: You think there's any difference in the state power --
Mr. Millard Cox: Yes, it does.
It makes a whole lot of difference.
Justice Hugo L. Black: -- state's power to control liquor that comes from abroad and state power to control liquor that comes from another State?
Mr. Millard Cox: Yes, yes, indeed.
Yes, indeed, it does.
Justice Hugo L. Black: Have you read the history of the debate and so forth in connection with this Twenty-first Amendment?
Mr. Millard Cox: Yes, I have.
Justice Hugo L. Black: I don't see you have cited any of it.
Mr. Millard Cox: No, but I'd like to point out the difference at this point.
The -- the Import-Export Clause prohibits absolutely a State from levying any imports or exports on -- except what may absolutely be necessary for the enforcement of inspection laws.
It's -- it's a prohibition against the State levying any sort of tax.
Justice Hugo L. Black: And the Twenty-first Amendment was a permission or repealing the prohibition law, national prohibition law, I think you will find on the condition that left the States 100% free determine whether the liquor should come in there, whether it should stay there or what could happen with it after it got there.
Mr. Millard Cox: Well, I don't agree with that.
Justice Hugo L. Black: You do not.
Did you look at --
Mr. Millard Cox: No, I do not and I -- and the reason I --
Justice Hugo L. Black: Have you -- any indication from any of the debates or reports that indicates that (Voice Overlap)?
Mr. Millard Cox: Well, I can -- the only and the best indication is the decision of this Court.
Justice Hugo L. Black: Which one?
Mr. Millard Cox: That was the case of William Jameson & Company against Morgenthau.
Now, immediately after the repeal of prohibition, the Congress of the United States enacted the Federal Alcohol Administration Act.
Now, that gives the -- it -- at that time, it was an independent agency of the Federal Government.
Since then it has been covered into the Internal Revenue Department and there's a branch of the Internal Revenue Service known as the Alcohol and Tobacco Tax Division.
Now, the Federal Alcohol Administration Act gave the Federal Government broad authority over the labeling of alcoholic liquors.
There, you -- it have to be labeled in a certain way.
They -- every -- everybody dealing in alcoholic liquors, except retailers, must have a basic permit.
Before you can import alcoholic liquors, you have to have a basic permit from the Federal Government.
And Jameson contended that they did not have to have this permit because this matter had been taken entirely out of the hands of Congress and if it turned over, carte blanche to the States.
And that case came to the Court here and the -- the Jameson people had contended that the Federal Alcohol Administration Act was unconstitutional because it was in conflict with the Twenty-first Amendment.
Well, the Court, this Court made short shrift to that contention and is reported the William Jameson case, it's in 307 U.S. 171.
The Court held that there was no substance to the contention that the Federal Alcohol Administration Act, that's at 27 U.S. Code 201, Section 211 was unconstitutional because the Twenty-first Amendment gave the States complete and exclusive control over commerce in intoxicating liquors.
In other words, they -- this Court said the -- the States do not have complete control over intoxicating liquors.
This Act is constitutional.
Now, I like to point one further matter --
Justice Hugo L. Black: What case were you reading from now?
What case were you reading from now?
Mr. Millard Cox: Oh, that was the --
Chief Justice Earl Warren: Jameson.
Mr. Millard Cox: William Jameson & Company against Morgenthau.
It's cited in my brief and appears in the lengthy opinion on the California court which I quote rather fully in my brief, the Parrott case.
Now, in the manner of interstate commerce and the Import-Export Clause, I think we've got to recognize that there's a difference between the two.
The Commerce Clause gives Congress the right to regulate commerce between the States and the Import-Export Clause is cast in an entirely different thing.
It simply prohibits the States from levying any tax on imports or exports and Congress doesn't have anything to say about it.
Justice Potter Stewart: Now, Mr. Cox, I think -- have you -- have you conceded that the State of Kentucky could, under the Twenty-first Amendment, provide by its laws that no liquor from Scotland or any other foreign country would come it to the State of Kentucky?
Mr. Millard Cox: Come into it but not through it.
Justice Potter Stewart: Come into it at all.
It could provide.
Mr. Millard Cox: Yes.
Oh, yes, yes.
Justice Potter Stewart: Well, if it can do that, doesn't the greater include the last then couldn't it -- couldn't it impose a tax of $10 a gallon if it wanted to on any --
Mr. Millard Cox: No, I don't --
Justice Potter Stewart: That's going to --
Mr. Millard Cox: -- I don't agree with it.
Justice Potter Stewart: No, why?
Mr. Millard Cox: No.
Justice Potter Stewart: If it can --
Mr. Millard Cox: Well --
Justice Potter Stewart: -- if it can prohibit it entirely, why can't' it do anything less than that?
Mr. Millard Cox: Well, because of the -- because of the Import-Export Clause, it cannot tax it.
