HEUBLEIN, INC. v. SOUTH CAROLINA TAX COMM'N
Legal provision: 15 U.S.C. 381
Argument of Stephen M. Piga
Chief Justice Warren E. Burger: We'll hear arguments next, in 71-879, Heublein against South Carolina Tax Commission.
Mr. Piga, you may proceed now.
Mr. Stephen M. Piga: Mr. Chief Justice, may it please the Court.
I would like to introduce co-counsel Croft Jennings from Columbia, South Carolina and my associate counsel Paul Rooney, also from New York City.
This case is here on appeal from the Supreme Court of South Carolina.
The decision in that court unanimously reversed the trial court and upheld the position of the State Tax Commission.
Justice Lewis wrote the opinion in that case.
There are five principal parties involved directly or indirectly in this proceeding.
Heublein Inc. is a Connecticut corporation engaged in the business of manufacturing and distributing alcoholic beverages and other products throughout United States.
The appellee is the South Carolina Tax Commission, a branch of the South Carolina state.
The Distilled Spirits Institute, a trade association of the producers of alcoholic beverages in United States filed an amicus brief in the preliminary proceedings before this Court.
The Multistate Tax Commission and the Solicitor General of the United States have filed amicus briefs in support of South Carolina's position.
This case involves the application of the interstate income tax law, Public Law 86-272 to the corporate income tax laws of South Carolina.
The text of the Federal statute is set forth on page 30 of the jurisdictional statement.
If I may I would like to read the principal provisions of this statute.
Section 381 (a) and I quote with some omissions, "No State shall have power to impose a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such state by such person or the solicitation of orders by such person, or his representative, in State for sale of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State.”
The statute seems really clear.
The Heublein's position that its activities in South Carolina were protected by the statute.
Thereby rendering Heublein immune from South Carolina income tax.
The lower court proceedings involved two important questions.
The Court of Common Pleas decided first, that the so called voluntary activities of Heublein in South Carolina which consisted of its usual business solicitation and promotional activities did not violate, did not exceed the minimum activities permitted by the Federal statute.
The lower court also held, this was after trial and testimony, that the activities of Heublein in South Carolina which were mandated by the South Carolina Alcoholic Beverage Control laws did not exceed the minimum permitted by the Federal statute.
The Supreme Court of South Carolina did not disturb the trial court's finding on voluntary activities.
It left standing the conclusion that Heublein's voluntary activities in South Carolina did not exceed the minimum permitted by the Federal statute.
However, the Supreme Court of South Carolina held that the activities of Heublein which were mandated by South Carolina's ABC laws, were sufficient to localize its business in South Carolina and thereby render the application of the Federal statute to it no longer effective.
Thus the sole issue before this Court is whether Heublein's compliance with the ABC laws of South Carolina is a sufficient basis to deprive Heublein of the protection of the Federal statute.
Justice William H. Rehnquist: You say that these Supreme Court of South Carolina left stand the lower court's finding favorable to your client.
Did the Supreme Court pass on that or treated in anyway or it just ignored it?
Mr. Stephen M. Piga: There was no discussion of it at all in the opinion.
But this was a factual determination I believe on the trial court's record after testimony had been taken so that this factual conclusion of the trial court not being discussed passed upon or changed by the Supreme Court of South Carolina.
was left standing.
Justice William H. Rehnquist: Well, you say that but isn't the ordinary rule that when a judgment comes here from a state court that all presumptions are in favor of the validity of the judgment of the highest court of the state?
Mr. Stephen M. Piga: I would think sir that the primary purpose of this particular proceeding is to consider the Federal question and the substantial federal question involved in the mandated activities required by the ABC laws of South Carolina and that the factual conclusions of whether Heublein's representative carrying promotional materials from this retail account to another retail account would not be the substantial federal question that should concern this Court.
Justice William H. Rehnquist: You don't suppose why then the lower court's findings that were favorable?
Mr. Stephen M. Piga: I think it is important in the overall view of, the overall picture of this particular case.
Although we will get into and we will discuss exactly what the local activities of Heublein were that consisted of the so called voluntary activities.
That would all be a part of the record of this case and it would be discussed today.
Now I went to that right now.
If I may, Heublein is a Connecticut corporation.
It produces alcoholic beverages in Hartford and elsewhere and distributes its products throughout the US and in South Carolina.
Its best known product is Smirnoff vodka.
Heublein is not qualified to do business in South Carolina and has no office there.
It has no warehouse there.
It has no stock of goods in South Carolina.
Its contact with South Carolina is through a local representative, a so called missionary man who calls on retail accounts, liquor stores, clubs, hotels in the promotion of Heublein products.
Heublein is not permitted to sell directly to retail accounts in South Carolina, by reason of the application of South Carolina ABC laws.
