UNITED STATES v. MISSISSIPPI TAX COMM'N
Legal provision: Amendment 21: Twenty-First Amendment
Argument of Stuart A. Smith
Chief Justice Warren E. Burger: We’ll hear arguments next in 74-548, United States against Mississippi.
Mr. Smith, you may proceed when you’re ready.
Mr. Stuart A. Smith: Thank you.
Mr. Chief Justice and may it please the Court.
This case comes here again on a second direct appeal from a three-judge District Court in the southern district of Mississippi to consider certain issues which were not reached by the Court in its first -- in its consideration of the first appeal.
The broad question presented is whether a regulation of the Mississippi State Tax Commission imposes an unconstitutional state tax upon instrumentalities of the United States.
The regulation in question requires out of State liquor distillers to collect tax from military purchasing facilities and to remit this tax to the State Tax Commission.
It is the position of the United States that the District Court was wrong in upholding the validity of the tax as applied to these sales to the military purchases in the four bases within the State of Mississippi.
The facts as before are largely undisputed and stipulated.
Prior to 1966, Mississippi completely prohibited the sale or possession of alcoholic beverages.
In 1966, it adopted a local option beverage control law.
Those statutes are set forth in the appendix to our brief, at pages 47 and 48.
The new law provided that the State Tax Commission was to be the sole importer and wholesaler of alcoholic beverages within Mississippi.
Under the statute, the State Tax Commission is authorized to sell liquor to retailers in the state, including any retailers on military posts within the state.
A related statute provides that the Commission shall add such markups within its discretion to cover cost and provide profit.
So, the statutory scheme essentially established a monopoly by the State of Mississippi in the wholesaling of liquor.
But the State Tax Commission promulgated so called Regulation 25, which is really at the heart, the validity of which is at the heart of this case.
That regulation permits the military to purchase liquor from the Commission as could anyone in Mississippi, or directly from the distillers.
However, the regulation goes on to provide that if the military chooses to exercise its option to purchase liquor directly from the distiller, then the regulation provides that the distiller must collect the markup from the military and remit that markup to the State Tax Commission; the same markup that would’ve been applicable had the military purchased the liquor from the State Tax Commission.
Now, during the time at issue here, the markup with respect to distilled spirits was 17%, and with respect to wine was 20%.
Now, there are four military bases in Mississippi which this Court explored on the first appeal.
There are two bases over which the United States maintains exclusive jurisdiction.
Those are the Keesler Air Force Base and the Naval Construction Battalion Center.
There are two other bases over which the United States and Mississippi maintain concurrent jurisdiction.
These are the Columbus Air Force Base and the Meridian Naval Air Station.
Now prior to 1966, Mississippi was a dry state, but even during that time, the military purchased liquor from the out of State distillers.
Now after 1966 when the new statute came into effect, the military continued the same practice of purchasing liquor from out of State distillers directly.
Now, after Regulation 25 became effective, which essentially told the military that even if they had continued their past procurement practice, they were going to have to pay over the tax to the Mississippi Tax Commission.
The military attempted to persuade the Mississippi State Tax authorities that the collection of this tax on direct purchases was improper.
As a means of providing of some kind of interim accommodation, the military suggested that the amount of taxes at issue be paid into an escrow fund, and kept there until the matter could be judicially determined.
But Mississippi rejected that suggestion and in fact warned distillers that if they did not pay over the tax to the State Tax Commission on their direct sales to the military, they would be subject to the criminal penalties that were -- which were imposed on the Alcoholic Beverage Act, and they would also be subject to delisting, which essentially meant they would loose their privileges to sell their products to the State Tax Commission for retailing in Mississippi.
So because of this onerous position taken by Mississippi, the military had no choice, at least for the interim, to pay the amount of tax that Mississippi claimed to be due and owing.
As of July 1971, the record indicates that there was some $650,000.00 collected, and now, military advised me that as of the beginning of this year, the sum is something like $1,250,000.00.
Now this particular suit was brought in 1969 before a three-judge District Court.
The United States asked for three modes of relief; a declaration that Regulation 25 was unconstitutional because it imposed a tax upon federal instrumentalities, an injunction against its further enforcement, and a money judgment in the amount of the taxes that had thus far been collected.
Now the first time around, the three-judge District Court simply held that the Twenty-first Amendment preempted the entire field, and that that empowered the State of Mississippi to impose this tax on sales to military purchases.
On the first direct appeal, this Court reversed and vacated the judgment of the District Court.
It held with respect to the exclusive jurisdiction basis that the Twenty-first Amendment had no application.
The reason and that the majority of this Court indicated was simply that the Twenty-first Amendment which speaks of importation of alcoholic beverages into any state did not apply to the exclusive jurisdiction bases, because those bases as the District Court itself acknowledged in its first consideration might as well have been in a sister state or in a foreign country, they simply are not part of the State of Mississippi.
But the court did not reach the issues which are now before it for resolution, that is questions of intergovernmental immunity and with respect to both the exclusive jurisdiction bases and the concurrent jurisdiction bases.
Now on remand, the District Court again dismissed the federal government suit and it did so by holding that the tax at issue here was on the out of State distiller and not on the military purchases so that there was no, supposedly, no unconstitutional tax on the United States.
The District Court further held that even if a tax were on the military purchaser, Congress had consented to the tax, and the District Court rejected the Government’s constitutional tax immunity doctrine argument on the same ground.
Now, before I begin to talk about what the parties disagree about, I think it ought to be -- I think it would be helpful to the Court if I set forth what our three points of agreement between the United States and the State of Mississippi in this lawsuit.
To begin with, the parties are in agreement with the District Court’s conclusion that the State’s Regulation 25 imposes a tax.