It could prohibit it entirely but it cannot tax it because the Import-Export Clause stands as a barrier against taxation.
That's -- that's the whole clause.
That's the whole import of the clause.
I'd like to read just briefly --
Justice Hugo L. Black: Well, the State of Kentucky can prevent it, could require a license by importing liquor from abroad, isn't it?
Mr. Millard Cox: Require an import license?
Justice Hugo L. Black: Yes.
Mr. Millard Cox: No, I don't think so.
Justice Hugo L. Black: For importing it into the State of Kentucky?
Mr. Millard Cox: No, sir, because that's the Brown against Maryland case.
That's exactly what was held in -- in Brown against Maryland which is 137 years ago.
The -- the State of Maryland levied an annual license tax of $50 on importers.
Justice Hugo L. Black: That is about a 100 years before the passage of the Twenty-first Amendment, wasn't it?
Mr. Millard Cox: That's correct, sir.
Now, as to commerce, as to the regulation of commerce, I think the distinction between that and the Clause we're dealing with, the Import-Export Clause is very lucidly pointed out in the Richfield Oil Company case in which Mr. Justice Douglas spoke for the majority.
Justice Hugo L. Black: That was oil wasn't it?
Mr. Millard Cox: That was oil, yes, but I -- I'd like to point out the difference between the Commerce Clause and the -- and the Import-Export Clause which are cast in an entirely different terms.
One gives Congress the right to regulate commerce and the other is an absolute prohibition against the State levying any tax on an import.
And in that case, the Court said this, “The law, under the Commerce Clause, has been fashioned by the Court in an effort to reconcile competing constitutional demands that commerce between the States shall not be unduly impeded by state action and that the power to lay taxes for the support of State Government shall not be unduly curtailed.
That accommodation has been made by upholding taxes designed to make interstate commerce bear a fair share of the cost of local government from which it receives benefits.
And by invalidating those which discriminate against interstate commerce, which impose a levy for the privilege of doing it, which place an undue burden on it.
It seems clear that we cannot write any such qualification into the Import-Export Clause.
It prohibits every State from laying any tax on imports or exports without the consent of Congress.
It would entail a substantial revision of the Import-Export Clause to substitute for the prohibition against any tax, a prohibition against any discriminatory tax.
The two clauses, though complimentary, serve different ends.
And the limitation of one cannot be read into the other."
Now, getting back to the -- to the Twenty-first Amendment, there was no indication when that Amendment was passed that it was intended to repeal and the other Amendment of the Constitution except the Eighteenth.
And we know that repeals by implication are not favored.
Justice Hugo L. Black: But why -- did you say that's the history of the -- history of the Amendment shows that?
Why did they put in there?
What they did?
As Mr. Justice Brandeis said the Amendment which prohibits the transportation or importation of intoxicating liquors abrogated the right to import free, so far as concerned, the intoxicating liquors.
Has anyone that hadn't said, the plaintiffs argued that limitation of the broad language of the Twenty-first Amendment is sanctioned by history and by the decision of this Court on the Wilson Act, the Webb-Kenyon Act and the (Inaudible) Amendment that you could have -- we think the language of the Amendment is clear, we do not discuss these matters.
It prohibits -- it's allowed them to handle the importers, handling intoxicating liquors in their State?
Mr. Millard Cox: Mr. Justice Black, they were dealing there with interstate commerce.
Justice Hugo L. Black: Doesn't it --
Mr. Millard Cox: Yes.
Justice Hugo L. Black: -- but it was intoxicating liquors?
Mr. Millard Cox: Yes, but the interstate commerce has related the interstate commerce, not -- not foreign commerce, not imports.
Now, I will grant you that there's some very broad language in those early decisions and particularly in -- in Justice McReynolds' opinion on the Ziffrin case which would lead you to believe that the States can do anything they want to with intoxicating liquor and that the Federal Government has no right to do anything about it at all.
Justice Hugo L. Black: What about the two by Mr. Justice Brandeis?
Mr. Millard Cox: Well, I -- I say the -- the language in there is very broad.
But if you'll read my brief, the -- the decision I quoted in there from the California court, they distinguished -- they -- they -- that was dicta in those -- in those case.
They were not dealing with this question we have here, this question has never been before you.
This is the first time it's been here.
Justice Byron R. White: But the fact the (Inaudible) the Import Clause anyway because this liquor remained in its original packages.
Mr. Millard Cox: That's right.
Justice Byron R. White: Now, you would have -- would you have any objection to this tax if this whisky, while it was in bonded warehouse, was repackaged and then Kentucky put this tax upon all the whiskies that were sold out of that warehouse?
Mr. Millard Cox: After it had been put to use, well, that -- which --
Justice Byron R. White: No, I'm not -- if all -- all that happen was that it was taken out of one package and put in another, remained in the bonded warehouse and all the sales were for delivery outside the State.
