U.S. Supreme Court Bacchus Imports, Ltd. v. Dias, 468
U.S. 263 (1984) Bacchus Imports, Ltd. v.
Dias No. 82-1565 Argued January 11,
1984 Decided June 29, 1984 468
U.S. 263 APPEAL FROM THE SUPREME COURT OF
HAWAII Syllabus 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 Page 468 U. S. 264 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. Page 468 U. S. 265 JUSTICE WHITE delivered the opinion of the Court.

															Appellants challenge the constitutionality of the Hawaii liquor
tax, which is a 20% excise tax imposed on sales of liquor at
wholesale. Specifically at issue are exemptions from the tax for
certain locally produced alcoholic beverages. The Supreme Court of
Hawaii upheld the tax against challenges based upon the Equal
Protection Clause, the Import-Export Clause, and the Commerce
Clause. In re Bacchus Imports, Ltd., 65 Haw. 566, 656 P.2d 724 (1982). We noted probable jurisdiction sub nom. Bacchus
Imports, Ltd. v. Freitas, 462 U.S. 1130 (1983), and now
reverse. I The Hawaii liquor tax was originally enacted in 1939 to defray
the costs of police and other governmental services that the Hawaii
Legislature concluded had been increased due to the consumption of
liquor. At its inception the statute contained no exemptions.
However, because the legislature sought to encourage development of
the Hawaiian liquor industry, it enacted an exemption for okolehao
from May 17, 1971, until June 20, 1981, and an exemption for fruit
wine from May 17, 1976, until June 30, 1981. [ Footnote 1 ] Haw. Rev.Stat. §§ 244-4(6), (7)
(Supp.1983). Okolehao is a brandy distilled from the root of the ti
plant, an indigenous shrub of Hawaii. In re Bacchus Imports,
Ltd., supra, at 569, n. 7, 656 P.2d at 727, n. 7. The only
fruit wine manufactured in Hawaii during the relevant time was
pineapple wine. Id. at 570, n. 8, 656 P.2d at 727, n. 8.
Locally produced sake and fruit liqueurs are not exempted from the
tax. Page 468 U. S. 266 Appellants -- Bacchus Imports, Ltd., and Eagle Distributors,
Inc. -- are liquor wholesalers who sell to licensed retailers.
[ Footnote 2 ] They sell the
liquor at their wholesale price plus the 20% excise tax imposed by
§ 244-4, plus a one-half percent tax imposed by Haw. Rev.Stat. §
237-13 (Supp.1983). Pursuant to Haw. Rev.Stat. § 40-35 (Supp.1983),
which authorizes a taxpayer to pay taxes under protest and to
commence an action in the Tax Appeal Court for the recovery of
disputed sums, the wholesalers initiated protest proceedings and
sought refunds of all taxes paid. [ Footnote 3 ] Their complaint alleged that the Hawaii liquor
tax was unconstitutional because it violates both the Import-Export
Clause [ Footnote 4 ] and the
Commerce Clause [ Footnote 5 ] of
the United States Constitution. The wholesalers sought a refund of
approximately $45 million, representing all of the liquor tax paid
by them for the years in question. [ Footnote 6 ] Page 468 U. S. 267 The Tax Appeal Court rejected both constitutional claims. On
appeal, the Supreme Court of Hawaii affirmed the decision of the
Tax Appeal Court and rejected an equal protection challenge as
well. It held that the exemption was rationally related to the
State's legitimate interest in promoting domestic industry, and
therefore did not violate the Equal Protection Clause. 65 Haw., at
573, 656 P.2d at 730. It further held that there was no violation
of the Import-Export Clause because the tax was imposed on all
local sales and uses of liquor, whether the liquor was produced
abroad, in sister States, or in Hawaii itself. Id. at
578-579, 656 P.2d at 732-733. Moreover, it found no evidence that
the tax was applied selectively to discourage imports in a manner
inconsistent with federal foreign policy, or that it had any
substantial indirect effect on the demand for imported liquor . Ibid. Turning to the Commerce Clause challenge, the Hawaii
court held that the tax did not illegally discriminate against
interstate commerce, because "incidence of the tax . . . is on
wholesalers of liquor in Hawaii, and the ultimate burden is borne
by consumers in Hawaii." Id. at 581, 656 P.2d at 734. II The State presents a claim, not made below, that the wholesalers
have no standing to challenge the tax, because they have shown no
economic injury from the claimed discriminatory tax. The
wholesalers are, however, liable for the tax. Although they may
pass it on to their customers, and attempt to do so, they must
return the tax to the State whether or not their customers pay
their bills. Furthermore, even if the tax is completely and
successfully passed on, it increases the price of their products as
compared to the exempted beverages, and the wholesalers are surely
entitled to litigate whether the discriminatory tax has had an
adverse competitive impact on their business. The wholesalers
plainly have standing to challenge the tax in this Court. [ Footnote 7 ] Page 468 U. S. 268 III A cardinal rule of Commerce Clause jurisprudence is that

															"[n]o State, consistent with the Commerce Clause, may 'impose a
tax which discriminates against interstate commerce . . . by
providing a direct commercial advantage to local business.'" Boston Stock Exchange v. State Tax Comm'n, 429 U.
S. 318 , 429 U. S. 329 (1977) (quoting Northwestern States Portland Cement Co. v.
Minnesota, 358 U. S. 450 , 358 U. S. 458 (1959)). Despite the fact that the tax exemption here at issue
seems clearly to discriminate on its face against interstate
commerce by bestowing a commercial advantage on okolehao and
pineapple wine, the State argues -- and the Hawaii Supreme Court
held -- that there is no improper discrimination. A Much of the State's argument centers on its contention that
okolehao and pineapple wine do not compete with the other products
sold by the wholesalers. [ Footnote
8 ] The State relies in part on statistics showing that, for the
years in question, sales of okolehao and pineapple wine constituted
well under one percent of the total liquor sales in Hawaii.
[ Footnote 9 ] It also relies on
the Page 468 U. S. 269 statement by the Hawaii Supreme Court that

															"[w]e believe we can safely assume these products pose no
competitive threat to other liquors produced elsewhere and consumed
in Hawaii," In re Bacchus Imports, Ltd., 65 Haw., at 582, n. 21,
656 P.2d at 735, n. 21, as well as the court's comment that it had
"good reason to believe neither okolehao nor pineapple wine is
produced elsewhere." Id. at 582, n. 20, 656 P.2d at 735,
n. 20. However, neither the small volume of sales of exempted
liquor nor the fact that the exempted liquors do not constitute a
present "competitive threat" to other liquors is dispositive of the
question whether competition exists between the locally produced
beverages and foreign beverages; [ Footnote 10 ] instead, they go only to the extent of such
competition. It is well settled that "[w]e need not know how
unequal the Tax is before concluding that it unconstitutionally
discriminates." Maryland v. Louisiana, 451 U.
S. 725 , 451 U. S. 760 (1981).

