Page 5 2334+ ADDITIONAL INFORMATION Committee on Finance press release announcing hearings on H.R. 2096–– Control States Stress Moderation Yet Return Indispensable Revenue, pamphlet submitted by National Alcoholic Beverage Control Association, Inc--- Ten largest wine advertisers by expenditures-1972_. STATE IMPOSTS ON INTERSTATE WINE MONDAY, JANUARY 21, 1974 U.S. SENATE, SUBCOMMITTEE ON STATE TAXATION OF INTERSTATE The subcommittee met, pursuant to notice, at 10:05 a.m. in room 2221, Dirksen Senate Office Building, Senator Walter F. Mondale (chairman of the subcommittee) presiding. Present: Senator Mondale. Senator MONDALE. The committee will come to order. On behalf of the members of the Subcommittee on State Taxation of Interstate Commerce, I welcome you to our hearing this morning. H.R. 2096, a bill to prohibit any State from imposing discriminatory burdens upon wines shipped in interstate commerce, passed the House of Representatives on September 11, 1973, and has been referred to the Committee on Finance for consideration. Today we hope to afford both those who support this bill and those who oppose it an ample opportunity to give us a summary of their views. We will also include in our printed record of this hearing any comments by individuals or groups having an interest in this legislation who wish to submit. written statements. This subcommittee has been established to develop information concerning State taxation of businesses engaged in interstate commerce. As part of this responsibility, we are today looking into the particular matter of State taxation of wines shipped in interstate commerce. This specific inquiry has been sought primarily by persons engaged in the manufacture and distribution of wines who strongly feel the second section of the 21st amendment to the United States Constitution repealing Prohibition has been too broadly interpreted by the Supreme Court of the United States. In a series of opinions written by Mr. Justice Brandeis during the period 1936-39 the Supreme Court determined the language of section 2 of the 21st amendment "confers upon the State the power to forbid all importations which do not comply with the conditions it prescribes." As recently as 1972 in California v. LaRue, 409 U.S. 109, the Supreme Court relied upon section 2 in sustaining State restrictions concerning the apparel of waitresses and entertainers in bars. During this same term, in Heublein v. South Carolina Tax Comm., 409 U.S. 275, the Court stated, "Although the relation between the 21st amendment and the force of the commerce clause in the absence of Congressional action has occasionally been explored by this Court, we have never squarely determined how that amendment affects Congress' power under the commerce clause." It is readily apparent that the constitutional issue (1) raised by this bill is quite controversial and any action taken would, of course, be subject to review by the Supreme Court. It is in light of this that we begin our hearing this morning. We are anxious to obtain the views of all of you on this difficult constitutional issue. At this point in the hearing we will include a copy of the bill, H.R. 2096, a copy of the press release announcing these hearings, and copies of the agency reports that have been received by the Committee on Finance pertaining to this bill. [The material referred to follows:] Hon. RUSSELL B. LONG, DEPARTMENT OF JUSTICE, Washington, D.C., January 17, 1974. Chairman, Committee on Finance, U.S. Senate, DEAR MR. CHAIRMAN: This is in response to your request for the views of the Department of Justice on H.R. 2096, a bill "To prohibit the imposition by the states of discriminatory burdens upon interstate commerce in wine" and on Amendment 509 thereto, relating to the production of wine for private use. We take no position on the merits of the bill or the amendment and limit comment to the legal issues involved. Existing law is found in the Twenty-first Amendment to the Constitution which repealed the Eighteenth (Prohibition) Amendment. It forbids the transportation or importation of intoxicating liquors into any state for use in the state in violation of state law. In a series of interpretative decisions rendered shortly after ratification of the Amendment, the Supreme Court said that states are thus competent under the Twenty-first Amendment to adopt legislation discriminating against intoxicating liquors imported from other states in favor of those from within the state. The Court has said that such discrimination is not limited by the commerce clause. E.g., State Bd. v. Young's Market Co., 299 U.S. 59 (1936). The bill provides for Congress to make findings that the imposition by states of taxes which discriminate against out-of-state wine obstructs commerce. It would prohibit states which permit the sale of wine within the state from imposing discriminatory measures on wine from without the state. Interested persons would have standing to file suit in Federal district court to enjoin the enforcement of discriminatory state laws. The purpose of the bill is apparently to set up a new test case in the courts as to the scope of the Twenty-first Amendment. The sponsors of the bill may feel that there is a better chance of getting the Supreme Court to reverse itself if Congress legislates in this area. We doubt, however, that the findings by Congress based on the commerce clause would be of any particular help in such a test case since this does not seem to be an area where the Constitution confers on Congress the right to define the scope of the Amendment by legislation. We cannot say, of course, that it is impossible to suppose that the Supreme Court might change its position on this matter. There is some evidence that the original purpose of the Amendment was to permit dry states to protect themselves from importation of liquor rather than to permit liquor producing states from erecting trade barriers against out-of-state products. Generally speaking, there has always been a policy in favor of interpreting the Constitution to prohibit such