Mr. Millard Cox: Well, I'd say this.
Under the rules laid down by this Court, this -- this is the exemption from taxation.
In the first place, the liquor -- the product will say must come, have come from a foreign country.
It must be still in their original packages.
Justice Byron R. White: On my example, it wasn't.
Mr. Millard Cox: Prior to sale and prior to use by the original importer.
Now, once it gets to the channels of trade, it becomes a part of the general mass of taxable property in the State and it's subject to all the taxes.
Justice Byron R. White: But remember -- even though it's been -- it's changed packages, it's still in bond and there is no chance for diversion within the State, let's just assume that.
And that all they're doing is repackaging within the State and movement out of the State in the bond.
Now, -- apparently under the rules that has been established, the Import Clause would no longer be of any significance, would it?
Mr. Millard Cox: Are you -- you're suggesting that it might have come to rest in the State and become a mass of the general property in that way?
Justice Byron R. White: I'm not -- I'm asking, I'm not suggesting.
I'm just wondering if you --
Mr. Millard Cox: Well, I'll say this --
Justice Byron R. White: If you're relying solely on the Import Clause, then if that -- and if the Clause is -- is lifted or is not applicable, where the original packages have been changed, then you -- you have no other argument other than the Import Clause, doesn't it?
Mr. Millard Cox: No, Beam brings his whisky here, of course, for sale and distribution.
And in order to sell it, in order to get it out from possession of the Federal Government, he's got to do two things, he has to pay the -- the import tax, the tariff.
He also must pay the internal revenue tax.
Now, once those taxes are paid, then they, probably, becomes subject to taxation.
Justice William J. Brennan: (Inaudible) and you've emphasized -- sufficed, I think, that whatever the packages may be in which the liquor is and when the stock arrives in that form when it gets to the border of Kentucky, Kentucky says, "No further unless you pay 10 cents a gallon --
Mr. Millard Cox: That's right.
Justice William J. Brennan: There's no break up of the package (Voice Overlap) --
Mr. Millard Cox: None whatever, Your Honor.
And now, there are three -- there are three --
Justice Hugo L. Black: (Inaudible) wholly free as the Court said they did in Young, with reference to liquor that's imported from abroad --
Mr. Millard Cox: Yes, sir that is (Voice Overlap) --
Justice Hugo L. Black: -- but it did intend to give them that freedom?
Mr. Millard Cox: Yes.
That's my position.
Justice William J. Brennan: But now let's see.
You don't -- it's not your position that Kentucky couldn't say, "You can't bring up liquor in the State."
Mr. Millard Cox: Oh, no.
Justice William J. Brennan: You only say --
Mr. Millard Cox: It can't (Voice Overlap) --
Justice William J. Brennan: -- "You cannot stay because of Import-Export imposed --
Mr. Millard Cox: I say --
Justice William J. Brennan: -- that's why you can't impose the tariff.
Mr. Millard Cox: I say that Kentucky cannot levy a tariff on -- on liquor coming into this country from abroad.
Justice William J. Brennan: But they can't say you can't bring it all?
Mr. Millard Cox: Yes.
Now, there -- there are three States that have passed on this question, California, Kentucky and Wisconsin.
And they've all held in unanimous opinions against their own Department of Revenues who sought to tax whisky under the same circumstances as the facts in the Beam case.
In addition to that, the editorial writers of American Jurisprudence, and I quote that on page 23 of my brief, have this to say about the matter, I have to study all the cases including Justice Black, the cases that you referred to, "Well, as a general rule, the regulation of interstate and foreign commerce is a matter exclusively of federal regulation.
The Federal Government has, by the Twenty-first Amendment, yielded some of its powers with reference to intoxicating liquors.
The Twenty-first Amendment circumscribes the power of Congress by prohibiting the transportation or importation of intoxicating liquors into any State or territory for delivery or use in violation of the local law.
But it does not deprive the Congress of authority to control the importation of liquors into the United States.
Moreover, Congress possesses the power to levy import duties on intoxicating liquors imported in foreign trade or commerce.
And the several States, without the consent of Congress, are forbidden to lay duties on imports other than as maybe necessary for executing their inspection laws."
Now, that's the -- the editorial writers of American Jurisprudence, cited on page 23 of my brief.
Justice Hugo L. Black: (Inaudible)
Mr. Millard Cox: Justice Black, I don't have that quote, a quotation from those pages here but everyone of -- that I cited has been -- that had been -- that come before this Court.
Justice Hugo L. Black: Decide them all in the Government.
Mr. Millard Cox: Now, I -- it may -- I don't know that this comment is necessary, it's never been contented by Kentucky that this was an inspection law, it's a revenue measure.
