UNITED STATES v. MISSISSIPPI TAX COMM'N
Legal provision: Amendment 21: Twenty-First Amendment
Argument of Jewell S. Lafontant
Chief Justice Warren E. Burger: We'll hear arguments next in 72-350, United States against the Tax Commission of Mississippi.
Mrs. Lafontant, you may proceed whenever you are ready.
Ms Jewell S. Lafontant: Thank you.
Mr. Chief Justice, may it please the Court.
Mississippi prohibited the sale or possession of alcoholic beverages until 1966.
In that year, it adapted a local County option policy, subject to requirement that the State Tax Commission be the sole importer and wholesaler of alcoholic beverages.
The Commission promulgated a regulation which authorized military post exchanges and other military agencies to purchase liquor either from the Commission or directly from distillers, but required that the distillers collect from military and remit to the Commission a markup cost.
The officers and non-commissioned officers' clubs and other non-appropriated fund activities had purchased liquor from out of state distillers and suppliers when Mississippi was a dry state, and they decided to continue this practice rather than purchase from the Commission itself.
United States filed an action seeking declaratory and injunctive relief against the enforcement of this Mississippi regulation that required out of state distillers to collect a percentage sum, designated as a wholesale markup on their liquor sales to certain post exchanges and other military organizations.
Chief Justice Warren E. Burger: Has the military at any time made purchases directly from the State?
Ms Jewell S. Lafontant: None whatsoever, not from any distillers in the State and never from the Commission itself.
All of the purchases by the military, all of them had been made from out of state distillers, never from the State.
So, the United States filed this action seeking declaratory judgment which said that, the markup had to be collected from the military and remitted to the State on basis in the State of Mississippi and also required the distillers to remit the markup to the Mississippi Tax Commission.
The United States, in addition to this, sought to recover the total of all such payments made by these military purchasers.
Incidentally these payments were made under protest and by July 31st of 1971, the total payments made amounted to $648,421.92.
The State of Mississippi ceded and the United States acquired jurisdiction over lands within the State, comprising the Keesler Air Force Base and the United States Naval Construction Battalion Center.
Mississippi also ceded and the United States accepted concurrent jurisdiction over lands comprising the Columbus Air Force Base and Meridian Naval Air Station.
The court below decided against the United States, stating that the Twenty-First Amendment makes Mississippi Law applicable to the sales of liquor to the military bases and the Court entered a summary judgment in favor of the appellees on all issues.
In his opinion, the Court found and Mississippi conceded on Page 5 of its motion to affirm and dismiss that the United States had exclusive jurisdiction on two bases, namely Keesler Air Force Base and the United States Naval Construction Battalion Center, and in the opinion of the Court, the United States and Mississippi had concurrent jurisdiction on the other two, Columbus Air Force Base and Meridian Naval Air Station, and we accept the findings of that Court.
The Twenty-First Amendment regulates the importation of liquor into a state.
Section 2 of that Amendment provides the transportation or importation into any state of the United States for delivery or use therein of intoxicating liquors in violation of the laws thereof is hereby prohibited.
We submit that the mere finding of the lower court that the Government has exclusive jurisdiction means that the federal enclave is not within a State, but is a separate territory outside the ambit of the Twenty-First Amendment.
The interpretation of the lower court that the Twenty-First Amendment makes Mississippi law applicable over the sales to the instrumentalities on the basis over which the United States has exclusive jurisdiction is inconsistent with the case law.
In Collins versus Yosemite Park, 304 U.S. 518, it was held that the regulatory phases of a California Law with respect to the importation and sale of intoxicating liquors are applicable to a corporation selling liquor in a national park, jurisdiction over which has been ceded to the United States with a reservation only of the right to tax persons and corporations in the ceded territory.
To the extent that the statute operates as purely tax or revenue measure, it was found that it was enforceable in the park.
However, license fees could not be enforced, because the state did not reserve the right to regulate or license, without I could say for the exception that it did reserve its right to issue license fees for fishing, but nothing concerning alcoholic beverages.
Thus, in Collins, California did not derive its right to impose revenue measures from the Twenty-First Amendment, but did so solely from its reservation of its right to tax.
In this case, there was no reservation by Mississippi of the right to tax.
Mississippi reserved only the right to serve civil and criminal process.
A proper application of Collins would defeat Mississippi’s claim of any right to impose any taxes of a regulatory or revenue nature or any taxes whatsoever.
Justice Potter Stewart: Mrs. Lafontant as I understand it there are what, four military instillations in Mississippi of which only two are --
Ms Jewell S. Lafontant: Exclusive, yes.
Justice Potter Stewart: -- are exclusive and this case involve only those two?
Ms Jewell S. Lafontant: No, this case involves all four.
What I am attempting to deal with --
Justice Potter Stewart: But certainly your arguments are applicable only to the two?
Ms Jewell S. Lafontant: So far.
Justice Potter Stewart: So far.
Ms Jewell S. Lafontant: So far, yes sir.
Justice Potter Stewart: Right, thank you.
Ms Jewell S. Lafontant: I would take up unless you want me to do.
Justice Potter Stewart: No, no I just want to be sure I understood that.
Ms Jewell S. Lafontant: Right, I am still on the exclusive jurisdiction.