Secondly, that the parties are in agreement with the District Court’s finding that the ship stores, the officer’s clubs and the post exchanges involved in these cases on both the exclusive jurisdiction bases and on the concurrent jurisdiction bases are federal instrumentalities.
As federal instrumentalities, as arms of the federal government, they are entitled to whatever immunity from state taxation that the United States would enjoy.
And thirdly, the parties agree with the District Court’s statement in this case that the constitutional principle of federal tax immunity which this Court has reaffirmed on many occasions, applies only to bar a tax whose legal incidence falls upon the United States.
So, putting aside those three points of agreement, I would like to now turn to what we think is the essential point in this case, and that is the error of the District Court’s holding that the legal incidence of this tax is not on the United States.
Now, the District Court construe the term legal incidence, which this Court has used many times, to mean the legally enforceable liability --
Justice Byron R. White: Would you be making the same argument if this case had come here from the state court of Mississippi?
Mr. Stuart A. Smith: Would we be making the same argument?
I think so.
I think that the --
Justice Byron R. White: You mean the legal incidence matter is a federal constitutional law --
Mr. Stuart A. Smith: Yes, I think -- I think this --
Justice Byron R. White: Because you wouldn’t have to construe, take the construction of the Mississippi court as to wiggle into.
Mr. Stuart A. Smith: I think the Court has on occasion in its intergovernmental immunity cases stated that what the state’s highest construction of its statute is certainly persuasive, but in the Agricultural Bank case upon which we heavily rely, I think the Court also said that “As since it doesn’t involve a constitutional principle, that the Court feels free to reexamine the basis of that state court’s holding.”
Justice Byron R. White: So, in terms of the question I asked there’s no difference between the federal court and the state court?
Mr. Stuart A. Smith: I don’t think so.
I don’t think so for this purpose.
Justice William J. Brennan: Well, at least this much --
Mr. Stuart A. Smith: Yes, is at least this much, I suppose that it is --
Justice William J. Brennan: What we’ve said is in the state -- where the highest state court has said, what the state statute does in the way of legal instance is entitled to great respect nonetheless?
Mr. Stuart A. Smith: I think that’s right.
Justice William J. Brennan: Considerable weight and so forth, isn’t it?
Mr. Stuart A. Smith: I think that’s absolutely right Mr. Justice Brennan, but in the Agricultural Bank case, I think the Court after stating that and that case did come here from the Supreme Judicial Court of Massachusetts, the Court went on to disagree with the Massachusetts' highest court’s interpretation of their --
Justice William J. Brennan: Well now, I think it’s implicit and they --
Mr. Stuart A. Smith: Yes.
Justice William J. Brennan: -- were stated it that it’s still open.
Mr. Stuart A. Smith: Oh, I think that’s absolutely right, I think that’s absolutely right.
We don’t -- we think on the basis of the Court’s analysis in Agricultural Bank versus State Tax Commission that the legal incidence of this tax plainly falls on the United States and that the District Court’s construction of the term legal incidence is that the legally enforceable liability for nonpayment is an improper test.
Now, I think it would be instructive if I’d simply compared --
Justice William J. Brennan: Don’t you might saying now, what is the Government’s position as to the proper definition for legal incidence?
Mr. Stuart A. Smith: We think that the proper definition of legal incidence is that where -- in other words, let me put up to you this way, that if the statute requires that the tax be passed on and collected from the purchaser as it was in Massachusetts and as it is in this case, then we believe that the legal incidence of the tax falls upon the purchaser and not upon the vendor.
Simply because the vendor pays the tax over, we believe it’s simply --
Justice William J. Brennan: Well, when the vendor is free or not to do so, then it’s really only shifting the economic burden and doesn’t affect the incidence.
Mr. Stuart A. Smith: Yes.
Justice William J. Brennan: Legal incidence.
Mr. Stuart A. Smith: Right.
But here, as in Massachusetts, Regulation 25 requires that the out of State distiller pass on the tax to the military and indeed if there’s any -- if there was any question about the interpretation --
Justice Harry A. Blackmun: Does your opposition concede that Mr. Smith?
Mr. Stuart A. Smith: I don’t think, well I think -- I think to the extent that our opposition talks about the Agricultural Bank case here, I think what they have argued to the court is that that case is not germane because it didn’t involve a constitutional holding.
Well, we’re fully in agreement with the fact that Agricultural Bank did not involve a constitutional holding because the court rested the immunity of national banks in that case upon a federal statute, the federal statute of long standing.
It was revised statutes, but I’m not sure that our -- my opposition really addresses itself to what we think is the critical point of Agricultural Bank, and that is the mode of analysis that the court used to construe the term legal incidence.
Justice Harry A. Blackmun: But don’t they place a great deal of emphasis on the ability of the distiller to absorb this tax himself?
Mr. Stuart A. Smith: They do place some emphasis upon that, but I think that the court in Agricultural Bank simply said that in fact, it’s really right at the end because of the same point was made in Agricultural Bank and the court right at the end of its opinion said “It seems clear to us that the force of the law is such that regardless of sanctions, businessmen will attempt in their everyday commercial affairs to conform to its provisions as written.
Now, the provisions as written in the Massachusetts tax and in this tax require the out of State distiller to pass on the tax.
And indeed if there would be any question about the construction of Regulation 25, the State of Mississippi issued a warning to the out of State distillers saying that they had to collect the tax from the military purchases.
That warning is set forth in the appendix at page 38 and 39.
It’s a letter from the Director of the Alcoholic Beverage Control Division, which says “Said fee must be invoiced to the military and collected directly from the military or other authorized organization located on the military base.
” And the letter concludes by saying “In addition to penalties imposed by law, products presently sold by the Alcoholic Beverage Control Division will be delisted” and that is underlined.