															The State's position that there is no competition is belied by
its purported justification of the exemption in the first place.
The legislature originally exempted the locally produced beverages
in order to foster the local industries by encouraging increased
consumption of their product. Surely one way that the tax exemption
might produce that result is that drinkers of other alcoholic
beverages might give up or consume less of their customary drinks
in favor of the exempted products because of the price differential
that the exemption will permit. Similarly, nondrinkers, such as the
maturing young, might be attracted by the low prices of okolehao
and pineapple wine. On the stipulated facts in this case, we are
unwilling to conclude that no competition exists between the
exempted and the nonexempted liquors. Page 468 U. S. 270 B The State contends that a more flexible approach, taking into
account the practical effect and relative burden on commerce, must
be employed in this case because (1) legitimate state objectives
are credibly advanced, (2) there is no patent discrimination
against interstate trade, and (3) the effect on interstate commerce
is incidental. See Philadelphia v. New Jersey, 437 U. S. 617 , 437 U. S. 624 (1978). On the other hand, it acknowledges that, where simple
economic protectionism is effected by state legislation, a stricter
rule of invalidity has been erected. Ibid. See also
Minnesota v. Clover Leaf Creamery Co., 449 U.
S. 456 , 449 U. S. 471 (1981); Lewis v. BT Investment Managers, Inc., 447 U. S. 27 , 447 U. S. 36 -37
(1980).

															A finding that state legislation constitutes "economic
protectionism" may be made on the basis of either discriminatory
purpose, see Hunt v. Washington Apple Advertising Comm'n, 432 U. S. 333 , 432 U. S.
352 -353 (1977), or discriminatory effect, see
Philadelphia v. New Jersey, supra. See also Minnesota v.
Clover Leaf Creamery Co., supra, at 449 U. S. 471 ,
n. 15. Examination of the State's purpose in this case is
sufficient to demonstrate the State's lack of entitlement to a more
flexible approach permitting inquiry into the balance between local
benefits and the burden on interstate commerce. See Pike v.
Bruce Church, Inc., 397 U. S. 137 , 397 U. S. 142 (1970). The Hawaii Supreme Court described the legislature's
motivation in enacting the exemptions as follows:

															"The legislature's reason for exempting 'ti root okolehao' from
the 'alcohol tax' was to 'encourage and promote the establishment
of a new industry,' S.L.H.1960, c. 26; Sen.Stand.Comm. Rep. No. 87,
in 1960 Senate Journal at 224, and the exemption of 'fruit wine
manufactured in the State from products grown in the State' was
intended 'to help' in stimulating 'the local fruit wine industry.'
S.L.H.1976, c. 39; Sen.Stand.Comm. Rep. No. 408-76, in 1976 Senate
Journal at Page 468 U. S. 271 1056." In re Bacchus Imports, Ltd., supra, at 573-574, 656
P.2d at 730. Thus, we need not guess at the legislature's
motivation, for it is undisputed that the purpose of the exemption
was to aid Hawaiian industry. Likewise, the effect of the exemption
is clearly discriminatory, in that it applies only to locally
produced beverages, even though it does not apply to all such
products. Consequently, as long as there is some competition
between the locally produced exempt products and nonexempt products
from outside the State, there is a discriminatory effect.

															No one disputes that a State may enact laws pursuant to its
police powers that have the purpose and effect of encouraging
domestic industry. However, the Commerce Clause stands as a
limitation on the means by which a State can constitutionally seek
to achieve that goal. One of the fundamental purposes of the Clause
"was to insure . . . against discriminating State legislation." Welton v. Missouri, 91 U. S. 275 , 91 U. S. 280 (1876). In Welton, the Court struck down a Missouri
statute that

															"discriminat[ed] in favor of goods, wares, and merchandise which
are the growth, product, or manufacture of the State, and against
those which are the growth, product, or manufacture of other states
or countries. . . ." Id. at 91 U. S. 277 .
Similarly, in Walling v. Michigan, 116 U.
S. 446 , 116 U. S. 455 (1886), the Court struck down a law imposing a tax on the sale of
alcoholic beverages produced outside the State, declaring:

															"A discriminating tax imposed by a State operating to the
disadvantage of the products of other States when introduced into
the first mentioned State is, in effect, a regulation in restraint
of commerce among the States, and as such is a usurpation of the
power conferred by the Constitution upon the Congress of the United
States." See also I. M. Darnell & Son Co. v. Memphis, 208 U. S. 113 (1908). Page 468 U. S. 272 More recently, in Boston Stock Exchange v. State Tax
Comm'n, 429 U. S. 318 (1977), the Court struck down a New York law that imposed a higher
tax on transfers of stock occurring outside the State than on
transfers involving a sale within the State. We observed that
competition among the States for a share of interstate commerce is
a central element of our free-trade policy, but held that a State
may not tax interstate transactions in order to favor local
businesses over out-of-state businesses. Thus, the Commerce Clause
limits the manner in which States may legitimately compete for
interstate trade, for,

															"in the process of competition, no State may discriminatorily
tax the products manufactured or the business operations performed
in any other State." Id. at 3 429 U. S. 37 . It
is therefore apparent that the Hawaii Supreme Court erred in
concluding that there was no improper discrimination against
interstate commerce merely because the burden of the tax was borne
by consumers in Hawaii.

															The State attempts to put aside this Court's cases that have
invalidated discriminatory state statutes enacted for protectionist
purposes. See Minnesota v. Clover Leaf Creamery Co.,
supra, at 449 U. S. 471 ; Lewis v. BT Investment Managers, Inc., supra, at 447 U. S. 36 -37.
The State would distinguish these cases because they all involved
attempts "to enhance thriving and substantial business enterprises
at the expense of any foreign competitors." Brief for Appellee Dias
30. Hawaii's attempt, on the other hand, was "to subsidize
nonexistent (pineapple wine) and financially troubled (okolehao)
liquor industries peculiar to Hawaii." Id. at 33. However,
we perceive no principle of Commerce Clause jurisprudence
supporting a distinction between thriving and struggling
enterprises under these circumstances, and the State cites no
authority for its proposed distinction. In either event, the
legislation constitutes "economic protectionism" in every sense of
the phrase. It has long been the law that States may not "build up
[their] domestic commerce by means of unequal and oppressive
burdens upon the industry and business of other States." Guy v.
Baltimore, 100 U. S. 434 , 100 U. S.
443 Page 468 U. S. 273 (1880). Were it otherwise,

															"the trade and business of the country [would be] at the mercy
of local regulations, having for their object to secure exclusive
benefits to the citizens and products of particular States." Id. at 100 U. S. 442 .
It was to prohibit such a "multiplication of preferential trade
areas" that the Commerce Clause was adopted. Dean Milk Co. v.
Madison, 340 U. S. 349 , 340 U. S. 356 (1951). Consequently, the propriety of economic protectionism may
not be allowed to hinge upon the State's -- or this Court's --
characterization of the industry as either "thriving" or
"struggling."

															We also find unpersuasive the State's contention that there was
no discriminatory intent on the part of the legislature because
"the exemptions in question were not enacted to discriminate
against foreign products, but rather, to promote a local industry."
Brief for Appellee Dias 40. If we were to accept that
justification, we would have little occasion ever to find a statute
unconstitutionally discriminatory. Virtually every discriminatory
statute allocates benefits or burdens unequally; each can be viewed
as conferring a benefit on one party and a detriment on the other,
in either an absolute or relative sense. The determination of
constitutionality does not depend upon whether one focuses upon the
benefited or the burdened party. A discrimination claim, by its
nature, requires a comparison of the two classifications, and it
could always be said that there was no intent to impose a burden on
one party, but rather the intent was to confer a benefit on the
other. Consequently, it is irrelevant to the Commerce Clause
inquiry that the motivation of the legislature was the desire to
aid the makers of the locally produced beverage, rather than to
harm out-of-state producers.