Justice Potter Stewart: Right and that applies only to two out of the four.
Ms Jewell S. Lafontant: That's correct.
Justice Potter Stewart: Thank you.
Ms Jewell S. Lafontant: Thank you.
Justice Harry A. Blackmun: Well, at this point could I ask you a question please?
What is the Government’s attitude with respect to Mississippi’s power to regulate intoxicants taken off the base?
Chief Justice Warren E. Burger: The position of the Government would be that Mississippi would have the right to regulate the taking of intoxicants off the base.
Our position is that it has no right to tax or regulate intoxicants that are taken into the base, which is a military enclave, a federal enclave.
In other words, they could have a policeman at the door, at the gate of the military enclave to check people who are taking intoxicants off, if that would be the case.
Chief Justice Warren E. Burger: But would it -- but, it follow from that, that they could require a declaration each time a person left to much like the declaration you make when you come into the United States, a declaration stating that you did not have any liquor or that you would had three-fifths, could they do that too?
Ms Jewell S. Lafontant: I think the State within its powers to control activity within the State would have that power.
Chief Justice Warren E. Burger: And make it a criminal offense for any or al least to tax some kind of sanctions to the violators.
Ms Jewell S. Lafontant: Yes sir, I believe the State of Mississippi could pass such a law and make that a requirement to check every individual who would leave a military instillation and make them --
Justice Byron R. White: That's just smuggling.
Ms Jewell S. Lafontant: Yes, yes sir.
Justice Harry A. Blackmun: I mean you told us that the post orders the direct from the distillers and I suppose if they follow the other alternative of ordering liquor from the Tax Commission, then they would pay the markup or would they not?
Ms Jewell S. Lafontant: That would be my feeling, yes sir, Your Honor.
The basic constitutional import of --
Justice Harry A. Blackmun: Suppose that Mississippi required all purchases to be made from the Tax Commission and didn’t permit buyers this alternative of direct purchasing, then where would the Government be or would they have the right to --
Ms Jewell S. Lafontant: I don’t believe in the absence of congressional action, I don’t believe that they would have the right to prohibit or to really state that they could only buy the liquor from the State of Mississippi.
Justice Byron R. White: It's sort of Yosemite?
Ms Jewell S. Lafontant: Collins versus Yosemite, yes sir.
Chief Justice Warren E. Burger: Congress could surrender some of this supremacy?
Ms Jewell S. Lafontant: And it has -- yes sir, and it has done so in many cases, but to this date it hasn’t done it in this area.
Justice William H. Rehnquist: Is your answer to Mr. Justice Blackmun's question the same for both Keesler and Meridian, the concurrent and the exclusive?
Ms Jewell S. Lafontant: No the answer would not be the same in the concurrent jurisdiction, I don’t believe that, if I understand the question correctly.
Justice William H. Rehnquist: Concurrent jurisdiction -- and the State of Mississippi could require that liquor be purchased only from the State beverage outlet?
Ms Jewell S. Lafontant: I believe so, yes that would be our position.
The basic constitutional import of Collins is that the Twenty-First Amendment does not make state laws applicable to an enclave over which the federal government has exclusive jurisdiction.
Any exercise of sovereignty by the state over such enclave must be only through a reservation of right at the time of cession.
The lower court did not, in its judgment, differentiate between the enclaves over which the United States exercises its exclusive jurisdiction and the other two bases over which the United States and Mississippi have concurrent jurisdiction.
The Court found it unnecessary to do so because of its interpretation of the impact of the Twenty-First Amendment, stating that Mississippi laws are applicable to enclaves under the exclusive jurisdiction of the United States.
It is our opinion that where there is exclusive jurisdiction, the State has no right to impose a regulatory or revenue measure upon a federal instrumentality.
Even where there is concurrent jurisdiction the State can impose regulatory measures only when the transactions involved non-appropriated funds.
So, that I really have to return to your question Mr. Justice to state that the same would apply for the ones where there is exclusive jurisdiction as well as concurrent jurisdiction, except where there is non-appropriated funds, I think the State could limit Meridian. Such is --
Justice William H. Rehnquist: Are these
Ms Jewell S. Lafontant: Such is --
Justice William H. Rehnquist: Are these funds here all are non-appropriated; all appropriated or are they mixed?
Ms Jewell S. Lafontant: They are mixed Your Honor.
No, some are appropriated funds.
Now the commissaries are considered appropriated funds.
The mess halls are non-appropriated.
So, we have both kinds in both the exclusive and the concurrent jurisdiction bases.
As I said, even when there is concurrent jurisdiction, the state can impose regulatory measures only when the transactions involve non-appropriated funds, such is the holding of Paul versus United States, 371, U.S. 245.
The Paul case does not involve any enrichment of the State of California.
It deals with regulatory measures to establish minimum health standards in the distribution of milk through a minimum price statute.
Paul should be interpreted as meaning that even where the state and Federal Government have concurrent jurisdiction, that where the overriding concern of the State for the health of its citizens does not result in any direct expenditure of funds from the United States Government, the interest of the state in the health of its residents shall prevail.
The instant case is even stronger than Paul.
In our case here we have a direct imposition of a tax upon the instrumentality of the United States.