I think that if there would be any question of construction, I think that the administrative position that the state tax authorities took indicated that the out of State distiller had to pass on this tax.
And since he had to pass it on as a matter of law, we think that consistent with the court’s Agricultural Bank analysis that the legal incidence of the tax must fall upon the military -- must be construed to fall --
Justice William H. Rehnquist: And that’s being distinguish James against Dravo that there, the contractor could or could not pass it along depending on what he felt like doing it?
Mr. Stuart A. Smith: Well, James against Dravo dealt with several different points, but I think that there, I think that is a distinction essentially that if the contractor could or could not.
Those cases like James against Dravo and Alabama versus King & Boozer on which the opposition relies, and I think turn really in part on -- really turn on the question of who is the purchaser in that case.
I don’t think there was any quarrel that the tax fell upon the purchaser.
In fact, the Agricultural Bank analysis of this Court is not really new to Agricultural Bank.
The opinion talks about -- cites of Federal Land Bank versus Bismarck Lumber Company, which is way back in volume 314 of the United States report.
This is standard analysis that this Court has used that when a sales tax must be passed on as a matter of law, the legal incidence of the tax is on the purchaser.
The Court referred to it again in a footnote in the National Bellas Hess case.
Justice William J. Brennan: But you didn’t say the legal incidence in King & Boozer was on the purchaser, isn’t it?
Mr. Stuart A. Smith: I think the legal incidence in the King & Boozer was on the purchaser.
The question was, then, who was the purchaser and the Court finally determined that the purchaser in that case was the private contractor.
We don’t have any private contractor in this case.
I mean, this is simply a question the federal government is dealing for itself.
Now once one recognizes that the tax is on the military purchaser that the legal incidence of the tax is on the military purchaser, then it cannot be valid, then It is unconstitutional, unless Congress has consented to the tax, or in this case since we’re involved with alcoholic beverages, unless the Twenty-first Amendment holds some sway in this area.
Now, I would like to -- our analysis now proceeds along two separate lines because we have two kinds of bases involved in this case.
We have the exclusive jurisdiction bases and we have the concurrent jurisdiction bases.
Now, on the exclusive jurisdiction bases, it is plain that the Twenty-first Amendment has no application because that was essentially the core of this Court’s conclusion on the first direct appeal.
Justice Byron R. White: The instrumentally argument is the same, is it not?
Mr. Stuart A. Smith: The instrumentality argument is the same, exactly.
So, the -- with respect to Keesler and the Naval Construction Battalion Center, the Twenty-first Amendment has no application.
So the only other avenue under which the tax could be sustained would be if Congress had given consent to such a tax.
Now, Mississippi and it relies upon the District Court’s conclusion that Section 105 (a) of the Buck Act provides such consent.
Now that statute is set forth in our appendix to our brief at page 46, and it essentially says that “No person shall be relieved from liability for payment of any sales or used tax levied by any state on the ground that the sale or use with respect to which the tax was levied, occurred in whole or in part within a federal area.
” So as far as the District Court read that language and said “That constitutes congressional consent.
” We disagree.
We don’t think that the Buck Act -- that that provision of the Buck Act can be read in isolation, because when Congress passed the Buck Act, it just didn’t enact Section 105, but it also enacted Section 107, which we have reproduced directly thereunder.
And that says that “The provisions of Section 105 shall not be deemed to authorize the levy or collection of any tax on or from the United States or any instrumentality thereof.
” Now, all the Section 105 (a) of the Buck Act does is to put a federal enclave on the same footing as the normal territory of a state with respect to the imposition of the tax, in other words -- or say the specified tax.
In other words, the Government -- a tax payer cannot say “My transaction took place in the federal enclave.
That is not a sufficient defense after Congress passed the Buck Act.
But what Congress did simultaneously and the hearings are replete with testimony from people who came forward and were afraid that Congress was about to whittle away at the constitutional doctrines long expounded by this Court as early as Chief Justice Marshall, that federal instrumentalities might be in danger.
So Congress enacted Section 107 to reaffirm that doctrine of -- that which goes back M’Culloch versus Maryland that the states cannot impose a tax upon federal instrumentalities.
Now, if we are right as we submit we are, that the tax, the legal incidence of tax falls upon the federal instrumentality, then the Buck Act supplies no congressional consent because Section 107 (a) of the Buck Act constitutes an explicit reservation by Congress and reaffirmation of the protection that fellow instrumentalities are supposed to have from state taxation.
Now, turning to the concurrent jurisdiction bases, there are different considerations that are applied because here, we have -- the Twenty-first Amendment is applicable.
The concurrent jurisdiction bases over which the United States and Mississippi exercise simultaneous sovereignty are part of the State of Mississippi, but we also have a competing constitutional doctrine here.
We have the doctrine of federal tax immunity which I just deluded to as, you know, expressed in Section 107 (a) of the Buck Act.
Now, we submit that nothing in the history or the terms of the Twenty-first Amendment suggest that there were supposed to be an exception for alcoholic beverages with respect to the federal tax immunity doctrine.
The legislative history and the statements on the floor of the Congress by its sponsors specifically make reference to the fact that it was not to alter the fundamental principles of federalism upon which the nation was founded.
What we have here is simply a design of Congress to give back to the states control over liquor which the federal government had preempted during the period of prohibition.
Now the Court has had on previous occasion’s two opportunities which we think are instructive here to balance the policy of the Twenty-first Amendment when it conflicts with other provisions of the constitution.
The two cases to which we make reference to in our brief are the Hostetter versus Idlewild Bon Voyage Corporation case and the Department of Revenue versus James Beam Company case.
Those cases, decided both on the same day, dealt with situations whom which two conflicting provisions of the constitution collided so to speak.
Now, in Hostetter what you had essentially was the State of New York had attempted to shut down an airport liquor retailer which sold liquor to departing international passengers.