															We therefore conclude that the Hawaii liquor tax exemption for
okolehao and pineapple wine violated the Commerce Clause because it
had both the purpose and effect of discriminating in favor of local
products. [ Footnote 11 ] Page 468 U. S. 274 IV The State argues in this Court that even if the tax exemption
violates ordinary Commerce Clause principles, it is saved by the
Twenty-first Amendment to the Constitution. [ Footnote 12 ] Section 2 of that Amendment
provides:

															"The transportation or importation into any State, Territory, or
possession of the United States for delivery or use therein of
intoxicating liquors, in violation of the laws thereof, is hereby
prohibited."

															Despite broad language in some of the opinions of this Court
written shortly after ratification of the Amendment, [ Footnote 13 ] more recently we have
recognized the obscurity of the legislative history of § 2. See
California Retail Liquor Dealers Assn. v. Midcal Aluminum,
Inc., 445 U. S. 97 , 445 U. S. 107 ,
n. 10 (1980). No clear consensus concerning the meaning of the
provision is apparent. Indeed, Senator Blaine, the Senate sponsor
of the Amendment resolution, appears to have espoused varying
interpretations. In reporting the view of Page 468 U. S. 275 the Senate Judiciary Committee, he said that the purpose of § 2
was "to restore to the States . . . absolute control in effect over
interstate commerce affecting intoxicating liquors. . . ." 76
Cong.Rec. 4143 (1933). On the other hand, he also expressed a
narrower view:

															"So to assure the so-called dry States against the importation
of intoxicating liquor into those States, it is proposed to write
permanently into the Constitution a prohibition along that
line." Id. at 4141.

															It is by now clear that the Amendment did not entirely remove
state regulation of alcoholic beverages from the ambit of the
Commerce Clause. For example, in Hostetter v. Idlewild Bon
Voyage Liquor Corp., 377 U. S. 324 , 377 U. S.
331 -332 (1964), the Court stated:

															"To draw a conclusion . . . that the Twenty-first Amendment has
somehow operated to 'repeal' the Commerce Clause wherever
regulation of intoxicating liquors is concerned would, however, be
an absurd oversimplification."

															We also there observed that

															"[b]oth the Twenty-first Amendment and the Commerce Clause are
parts of the same Constitution, [and] each must be considered in
light of the other and in the context of the issues and interests
at stake in any concrete case." Id. at 377 U. S. 332 .
Similarly, in Midcal Aluminum, supra, at 445 U. S. 109 ,
the Court, noting that recent Twenty-first Amendment cases have
emphasized federal interests to a greater degree than had earlier
cases, described the mode of analysis to be employed as a
"pragmatic effort to harmonize state and federal powers." The
question in this case is thus whether the principles underlying the
Twenty-first Amendment are sufficiently implicated by the exemption
for okolehao and pineapple wine to outweigh the Commerce Clause
principles that would otherwise be offended. Or, as we recently
asked in a slightly different way,

															"whether the interests implicated by a state regulation are so
closely related to the powers reserved by the Twenty-first
Amendment Page 468 U. S. 276 that the regulation may prevail, notwithstanding that its
requirements directly conflict with express federal policies." Capital Cities Cable, Inc. v. Crisp, 467 U.
S. 691 , 467 U. S. 714 (1984).

															Approaching the case in this light, we are convinced that
Hawaii's discriminatory tax cannot stand. Doubts about the scope of
the Amendment's authorization notwithstanding, one thing is
certain: the central purpose of the provision was not to empower
States to favor local liquor industries by erecting barriers to
competition. It is also beyond doubt that the Commerce Clause
itself furthers strong federal interests in preventing economic
Balkanization. South-Central Timber Development, Inc. v.
Wunnicke, 467 U. S. 82 (1984); Hughes v. Oklahoma, 441 U.
S. 322 (1979); Baldwin v. G. A. F. Seelig,
Inc., 294 U. S. 511 (1935). State laws that constitute mere economic protectionism are
therefore not entitled to the same deference as laws enacted to
combat the perceived evils of an unrestricted traffic in liquor.
Here, the State does not seek to justify its tax on the ground that
it was designed to promote temperance or to carry out any other
purpose of the Twenty-first Amendment, but instead acknowledges
that the purpose was "to promote a local industry." Brief for
Appellee Dias 40. Consequently, because the tax violates a central
tenet of the Commerce Clause but is not supported by any clear
concern of the Twenty-first Amendment, we reject the State's
belated claim based on the Amendment. V The State further contends that, even if the challenged tax is
adjudged to have been unconstitutionally discriminatory and should
not have been collected from the wholesalers as long as the
exemptions for local products were in force, the wholesalers are
not entitled to refunds, since they did not bear the economic
incidence of the tax, but passed it on as a separate addition Page 468 U. S. 277 to the price that their customers were legally obligated to pay
within a certain time. Relying on United States v. Jefferson
Electric Mfg. Co., 291 U. S. 386 (1934), a case involving interpretation of a federal tax refund
statute, the State asserts that only the parties bearing the
economic incidence of the tax are constitutionally entitled to a
refund of an illegal tax. It further asserts that the wholesalers,
at least arguably, do not even bear the legal obligation for the
tax, and that they have shown no competitive injury from the
alleged discrimination. The wholesalers assert, on the other hand,
that they were liable to pay the tax whether or not their customers
paid their bills on time, and that, if the tax was illegally
discriminatory, the Commerce Clause requires that the taxes
collected be refunded to them. Their position is also that the
discrimination has worked a competitive injury on their business
that entitles them to a refund.

															These refund issues, which are essentially issues of remedy for
the imposition of a tax that unconstitutionally discriminated
against interstate commerce, were not addressed by the state
courts. Also, the federal constitutional issues involved may well
be intertwined with, or their consideration obviated by, issues of
state law. [ Footnote 14 ]
Also, resolution of those issues, if required at all, may
necessitate more of a record than so far has been made in this
case. We are reluctant, therefore, to address them in the first
instance. Accordingly, we reverse the judgment of the Supreme Court
of Hawaii and remand for further proceedings not inconsistent with
this opinion. So ordered. JUSTICE BRENNAN took no part in the consideration or decision of
this case. Page 468 U. S. 278 [ Footnote 1 ]

															An exemption for okolehao that had been enacted in 1960 expired
in 1965. 1960 Haw. Sess. Laws, ch. 26, § 1. During the pendency of
this litigation, the Hawaii Legislature enacted a similar exemption
for rum manufactured in the State for the period May 17, 1981, to
June 30, 1986.

															[ Footnote 2 ]

															Two other taxpayers -- Foremost-McKesson, Inc., and Paradise
Beverages, Inc. -- were appellants in the consolidated suit in the
Hawaii Supreme Court. They did not appeal to this Court, and thus
are appellees here pursuant to our Rule 10.4. For the sake of
clarity, both appellants and appellee wholesalers will be referred
to collectively as "wholesalers."

