UNITED STATES SUPREME COURT DECISIONS ON-LINE

Hawaii imposes a 20% excise tax on sales of liquor at wholesale. But to encourage the development of the Hawaiian liquor industry, okolehao, a brandy distilled from the root of an indigenous shrub of Hawaii, and fruit wine manufactured in the State are exempted from the tax. Appellant liquor wholesalers, who sell to retailers at the wholesale price plus the tax, brought an action in the Hawaii Tax Appeal Court seeking a refund of taxes paid under protest and alleging that the tax is unconstitutional because it violates, inter alia, the Commerce Clause. The court rejected this constitutional claim, and the Hawaii Supreme Court affirmed, holding that the tax did not illegally discriminate against interstate commerce because the incidence of the tax is on the wholesalers, and the ultimate burden is borne by consumers in Hawaii.

Held:

1. Appellants have standing to challenge the tax in this Court. Although they may pass the tax on to their customers, they are liable for it, and must return it to the State whether or not their customers pay their bills. Moreover, even if the tax is passed on, it increases the price as compared to the exempted beverages, and appellants are entitled to litigate whether the tax has had an adverse competitive impact on their business. P. 468 U. S. 267.

2. The tax exemption for okolehao and fruit wine violates the Commerce Clause, because it has both the purpose and effect of discriminating in favor of local products. Pp. 468 U. S. 268-273.

(a) Neither the fact that sales of the exempted beverages constitute only a small part of the total liquor sales in Hawaii nor the fact that the exempted beverages do not present a "competitive threat" to other liquors is dispositive of the question whether competition exists between the exempt beverages and foreign beverages, but only goes to the extent of such competition. On the facts, it cannot be said that no competition exists. Pp. 468 U. S. 268-269.

(b) As long as there is some competition between the exempt beverages and nonexempt products from outside the State, there is a discriminatory effect. The Commerce Clause limits the manner in which a State may legitimately compete for interstate trade, for in the process of competition, no State may discriminatorily tax products manufactured in any other State. Here, it cannot properly be concluded that there was no clubjuris

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improper discrimination against interstate commerce merely because the burden of the tax was borne by consumers in Hawaii. Nor does the propriety of economic protectionism hinge upon characterizing the industry in question as "thriving" or "struggling." And it is irrelevant to the Commerce Clause inquiry that the legislature's motivation was the desire to aid the makers of the locally produced beverages, rather than to harm out-of-state producers. Pp. 468 U. S. 270-273.

3. The tax exemption is not saved by the Twenty-first Amendment. The exemption violates a central tenet of the Commerce Clause, but is not supported by any clear concern of that Amendment in combating the evils of an unrestricted traffic in liquor. The central purpose of the Amendment was not to empower States to favor local liquor industry by erecting barriers to competition. Pp. 468 U. S. 274-276.

4. This Court will not address the issues of whether, despite the unconstitutionality of the tax, appellants are entitled to tax refunds because the economic burden of the tax was passed on to their customers. These issues were not addressed by the state courts, federal constitutional issues may be intertwined with issues of state law, and resolution of the issues may necessitate more of a record than so far has been made. Pp. 468 U. S. 276-277.

65 Haw. 566, 656 P.2d 724, reversed and remanded.

WHITE, J., delivered the opinion of the Court, in which BURGER, C.J.,and MARSHALL, BLACKMUN, and POWELL, JJ., joined. STEVENS, J., filed a dissenting opinion, in which REHNQUIST and O'CONNOR, JJ., joined, post, p. 468 U. S. 278. BRENNAN, J., took no part in the consideration or decision of the case. clubjuris

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