The State of New York attempted to do this, grounded its regulatory authority that the establishment was unlicensed and unlicensable on the Twenty-first Amendment.
Now, the retailer though on the other hand pointed to the fact that he was engaged in international commerce, and that the Commerce Clause of Article I, which says that Congress shall have power to regulate commerce among the several states and between foreign nations apply and that that made the state’s power subordinate under the Twenty-first Amendment.
He also pointed to the fact that the Bureau of Customs had licensed him under the Tariff Act, which presumably was passed by Congress under its Article I power to regulate commerce with foreign nations.
And what the Court did was essentially was to say that it is right that the Twenty-first Amendment gives the states power over to regulate liquor, but here where we have a competing consideration, that is a consideration of international commerce, the amendment has to yield.
Now, to the extent that the legislative history of the Twenty-first Amendment indicates if Twenty-first Amendment is to have any impact at all, it is in the impact of commerce, because it’s supposed to lessen whatever potential Commerce Clause problems might be applicable.
But even so, the court felt that the competing considerations of international commerce required that the Twenty-first Amendment be subordinated.
Now, we think that that case -- that this case is -- would seem to follow a fortiori because we’re not dealing with a situation where the Commerce Clause is even remotely applicable.
What we’re dealing with here is Article VI of the Supremacy Clause upon which this Court has announced in unbroken line of decision saying that because this constitution is the supreme law of the land, the United States cannot be subject to the taxation by states.
Now the James Beam Company case is really just offers another example of that sort of thing.
James -- the tax involved was a Kentucky tax on state liquor -- on the importation of Scotch whiskey, and that conflicted with the Export-Import Clause.
Again, the Court subordinated the Twenty-first Amendment to the Export-Import Clause.
And we would suggest that similarly, the Twenty-first Amendment with respect to the concurrent jurisdiction bases be subordinated to the federal tax immunity doctrine.
I would like to save the -- my remaining time unless there are other questions?
Chief Justice Warren E. Burger: Very well Mr. Smith.
Argument of Robert L. Wright
Mr. Robert L. Wright: Mr. Chief Justice and may it please the Court.
I think it’s clear from the argument you’ve just heard that the validity of this tax depends on who is taxed for doing what.
Now, the tax is not laid by the regulation, it is laid by a state statute of Mississippi, and the tax is laid on the business of wholesaling liquor within the state.
The state has preempted for itself that business and the tax takes the form of a collection of the difference between the wholesaler’s price and the price of the retailer, less of course, whatever wholesaling cost the state may incur.
Now, the regulation gives the military an option.
I take it they’re not complaining about the option because an option is not a burden, an option is a privilege.
What the regulation does is give them a flexibility they wouldn’t otherwise have by allowing them to order direct in certain instances.
But when they do order direct from the distiller, this distiller then of course is sharing in the state’s wholesale monopoly and must account to the state for the state’s wholesale markup, which is the tax, the difference between the wholesaler’s price and the price to the retailers.
Now, those prices are not set by the state.
Each distiller sets his own price.
He makes his own deal whether he deals either directly with the state, or whether he deals directly with the distiller, but in both --
Justice Byron R. White: None of the regulation tell it -- doesn’t the regulation tell the distiller to collect a certain markup?
Mr. Robert L. Wright: The regulation tells him of course.
Justice Byron R. White: And he is supposed to do that?
Mr. Robert L. Wright: He is supposed of course to collect a markup so that he will have the funds to pay the state its tax.
But he -- the tax is laid on him, he is required to pay the markup to the state whether or not he ever collects it from --
Justice Byron R. White: But he’s also supposed to collect it from his purchasers?
Mr. Robert L. Wright: Well he has to invoice it of course.
This tax is a percentage of the wholesaler’s price and the only way you’d know in these exceptional situations where he’s allowed to buy from the distiller what the amount of tax is, is to require him to list on the invoice the wholesaler’s price and the amount -- the percentage amount which reflects the state’s markup or tax.
Justice William J. Brennan: Mr. Wright, did you say that the tax can never be collected from the purchaser?
It must be collected from a distiller or not at all?
Mr. Robert L. Wright: It is an out -- well, when the state itself of course, when it sells to private retailer collects the tax in the form of the purchase price of the liquor.
Justice William J. Brennan: In this situation, suppose the distiller was unable to collect the tax?
Mr. Robert L. Wright: He pays it first before he pays the tax when he bills the retailer, and it’s a matter of the total indifference to the state whether or not he then is able to receive reimbursement for the tax, but by the nature of things, a tax which takes the form of a wholesale markup, even without any urging.
If Dr. Beecham would never written that letter, telling them that they should collect the tax from the purchaser, any wholesale excise tax, a tax laid on wholesale sales is collected by the businessman from -- to the retailer because it is a cost of doing business.
If he doesn’t collect it, he’s no businessman.
Justice William J. Brennan: Well if he doesn’t collect it, who is responsible for it?
Mr. Robert L. Wright: He is responsible for it, whether collects it or not.
Justice William J. Brennan: Well, is there a time sequence here?
Mr. Robert L. Wright: Yes, there is a time.
Justice William J. Brennan: Must he pay it before he delivers the liquor to the purchaser?
Mr. Robert L. Wright: He pays it at the time that he invoices the liquor, yes.
He pays it, and then he --
Justice William J. Brennan: He doesn’t wait to collect it from the purchaser --
Mr. Robert L. Wright: No.
Justice William J. Brennan: -- before he pays the state?
Mr. Robert L. Wright: No.
The District Court pointed that out.
He is liable for the payment at the point where he invoices, ships the liquor.
Justice William J. Brennan: So, there’s no way in any event that the tax can be collected by the state, the statute doesn’t provide for collection by the state from the purchaser?