There is a direct enrichment of the state through the imposition of the markup and that markup collected by Mississippi, we submit, is a tax.
It is not a voluntary payment by the distillers.
How can it be voluntary when the distillers are threatened with delisting, unless they impose the markup upon the instrumentalities and remit it to the State.
Justice Byron R. White: Now this is -- this goes across this argument, it goes across the board in all four bases?
Ms Jewell S. Lafontant: Yes sir, yes sir.
If the distiller refuses to collect and remit the markup, he will be denied the right to sell its products and he maybe prosecuted criminally and he can made to serve up to a year in jail or pay a fine of $1,000 or both.
We submit that this tax is a contribution towards the cost of maintaining Mississippi’s governmental function since it is paid into the general revenue account.
In addition there is no service rendered by the State of Mississippi of on the exaction the markup.
Thus it is a payment demanded by the State of Mississippi as a contribution toward maintaining its governmental function and as I said before it is a tax.
Justice William H. Rehnquist: Would you say --
Ms Jewell S. Lafontant: In other words --
Justice William H. Rehnquist: Mrs. Lafontant, would you say that's true as to any state liquor operation where the state gets the markup that a wholesaler normally would, that's, in effect, a tax?
Ms Jewell S. Lafontant: It depends on how it's collected.
I would say this that if the markup was included in the price of the liquor and passed on, you might have some problem showing that it was a direct tax upon the purchaser, but in this case it is almost like social security or sales tax.
No one has any question about the fact that this money is collected specifically to be submitted to the State of Mississippi and is collected from the purchasers itself, and there is -- and then its put in the general revenue fund of the State, and the State does nothing to receive this money.
Although in the brief of my opponent, it is stated that this is for services rendered by the distiller in passing this liquor on and collecting this.
This is his service, but he doesn’t collect the money.
The money goes directly to the State of Mississippi, and so therefore it certainly is passed onto the purchaser himself.
Justice William J. Brennan: Now, if I understand it, this argument is predicated on even though concurrent jurisdiction?
Ms Jewell S. Lafontant: Yes sir.
Justice William J. Brennan: That the base is an instrumentality of the United States?
Ms Jewell S. Lafontant: Yes sir.
The particular and -- the particular agencies of the United States that are involved both in the concurrent and exclusive.
Justice William J. Brennan: And would this be true without regard to whether it's appropriated and non-appropriated funds, this argument?
Ms Jewell S. Lafontant: Yes sir.
Justice Byron R. White: Well, it would be rather difficult to establish an instrumentality of the United States for non-appropriated funds?
Ms Jewell S. Lafontant: No, I don’t think that's the issue at all.
I feel -- we have cases, one case is Standard Oil case versus Johnson that was passed in 1941 where Mr. Justice Black held that the messes, which were considered -- which earn from appropriated funds, he held in that case, Your Honor, that the messes are instrumentalities of the government and now I have a specific language here.
Chief Justice Warren E. Burger: What about the Tort Claims Act cases, we haven’t had one here for a long time?
Ms Jewell S. Lafontant: Federal Trot Claims?
Chief Justice Warren E. Burger: Yes, what -- an activity sponsored by non-appropriated funds, United States is liable under the Tort Claims Act, in an officer's club for example?
It seems to me I remember a swimming pool case, at Court of Appeals level, where they held it was an instrumentality for the purposes of the Tort Claims Act.
Ms Jewell S. Lafontant: I am not familiar with that case, the Federal Tort Claims Act case, but I certainly feel that what we are dealing with is a tax situation which might not necessarily flow over into --
Chief Justice Warren E. Burger: It won't follow necessarily, but there is some relevance to it I would assume?
Ms Jewell S. Lafontant: Well, if we followed that thinking a little further, I would say that where you have non-appropriated activities, where there is no financial detriment to the United States, that the United States would not be liable.
So Court stated in United States versus La Franca at 282, U.S. 568 and 572, "A tax in an enforced contribution to provide for the support of Government."
Appellee concede that the markup payments maybe treated as an excise tax in its motion to affirm or dismiss at Page 11.
This tax, we submit, is imposed upon the instrumentality of the United States in both the appropriated and non-appropriated.
Justice William J. Brennan: Well, I notice on Page 29 of your brief, you have citation to a statute, a federal statute, the State is supposed to exchange on other non-appropriated fund activities as instrumentalities of the United States is recognized by that statute -- is that into that?
Ms Jewell S. Lafontant: Yes sir.
Justice William J. Brennan: So -- but, independently statute, would still say as to non-appropriated fund, it would be an instrumentality of the United States?
Ms Jewell S. Lafontant: Yes sir, it would.
Justice William J. Brennan: Well, this is --
Ms Jewell S. Lafontant: Because the -- it has been interpreted in Standard Oil versus Johnson that these mess halls are instrumentalities of the United States even though non-appropriated funds.
Justice William J. Brennan: Was that statute on the books when that case --
Ms Jewell S. Lafontant: In 1941, it's at 50 U.S. -- I can’t find exactly where you are reading, would you please?
Justice William J. Brennan: I am on Page 29, second paragraph of the Footnote 16.
Chief Justice Warren E. Burger: It becomes the status of post exchanges.