We know that under the Import-Export Clause, a State has the right to -- to impose reasonable regulation for -- to protect the State from diversion of alcoholic beverages to illegal channels.
But as I have pointed out, Kentucky's got the -- the transportation permit, there's been no objection to that on the part of the State nor the part of the distillers.
And -- I think up to the case, this -- this question has been so carefully reviewed by three state courts.
It's rather coincidental that they all came with the same conclusion deciding against their own Revenue Department that that passage of the Twenty-first Amendment did not repeal pro tanto the Import-Export Clause of the Constitution.
Chief Justice Earl Warren: Mr. Riley.
Rebuttal of William S. Riley
Mr. William S. Riley: I have one or two things, if Your Honor please, that I like to bring out.
First of all, I believe the Federal Alcoholic Administration tax itself recognizes the States' power to control the commerce and alcoholic beverages, it's 27 U.S.C. 204 that the -- that the Secretary of Treasury --
Chief Justice Earl Warren: Does -- does Mr. -- does Mr. Cox concede that -- that they have the right to control the commerce?
Mr. William S. Riley: Well, no, that the State itself -- I don't -- I didn't catch that up.
I thought he was maintaining here that the Federal Government could absolutely control it by the -- the Act.
Chief Justice Earl Warren: No, I understood -- I understood Mr. Cox to say that the State of Kentucky could keep even imported liquor entirely out of the State if it wanted to --
Mr. William S. Riley: That's right.
Chief Justice Earl Warren: -- under the Commerce Clause because the Twenty-first Amendment had given the States the right to regulate commerce in liquor.
But says he, it did not confer the right on the States to tax liquor that was in its original packages --
Mr. William S. Riley: Package.
Chief Justice Earl Warren: -- coming from other places.
Mr. William S. Riley: I understand it.
Chief Justice Earl Warren: Now, he says it is in regulation this taxation that we're dealing with now, is that the issue?
Mr. William S. Riley: The issue is both regulation and taxations.
Chief Justice Earl Warren: What is there in the Act that has to do with regulation?
Mr. William S. Riley: The -- the Act requires that the permit be obtained by the importer.
Chief Justice Earl Warren: He did -- they did supply -- they did take out the permit and he says there is no objection to that.
Mr. William S. Riley: That is correct.
Chief Justice Earl Warren: He says it's a tax that they are objecting.
Mr. William S. Riley: And as a -- as a revenue and control measure then there is a 10-cent fee for the permit for proof gallon at the time the permit is purchased before the liquor is brought into the State.
Chief Justice Earl Warren: And you say that 10 cents is regulatory as well as --
Mr. William S. Riley: Both a regulatory and revenue measure.
Chief Justice Earl Warren: Well, how much of it is regulatory, because I am telling him to maintain that under the -- the Import-Export Law.
You can only exact from them for regulation that which is necessary for you to regulate.
Mr. William S. Riley: I believe that that is, if your -- if the Court please, if Your Honor please, that is immaterial here because it's both regulatory and revenue and it is a complementary.
It is a tax which is complementary to the tax on the distilling or manufacturing.
It's to make it competitive with Bourbon whisky manufactured in the State.
And it is not on the whisky directly but it's on the business of bringing the whisky into the State and the business of manufacturing or distilling it.
Chief Justice Earl Warren: You mean then that you could -- you could levy a tax high enough to make the difference between the differential between foreign liquor and the liquor you -- you produce in Kentucky.
Mr. William S. Riley: To make it competitive, yes.
Chief Justice Earl Warren: Yes.
Even though it's in the original package.
Mr. William S. Riley: Even though it's in the original package and it's being brought into the State.
Chief Justice Earl Warren: I believe that's a part of the Twenty-one -- Twenty-first Amendment.
Mr. William S. Riley: Twenty-first Amendment, yes.
Justice William J. Brennan: (Inaudible) it was suggested by Mr. Cox in -- on his view of the brief.
But are you saying something like this that this is no different than the Kentucky said, "It cost us $10 to process these papers and if you are coming into our State, you have to pay $10 to help us cover the cost of processing the papers, are you suggesting that the 10 cents per gallon is exactly that kind of thing?
Mr. William S. Riley: Not exactly, because there is also a 10-cent tax on distilling Bourbon whisky for proof gallon in Kentucky.
And to make it competitive and for the permit --
Justice William J. Brennan: Well, that's the real reason in fact.
Mr. William S. Riley: That's the real reason, yes.
Justice William J. Brennan: It's not anything like my $10 (Voice Overlap) --
Mr. William S. Riley: No.
Unknown Speaker: (Inaudible)
Mr. William S. Riley: It -- the -- the State Court construed it in its very opinion --
Justice John M. Harlan: What does that mean?
Mr. William S. Riley: There's an -- as a tax on the act of bringing the whisky into the State as it had been construed by the state court over 50 years ago and this Court agreed to it.