Thus Heublein's local representative is not permitted to be a salesman of alcoholic products in South Carolina.
However, he did on occasion brief the distributor's salesman, the distributor being the sole outlet of Heublein in South Carolina for the distribution of its goods.
All orders for Heublein's products came from a distributor, primarily one distributor.
These were sent by the distributor to Heublein's office in Hartford for acceptance or rejection there.
All orders were filled by shipments, by common carrier from goods maintained in inventory outside of the State of South Carolina.
These are really the limits of the so called voluntary activities of Heublein in South Carolina.
We believe that these activities are clearly protected by the federal statute and at the trial court so held after hearing testimony, not only of the local representative but of the South Carolina witnesses.
This holding as I said before has not disturbed by the Supreme Court of South Carolina, but I think it's important to this Court to understand the whole factual picture.
Now we come to the activities of Heublein which were mandated by the ABC laws of South Carolina and which it would apply to any non-South Carolinian store whether he had any contact in South Carolina or no contact within South Carolina.
These requirements are set forth on Sections 4-131 to 4-150 of the ABC laws of South Carolina which appear in the jurisdictional statement beginning at page 32.
If I may, it's not necessarily today for the Court to read 8 pages of ABC Laws but I think I can summarize the important points fairly quickly.
First, the producer must register with the State Tax Commission.
The producer must also register a local representative, a producer's representative with the State Tax Commission.
This local representative must be a citizen and resident of South Carolina.
The producer must also register it's brands with the State Tax Commission.
All shipments of liquor coming out of state must be consigned in the name of the local producer's representative.
A copy of each invoice and bill of lading must be sent to the State Tax Commission at the time of each out of state shipment.
When the goods arrive in South-Carolina the producer's representative must deliver to the State Tax Commission another copy of the bill of lading and the invoice.
He obtains then a certificate of transfer from the State Tax Commission and it's only after these steps are taken and completed, may the producer's representative in South Carolina complete the delivery and transfer of the shipping documents and title papers to the wholesaler, to the purchaser in this particular transaction even though in many cases, the liquor itself is already on the premises of the wholesaler distributor.
These are the mandated activities.
According to the Supreme Court of South Carolina these are the activities which resulted in converting inter-state sales into intra-state sales.
These are requirements which the highest court of South Carolina, and I quote “preclude the sale of alcoholic beverages in South Carolina through inter-state sales.”
These are the mandated activities which prevent the application of the Federal statute to Heublein in the view of the South Carolina tax commission and it's highest court.
Now we concede here that Heublein complied with the ABC Laws of South Carolina.
We concede that the ABC Laws of South Carolina required the producer to retain the technical ownership and technical title of it's products until it complies in South Carolina with the ABC Laws.
We also concede that the technical passage of title to it's products occurs in South Carolina when the shipping papers are endorsed over to the purchaser, the wholesaler distributor in South Carolina.
Now again, we should take another look at the Federal statute.
The Federal statute which I quote says, “No state shall impose a net income-tax on income derived from inter-state commerce.
If the only business activities of the solicitation orders sent outside the state for approval and if approved are filled by shipment or delivery from a point outside the state.”
Under the circumstances in this case, the federal statute expressly applies, if Heublein's income is derived from inter-state commerce and if the shipments or deliveries are made from a point outside the state.
It is difficult to conceive of a state of facts which is closer to the protection of the federal statute than this case.
Heublein accepts it's goods, accepts these orders in Hartford.
The inventory of Heublein is maintained outside of South Carolina, generally in Hartford.
The goods are shipped from Connecticut in most cases directly to South Carolina.
They are earmarked for a particular purchase order which has been approved and confirmed by the producer in Hartford.
These transactions are clearly an inter-state commerce.
However, the appellate, South Carolina claims the affirmation of it's highest court that the transfer of legal ownership has a technical title in South Carolina as required by it's own ABC Laws, is sufficient to change these inter-state transactions into intra-state transactions.
The basis for this conclusion is that there is no shipment or delivery from out of state because the goods are still owned by the producer when they arrive in the state.
It would hardly seem necessary to go beyond plain meaning of the Federal statute to reject this argument.
However, there is, if there is any ambiguity in the Federal statute, it seems clearly to have been put to rest by the Senate Committee Report.
The senate committee report rejected any state imposed point of sale tests in the application of the Federal statute.
If I may again quote, I think it would be helpful.
This is Senate Committee Report number 658 from the 86th Congress, first session, “The committee understands that the formulas currently in use are complex.
That even within the formulas the meaning of the basic words are inexact and that for example many of the 35 income-tax states used a different definition to cover the term sale.”
It understands that a 'sale' maybe a considered to have taken place according to these definitions in any of these locations.