Ms Jewell S. Lafontant: 5 U.S.C., I don’t know what year that would have been.
The fact that Mississippi found it expedient to collect those revenues directly from the distiller does not change the reality that the burden of payment is directly placed upon an instrumentality of the United States Government.
It is true that Mississippi normally imposes the tax upon the distillers, but in operation and effect these taxes go upon the purchaser.
It is well settled that a state may not impose a tax upon the transactions of the United States Government or upon its instrumentalities and agencies.
The tax here is imposed upon governmental instrumentalities, the United States army post exchange and various clubs.
The Supreme Court in 1942 in Standard Oil versus Johnson 316 U.S. 481, the question was settled that army post exchanges are instrumentalities of the United States, and army post exchanges are out of non-appropriate funds.
Mr. Justice Black said there that post exchanges are arms of the Government, deemed by it as essential for the performance of governmental functions and partake of whatever immunities the armed services may have under the Constitution and the federal statutes.
The reasoning of the Johnson case has been extended to include military messes and officers clubs in many cases.
The fundamental principle that federal instrumentalities are immune from state taxation was first stated in McCulloch versus Maryland.
That principle is deeply rooted in the concept of federalism and has not been abrogated to this date.
For all of these reasons and the reasons set out in our brief, we respectfully submit that the judgment of the court below should be reversed.
Thank you, very much.
Chief Justice Warren E. Burger: Mr. Wright.
Argument of Robert L. Wright
Mr. Robert L. Wright: May it please the Court.
I am going to first describe to you the Mississippi policy toward military sales of liquor and then describe the federal policy toward those sales and finally discuss this Court’s decisions that accommodate State and Federal liquor control policies with each other.
Now Mississippi’s policy is as has been pointed out to preempt for itself all profits made from the wholesale distribution of distilled spirits and wine within its own borders.
Now Mississippi also imposes an annual privilege tax of $900 on package retailers and excises taxes on all sales, varying from 35 cents a gallon on wine to two-and-a-half dollars a gallon on distilled spirits.
Now, the states give, the State gives to the military retailers, these are the clubs and by the way those are all stipulated to be non-appropriated instrumentalities of the United States.
There is no question about either fact that they operate in non-appropriated funds and that they are instrumentalities of the Government.
Now, the State gives to those military retailers, the option of ordering direct from the distillers without payment of any state taxes, providing only that the state's wholesale markup is collected and remitted to the State by the distiller.
Now, the markup districts administratively by the Commission in accordance with the statuary direction to cover the cost of operation of a state's wholesale liquor business, yield a reason of a profit, and be competitive with liquor prices in neighboring states.
During the period here involved, that markup by the spirits was 17% to 22% on wine.
Now that markup was applied uniformly throughout the State, selling to all retailers in the State, and the effect of the military tax exemption, however, was to give the military retailers a price on whiskey and gin that was 50 cents cheaper than the private retailers pay, because the excise tax exemption amounts to two-and-half dollars a gallon on spirits.
The military retailers were also exempted from the $900 a year privilege tax not paid by the private retailers.
Now the net effect of the State's regulation is that the military clubs are guaranteed a price on the distilled spirits that is no more than 17% above the price at which distilled spirits are sold in the State.
This 17% markup, that's State's gross profit margin, that their income to the State from the market is the difference between the markup and what it costs the State to maintain its wholesale distribution system.
Now that cost is substantial because it involves stocking and warehousing, a very large inventory of wine and spirits statewide.
Now the cost to this, carry that inventory, has to borne by the State, whether the military chooses to buy direct from it or direct from suppliers and in accordance for the options given to the military for their convenience.
Now when military orders are sent direct to the suppliers, he supplies, of course, to perform the wholesaling functions that the State normally performs, and to remit the State's normal wholesale market to the State.
The application of the State's --
Justice Byron R. White: Well, Mr Wright, do you -- is it your position that the State could compel purchasing from the State?
Mr. Robert L. Wright: Indeed, it could and this option was granted to the retailers for their benefit, for their convenience?
Justice Byron R. White: Are there any cases -- is there any case that you would cite in support of that statement?
Mr. Robert L. Wright: We had cited the Yosemite, the Collins against Yosemite Park case, which held exactly that as far as California’s excise tax is concerned, but I will get to that case later on, I want to describe here first how the Mississippi system operates and then I will describe how the federal policy operates, because after you see how the federal system and state system perform, I don’t think you will find any conflict that would force you to reach the constitutional issue.
Now, when the military orders are sent direct to the suppler, he has to perform those wholesaling functions, but the State, the military clubs, the United States never performs these wholesaling functions, whether it buys direct from the distiller or whether it buys -- whether it chose to buy from the State, in neither event, would the United States or the clubs, perform the wholesaling functions for which markup is charged.
Now the application of this markup to direct sales prevents the distiller from adding more than 17% to his wholesale price when he sales to military retailers.
That's the same ceiling that applies, of course, to the sales that are made by the State to the retailers because of the fixed 17% markup.
Justice Thurgood Marshall: But the distillers don't keep that money?
Mr. Robert L. Wright: I beg your pardon.
Justice Thurgood Marshall: The distillers don't get that money, right?