															[ Footnote 3 ]

															Bacchus Imports, Ltd., was the first of the wholesalers to
protest the assessment. It sent a letter dated May 30, 1979,
protesting the payment of taxes for the period December, 1977,
through May, 1979. Appellee Paradise Beverages, Inc., protested on
July 30, 1979, for the period June, 1977, through July, 1979;
appellant Eagle Distributors, Inc., protested on August 31, 1979,
taxes paid from August, 1974, through July, 1979; and, on September
6, 1979, appellee Foremost-McKesson, Inc., protested taxes paid
from August, 1974, through August, 1979. In re Bacchus Imports,
Ltd., 65 Haw. 566, 570, n. 11, 656 P.2d 724 ,
728, n. 11 (1982).

															[ Footnote 4 ]

															Article I, § 10, cl. 2, of the Constitution provides in
part:

															"No State shall, without the Consent of the Congress, lay any
Imposts or Duties on Imports or Exports. . . ."

															[ Footnote 5 ]

															Article I, § 8, cl. 3, of the Constitution provides in part:

															"The Congress shall have power . . . [t]o regulate Commerce with
foreign Nations, and among the several States. . . ."

															[ Footnote 6 ]

															Eagle Distributors sought refund of $10,744,047, App. 7; Bacchus
sought $75,060.22, id. at 13; Foremost-McKesson sought
over $26 million, id. at 19; and Paradise sought
$8,716,727.23. Record in No. 1862, p. 27.

															[ Footnote 7 ]

															The State also would have us avoid the merits by holding that
the exemptions are severable, and should not invalidate the entire
tax. The argument was not presented to the Supreme Court of Hawaii,
and that court did not proceed on any such basis. Furthermore, the
challenged exemptions have now expired, and "severance" would not
relieve the harm inflicted during the time the wholesalers'
imported products were taxed, but locally produced products were
not.

															[ Footnote 8 ]

															The State does not seriously defend the Hawaii Supreme Court's
conclusion that, because there was no discrimination between
in-state and out-of-state taxpayers, there was no Commerce Clause
violation. Our cases make clear that discrimination between
in-state and out-of-state goods is as offensive to the Commerce
Clause as discrimination between in-state and out-of-state
taxpayers. Compare I. M. Darnell & Son Co. v. Memphis, 208 U. S. 113 (1908), with Maryland v. Louisiana, 451 U.
S. 725 (1981).

															[ Footnote 9 ]

															The percentage of exempted liquor sales steadily increased from
.2221% of total liquor sales in 1976 to .7739% in 1981. App. to
Brief for Appellee Dias A-1.

															[ Footnote 10 ]

															The Hawaii Supreme Court's assumption that okolehao and
pineapple wine do not pose "a competitive threat" does not
constitute a finding that there is no competition whatsoever
between locally produced products and out-of-state products, nor do
we understand the State to so argue.

															[ Footnote 11 ]

															Because of our disposition of the Commerce Clause issue, we need
not address the wholesalers' arguments based upon the Equal
Protection Clause and the Import-Export Clause.

															[ Footnote 12 ]

															We note that the State expressly disclaimed any reliance upon
the Twenty-first Amendment in the court below, and did not cite it
in its motion to dismiss or affirm. Apparently it was not until it
prepared its brief on the merits in this Court that it became
"clear" to the State that the Amendment saves the challenged tax. See Brief for Appellee Dias 36.

															[ Footnote 13 ]

															For example, in State Board of Equalization v. Young's
Market Co., 299 U. S. 59 , 299 U. S. 62 (1936), the Court stated:

															"The plaintiffs ask us to limit this broad command. They request
us to construe the Amendment as saying, in effect: the State may
prohibit the importation of intoxicating liquors provided it
prohibits the manufacture and sale within its borders; but if it
permits such manufacture and sale, it must let imported liquors
compete with the domestic on equal terms. To say that would involve
not a construction of the Amendment, but a rewriting of it."

															The Court went on to observe, however, that a high license fee
for importation may "serve as an aid in policing the liquor
traffic." Id. at 299 U. S.
63 . See also Mahoney v. Joseph Triner Corp., 304 U.
S. 401 , 304 U. S. 403 (1938) ("since the adoption of the Twenty-first Amendment, the
equal protection clause is not applicable to imported intoxicating
liquor"). Cf. Craig v. Boren, 429 U.
S. 190 (1976).

															[ Footnote 14 ]

															It may be, for example, that, given an unconstitutional
discrimination, a full refund is mandated by state law.

															JUSTICE STEVENS, with whom JUSTICE REHNQUIST and JUSTICE
O'CONNOR join, dissenting.

															Four wholesalers of alcoholic beverages filed separate
complaints challenging the constitutionality of the Hawaii liquor
tax because, pursuant to an exception, since expired, the tax was
not imposed on okolehao or pineapple wine in certain tax years.
[ Footnote 2/1 ] Although only one of
them actually sells okolehao and pineapple wine, [ Footnote 2/2 ] apparently all four of them are
entitled to engage in the wholesale sale of these beverages as well
as the various other alcoholic beverages that they do sell. The tax
which they challenge is an excise tax amounting to 20 percent of
the wholesale price; presumably the economic burden of the tax is
passed on to the wholesalers' customers.

															Today the Court holds that these wholesalers are "entitled to
litigate whether the discriminatory tax has had an adverse
competitive impact on their business." Ante at 468 U. S. 267 .
I am skeptical about the ability of the wholesalers to prove that
the exemption for okolehao and pineapple wine has harmed their
businesses at all, partly because their customers have reimbursed
them for the excise tax and partly because they are free to take
advantage of the benefit of the exemption by selling the exempted
products themselves. Even if some minimal harm can be proved, I am
even more skeptical about the possibility that it will result in
the multimillion-dollar refund that the wholesalers are claiming.
My skepticism Page 468 U. S. 279 concerning the economics of the wholesalers' position is not,
however, the basis for my dissent. I would affirm the judgment of
the Supreme Court of Hawaii because the wholesalers' Commerce
Clause claim is squarely foreclosed by the Twenty-first Amendment
to the United States Constitution. [ Footnote 2/3 ] I At the outset, it is of critical importance to a proper
understanding of the significance of the Twenty-first Amendment in
this litigation to note the issues this case does not raise. First,
there is no claim that the Hawaii tax is inconsistent with any
exercise of the power that Art. I, § 8, cl. 3, of the Constitution
confers upon the Congress "To regulate Commerce among . . . the
several States." The extent to which the Twenty-first Amendment may
or may not have placed limits on the ability of Congress to
regulate commerce in alcoholic beverages is simply not at issue in
this case. Hence, there is no issue concerning the continuing
applicability of previously enacted federal statutes affecting the
liquor industry. [ Footnote 2/4 ] For
purposes of analysis, we may assume, arguendo, that the
Twenty-first Amendment left the power of Congress entirely
unimpaired. [ Footnote 2/5 ] Page 468 U. S. 280 Moreover, there is no claim that the Hawaii tax has impaired
interstate commerce that merely passes through the State, [ Footnote 2/6 ] or that is destined to
terminate at a federal enclave within the State. [ Footnote 2/7 ] Nor is there a claim of a due process
violation, [ Footnote 2/8 ] nor a
claim of discrimination among persons, as opposed to goods,
[ Footnote 2/9 ] nor a claim of an
effect on liquor prices outside the State. [ Footnote 2/10 ]