In the place where the buyer and seller met, in the place where the goods were manufactured, in the place where the goods were stored, in the place where the transaction was finally approved, in the place where the selling company was domiciled or in the place where the goods were shipped, this lack of uniformity creates the possibility that each of a number of different states may regard the same sale as having occurred in it, depending upon the particular definition of sale under it's own tax laws.
Each of several different states treat the same sale as attributable to it because of it's own definition of sale, it is apparent that income from the same sale maybe attributed to each of the states under whose law the same sale is to be attributed.
In other words, this is a clear rejection by Congress of any place of sale test, particularly where the place of sale is determined by the particular state or the courts of that state.
Justice William H. Rehnquist: Mr. Piga, even if you are right as to the broad sweep of the Federal statute in the matters not dealing with liquor, doesn't the Twenty-first Amendment the least arguably out some limitations on the power of Congress to sweep that broadly when they are dealing with liquor?
Mr. Stephen M. Piga: There have been conflicts raised in the past between the Twenty-first Amendment, ABC Laws generated by the Twenty-first Amendment and other Federal statutes.
If you recognize here that there is a potential conflict now between the Federal statute, we are talking about the inter-state income tax Act and the ABC Laws which are regulations based on the Twenty-first Amendment then I think all of the precedents that have been come before the courts has decided clearly that the Federal statute or Federal Law prevails.
Justice William J. Brennan: But Mr. Piga I gather that it is the fact, isn't it that the orders are filled from stocks maintained within the state and you say this is only a technicality but such orders as are finally filled, are filled with stocks maintained within the state?
Mr. Stephen M. Piga: No it's not exactly correct sir.
The goods, at the time the goods are appropriated to the order -- located are outside and they are shipped at --
Justice William J. Brennan: They don't go to the ultimate purchaser yet?
Mr. Stephen M. Piga: Well, they are consigned to the producer's representative in South Carolina.
Justice William J. Brennan: And that's from wherever he keeps and that they are finally filled, you mentioned that they are already actually on the warehouse platforms somewhere?
Mr. Stephen M. Piga: Actually in practice the trucks are unloaded outside of the wholesaler's warehouse.
They are unloaded into the warehouse of the wholesaler.
There maybe separate bins, but I think that is immaterial.
You are right that at that time, at the time of delivery in South Carolina, the goods still belong to the producer and in that limited sense you can say that the producer maintains a stock of goods.
Justice William J. Brennan: Didn't the senate report expressly or rather carefully say that the interpretation of the statute would be such that in a fact situation like this the immunity would not apply?
Mr. Stephen M. Piga: No I think that the senate -- well the statute itself is talking about shipment or delivery from out of state to in-state.
We claim that we clearly have that.
We claim too that the requirement here that the goods come to rest for an instance, for an instance in South Carolina is merely in this essence a checking point, a point at which --
Justice William J. Brennan: But if we don't agree with that, if we think it falls within the literal language of the statute, that's the end of the case isn't it?
Mr. Stephen M. Piga: Well, it's the end of the case if you interpret delivery or shipment in the terms that the Court of South Carolina has interpreted.
We say that delivery or shipment is a continuing thing, the goods are --
Justice William J. Brennan: Then I gather you don't challenge the Authority of the State under the Twenty-first Amendment?
That required District Court (Voice overlap) localization in the state?
Mr. Stephen M. Piga: That's correct.
But if there is in fact a conflict here between the Federal Statute and the Twenty-First Amendment or of any statutes of -- the state statutes based on the Twenty-First Amendment, this Court has decided in Jamerson versus (Inaudible) back in 1938, that the Federal Alcohol Administration Act prevails over any challenge based on a Twenty-First Amendment.
In 1944, the Sixth Circuit upheld the Emergency Price Control Act at 42, in the face of a challenge based on a Twenty-First Amendment.
In US versus Frankfort Distilleries --
Chief Justice Warren E. Burger: But doesn't that go to a different issue?
This is the power of the state under the Twenty-first Amendment that we are dealing with here, isn't it?
Mr. Stephen M. Piga: But it's using the Authority of the Twenty-first Amendment with respect to a State Statute, or the Twenty-first Amendment itself in challenge to a Federal Statute.
Now, the most recent case on this particular point is the Idlewild liquor case in New York.
There the ABC laws of New York again based on the Twenty-first Amendment were sought to overturn the application of the Federal Tariff Act in 1930.
And in 1963, this Court upheld the Federal Tariff Act notwithstanding that type of a challenge.
So I don't think there is any doubt that if there is a Federal policy embodied in a Federal Statute, and if in fact you find that there is a conflict between a State law whether it'd be based on a Twenty-first Amendment or any other regulatory power that the Federal Statute clearly is supreme and takes precedence over this.