Mr. Robert L. Wright: No, the tax is not -- this is the whole point.
The tax is not a tax levied on the persona, it’s a tax levied on wholesale sales.
That’s the subject matter of the tax, that’s the privilege.
The excised is exacted for the privilege of doing the wholesale business in the State of Mississippi and that tax is measured --
Justice Byron R. White: So you say that if the state wrote a letter to the purchaser and said “Pay me the tax.
” A purchaser under the law and I should say “I don’t owe you anything.”
Mr. Robert L. Wright: Well, certainly.
It fell right as the state is never to my knowledge ever you’ll notice the letters in the record here, they are not addressed to the military retailers, they’re addressed to the distillers.
And they are the people who must pay the tax to the state when they choose to do the wholesaling themselves, instead of using the state’s wholesale facilities to distribute their liquor.
Justice Lewis F. Powell: Mr. Wright?
Mr. Robert L. Wright: Yes?
Justice Lewis F. Powell: Could the state solve this problem by requiring that all liquor sold in this city be bought from the Mississippi State stores?
Mr. Robert L. Wright: Yes.
Justice Lewis F. Powell: Well, why they didn’t do it?
Mr. Robert L. Wright: Well, I suggest that the purpose of the option was for the benefit of the retailers rather than for the state, although the state does benefit to this extent.
The state of course as the exclusive distributor in the state, stocks almost all the brands you ever heard of and some you didn’t.
There is a vodka made in Vicksburg called Doctor Chicago that the state stocks.
But there are very -- there are odd all sorts of off brands that some people want that the state may not necessarily stock, and it is a convenience for the military clubs when they want to get one of those brands that the state doesn’t stock to order it direct from the distiller.
That’s the purpose of the option so far as the state is concerned.
Justice Thurgood Marshall: And the military uses a whole lot of vodka.
They owe you $2 million now, that’s a whole lot of vodka.
Mr. Robert L. Wright: No they don’t Mr. Justice --
Justice Thurgood Marshall: I submit the record show they all buy all kinds of whiskey.
Mr. Robert L. Wright: They do buy all kinds.
All I’m suggesting is there are certain kinds which the state does not stock.
And in that sense, the option is a convenience to them because they can then not go through the slower process of going ordering especially through the state.
They can go directly to the distiller, order it from him, but in that case of course, the tax will be collected from the distiller.
Chief Justice Warren E. Burger: Mr. Wright, suppose taking the hypothetical case that Mr. Justice Powell suggested, suppose the state did that and then the response of the United States was that they would load a hundred trucks with all the supplies they needed including replacement shoes and ammunition and peanut butter and what not along with vodka and whiskey and gin, and shipped the whole thing in, do you suggest that Mississippi could stop that shipment and stop liquor from coming into a military base?
Mr. Robert L. Wright: If they found out about it, there’s no --
Chief Justice Warren E. Burger: I’m assuming it.
I’m assuming it.
Mr. Robert L. Wright: -- of course it’s quite possible.
We don’t know how much liquor maybe going into those bases flown in or taken in on a destroyer without any knowledge of the state.
All that’s involved here are sales made by distillers who do exploit the Mississippi market.
That is the sellers who do not want to sell not only to the military retailers, but want also to sell the private retailers in Mississippi through the state’s wholesale facilities, that’s all it’s involved here.
Chief Justice Warren E. Burger: Well, I’m assuming that all the material that I just suggested was used on military bases by military personnel and not distributed outside of the base.
And it’s your position that Mississippi can stop that inflow?
Mr. Robert L. Wright: If it was brought in for resale.
Chief Justice Warren E. Burger: No, no for use.
Mr. Robert L. Wright: No well if this -- no, the wholesale tax applies only -- this tax only applies to liquor brought -- bought for resale within the state, and this is where the Buck Act is decisive.
Now, the Buck Act was passed to make precisely this kind of taxation possible.
The Buck Act was enacted in 1940.
Now, a 1937 case, the case of James against Dravo Contracting Company had held that you did not impose an unconstitutional burden on the United States because your receipts were derived from the United States.
You could sell to United States and you could still tax the sales, that’s what West Virginia did.
West Virginia taxed the receipts of contractors -- construction contractors from federal work, and the James case sustained that tax except where the contractor was working on an exclusive jurisdiction base.
The James case held as to the exclusive jurisdiction bases, the state has no power to tax, but it held that the fact that the sales were to the United States did not prevent it from taxing those sales on the other bases.
Now, the purpose of the Buck Act as stated in the Senate report which is in appendix to our brief was to extend the doctrine of the James case to the exclusive jurisdiction bases.
That’s what the purpose of the Act was, to wipe out this distinction that James had created between exclusive jurisdiction bases and other joint jurisdiction bases.
Justice William J. Brennan: Well that’s true Mr. Wright I guess 105 -- Section 105, but what about 107?
Mr. Robert L. Wright: Yes.
Well, 107 was supposed to preserve whatever constitutional immunity -- whatever intergovernmental tax immunity that federal instrumentalities might have.
Now, I suggest to you that if you look carefully at the case of Collins against Yosemite Park Company again, you will see that that case when they’re dealing with a wholesale liquor tax, in that case, California’s wholesale liquor tax that that tax was sustained because the court found no constitutional immunity and were not interfering with a federal function by taxing sales.
You’ll recall in the Yosemite Park case, the federal government had exclusive regulatory jurisdiction over the Park.
The state however, when it had ceded the Park, a land had reserved general taxing rights and so the Court when it decided the case held that California could not impose license fees on the Interior Department concessionaire in that case, but that it could and did impose its wholesaler’s excise tax on that retailer.