															The tax is applied to the sale of liquor in the local market
that presumably will be consumed in Hawaii. It thus falls squarely
within the protection given to Hawaii by the second section of the
Twenty-first Amendment, which expressly mentions "delivery or use
therein." [ Footnote 2/11 ] II Prior to the adoption of constitutional Amendments concerning
intoxicating liquors, there was a long history of special state and
federal legislation respecting intoxicating liquors and resulting
litigation challenging that legislation Page 468 U. S. 281 under the Commerce Clause. [ Footnote 2/12 ] The Commerce Clause effectively
prevented States from unilaterally banning the local sale of
intoxicating liquors from out of state, Leisy v. Hardin, 135 U. S. 100 (1890), but Congress, acting pursuant to its plenary power under
the Commerce Clause, essentially conferred that authority on them,
and this Court upheld that exercise of congressional power. Clark Distilling Co. v. Western Maryland R. Co., 242 U. S. 311 (1917). The Eighteenth Amendment, ratified in 1919, prohibited the
manufacture, sale, and transportation of intoxicating liquors for
beverage purposes, and expressly conferred concurrent power to
enforce the prohibition on Congress and the several States.
[ Footnote 2/13 ] Section 1 of the
Twenty-first Amendment, ratified in 1933, repealed the Eighteenth
Amendment. However, the constitutional authority of the States to
regulate commerce in intoxicating liquors did not revert to its
status prior to the adoption of these constitutional Amendments; §
2 of the Twenty-first Amendment expressly provides:

															"The transportation or importation into any State, Territory, or
possession of the United States for delivery or use therein of
intoxicating liquors, in violation of the laws thereof, is hereby
prohibited."

															This Court immediately recognized that this broad constitutional
language confers power upon the States to regulate commerce in
intoxicating liquors unconfined by ordinary limitations imposed on
state regulation of interstate goods by the Commerce Clause and
other constitutional provisions, Ziffrin, Inc. v. Reeves, 308 U. S. 132 (1939); Finch & Co.
v. Page 468 U. S. 282 McKittrick, 305 U. S. 395 (1939); Indianapolis Brewing Co. v. Liquor Control Comm'n, 305 U. S. 391 (1939); Mahoney v. Joseph Triner Corp., 304 U.
S. 401 (1938); State Board of Equalization v.
Young's Market Co., 299 U. S. 59 (1936), and we have consistently reaffirmed that understanding of
the Amendment, repeatedly acknowledging the broad nature of state
authority to regulate commerce in intoxicating liquors, see,
e.g., Capital Cities Cable, Inc. v. Crisp, 467 U.
S. 691 , 467 U. S. 712 (1984); Craig v. Boren, 429 U. S. 190 , 429 U. S.
206 -207 (1976); Heublein, Inc. v. South Carolina Tax
Comm'n, 409 U. S. 275 , 409 U. S.
283 -284 (1972); California v. LaRue, 409 U. S. 109 , 409 U. S.
114 -115 (1972); Seagram & Sons v.
Hostetter, 384 U. S. 35 , 384 U. S. 42 (1966); Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U. S. 324 , 377 U. S. 330 (1964); Nippert v. Richmond, 327 U.
S. 416 , 327 U. S. 425 (1946); United States v. Frankfort Distilleries, Inc., 324 U. S. 293 , 324 U. S. 299 (1945). III Today the Court, in essence, holds that the Hawaii tax is
unconstitutional because it places a burden on intoxicating liquors
that have been imported into Hawaii for use therein that is not
imposed on liquors that are produced locally. As I read the text of
the Amendment, it expressly authorizes this sort of burden.
Moreover, as I read Justice Brandeis' opinion for the Court in the
seminal case of State Board of Equalization v. Young's Market
Co., supra, the Court has squarely so decided.

															In Young's Market, the Court upheld a California
statute that imposed a license fee on the privilege of importing
beer to any place in California. After noting that the statute
would have been obviously unconstitutional prior to the
Twenty-first Amendment, the Court explained that the Amendment
enables a State to establish a local monopoly and to prevent or
discourage competition from imported liquors. Because the Court's
reasoning clearly covers this case, it merits quotation at some
length:

															"The Amendment which 'prohibited' the 'transportation or
importation' of intoxicating liquors into any state Page 468 U. S. 283 'in violation of the laws thereof,' abrogated the right to
import free, so far as concerns intoxicating liquors. The words
used are apt to confer upon the State the power to forbid all
importations which do not comply with the conditions which it
prescribes. The plaintiffs ask us to limit this broad command. They
request us to construe the Amendment as saying, in effect: the
State may prohibit the importation of intoxicating liquors provided
it prohibits the manufacture and sale within its borders; but if it
permits such manufacture and sale, it must let imported liquors
compete with the domestic on equal terms. To say that would involve
not a construction of the Amendment, but a rewriting of it."

															"The plaintiffs argue that, despite the Amendment, a State may
not regulate importations except for the purpose of protecting the
public health, safety or morals, and that the importer's license
fee was not imposed to that end. Surely the State may adopt a
lesser degree of regulation than total prohibition. Can it be
doubted that a State might establish a state monopoly of the
manufacture and sale of beer, and either prohibit all competing
importations or discourage importation by laying a heavy impost, or
channelize desired importations by confining them to a single
consignee? Compare 83 U. S. 16 Wall. 36; Vance v. W. A. Vandercook Co. (No. 1), 170 U. S.
438 , 170 U. S. 447 . There is no
basis for holding that it may prohibit, or so limit, importation
only if it establishes monopoly of the liquor trade. It might
permit the manufacture and sale of beer, while prohibiting hard
liquors absolutely. If it may permit the domestic manufacture of
beer and exclude all made without the State, may it not, instead of
absolute exclusion, subject the foreign article to a heavy
importation fee?"

															299 U.S. at 299 U. S.
62 -63.

															Today the Court implies that Justice Brandeis' reasoning in the Young's Market case has been qualified by our more recent
decision in Hostetter v. Idlewild Bon Voyage Liquor Page 468 U. S. 284 Corp., supra. However, in the passage quoted by the
Court, ante at 468 U. S. 275 ,
Justice Stewart merely rejected the broad proposition that the
Twenty-first Amendment had entirely divested Congress of all
regulatory power over interstate or foreign commerce in
intoxicating liquors. As I have already noted, this case involves
no question concerning the power of Congress, see supra at 468 U. S. 279 ,
and n. 4, and Justice Brandeis, of course, in no way implied that
Congress had been totally divested of authority to regulate
commerce in intoxicating liquors -- a proposition which Justice
Stewart characterized as "patently bizarre." 377 U.S. at 377 U. S. 332 .
Moreover, the actual decision in Hostetter was predicated
squarely on the principle reflected in the Court's earlier decision
in Collins v. Yosemite Park & Curry Co., 304 U.
S. 518 (1938). Referring to Collins, the Court
explained:

															"There it was held that the Twenty-first Amendment did not give
California power to prevent the shipment into and through her
territory of liquor destined for distribution and consumption in a
national park. The Court said that this traffic did not involve
"transportation into California for delivery or use therein'"
within the meaning of the Amendment. "The delivery and use is in
the Park, and under a distinct sovereignty." Id. at 304 U. S. 538 .
This ruling was later characterized by the Court as holding "that
shipment through a state is not transportation or importation into
the state within the meaning of the Amendment." Carter v.
Virginia, 321 U. S. 131 , 321 U. S.
137 ." Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S.
at 377 U. S. 332 .
[ Footnote 2/14 ] Page 468 U. S. 285 On the same day that it decided Hostetter, the Court
also held that a Kentucky tax violated the Export-Import Clause of
the Constitution. Department of Revenue v. James B. Beam
Distilling Co., 377 U. S. 341 (1964). The holding of that case is not relevant to the Commerce
Clause issue decided today, but the final paragraph of the Court's
opinion in the James B. Beam Distilling Co. case surely
confirms my understanding that the Court did not then think that it
was repudiating the central rationale of Justice Brandeis' opinion
in Young's Market. It wrote:

															"We have no doubt that, under the Twenty-first Amendment,
Kentucky could not only regulate, but could completely prohibit the
importation of some intoxicants, or of all intoxicants, destined
for distribution, use, or consumption within its borders. There can
surely be no doubt, either, of Kentucky's plenary power to regulate
and control, by taxation or otherwise, the distribution, use, or
consumption of intoxicants within her territory after they have
been imported. All we decide today is that, because of the explicit
and precise words of the Export-Import Clause of the Constitution,
Kentucky may not lay this impost on these imports from abroad."

															377 U.S. at 377 U. S. 346 .
Indeed, only 11 days ago, we stated that a direct regulation on
"the sale or use of liquor" within a State's borders is the "core §
2 power" conferred upon a State, Capital Cities Cable, Inc. v.
Crisp, 467 U.S. at 467 U. S. 713 ,
observing:

															"'This Court's decisions . . . have confirmed that the Amendment
primarily created an exception to the normal operation of the
Commerce Clause.' [Section] 2 reserves Page 468 U. S. 286 to the States power to impose burdens on interstate commerce in
intoxicating liquor that, absent the Amendment, would clearly be
invalid under the Commerce Clause." Id. at 467 U. S. 712 (citation omitted).

															As a matter of pure constitutional power, Hawaii may surely
prohibit the importation of all intoxicating liquors. It seems
clear to me that it may do so without prohibiting the local sale of
liquors that are produced within the State. In other words, even
though it seems unlikely that the okolehao lobby could persuade it
to do so, the Hawaii Legislature surely has the power to create a
local monopoly by prohibiting the sale of any other alcoholic
beverage. If the State has the constitutional power to create a
total local monopoly -- thereby imposing the most severe form of
discrimination on competing products originating elsewhere -- I
believe it may also engage in a less extreme form of discrimination
that merely provides a special benefit, perhaps in the form of a
subsidy or a tax exemption, for locally produced alcoholic
beverages.

															The Court's contrary conclusion is based on the "obscurity of
the legislative history" of § 2. Ante at 468 U. S. 274 .
What the Court ignores is that it was argued in Young's
Market that a "limitation of the broad language" of § 2 was
"sanctioned by its history," but the Court, observing that the
language of the Amendment was "clear," determined that it was
unnecessary to consider the history, 299 U.S. at 299 U. S. 63 -64,
the history which the Court today considers unclear. But now,
according to the Court, the force of the Twenty-first Amendment
contention in this case is diminished because the "central purpose
of the provision was not to empower States to favor local liquor
industries by erecting barriers to competition." Ante at 468 U. S. 276 .
It follows, according to the Court, that

															"state laws that constitute mere economic protectionism are not
entitled to the same deference as laws enacted to combat the
perceived evils of an unrestricted traffic in liquor." Ibid. This is a totally novel approach to Page 468 U. S. 287 the Twenty-first Amendment. [ Footnote 2/15 ] The question is not one of "deference,"
nor one of "central purposes"; [ Footnote 2/16 ] the question is whether the provision in
this case is an exercise of a power expressly conferred upon the
States by the Constitution. It plainly is.

															Accordingly, I respectfully dissent.

															[ Footnote 2/1 ]

															Two of the wholesalers, Bacchus Imports, Ltd., and Eagle
Distributors, Inc., are appellants in this Court; the other two,
Paradise Beverages, Inc., and Foremost McKesson, Inc., are
nominally appellees under our Rules, see ante at 468 U. S. 266 ,
n. 2, but have filed briefs supporting reversal. All four were
parties to the case in the Hawaiian Supreme Court.

															[ Footnote 2/2 ]

															As the Supreme Court of Hawaii noted:

															"Paradise acknowledges it is a 'beneficiary' of the exemptions
from taxation provided by HRS § 244.4 for okolehao and fruit wine
produced in Hawaii. It nevertheless maintains the statute is
unconstitutional, probably because the volume of sales of the
exempted products is relatively insubstantial." In re Bacchus Imports, Ltd., 65 Haw. 566, 570, n. 9, 656 P.2d 724 ,
727, n. 9 (1982).

															[ Footnote 2/3 ]

															As the Court recognizes, the issue whether the Twenty-first
Amendment insulates the exemption from invalidation under the
Commerce Clause is properly before us, even though it was not
argued below. I should add that the wholesalers' specific Equal
Protection Clause claim is plainly foreclosed under the
Twenty-first Amendment as well, see, e.g., Mahoney v. Joseph
Triner Corp., 304 U. S. 401 (1938), and their Import-Export Clause claim is wholly lacking in
merit, see, e.g., Department of Revenue v. James B. Beam
Distilling Co., 377 U. S. 341 (1964).

															[ Footnote 2/4 ] See generally Capital Cities Cable, Inc. v. Crisp, 467 U. S. 691 (1984); California Retail Liquor Dealers Assn. v. Midcal
Aluminum, Inc., 445 U. S. 97 (1980); see also Heublein, Inc. v. South Carolina Tax
Comm'n, 409 U. S. 275 , 409 U. S. 282 ,
n. 9 (1972).

															[ Footnote 2/5 ]

															The Commerce Clause operates both as a grant of power to the
Congress and a limitation on the power of the States concerning
interstate commerce. Congress' power under the Clause, however, is
broader than the limitation inherently imposed on the States, and
hence we have always recognized that some state regulation of
interstate commerce is permissible which would be impermissible if
Congress acted. Cooley v. Board of
Wardens , 12 How. 299 (1852). Given the dual
character of the Clause, it is not at all incongruous to assume
that the power delegated to Congress by the Commerce Clause is
unimpaired while holding the inherent limitation imposed by the
Commerce Clause on the States is removed with respect to
intoxicating liquors by the Twenty-first Amendment.

															[ Footnote 2/6 ] See generally Department of Revenue v. James B. Beam
Distilling Co., supra; Carter v. Virginia, 321 U.
S. 131 (1944).

															[ Footnote 2/7 ] See generally United States v. Mississippi Tax Comm'n, 412 U. S. 363 (1973); Collins v. Yosemite Park & Curry Co., 304 U. S. 518 (1938).

															[ Footnote 2/8 ] See generally Wisconsin v. Constantineau, 400 U.
S. 433 (1971).