Justice Thurgood Marshall: What about the Jim Beam cases, same volume?
Mr. Stephen M. Piga: The Beam case?
That was --
Justice Thurgood Marshall: Department of Revenue versus James where they said they surely can be no doubt that it was a state's preliminary power the regulate control by taxing and otherwise the distribution use of consumption of (Inaudible) within our --
Mr. Stephen M. Piga: The Beam case is, the Court is correct, but in fact that case over turned the Connecticut -- the Kentucky tax laws even though the Kentucky tax laws were based again on the Twenty-first Amendment.
Justice Thurgood Marshall: Well, I have been relying on the Court.
Mr. Stephen M. Piga: But the court is dictum.
The holding in that court was again that the export, import --
Justice Thurgood Marshall: If it wasn't dictum would it apply to this case?
Mr. Stephen M. Piga: Id it were not a dictum?
Justice Thurgood Marshall: Yeah.
Mr. Stephen M. Piga: Well, the court went on hold in that case that the State Statute fell --
Justice Thurgood Marshall: And they put another, the dictum apply it'd be okay?
Mr. Stephen M. Piga: The dictum is helpful to the opposition.
Justice Thurgood Marshall: (Inaudible) [Laughter]
Mr. Stephen M. Piga: But the whole thing I believe is helpful to us.
Before concluding, I would like to note that alcoholic beverages are now sold in all 50 states.
Probably under more regulation than that of any other product.
In 1970, there were about 280 million gallons of distilled spirits consumed in United States with over five million gallons in South Carolina alone.
The industry itself generated in 1970 about $7.68 billion of revenues for the Federal State and Local Governments, including about $47 million in South Carolina alone.
These points are used to illustrate that the alcoholic beverage industry is very important part of commercial picture of the United States and we believe is should no longer be single out for Discretionary Tax Treatment based upon local ABC laws particularly as in this case where all they really do is establish check points for the purposes of a state tax.
It seems to us that this should be inconceivable that that type of law should be used overturn a National Tax Policy.
Justice William H. Rehnquist: Mr. Piga supposing that South Carolina instead of just as you contend requiring checkpoints had required Heublein to establish a warehouse in South Carolina?
Mr. Stephen M. Piga: Sir, we thought about that and greatly concerned about.
For example if Heublein was required to built a distillery in South Carolina in order to sell its products in South Carolina, we have doubts us to the practicalities, the constitutionality and the political aspects of that type of requirement in view of and particularly in view of the amount of revenue that were talking about which is already generated by the liquor business in South Carolina.
We don't know what the answer to that would be.
It's a difficult question but I don't think it's before this Court until it becomes politically and legally and practically, a matter that has happened in South Carolina.
Chief Justice Warren E. Burger: Thank you Mr. Piga.
Argument of G. Lewis Argoe, Jr.
Mr. G. Lewis Argoe, Jr.: Mr. Chief Justice and may it please the Court.
The major issue in this case is whether or not the activities of Heublein in South Carolina exceeded the minimum standards of Public Law 86-272.
Now counsel for Heublein has raised – very ably stated the requirements on the restrictions in Public Law 86-272, therefore, we'll not comment further on that, but I disagree with his argument on the facts because I think that they are contrary to the facts as is set out in the record taken before the Court of Common Pleas in South Carolina.
Briefly, if I may comment all of the activities of Heublein in South Carolina are voluntary activities, otherwise they wouldn't be there.
So I think that to assume that some of the activities are involuntary and others are voluntary would be a point that bears no -- that does not have any warrant to it.
It's just a facetious argument in my opinion.
There are, however, certain requirements, relating to the shipment and delivery of alcoholic liquors in the South Carolina.
And the part of it or the most important provision are the ABC law in regard to this case is found -- is Section 4-134 the code of laws which states that no alcoholic liquor shall be shipped into South Carolina except by a registered producer and a registered producer is defined by statute to be one who is involved in the manufacture of alcoholic liquors or one who had a license to import liquors into the United States from foreign countries.
Therefore, I think that the first premise that this case stands on is the fact that importation in interstate commerce is precluded.
Therefore, we are not concerned with Public Law 86-272, as defined in the introductory paragraph of that Section that net income from business in interstate commerce shall be protected where the minimum activities meet the requirements set out in that statute.
So the framers of Public Law 86-272, first, supposed that we would be -- that interstate commerce would be protected and not intrastate commerce.
What we have in this case is purely a case of intrastate sales of liquor by Heublein.
The shipment of alcoholic liquor must be made in accordance with statutes which are set out and which require that prior to a shipment into the state, the registered producer who is registered and licensed to ship into the state must file with the state an invoice and the bill of lading setting out in detail the specific quantities, type, sizes, brands, and so forth liquors which are to be shipped into the state.