Mr. Robert L. Wright: No, what they get is the privilege of selling liquor in Mississippi.
They gain access to the Mississippi market that they could not have they did not comply with Mississippi law.
Justice Thurgood Marshall: And what does Mississippi give either to distiller or the club?
Mr. Robert L. Wright: It gives the distiller two things.
It gives him the right to distribute his liquor in Mississippi and it also gives him a tax free military market that can be exploited without payment and save taxes that attach to the sales through the private store.
Justice Thurgood Marshall: But all Mississippi wants is the $17?
Mr. Robert L. Wright: Well, I don't --
Justice Thurgood Marshall: Anyway they can get it?
Mr. Robert L. Wright: I am pointing out that the 17% is a gross profit margin that in itself is that -- the profit of the State gets, a difference between the 17% markup.
Justice Thurgood Marshall: But the liquor doesn't go through any State official, nobody in state does anything for this liquor at all, right?
Mr. Robert L. Wright: Not with the physical liquor.
They of course --
Justice Thurgood Marshall: Other than to accept the money?
Mr. Robert L. Wright: Well, I have to give, they don't keep track of it and they do not get the money from the military.
There is no payment made by the military.
These protests that were talked about are not protests made by the suppliers, who are actually assessed the charge and then pay it.
Justice Thurgood Marshall: Well, who --
Mr. Robert L. Wright: Those are protests made by the clubs to the suppliers.
Justice Thurgood Marshall: Well, do I assume that the distillery is any different from any other corporation that pays all taxes through the purchaser, don't they?
Mr. Robert L. Wright: Precisely.
Justice Thurgood Marshall: And that's what they do here?
Mr. Robert L. Wright: Yeah exactly.
Justice Thurgood Marshall: And the distiller is a conduit for your taxes?
Mr. Robert L. Wright: Well it isn't -- I am pointing out it doesn't have to be a tax.
Justice Thurgood Marshall: You ain't paid the distiller for collecting it for you, do you?
Mr. Robert L. Wright: It’s a wholesale markup.
Now no distiller has protested this obligation, which is --
Justice Thurgood Marshall: Because it doesn't cost him anything?
Mr. Robert L. Wright: Well it costs -- it is a possible arrangement for him, but I want to point out that the burden is his, it is imposed on him, the markup obligation.
He is the one who discharges it.
Justice Thurgood Marshall: If he can --
Mr. Robert L. Wright: And that there is no more of a burden on the clubs than any other state excise tax or --
Justice Thurgood Marshall: Now if a distiller sues you or raises a lot of noise, would you still buy whiskey from him?
You wouldn't, would you?
You wouldn't -- you wouldn't really like to -- I assume you would?
Mr. Robert L. Wright: I am not suggesting that there was no compulsion on the seller not to comply with Mississippi’s law, there is.
He'd be prosecuted criminally if he didn't.
There is a no doubt about that, but the regulation operates on him.
If the distillers --
Justice Lewis F. Powell: Mr. Wright?
Mr. Robert L. Wright: Yes.
Justice Lewis F. Powell: Excuse me sir.
Do you have a general sales tax in Mississippi?
Mr. Robert L. Wright: I don't believe so.
I don't believe the tax apply to -- the tax on liquor.
Justice Lewis F. Powell: I am not talking about liquor, but do you have a retail sales tax in Mississippi?
Mr. Robert L. Wright: There may be one, I don’t think it's significant in this context.
Justice Lewis F. Powell: I am just wondering whether a sales tax is collected from commodities sold in an army post exchange on one of these bases?
Mr. Robert L. Wright: No it's not all state taxes are exempted, the military clubs are exempted from all state taxes, that's the same sentence in the regulation that imposes the market exempts from all state taxes.
But now, any distiller, even a private one, knows it, none of his wholesale, if he has an exclusive wholesale distributor, whether he is public or private, the wholesale distributor can't be expected to tolerate direct sales that made by the manufacturer that under cut his profit, collecting and remitting a wholesaler's or an exclusive wholesaler's markup to him on direct sales made for the convenience of a purchaser is common industry practice.
Now at the trial no effort was made by the United States to show that after Mississippi's regulations, any of the effected military clubs could have bought liquor from any supplier at a lower price than they actually pay.
From the nature of the regulation, I think you could see that no such choise was possible, unless you assume that some supplier wanted to penetrate the military market could validly offer special inducements that would have fit to only principles of full State and federal regulation of the liquor traffic.
Now coming to the federal regulation, federal liquor control policy, unlike Mississippi, is centered around practices and have no special bearing on activities within any State.
However, in some aspects federal control is more decisive than state control when it comes to price, for example.
The major part of an average cost, the average price of distilled spirits.
So anywhere in United States is a federal excise tax, that's $10.50 on every gallon 100 spirits.
These mean that roughly half of the wholesale price even the best by the government as federal excise tax.
Now if the Congress thought as the convention that's made here that making some military raft requires low liquor prices, it could cut the club prices in to half by simply providing the federal excise tax refund to military persons.
Now, the Congress has been asked by the Defense Department to solve its moral problems that way.