															[ Footnote 2/9 ] See generally Craig v. Boren, 429 U.
S. 190 (1976).

															[ Footnote 2/10 ] See generally Seagram & Sons v. Hostetter, 384 U. S. 35 (1966); compare United States Brewers Assn., Inc. v.
Rodriquez, 465 U. S. 1093 (1984) (summarily dismissing appeal from 100 N.M. 216, 668 P.2d
1093 (1983)), with Healy v. United States Brewers Assn.,
Inc., 464 U.S. 909 (1983) ( summarily aff'g 692 F.2d
275 (CA2 1982)).

															[ Footnote 2/11 ] See infra at 468 U. S.
281 .

															[ Footnote 2/12 ] See, e.g., United States v. Hill, 248 U.
S. 420 (1919); Clark Distilling Co. v. Western
Maryland R. Co., 242 U. S. 311 (1917); In re Rahrer, 140 U. S. 545 (1891); Leisy v. Hardin, 135 U. S. 100 (1890); Bowman v. Chicago & Northwestern R. Co., 125 U. S. 465 (1888); Walling v. Michigan, 116 U.
S. 446 (1886); License Cases , 5 How. 504 (1847), overruled, Leisy v. Hardin, supra. [ Footnote 2/13 ] See generally The National Prohibition Cases, 253 U. S. 350 (1920).

															[ Footnote 2/14 ]

															The Court added:

															"A like accommodation of the Twenty-first Amendment with the
Commerce Clause leads to a like conclusion in the present case.
Here, ultimate delivery and use is not in New York, but in a
foreign country. The State has not sought to regulate or control
the passage of intoxicants through her territory in the interest of
preventing their unlawful diversion into the internal commerce of
the State. As the District Court emphasized, this case does not
involve 'measures aimed at preventing unlawful diversion or use of
alcoholic beverages within New York.' 212 F. Supp. at 386. Rather,
the State has sought totally to prevent transactions carried on
under the aegis of a law passed by Congress in the exercise of its
explicit power under the Constitution to regulate commerce with
foreign nations. This New York cannot constitutionally do."

															377 U.S. at 377 U. S.
333 -334.

															[ Footnote 2/15 ]

															It is an approach explicitly rejected in Young's
Market, 299 U.S. at 299 U. S. 63 (rejecting argument that the "State may not regulate importations
except for the purpose of protecting the public health, safety or
morals . . ."), and in subsequent cases as well, see, e.g.,
Seagram & Sons v. Hostetter, 384 U.S. at 384 U. S. 47 ("[N]othing in the Twenty-first Amendment . . . requires that state
laws regulating the liquor business be motivated exclusively by a
desire to promote temperance"). Because it makes the
constitutionality of state legislation depend on a judicial
evaluation of the motivation of the legislators, I regard it as an
unsound approach to the adjudication of federal constitutional
issues. Indeed, it is reminiscent of a long-since repudiated era in
which this Court struck down assertions of Congress' power to
regulate commerce on the ground that the objective of Congress was
not to regulate commerce, but rather to remedy some local problem. See generally Carter v. Carter Coal Co., 298 U.
S. 238 (1936); Schechter Poultry Corp. v. United
States, 295 U. S. 495 (1935); Railroad Retirement Board v. Alton R. Co., 295 U. S. 330 (1935). In any event, the Court's analysis must fall of its own
weight, for we do not know what the ultimate result of a regulation
such as this may be. The immediate objective may be to encourage
the growth of domestic distilleries, but the ultimate result -- or
indeed, objective -- may be entirely to prohibit imported liquors
for domestic consumption when the domestic industry has
matured.

															[ Footnote 2/16 ]

															I would suggest, however, that, if vague balancing of "central
purposes" is to govern the ultimate disposition of this litigation,
a careful and thorough analysis of the actual economic effect of
the tax exemption on the business of the taxpayers should be made
before any serious consideration is given to their
multimillion-dollar refund claim.


U.S. Supreme Court South Dakota v. Dole, 483
U.S. 203 (1987) South Dakota v. Dole No. 86-260 Argued April 28, 1987 Decided June 23, 1987 483
U.S. 203 CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE EIGHTH CIRCUIT Syllabus Title 23 U.S.C. § 158 (1982 ed., Supp. III) directs the
Secretary of Transportation to withhold a percentage of otherwise
allocable federal highway funds from States "in which the purchase
or public possession . . . of any alcoholic beverage by a person
who is less than twenty-one years of age is lawful." South Dakota,
which permits persons 19 years old or older to purchase beer
containing up to 3.2% alcohol, sued in Federal District Court for a
declaratory judgment that § 158 violates the constitutional
limitations on congressional exercise of the spending power under
Art. I, § 8, cl. 1, of the Constitution, and violates the
Twenty-first Amendment. The District Court rejected the State's
claims, and the Court of Appeals affirmed. Held: Even if Congress, in view of the Twenty-first
Amendment, might lack the power to impose directly a national
minimum drinking age (a question not decided here), § 158's
indirect encouragement of state action to obtain uniformity in the
States' drinking ages is a valid use of the spending power. Pp. 483 U. S.
206 -212.

															(a) Incident to the spending power, Congress may attach
conditions on the receipt of federal funds. However, exercise of
the power is subject to certain restrictions, including that it
must be in pursuit of "the general welfare." Section 158 is
consistent with such restriction, since the means chosen by
Congress to address a dangerous situation -- the interstate problem
resulting from the incentive, created by differing state drinking
ages, for young persons to combine drinking and driving -- were
reasonably calculated to advance the general welfare. Section 158
also is consistent with the spending power restrictions that, if
Congress desires to condition the States' receipt of federal funds,
it must do so unambiguously, enabling the States to exercise their
choice knowingly, cognizant of the consequences of their
participation; and that conditions on federal grants must be
related to a national concern (safe interstate travel here). Pp. 483 U. S.
206 -209.

															(b) Nor is § 158 invalidated by the spending power limitation
that the conditional grant of federal funds must not be
independently barred by other constitutional provisions (the
Twenty-first Amendment here). Such limitation is not a prohibition
on the indirect achievement of objectives Page 483 U. S. 204 which Congress is not empowered to achieve directly, but,
instead, means that the power may not be used to induce the States
to engage in activities that would themselves be unconstitutional.
Here, if South Dakota were to succumb to Congress' blandishments
and raise its drinking age to 21, its action would not violate
anyone's constitutional rights. Moreover, the relatively small
financial inducement offered by Congress here -- resulting from the
State's loss of only 5% of federal funds otherwise obtainable under
certain highway grant programs -- is not so coercive as to pass the
point at which pressure turns into compulsion. Pp. 483 U. S.
209 -212.

															791 F.2d 628, affirmed.

															REHNQUIST, C.J., delivered the opinion of the Court, in which
WHITE, MARSHALL, BLACKMUN, POWELL, STEVENS, and SCALIA, JJ.,
joined. BRENNAN, J., post p. 483 U. S. 212 ,
and O'CONNOR, J., post p. 483 U. S. 212 ,
filed dissenting opinions. Page 483 U. S. 205 CHIEF JUSTICE REHNQUIST delivered the opinion of the Court.