Now these requirements are all regulatory and so far as controlling the flow of liquor or the moment of liquor across the state boundaries.
And if you read in the particular statute, you will see that that was specifically provided, because the terms from a port without the geographical boundaries to import within the geographical boundaries, shipment shall be controlled.
The shipment further must be to the producer representative of the registered producer, who shall take the delivery or accept the delivery with in South Carolina and upon acceptance he is required to submit to the state in the -- an invoice for which he endorses the delivery, showing in detail the quantity that types and so forth of liquor which have been received within the state.
Therefore from the time the delivery, from the time the shipment by the importer commences, it must be controlled and the movement is controlled until it ends in South of Carolina.
Now this is probably an interstate shipment.
Well, here again this must to come to rest at some point in South Carolina.
Now bearing on the points for a moment --
Justice Harry A. Blackmun: Then Mr. Argoe I take it you -- your argument does concede that what Heublein was required to do here was mandated by the state?
Mr. G. Lewis Argoe, Jr.: I concede to the point --
Justice Harry A. Blackmun: Where in your argument if I understand it correctly, the interstate commerce aspect has come to an end.
Mr. G. Lewis Argoe, Jr.: I do make that point, Your Honor.
I make the point that the Twenty-first --
Justice Harry A. Blackmun: So the another crux of it is that Twenty-first Amendment then overrides in the liquor area, the Federal statute?
Mr. G. Lewis Argoe, Jr.: The Twenty-first Amendment, yes the state's exclusive right and control to regulate the traffic into the state and to that extent, I would say that the Twenty-first Amendment would override the commerce clause, yes.
Justice Harry A. Blackmun: This has to be your argument?
Mr. G. Lewis Argoe, Jr.: Yes.
Justice Harry A. Blackmun: Would you tell me then what is the interest of the state that is protected by these additional requirements other than the actual one of controlling the liquor traffic?
Mr. G. Lewis Argoe, Jr.: The interest of the state in these regulations is to provide that all shipments shall be by one party, that party being subject to the exclusive control of the state.
Well, for this control can provide an accounting for the liquor at all stages of its movement from the commencement of the shipment from without a state to which arrival within the state.
Justice Harry A. Blackmun: It couldn't do this with respect of groceries?
Mr. G. Lewis Argoe, Jr.: I do not think that this would apply, that we would -- that the state of South Carolina or any state would have the right to control the shipment of groceries because they are not specifically protected or the state is not being specifically given the authority under the Twenty-first to regulate the sale of groceries or any other ordinary articles of commerce by the way.
Getting back to the report that I wanted to make was, by the liquor being, by the time that the liquor reaches South Carolina and is owned and possessed by pipeline, the state should have complete control and notice that it is in South Carolina.
Thereafter, prior to any further transfer of this liquor, the state must be notified that the liquor is being -- has been -- sales for the liquor has been solicited and that the permission is being sought for the transfer of it or just like a (Inaudible) perspective in this case.
I might emphasis at this point that if that would appear to the court that these liquor regulations and the control of this liquor might appear to have been taken lightly, in this particular case it is because the sole distributor for the major portion of the years involved in this case was a distributor situated within 10 blocks of the alcoholic beverage control commission and that it had been a very liable distributor and it was therefore not necessary for them to be subjected to the -- that it is passed that some distributors would be subjected to.
Justice Byron R. White: You did permit import of the liquor to be shipped directly to the distributor, physically?
Mr. G. Lewis Argoe, Jr.: Physically, it was delivered at the distributor's warehouse.
Justice Byron R. White: So what -- and the only thing different was the papers read in the representative's name?
Mr. G. Lewis Argoe, Jr.: The papers, the liquor was actually consigned to the producer representative --
Justice Byron R. White: If the producer representative actually have to go to the distributor or it was a paper just sent to him and he endorsed them over to them?
Mr. G. Lewis Argoe, Jr.: The papers are required by statute to be forwarded by the producer to the producer representative and upon receipt and upon arrival with, all this liquor in South Carolina and by the way, it must be transmitted by common carrier so that the control can be -- proper control can be maintained, but those documents are submitted to the producer representative when a shipment commences.
Justice Byron R. White: So who submits them?
Mr. G. Lewis Argoe, Jr.: They are submitted to the producer representative by the producer.
He forwards or --
Justice Byron R. White: He forwards them by mail to them?
Mr. G. Lewis Argoe, Jr.: He forwards them by mail to the producer and he also forwards those same documents to the state.
Justice Byron R. White: Alright, then what happens?