barriers. Nevertheless, we feel it appropriate to inform the Committee that if the Congress were to enact H.R. 2096, it would be necessary for the Supreme Court to reverse a well established line of precedents in order for this legislation to be sustained. The Court noted recently that it had never squarely determined how the Amendment affects the power of Congress under the commerce clause. Heublein v. So. Carolina Tax Commission, 409 U.S. 275, 282 note 9. The Office of Management and Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program. Sincerely, MALCOLM D. HAWK, Acting Assistant Attorney General. Hon. RUSSEL B. LONG, GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE, Chairman, Senate Finance Committee, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in reply to your request for the views of this Department with respect to H.R. 2096, an Act "To prohibit the imposition by the States of discriminatory burdens upon interstate commerce in wine, and for other purposes." This Act would prohibit any State from imposing a tax, regulation, prohibition, or requirement that discriminates against importation or sale of wine produced outside the State. The Act would also prohibit any State, which permits the transportation or importation of wine therein, from imposing any prohibition or requirement unreasonably impairing the free flow of commerce in wine among the several States. State actions could be challenged in Federal district courts. The Department of Commerce favors the objective of H.R. 2096, but defers to the Department of Justice because of a constitutional issue raised by the Act. Eight States impose discriminatory taxes on wines produced in other States. Wines (except for expensive European imports) are very price-competitive, so the tax differentials, which range from 15¢ to $1.50 per gallon, discourage or prevent out-of-state producers from entering the market in those eight States. This protects home state wineries but provides customers with fewer choices at higher prices. The taxes in those eight States also discriminate against wines imported into the United States from foreign countries. As to the constitutional question, Section 2 of the 21st Amendment may constitute a grant to the States of exclusive authority over alcoholic beverage control (and therefore an exception to the Interstate Commerce Clause of the Constitution). We have been advised by the Office of Management and Budget that there would be no objection to the submission of our report to the Congress from the standpoint of the Administration's program. Sincerely, KARL E. BAKKE, General Counsel. Hon. RUSSELL B. LONG, EXECUTIVE OFFICE OF THE PRESIDENT, Chairman, Committee on Finance, U.S. Senate, Dirksen Senate Office Building, Washington, D.C. DEAR MR. CHAIRMAN: This is in reply to your request for the views of the Office of Management and Budget on H.R. 2096, a bill "To prohibit the imposition by the States of discriminatory burdens upon interstate commerce in wine, and for other purposes." This bill would declare that the intent of Congress, in its exercise of the power to regulate interstate commerce, is to eliminate discriminatory and unreasonable burdens upon the free flow of commerce in wines among the States. The Office of Management and Budget favors the objectives of H.R. 2096, in that we believe that commerce between the States should be free of discriminatory and unreasonable obstructions. We recommend that, in its deliberation on this bill, the Committee give careful consideration to the views expressed in the report of the Department of Justice. Sincerely, WILFRED H. ROMMEL, Hon. RUSSELL B. LONG, THE GENERAL COUNSEL OF THE TREASURY, Chairman, Committee on Finance, U.S. Senate, DEAR MR. CHAIRMAN: This is in response to your request for the views of the Treasury Department on H.R. 2096, 93d Congress, 1st Session, entitled, “An Act To prohibit the imposition by the States of discriminatory burdens upon interstate commerce in wine, and for other purposes." H.R. 2096 is directed solely to State taxes and regulations relating to wine. It would not affect the laws relating to alcoholic beverages administered by the Treasury Department. We, therefore, have no comments to offer with respect to the proposed legislation. The Office of Management and Budget has advised the Treasury Department that there is no objection from the standpoint of the Administration's program to the presentation of this report. DEAR MR. CHAIRMAN: Your letter of January 17, 1974, requested the views of this Department on H.R. 2096, a bill "To prohibit the imposition by the States of discriminatory burdens upon interstate commerce in wine, and for other purposes." This bill provides that any State which permits the sale of wine within the State shall permit the transportation or importation of wine of like kind produced in other States, or from materials originating in other States, into said State for sale therein upon terms and conditions equally applicable to all wine of like kind sold in the State. It further provides that whenever the law of any State permits the transportation or importation of wine into that State, such State may not impose with respect to such wine any prohibition or requirement which unreasonably impairs the free flow of commerce in such wine among the several States. The Department has no objection to the enactment of H.R. 2096, but defers to the Department of Justice as to its constitutionality. The Department has consistently opposed trade barriers among the States, especially in the flow of agricultural products. We believe that commerce between the States should be free and unencumbered; that farmers from all areas should have equal access to the marketplace. The enactment of H.R 2096 would have no measurable impact upon the environment. Enactment of this proposed legislation will not involve any funds of this Department. The Office of Management and Budget advises that there is no objection from the standpoint of the Administration's program to the presentation of this report. Sincerely, RICHARD A. ASHWORTH, |