Now, that was done notwithstanding the fact that the retailer had in that case bought his liquor outside the state, but he had bought it for resale inside the state, which is exactly what the courts were talking about here, were made for, and you have precisely the same kind of a tax, a tax on wholesale transactions.
And as the Yosemite case held the fact that in that case, direct collection was made of that wholesale sales tax from the federal retailer did not invalidate the tax.
Justice Thurgood Marshall: Mr. Wright, could you tax the sales of the drinks in the exclusive camps in Mississippi?
Mr. Robert L. Wright: Tax, I beg your pardon?
Justice Thurgood Marshall: On the drinks that are served in the officer’s club on the base which the United States have exclusive jurisdiction?
Mr. Robert L. Wright: No, I don’t think so.
I think it’s as far as regulation --
Justice Thurgood Marshall: But if you can tax the whiskey that’s used, aren’t you doing the same thing?
Mr. Robert L. Wright: No.
What you’re doing here is applying a tax on wholesale sales, that is sales made to a retailer for a resale.
That’s what’s being taxed, those sales.
Justice Thurgood Marshall: The sale is not made in Mississippi then?
Mr. Robert L. Wright: Well, they certainly are, if Your Honor please, they are -- the liquor is invoiced to the bases and is resold on the bases.
The Buck Act has said that those sales for --
Justice Thurgood Marshall: Did Buck Act apply to the exclusive jurisdiction bases?
Mr. Robert L. Wright: It certainly does.
Justice Thurgood Marshall: It does?
Mr. Robert L. Wright: That was its expressed purpose.
Justice Thurgood Marshall: Then, why can’t you tax them on that?
Mr. Robert L. Wright: A sale tax?
Justice Thurgood Marshall: Yes.
Mr. Robert L. Wright: Well, I think you probably could, yes.
Justice Thurgood Marshall: You could?
Mr. Robert L. Wright: If you’re talking about a --
Justice Thurgood Marshall: You started taxing these sales on camps.
Then, you’re going to really have something going.
Mr. Robert L. Wright: Well, let me point out one more aspect in which this regulation --
Justice Thurgood Marshall: How are you going on there and collect it?
Mr. Robert L. Wright: It takes --
Justice Thurgood Marshall: If it’s exclusive jurisdiction?
Mr. Robert L. Wright: The Buck Act also gives authority to the state to go in and collect its sales tax on exclusive jurisdiction bases.
Justice Thurgood Marshall: On a camp, into a camp?
Mr. Robert L. Wright: That’s what it says.
Justice Thurgood Marshall: I see.
Mr. Robert L. Wright: That’s -- that was its purpose, was as I say, to wipe out this prior distinction the James case had made in the exclusive and concurrent jurisdiction bases.
Justice Thurgood Marshall: You’d go into a missile base too?
Mr. Robert L. Wright: I beg your pardon?
Justice Thurgood Marshall: You’d go in to a missile base too?
Mr. Robert L. Wright: Any kind of [Laughter]
Justice Thurgood Marshall: I wouldn’t try.
Mr. Robert L. Wright: I beg your pardon?
Justice Thurgood Marshall: I would not even try. [Laughter Attempt]
Justice Byron R. White: Just borrow a tank when you get there.
Mr. Robert L. Wright: [Laughter Attempt]
Justice Thurgood Marshall: I think you get hit for that. [Laughter Attempt]
Mr. Robert L. Wright: Well, I suppose the military could bar anyone from a base they please, but the purpose of the Buck Act is made quite clear in the Senate report that and it was to treat all federal enclaves whether they’re exclusive or concurrent enclaves alike.
That this did extend the state’s taxing power insofar as tax is measured by sales.
Only that kind of taxes are concerned and that’s --
Chief Justice Warren E. Burger: I don’t see how you reconcile that with the express language of Section 107 (a) Mr. Wright?
Mr. Robert L. Wright: Yes.
The 107 (a) is admittedly both sides agree that that is only supposed to preserve whatever constitutional immunity arises from the fact that these clubs are federal instrumentalities.
Chief Justice Warren E. Burger: Well, that’s quite a bit of -- that covers quite a bit of area that constitutional exception?
Mr. Robert L. Wright: Well, a constitutional amendment -- going -- sales to the United States, taxes on sales to the United States haven’t been regarded by this tax -- this Court as taxes on the purchasers since the Panhandle Oil case.
Panhandle Oil against Mississippi held that sales of gasoline to the United States were in effect taxes on the United States.
That was the dissent -- the dissenting opinion was the one in which Justice Holmes replied to the majority’s, rather about the power of the taxes being the power to destroy a homestead not while this Court sits.
And that dissenting opinion of Holmes became prevailing law in the James case and in the King & Boozer case where --
Justice William J. Brennan: So how expressly it is, did it?
Mr. Robert L. Wright: Yes, it was.
Justice William J. Brennan: King & Boozer as I recall it said that whatever --
Mr. Robert L. Wright: Explicitly repudiated Panhandle Oil, so this -- there is no -- there are no constitutional tax immunity decisions of this Court which say that a tax on sales to the United States and one of its instrumentalities are taxes on the United States.
That much is clearer.
Justice William J. Brennan: Of course, Panhandle was a gasoline excise tax --
Mr. Robert L. Wright: Yes.
Justice William J. Brennan: -- on the seller.
And the issue there was whether when the United States bought it for the Coast Guard, as I recall it, and veteran’s hospitals that made it a tax on the United States.
Mr. Robert L. Wright: They bought it directly -- court held it was.
Justice William J. Brennan: But you don’t doubt that instead of being a tax on the vendor, had it been a tax on the United States directly on its purchases --
Mr. Robert L. Wright: Had it been --
Justice William J. Brennan: You’d have no problem with that, would you?
Mr. Robert L. Wright: Had it been laid on the retailer, it probably would’ve been invalid.