Mr. G. Lewis Argoe, Jr.: When the documents are received --
Justice Byron R. White: By the representative --
Mr. G. Lewis Argoe, Jr.: -- by the representative and after the liquor has arrived within the state and are delivered by the common carrier --
Justice Byron R. White: -- to the distributor --
Mr. G. Lewis Argoe, Jr.: -- to the distributor's warehouse, they are set aside at that moment.
Justice William J. Brennan: Consigned to the representative?
Mr. G. Lewis Argoe, Jr.: They are set aside and they are not --
Justice William J. Brennan: Are they consigned on the paper or consigned to the representative?
Mr. G. Lewis Argoe, Jr.: They are consigned by --
Justice William J. Brennan: Do you have instances where you don't have as much confidence in the distributors --
Mr. G. Lewis Argoe, Jr.: As I understand, yes.
Justice William J. Brennan: Where you -- where the producer's representative must physically receive of the liquor when it comes in?
Mr. G. Lewis Argoe, Jr.: To the best of my knowledge, there are instances in which they set a delivery, and actual physical transfer of the property could not be made to a common carrier.
Justice Byron R. White: The law though requires, that -- the law doesn't require in any instance that the liquor actually be delivered physically to the person -- to the producer representative?
Mr. G. Lewis Argoe, Jr.: The law states that it shall be delivered to the producer representative.
Now the term physically is not used there.
Justice Byron R. White: I know but it doesn't break the law, if the liquor is physically delivered to the distributor's warehouse rather than to the producer representative himself?
Mr. G. Lewis Argoe, Jr.: There is well provision of the statute that would preclude a producer representative from accepting the shipment on the platform or the loading dock of the --
Justice Byron R. White: Well how does a common carrier know where it is delivered?
Mr. G. Lewis Argoe, Jr.: He is required on his documents, the shipping document state that the consignment is to the producer representative.
Justice Byron R. White: Well, I know that but how does he know where did he take it?
Mr. G. Lewis Argoe, Jr.: At the location of the wholesale of warehouse.
Justice Byron R. White: So the common carrier knows what warehouse to deliver?
Mr. G. Lewis Argoe, Jr.: What warehouse to deliver to --
Justice Byron R. White: He has to know that.
That just happens to be the distributor's warehouse?
Mr. G. Lewis Argoe, Jr.: That just happens to be the distributor warehouse and they are delivered there.
Justice William J. Brennan: Well I suppose that John Jones is the producer's representative, it's John Jones and the address given as the distributor's warehouse?
Mr. G. Lewis Argoe, Jr.: A distributor's warehouse, that is correct.
Justice Byron R. White: Well then what does he do on the phone he is told that, yeah, by the distributor?
Mr. G. Lewis Argoe, Jr.: In this -- under the facts in this case, if you read in the record they put -- the producer representative has office space at the distributor's warehouse at which point he --
Justice Byron R. White: That's one of his addresses.
Mr. G. Lewis Argoe, Jr.: That's one of his addresses and that is one point at which he has furnished office space to --
Justice Byron R. White: To facilitate his whole operation?
Mr. G. Lewis Argoe, Jr.: To facilitate the transaction and to complete the necessary documents.
Now I might add that --
Justice Byron R. White: Well, now what does he do?
Now when I get there, he knows they have arrived and so he takes the papers and does what with them, endorsed them over or what?
Mr. G. Lewis Argoe, Jr.: He takes the papers and he seeks the permission of the state to make a transfer.
Those papers must be submitted properly endorsed on the time, the quantity and everything in that ship and the time in which they would -- a lot, that they arrived and the shipment was accepted.
Justice Byron R. White: Then what does he do?
Mr. G. Lewis Argoe, Jr.: Thereafter, he uprise for a certificate of transfer which would give him permission to transfer the legal ownership and title and make a – and to affect the sale and delivery of this liquor.
Justice Byron R. White: Where does he get the certificate?
Mr. G. Lewis Argoe, Jr.: The certificate is a form which is supplied to him and upon which he has to fill out all and give all the requirements.
Justice Byron R. White: (Voice Overlap) requiring that last --
Mr. G. Lewis Argoe, Jr.: That certificate is applied and all has to do.
Justice Byron R. White: Supplied in advance to him or not?
Mr. G. Lewis Argoe, Jr.: Yes it is.
Justice Byron R. White: Supplying all that he fills it in.
Mr. G. Lewis Argoe, Jr.: This certificate is like a certificate with upon -- with that he fills the form out, the form is not filled out the state.
Justice Byron R. White: Well I know and it isn't signed by the state afterwards, it's already signed in advance?
Mr. G. Lewis Argoe, Jr.: No, it is not signed in --
Justice Byron R. White: He fills out the form and then takes it somewhere?
Mr. G. Lewis Argoe, Jr.: He fills out the form, carries it to the Alcoholic Beverage Control Commission and requests that a approval for the transfer be granted.