The only federal legislation now on the books dealing with military liquor is the 1951 law that's afforded in the Appendix here In full, and that statute is -- it says that two cents is the sole authority of the Defense Department of regulations that put the military in the business of selling liquor at retail.
Those are also set out full in the Appendix.
Now what this does on its face, I am talking about the 1951 federal act is authorized the Defense Department to make regulations governing sales to or buy members of the arm forces at or there any military base, any base.
It doesn't have any distinction between exclusive and other jurisdiction.
Chief Justice Warren E. Burger: Let me ask you a question that somewhat like Mr. Justice Powell’s question.
Does Mississippi have a tax on cigarettes, for example, a state tax?
Mr. Robert L. Wright: I really don’t know, I assume they probably might have --
Chief Justice Warren E. Burger: Well, they probably do, almost everybody does.
Mr. Robert L. Wright: Yes.
Chief Justice Warren E. Burger: Now can they tax, I am not concerned about whether they do or not do, assert that Mississippi has a right to -- the power to tax cigarettes with the state tax that are sold in the exchanges.
Mr. Robert L. Wright: I assert nothing as to cigarettes.
The only association here is to liquor, because this is a Twenty-First Amendment case, and Twenty-First Amendment doesn't apply to cigarettes.
It may will be that Mississippi could not do with respect to cigarettes what it has done with respect to liquor.
Now what it has done with respect to liquor is well within the rights granted by that Amendment to control the distribution of liquor in Mississippi.
Now the statute I just referred to were -- also makes these regulations that the Secretary of the Defense can follow here punishable with federal crime.
Chief Justice Warren E. Burger: Do you have any -- do you have any Indian reservations in Mississippi?
Mr. Robert L. Wright: I couldn't say, I --
Chief Justice Warren E. Burger: I am just trying to get out some of the same things that you were --
Mr. Robert L. Wright: It's possible.
Chief Justice Warren E. Burger: -- talking about before.
Would you assert the state's power on an Indian reservation with respect to liquor under the Twenty-First Amendment?
Mr. Robert L. Wright: The State has -- I think the state's power to regulate staffs of the border of the end play that any of them as far as what happens on the base.
The Federal Government controls what happens, not the state, but what we are talking about here is the cost of liquor that goes into the base.
It is to that I don't think there is any question, but what -- the stores operated on the base are at no better position to resist Mississippi’s control than the private stores and this -- the entire -- returning to the statute, this is the only federal law on this particular question of liquor sales at bases.
The law's entire legislative history is found on one page of congressional record stated in our brief.
Now that was adopted as an amendment to the Extension Act of 1951 by agreement just before the House passed it.
That amendment was proposed by Representative Cole of New York as a substitute for one proposed by Representative Price from South Carolina.
The Price's amendment would have made every base where draftees were trained bone dry.
Cole said his amendment was preferable, because there would not be regulations made by the secretary apply to all bases.
Price's said that -- it was agreeable to him, Cole's amendment was adapted without any debate without the quote.
Now you should also remember that three years before the Federal Assimilative Crimes Act had been enacted in 1948, which made state crimes punishable as federal crimes when committed inside federal enclaves where there is exclusive or concurrent jurisdiction, and subsequently all state liquor laws were then as they are now enforceable by criminal prosecution.
Now no mention of those laws was made by Cole or by Price or anyone else when this 1951 federal regulations was passed.
Now whatever else Congress may have had to do by that 51 law, it certainly didn't intend to make military bases payments for bootleggers.
Now here is the term bootlegger, because since the Twenty-First Amendment, that's word that describes the activities of people who sell liquor without payment of taxes etcetera.
Now the Defense Department itself construed this law that I just described as not requiring avoidance of state regulations of sales to military bases.
When it amended its own regulations in June 1966, that was just before Mississippi’s regulation became effective, the federal amendment struck out the requirement that the base purchases be made “without regard to prices locally established by state statutes or otherwise”.
It continued to enforce its requirement that its own sales of packaged liquor be priced “within 10% of the lowest prevailing rates of civilian outlets in the area".
Now, I think it's quite clear on the face of the regulations themselves and the statutes, there is no genuine conflict between federal and Mississippi liquor control policies as they are expressed in their respective laws and regulations in those policies in both cases.
Justice Potter Stewart: Mr Wright what was the situation before 1966?
I understand until 1966 Mississippi was simply a bone dry state?
Mr. Robert L. Wright: In theory, but not in fact.
Justice Potter Stewart: Well, but in law it was.
In law it was, am I right in that?
Mr. Robert L. Wright: In law it was a dry state.
Justice Potter Stewart: And were the -- was liquor sold on all of these military bases?
Mr. Robert L. Wright: That I can't tell you, but the stipulation doesn't cover the pre 1966 activities.
I would suspect that was being freely sold in country clubs.
I would suspect the military clubs also bought it and sold it, but I don't --
Justice Potter Stewart: The stipulation doesn't show --
Mr. Robert L. Wright: This is simply not part of the record that you have here.
Justice Potter Stewart: Well, I wondered what the situation was because of my -- on the problems at least so far as these -- some of these bases are not holding federal enclaves?
Mr. Robert L. Wright: Well they are all federal enclaves.