But the point is --
Justice William J. Brennan: Probably?
Mr. Robert L. Wright: What?
Justice William J. Brennan: Probably if the United States were the purchaser under the --
Mr. Robert L. Wright: If the tax were laid on the privilege of retailing, now Mississippi has a liquor tax on the privilege of retailing.
Justice William J. Brennan: No, but what would be the case had the Panhandle tax, instead of being imposed on the vendor, but imposed on the vendee, the United States?
Mr. Robert L. Wright: It would’ve been precisely the same, because in that case, the court held, if you’re talking about what that court would’ve done.
Justice William J. Brennan: No, I’m not talking about what that court would’ve done.
What would be the -- in the context of sovereign immunity, what would be the answer?
Mr. Robert L. Wright: Well, you have the answer in the James case.
The tax was imposed on sales made to the federal government.
Justice William J. Brennan: I guess I’m not making myself clear Mr. Wright.
Mr. Robert L. Wright: Well, I’m sorry.
Justice William J. Brennan: Old cases are cases where the incidence of the tax was on the vendor.
Mr. Robert L. Wright: Right.
Justice William J. Brennan: I’m talking about the effort to impose a tax directly upon the United States as a purchaser.
Mr. Robert L. Wright: Yes, that would be invalid.
Justice William J. Brennan: That’s right.
Mr. Robert L. Wright: That would come within the Buck Act exemption.
But I --
Justice William J. Brennan: That’s 107, isn’t it?
Mr. Robert L. Wright: Yes, that’s 107.
Chief Justice Warren E. Burger: Then, how do you reconcile that with your answer to Mr. Justice Marshall when you said that they couldn’t levy a tax on the sales made in the officer’s club?
Mr. Robert L. Wright: Well, the sales made in the officer’s club are not of issue here, because we do have a regulation which exempts the military clubs.
This is the same regulation they complain about.
It exempts all the sales they make from retail sales taxes, that’s a 5% tax, and the regulation also exempts the clubs, exempts the clubs from the gallonage tax that the state imposes on retailers for the privilege of making retail sales.
Those taxes on those privileges are the military clubs are exempted from.
Now this tax, the wholesaler’s tax is levied on a business that those clubs don’t engage in.
It is levied on the business of making wholesale sales of liquor in Mississippi and distributed at Mississippi.
That’s a function that the military clubs do not perform.
The tax is not laid on them.
It is laid on the distillers whom the state permits to perform it.
Now, that is a situation where you don’t --
Justice William J. Brennan: I see you say at the military clubs, if I go in as an officer to purchase a drink?
Mr. Robert L. Wright: Yes.
Justice William J. Brennan: Ordinarily in most bars it's a 5% sales tax?
Mr. Robert L. Wright: Right.
Justice William J. Brennan: But as an exemption for purchases, I make at the bar of a military --
Mr. Robert L. Wright: Correct.
Justice William J. Brennan: Is that right?
Mr. Robert L. Wright: Yes.
Justice William J. Brennan: And then you say there’s also an exemption, you said a retail exemption of what kind?
Mr. Robert L. Wright: Yes, Mississippi has a retailer’s tax --
Justice William J. Brennan: A gallonage tax?
Mr. Robert L. Wright: Its gallonage tax.
Justice William J. Brennan: That’s an excise tax?
Mr. Robert L. Wright: It’s an excise tax on the privilege of selling liquor at retail.
Justice William J. Brennan: And there’s an exemption for that, is that it?
Mr. Robert L. Wright: Yes.
Justice William J. Brennan: And the only one they do collect is this one?
Mr. Robert L. Wright: Yes.
Justice William J. Brennan: I see.
Mr. Robert L. Wright: There’s a $2.50 a gallon tax on --
Justice William J. Brennan: So if I’m in uniform, I could still get a cheaper drink at an officer’s club than I can at any other bar in Mississippi?
Mr. Robert L. Wright: The record is clear that the exemptions and the regulation permitted the clubs both to buy liquor cheaper than any civilian retailer in Mississippi could buy it and to sell it cheaper and to still make profits.
Now and there was no proof that those profits that were so made were inadequate for any federal purpose.
That’s why the --
Justice Thurgood Marshall: You want 2 million more?
Mr. Robert L. Wright: I beg your pardon?
Justice Thurgood Marshall: You just want 2 million more, $2 million more?
Mr. Robert L. Wright: No, we -- we have the -- collected this from the distillers.
The state is suing Mississippi to get back from them taxes which were collected from the distillers who were passed on all the way down to the line of the people who drank the liquor.
As far as that goes, the element burden of course of any excise tax falls on the drinker.
Justice Thurgood Marshall: So whichever way it goes the drinker pays it?
Mr. Robert L. Wright: Right.
That much is --
Justice Thurgood Marshall: As he should.
Mr. Robert L. Wright: That much is clear with respect to any --
Justice Thurgood Marshall: I’m sure he’s restricted to that with whiskey.
Mr. Robert L. Wright: Any excise tax.
Now, I just want to say a word about this alleged conflict occurring between the armed services between the federal procurement policy and the state’s policy.
Now this regulation, the military regulation we’re talking about is one which is not to even purport to implement the Armed Services Procurement Act.
It’s a regulation issued under the Draft Extension Act, the Act extending the manpower draft in 1951, which doesn’t mention taxes, doesn’t say anything about standards for the federal procurement of supplies.
Now, one thing more I wanted to -- there is therefore no -- there’s no federal statute that’s in conflict with anything of the state is doing here.
There’s one thing more I want to add that that record that the military’s own regulation provides that these retailers can’t sell at prices more than 10% lower than what the civilian retailers in the same area are charging.
So that the only effect of giving the military an even lower price than what they now get would simply to be to increase the profits the military retailers at the expense of state revenues.