It is at that time that the State decides whether or not they can grant the approval for the transfer and I think the record in this case is that – is silent on the point that -- as to whether or not a shipment has ever been refused, but it at that point, that the decision is made whether or not, the wholesaler is entitled purchase this liquor.
Justice William J. Brennan: Is that -- what is you just say and suggested and you know of no instances where the approval had been withheld.
Mr. G. Lewis Argoe, Jr.: I know of none with this particular wholesaler.
Justice William J. Brennan: I see.
Chief Justice Warren E. Burger: I suppose if the particular wholesaler had violated some statute, some section of the statute relating to the control of alcoholic beverages, the board might refuse in that instance to approval the transfer, is that true?
Justice William J. Brennan: Your Honor, for any violation a license maybe revoked and that being the license of the registered producer authorized the ship, or the license of the wholesaler seeking to buy this liquor and for a violation it depends upon the nature of violation I assume as to whether or not they would revoke the license or refuse to allow them to obtain or to purchase liquor.
It could be --
Justice William H. Rehnquist: (Inaudible) I thought some sort of separate storage or the bins within the warehouse or or I am mistaken in thinking that?
Mr. G. Lewis Argoe, Jr.: Any storage by Heublein in South Carolina, must be made in a a bonded warehouse or upon it -- or it's own warehouse.
Justice William H. Rehnquist: And in this case --
Mr. G. Lewis Argoe, Jr.: To be legal a storage.
Justice William H. Rehnquist: Well, in this case was it shipped to the wholesaler's warehouse?
Mr. G. Lewis Argoe, Jr.: It was shipped to the wholesaler's warehouse and I think you fond that the record is silent as to how long that liquor may have rested on a loading dock before it was actually reported to the State that it had arrived.
So legally I don't assume and I don't suppose that any liquor could arrive in the State of South Carolina that could legally be accepted by anyone except the producer representative and the common carrier maybe at fault for leaving it with someone else.
We are confronted with the question of acceptance or rejection of an order in -- the statue Public Law 86-272 to be applicable must show that it -- to be applicable, the activities must show that any order solicited in South Carolina was set outside the State where there were accepted or rejected and along the lines of the question previously asked by the Court, I would suggest that no acceptance could be made of an order prior to the liquor reaching South Carolina and being received by the producer representative in South Carolina.
Therefore, any order would be subject to the approval of the State before it could be accepted and in South Carolina and generally in all of the States I think that for a sale to be consummated there must be a passing of Title and there must be a delivery granting the person, acquiring such -- any purchase of property, granting the person purchasing property to -- the right to receive such property.
There is no right until that permission is granted in this case.
Therefore, for that reason, Public Law 86-272 is inapplicable.
So summarizing --
Justice Byron R. White: On that basis you would -- If South Carolina had the same regulation with respect to groceries or meat, they might be invalid under some of the provision of the constitution, but it would still be out from under the tax -- you would still have the right to tax it because the Federal statute wouldn't apply.
Mr. G. Lewis Argoe, Jr.: Your Honor, I can't agree with you in that respect.
Justice Byron R. White: You are saying that liquor business is just different, is that true?
Mr. G. Lewis Argoe, Jr.: The liquor business is different, yes.
The Commerce Clause protects all --
Justice Byron R. White: Is same scheme with that was respect to anything but liquor would be very questionable, isn't it?
Mr. G. Lewis Argoe, Jr.: It would be very questionable and I think under the court's holding in the case of the South Carolina Highway Department versus Barnwell, the Court would take jurisdiction and determine whether or not the State had exceeded it's authority with respect to that type of regulation.
Justice Byron R. White: With respect to other property you would say that Commerce Clause would prevent South Carolina from the requiring Tittle to pass inside the State.
Mr. G. Lewis Argoe, Jr.: If I follow your question, I think the -- I don't think Title passage is a -- I don't think Title passage is a point that we would look to in determining whether Public Law 86-272 --
Justice Byron R. White: What are you looking for then here?
Mr. G. Lewis Argoe, Jr.: We are looking to determine if we have first an interstate sale and I state that we need not go no further and that is in line with the decisions that the South Carolina Supreme Court issued that we had a sale in interstate commerce -- intrastate commerce, a local --
Justice Byron R. White: Because title passed in South Carolina?
Mr. G. Lewis Argoe, Jr.: Title.
Justice Byron R. White: Because title passed in South Carolina --
Mr. G. Lewis Argoe, Jr.: Because title passed in South Carolina because title could not have passed without South Carolina, second because acceptance of the shipment could not be accepted without South Carolina.
Justice Byron R. White: Well, with every any other product then you would say South Carolina couldn't impose those requirements of making title passage to South Carolina.