The difference is -- between them is the two -- they claim that the grant was exclusive jurisdiction and other two concurrent, but in either events you understand these cessions of the basis were made from 42 to 50, this is while Mississippi was dry, and after the Twenty-First Amendment was passed Mississippi's right to regulate to tax or establish a markup or do anything else with respect to controlling liquor in Mississippi stems from the Twenty-first Amendment --
Justice Potter Stewart: Twenty-first Amendment.
Mr. Robert L. Wright: -- which annotated the cessions.
Justice Potter Stewart: And until 1966, Mississippi chose to exercise its power under the Twenty-First Amendment by having absolute provision.
Mr. Robert L. Wright: Right, and that --
Justice Potter Stewart: And I wondered what the situation was on these bases during that period with respect to the sale of liquor either by the drink or by the bottle?
Mr. Robert L. Wright: I can't tell you but I would suspect that there was liquor on the bases as there was nearly everywhere else in Mississippi on merely the bases.
Chief Justice Warren E. Burger: Let's lay aside the fact, what is your view of the power?
Could Mississippi have prohibited liquor on military enclave?
Mr. Robert L. Wright: I think its more identical question than the one we have here because I think it's clear that when you have a state trying to control what happens on the base, conduct on the base, you have entirely different question than you do when all state wants to do is to control the distribution of liquor to the base, which is what you have in the case here, and then this was also involved in the Yosemite case, but this brings me to what I take are the two decisive cases of this Court in this area.
Assuming that you do believe there is a conflict between federal and state policy, which I don't think can really be found --
Justice Byron R. White: I know, but it seems to me that that regulation you are talking about is permissive.
It doesn't -- it didn't require -- it didn't any longer require the military to seek the lowest price of the buy, if possible?
Mr. Robert L. Wright: It never did require them to seek the lowest price.
Justice Byron R. White: But I don't know how you can say that it's the conflict from the United States is not asserted a right to buy liquor free of any state imposed markup?
Mr. Robert L. Wright: This suit clears the conflict unquestionably.
I am talking about if you lay the federal policy side by side with the state policy as expressed in the laws and regulations that were applied to the --
Justice Byron R. White: You say that the United States, awfully sorry we just wanted to entertain the lawsuit because you just brought your lawsuit?
Mr. Robert L. Wright: Well, even if you regard it a conflict as present, I think your decisions, the Court’s decision in Ohio against Helvering and in Collins against Yosemite Park decides this case in favor of Mississippi.
Now in 1934 Ohio’s attorney general thought the moral of Ohio citizens would be a proof if they went to federal excise tax is -- liquor sales could be avoided.
Now, following the Twenty-First Amendment, Ohio preempted for itself didn't it suppose to selling, wholesaling liquor within the state.
Now, Ohio argued that since it had gone into the liquor business itself there is both the control over revenue and measure.
The sale of liquor in Ohio was a sovereign function that could not be impaired by federal action, and they claim that the federal excise tax was such an unconstitutional impairment, because it did enormously increase the prices that the state had to pay for the liquor itself.
Now this Court as far as to Ohio's argument was refusal to allow Ohio's point.
The opinion simply observed that while Ohio could enter the liquor business with a state monopoly, it could only do so subject to normal non-discriminatory business taxation and all you have here is normal imposition of a markup, which is discriminatory only inside of the clubs, because when we markup does apply to military service, all taxes are away, but when applied to the private clubs, the excise tax has to be paid which gives them a much higher per case price.
Now four year later in the Yosemite Park case, a liquor selling concession here at the park service tried to avoid the payment of the California excise tax on his liquor sales and couldn't do it.
Now, he argued that he was the an agent of the Federal Government, operating in an enclave where the United States had exclusive jurisdiction.
Now this Court held that that the concession area that they have take out a retailer's permit or pay California's tax on retailers, and Mississippi is not attempting to force these clubs either to take out retailer's permit or pay that retailer's tax.
The Court also held, however, that the Yosemite Park in cession did have to pay California’s Excise Tax, levied on all liquor sold “within the state”, because within the state meant anywhere within the state’s boundaries whether on a Federal enclave or elsewhere.
Now the Court noted that California reserved taxing power when the Park was conceded to the government in 1990, but that doesn’t explain the, sticks to truth, between the retailer's tax and the Excise Tax.
Now, California has treated that 1938 decision as authorizing application of its excise tax to all liquor sales to military bases within the state, and the United States has never challenged that construction.
Now, California gives liquor wholesalers no excise tax exemption on sales made to non-appropriated fund agencies selling liquor on military bases.
Chief Justice Warren E. Burger: Well Mr. Wright, your analysis of the Yosemite case would seem to equate the concession error with an instrumentality, does it not?
Mr. Robert L. Wright: Yes, I think he clearly wasn't an agent of the Park Service.
Chief Justice Warren E. Burger: And you make no distinction on the other factors in Yosemite about the consent of the --
Mr. Robert L. Wright: No, I think clearly if there is a constitutional prohibition against California’s taxing sales of liquor into a Federal Enclave, then nothing California could do by its statutes where they give it the right to do it.
Justice William J. Brennan: Well, the United States could consent to California's doing it, could it not?
Mr. Robert L. Wright: Well, I think it was held as to that conservration --
Justice William J. Brennan: Well, could it; my question would be, could it?