Now, that is only one thing more I want to point that as far as the constitution is concerned, there’s certainly is no conflict between the Tenth Amendment and the Supremacy Clause.
The Tenth Amendment is now the state source of taxing powers.
States have been taxing fully in excise taxes on sales of liquor ever since they were colonies.
The first one was laid by the Massachusetts colony in 1646, and this, at the time the constitution was adopted, revenue from liquor sales was an important source of revenue for all of those things.
And what you’re talking about here is not depriving the United States of any right it may have to tax liquor.
It too can tax liquor for its purposes, but what the Government is arguing here is that the state cannot tax liquor sales that are made to these military clubs.
Although, this whole wholesale excise taxation is historically a right they were exercising and it was preserved to them when the Tenth Amendment was adopted.
If the Tenth Amendment means anything at all today, it certainly means that the state’s right to tax liquor was not impaired by any other provisions of the constitution.
Now that -- I want to say one word about the Agricultural Bank case.
As counsel pointed out it is not a tax immunity, and not constitutional tax immunity only.
It has really nothing to do, as I see it, whether the problem you’re presented here which deals with the taxation of liquor rests on an entirely different phase than the taxation of National Banks.
What M’Culloch against Maryland did of course was Maryland did try to own federal affliction.
Maryland tried to impose a tax on the creation of currency by the Bank of United States.
They wanted the state banks to have the only right to create currency.
That’s the kind of state tax that very clearly impairs a federal function and there is no such impairment involved here at all.
The tax that’s been laid on these wholesale sales doesn’t prevent these military clubs from doing anything that they’re authorized and expected to do, and that is buy and sell liquor cheaper than any one else and earn a profit on the sales.
Chief Justice Warren E. Burger: Do you have anything further Mr. Smith?
Rebuttal of Stuart A. Smith
Mr. Stuart A. Smith: Just have a --
Justice William J. Brennan: May I just ask Mr. Smith?
Mr. Stuart A. Smith: Sure.
Justice William J. Brennan: I’m clear am I not that if the Government is wrong and the legal incidence of this tax is on the wholesalers, you lose?
Mr. Stuart A. Smith: No, not necessarily.
We have other arguments.
We have an argument that the tax is imposed -- affects a discrimination against the United States that’s covered in our brief.
Justice William J. Brennan: Yes.
Mr. Stuart A. Smith: Essentially, what its -- point of it is, is that if the legal incidence of the tax is on the wholesaler, assuming arguendo, then you have a situation where the wholesaler is told by the State of Mississippi “If you sell to us the state, you don’t have to pay any tax.
If you sell to the Government, you’ve got to pay a tax.”
Now, the Court has held in Phillips versus Dumas School District and Moses Lake Homes that that you can not levy a tax which is discriminatory against those with whom the Government deals.
Justice William J. Brennan: Now, that issue of course wasn’t addressed below because --
Mr. Stuart A. Smith: Well, that issue was addressed below Mr. Chief --
Justice William J. Brennan: By the court?
Mr. Stuart A. Smith: Mr. Justice Brennan, it was not discreetly briefed in the way that I’ve --
Justice William J. Brennan: No, no.
I mean was it addressed by in the court opinion below?
Mr. Stuart A. Smith: Yes, it was.
Justice William J. Brennan: I see.
Mr. Stuart A. Smith: Look at page 36 (a) --
Justice William J. Brennan: Of what?
Mr. Stuart A. Smith: Of the District Court opinion, he says here at the end --
Justice Byron R. White: Oh, I see.
Mr. Stuart A. Smith: “There being no discrimination against the federal government within the state’s tax scheme.”
And if you look at this footnote, the District Court was aware of these cases, but felt --
Justice Byron R. White: And also you separately argue that it would violate the federal policy, isn’t it?
Mr. Stuart A. Smith: Yes, yes absolutely.
I mean, this is an extraordinary situation where the state of Mississippi is telling the federal government “You have to buy a commodity at a price that we are setting, and in any event, we are also going to tell -- we’ll limit your sources of supply.”
If you look at page 63 of the appendix, the State of Mississippi Alcoholic Beverage Control Division wrote a letter to all vendors which said “The choice is granted to the purchaser purchasing direct from distiller” and they are underlining “or from the Alcoholic Beverage Control Division of the State Tax Commission, purchases are not to be placed with any other source.”
This is an extraordinary situation where the state -- a state is telling the federal government that its choice with respect to buying commodity is to be limited in terms of source and as well as in terms of price.
Justice William J. Brennan: Now, what you could say for example, if you want to truck it in from Texas, this says you can't?
Mr. Stuart A. Smith: You can’t do it.
Justice Byron R. White: You think that’s -- you think that argument goes before the concurrent jurisdictional bases?
Mr. Stuart A. Smith: Sure, sure.
Justice William J. Brennan: Despite the Twenty-first Amendment?
Mr. Stuart A. Smith: Well, you know, I would simply suggest that you know, that this is really almost a concomitant of the doctrine that the federal government is immune from state taxation.
The federal government has to function in a way which is free from interference by state.
I mean the court has held that within non-liquor --
Justice William J. Brennan: But doesn’t the Twenty-first Amendment have relevance to it?
Mr. Stuart A. Smith: I would suggest the Twenty-first Amendment has some relevance.
You cannot make an assertion like that without considering the Twenty-first Amendment.
But I think that the policy of the Twenty-first Amendment, that is to police the morals of civilian population.
I don’t think are applicable here with the military subjects its service personnel to rigid discipline and ensures to the best of its ability that these commodities which come in, including alcoholic beverages, will not be diverted to the civilian population.
I don’t have anything else to say.
Chief Justice Warren E. Burger: Thank you gentlemen.
The case is submitted.