Mr. G. Lewis Argoe, Jr.: I agree.
Justice Byron R. White: Or prohibiting acceptance --
Mr. G. Lewis Argoe, Jr.: Your Honor, title passage will not in my opinion control the applicability of Public Law 86-272 or the Commerce Clause.
The Commerce Clause speaks notwithstanding state law title passage and it would protect any shipment with in which the transfer is from without the state to within the state.
Justice Harry A. Blackmun: All of which gets you back to the concession you made before that you have hang on the Twenty-first Amendment?
Mr. G. Lewis Argoe, Jr.: This regulation is not under attack.
The case would depend upon the authority granted to the states under the Twenty-first Amendment, yes Your Honor.
Chief Justice Warren E. Burger: Under that same power, could South Carolina require that oranges from Florida or cheese from the Minnesota be shipped by common carrier as you do with liquor?
Mr. G. Lewis Argoe, Jr.: The State of South Carolina in my opinion would not have the authority under the Commerce Clause to regulate the shipment into the state from without the state any --
Chief Justice Warren E. Burger: That brings you back to the Twenty-first Amendment.
Mr. G. Lewis Argoe, Jr.: We are back to the Twenty-first Amendment which states that the state is granted exclusive control over liquors which are brought into it for use and delivery therein.
Justice Byron R. White: Well, just to make sure I understand you, if in connection with meat, the producer ships in into his representative in the state and that the -- and there is exactly the same procedure gone through here when connected with meat as happens here in connection with liquor, you would say that the Federal tax statue would control there wouldn't you, even though title passed in the state?
Mr. G. Lewis Argoe, Jr.: Your Honor, I say that the state has no authority to erect a trade barrier as is found.
Justice Byron R. White: I am not suggesting that the state erected any.
I am just saying the producer happen to run his business that way.
He just ships it into his representative but the only thing he does is ship it in to the representative, and the representative immediately delivers it to the distributor?
Mr. G. Lewis Argoe, Jr.: Your Honor --
Justice Byron R. White: Would he then not -- would he then be subject to South Carolina tax?
Mr. G. Lewis Argoe, Jr.: This Court has upheld in the Northwestern State case the right of the state --
Justice Byron R. White: Yeah, but that was not my question?
Mr. G. Lewis Argoe, Jr.: -- to tax such a transaction.
Justice Byron R. White: So you say yes, South Carolina could tax such transaction?
Mr. G. Lewis Argoe, Jr.: It could tax the income produced because of such transaction to --
Justice Byron R. White: Just because the shipment with representative rather than directly to the distributor?
Mr. G. Lewis Argoe, Jr.: Well I am not sure that I understand your question Mr. Justice White.
I state that if the sale is in intrastate sale if it is shipped to his representative then it becomes an intrastate sale, any subsequent sale made by the producer representative or by a producer, his employee.
But if the transaction is one in interstate commerce, this Court has recognized the right of a state to tax the net income resulting from that transaction provided that that tax is an apportioned tax which bears a reasonable relation to the act -- relationship to the activities within the State.
Justice Byron R. White: You mean you can tax -- say you send the papers to a bank instead of to the producer representative in order to facilitate credit transaction.
Mr. G. Lewis Argoe, Jr.: The technicalities of the paper are not the important points that I would like to emphasis in this case.
It is the fact that the Title, the right, the ownership and the possession of the goods are retained by the producer so long as they are in South Carolina.
Justice William H. Rehnquist: Mr. Argoe, isn't the state's contention here basically that the Twenty-first Amendment gives it the authority to regulate the way liquor distributors and sellers organize their business within the state and as a result of those regulations, the way that Heublein conducted it's business here is in fact, outside the scope of the Federal Commerce Act --
Mr. G. Lewis Argoe, Jr.: Your Honor that is correct.
It's the actual activities of Heublein in the state which bare out the right of the state to impose it's tax on that income produced in the state.
We are not concerned with that.
I think we get law --
Justice William J. Brennan: Is another way of saying that the Twenty-first Amendment is an authority to South Carolina.
So they require a liquor producer to localize it's operations within South Carolina as to avoid the application of the Federal Statute?
Mr. G. Lewis Argoe, Jr.: Your Honor, I agree with that statement.
Justice William J. Brennan: And that's what you say South Carolina has done here?
Mr. G. Lewis Argoe, Jr.: I say we have the statue, yes, have required the activities to be become so localized as to exceed the minimum standards for protection set out in Public Law 86-272.
Chief Justice Warren E. Burger: Thank you Mr. Argoe.
Do you have anything further?
Rebuttal of Stephen M. Piga
Mr. Stephen M. Piga: No sir.
Chief Justice Warren E. Burger: Thank you gentlemen.
The case is submitted.