Mr. Robert L. Wright: They could.
Justice William J. Brennan: (Inaudible), and did it not?
Mr. Robert L. Wright: In that case it did, yes.
All I am saying is that since that time, California has enacted legislation which applies its tax not only to sales to non-appropriated fund instrumentalities, at all the bases in the state and without regard to the charge of cession or without regard to what taxing rights, if anyway they were reserved on the cases were ceded, and that California also gives no excise tax exemption to distillers outside the state who sell direct to military installations where payment is made out of the Federal Treasury and the US has never attacked California’s right to do that.
Now, in 1947, a distiller did litigate the matter however.
National Distillers tried to avoid payment of the tax on the sale of 41000 (Inaudible) whiskey (Inaudible) for distill purposes and sent to army medical depot in Los Angeles.
Now that whiskey was ordered out of the St. Louis and shipped to Los Angeles from Ohio and the distiller argued that the application of the California excise tax to that shipment creates an unconstitutional burden on federal functions, because the tax was included in the price the army paid.
Now, the California Appellate Court rejected the distiller’s argument and sustained the tax.
That case is cited on the Page 17 of our brief in Footnote 12.
Now, the US could have intervened in that case and carried it to this Court on the constitutional issue, but it didn't.
What it's doing now, is asking you to overturn a construction of that 1938 decision in Yosemite Park that was regarded as settled until this case was brought against Mississippi.
Now, if there is only solid policy reason for doing that, I haven't heard of expressed into government's argument, haven't seen in its brief.
Chief Justice Warren E. Burger: Thank you.
Does the government have anything further?
Rebuttal of Jewell S. Lafontant
Ms Jewell S. Lafontant: Thank you Mr. Chief Justice.
At this time I would like to waive my right to rebuttal.
Justice William H. Rehnquist: Mrs. Lafontant, let me ask you one question if I may before you waive.
It seems to me at least possible that a distiller is either an indispensable party or perhaps the only party here who can raise this type of an issue that the government has made these payments to the distillers.
The distillers aren't a public body which -- or nearly pay under protest, doing it the distiller has in turn remitted the payments to the State of Mississippi.
Don't you think that perhaps the distillers ought to be parties in order that these issues you have brought can be properly raised and adjudicated?
Ms Jewell S. Lafontant: I see no reason or any real necessity for the distillers being made party plaintiff to this case.
The United States Government is attacking the whole regulation and the United States is certainly, the purchaser, the real party in interest, because he has to pay the money, the distiller is just a conduit passing it on and it’s expressly stated that way.
I don't think it would detract from the case however, if the distillers were made party plaintiffs.
But I don't feel that there would be a necessity for it.
Justice Byron R. White: Well, could I ask you?
Couldn't Mississippi just simply have a law that required all distillers who sell in Mississippi to charge everybody, all of its customers, a certain price?
Ms Jewell S. Lafontant: Certain price, I would agree that Mississippi could do that.
If they -- if Mississippi had passed such a law, I don't believe we could be here, but that is not the case.
Justice Byron R. White: And it says to the --
Ms Jewell S. Lafontant: It's the manner in which -- the method of which it takes --
Justice Byron R. White: So, if Mississippi had a law like that, the distiller would have to charge the United States a certain price?
Ms Jewell S. Lafontant: Except I feel that the -- in the enclaves where there is exclusive jurisdiction, that there might be a problem.
Justice Byron R. White: Well, I know, but what Mississippi says to the distillers, "By the way if you want to sell to anybody in the state, just make sure you charge the United States the same X price?”
Ms Jewell S. Lafontant: And we couldn't argue with their price.
I will agree with you, if it was in the total price, we would have no cost bargaining.
Justice Byron R. White: Well, then -- and if you couldn't complain about that, how come you can complain if they go one step farther and they say, “By the way, give us part of the price that we are making you charge the United States?”
Ms Jewell S. Lafontant: Well, I think it makes all the difference in the world, the method and the way it is set out.
Justice Byron R. White: Alright.
Chief Justice Warren E. Burger: But you seem to be conceding something, and I am not sure without some authority, I couldn't accept, namely that any state has the power to fix the price at which the United States Government buys anything, liquor, milk or turnips?
Ms Jewell S. Lafontant: In my haste, I didn't get to clarify because then I followed up to a subsequent question that it would still be the position of the United States Government that on the exclusive jurisdiction bases that no state could control the price of anything.
Justice Potter Stewart: The Paul case.
Ms Jewell S. Lafontant: Yes sir.
Thank you very much.
Chief Justice Warren E. Burger: Thank you.
The case is --
Rebuttal of Robert L. Wright
Mr. Robert L. Wright: Your Honor, I give you this one citation that I thought it was my last point.
Chief Justice Warren E. Burger: You may -- you may give us the citation.
Mr. Robert L. Wright: All I have is this should have been included in my belief, it's a senate report on the Buck Act, which was passed in 1940.
You will simply look at the report, the Finance Committee Senate report, 1625, 76th Congress, May 16, 1940, you will see that the exclusive jurisdiction defense was removed entirely insofar as the sales and used taxes on the general merchandise.
Chief Justice Warren E. Burger: Case is submitted.