															Petitioner South Dakota permits persons 19 years of age or older
to purchase beer containing up to 3.2% alcohol. S.D.Codified Laws §
35-6-27 (1986). In 1984, Congress enacted 23 U.S.C. § 158 (1982
ed., Supp. III), which directs the Secretary of Transportation to
withhold a percentage of federal highway funds otherwise allocable
from States "in which the purchase or public possession . . . of
any alcoholic beverage by a person who is less than twenty-one
years of age is lawful." The State sued in United States District
Court seeking a declaratory judgment that § 158 violates the
constitutional limitations on congressional exercise of the
spending power and violates the Twenty-first Amendment to the
United States Constitution. The District Court rejected the State's
claims, and the Court of Appeals for the Eighth Circuit affirmed.
791 F.2d 628 (1986).

															In this Court, the parties direct most of their efforts to
defining the proper scope of the Twenty-first Amendment. Relying on
our statement in California Retail Liquor Dealers Assn. v.
Midcal Aluminum, Inc., 445 U. S. 97 , 445 U. S. 110 (1980), that the

															"Twenty-first Amendment grants the States virtually complete
control over whether to permit importation or sale of liquor and
how to structure the liquor distribution system,"

															South Dakota asserts that the setting of minimum drinking ages
is clearly within the "core powers" reserved to the States under §
2 of the Amendment. [ Footnote
1 ] Brief for Petitioner 43-44. Section 158, petitioner claims,
usurps Page 483 U. S. 206 that core power. The Secretary, in response, asserts that the
Twenty-first Amendment is simply not implicated by § 158; the plain
language of § 2 confirms the States' broad power to impose
restrictions on the sale and distribution of alcoholic beverages,
but does not confer on them any power to permit sales that Congress
seeks to prohibit. Brief for Respondent 25-26. That
Amendment, under this reasoning, would not prevent Congress from
affirmatively enacting a national minimum drinking age more
restrictive than that provided by the various state laws; and it
would follow a fortiori that the indirect inducement
involved here is compatible with the Twenty-first Amendment.

															These arguments present questions of the meaning of the
Twenty-first Amendment, the bounds of which have escaped precise
definition. Bacchus Imports, Ltd. v. Dias, 468 U.
S. 263 , 468 U. S.
274 -276 (1984); Craig v. Boren, 429 U.
S. 190 , 429 U. S. 206 (1976). Despite the extended treatment of the question by the
parties, however, we need not decide in this case whether that
Amendment would prohibit an attempt by Congress to legislate
directly a national minimum drinking age. Here, Congress has acted
indirectly under its spending power to encourage uniformity in the
States' drinking ages. As we explain below, we find this
legislative effort within constitutional bounds even if Congress
may not regulate drinking ages directly.

															The Constitution empowers Congress to

															"lay and collect Taxes, Duties, Imposts, and Excises, to pay the
Debts and provide for the common Defence and general Welfare of the
United States."

															Art. I, § 8, cl. 1. Incident to this power, Congress may attach
conditions on the receipt of federal funds, and has repeatedly
employed the power

															"to further broad policy objectives by conditioning receipt of
federal moneys upon compliance by the recipient with federal
statutory and administrative directives." Fullilove v. Klutznick, 448 U.
S. 448 , 448 U. S. 474 (1980) (opinion of Burger, C.J.). See Lau v. Nichols, 414 U. S. 563 , 414 U. S. 569 (1974); Ivanhoe Irrigation Dist. v. McCracken, 357 U. S. 275 , 357 U. S. 295 (1958); Oklahoma Page 483 U. S. 207 v. Civil Service Comm'n, 330 U.
S. 127 , 330 U. S.
143 -144 (1947); Steward Machine Co. v. Davis, 301 U. S. 548 (1937). The breadth of this power was made clear in United
States v. Butler, 297 U. S. 1 , 297 U. S. 66 (1936), where the Court, resolving a longstanding debate over the
scope of the Spending Clause, determined that

															"the power of Congress to authorize expenditure of public moneys
for public purposes is not limited by the direct grants of
legislative power found in the Constitution."

															Thus, objectives not thought to be within Article I's
"enumerated legislative fields," id. at 297 U. S. 65 , may
nevertheless be attained through the use of the spending power and
the conditional grant of federal funds.

															The spending power is of course not unlimited, Pennhurst
State School and Hospital v. Halderman, 451 U. S.
1 , 451 U. S. 17 , and
n. 13 (1981), but is instead subject to several general
restrictions articulated in our cases. The first of these
limitations is derived from the language of the Constitution
itself: the exercise of the spending power must be in pursuit of
"the general welfare." See Helvering v. Davis, 301 U. S. 619 , 301 U. S.
640 -641 (1937); United States v. Butler, supra, at 297 U. S. 65 . In
considering whether a particular expenditure is intended to serve
general public purposes, courts should defer substantially to the
judgment of Congress. Helvering v. Davis, supra, at 301 U. S. 640 , 301 U. S. 645 .
[ Footnote 2 ] Second, we have
required that, if Congress desires to condition the States' receipt
of federal funds, it "must do so unambiguously . . enabl[ing] the
States to exercise their choice knowingly, cognizant of the
consequences of their participation." Pennhurst State School
and Hospital v. Halderman, supra, at 451 U. S. 17 .
Third, our cases have suggested (without significant elaboration)
that conditions on federal grants might be illegitimate if they are
unrelated "to the federal interest in particular national projects
or programs." Massachusetts v. United States, 435 U.
S. 444 , 435 U. S.
461 Page 483 U. S. 208 (1978) (plurality opinion). See also Ivanhoe Irrigation
Dist. v. McCracken, supra, at 357 U. S. 295 ("[T]he Federal Government may establish and impose reasonable
conditions relevant to federal interest in the project and to the
over-all objectives thereof"). Finally, we have noted that other
constitutional provisions may provide an independent bar to the
conditional grant of federal funds. Lawrence County v.
Lead-Deadwood School Dist., 469 U. S. 256 , 469 U. S.
269 -270 (1985); Buckley v. Valeo, 424 U. S.
1 , 424 U. S. 91 (1976) (per curiam); King v. Smith, 392 U.
S. 309 , 392 U. S. 333 ,
n. 34 (1968).

															South Dakota does not seriously claim that § 158 is inconsistent
with any of the first three restrictions mentioned above. We can
readily conclude that the provision is designed to serve the
general welfare, especially in light of the fact that "the concept
of welfare or the opposite is shaped by Congress. . . ." Helvering v. Davis, supra, at 301 U. S. 645 .
Congress found that the differing drinking ages in the States
created particular incentives for young persons to combine their
desire to drink with their ability to drive, and that this
interstate problem required a national solution. The means it chose
to address this dangerous situation were reasonably calculated to
advance the general welfare. The conditions upon which States
receive the funds, moreover, could not be more clearly stated by
Congress. See 23 U.S.C. § 158 (1982 ed., Supp. III). And
the State itself, rather than challenging the germaneness of the
condition to federal purposes, admits that it "has never contended
that the congressional action was . . . unrelated to a national
concern in the absence of the Twenty-first Amendment." Brief for
Petitioner 52. Indeed, the condition imposed by Congress is
directly related to one of the main purposes for which highway
funds are expended -- safe interstate travel. See 23
U.S.C. § 101(b). [ Footnote
3 ] Page 483 U. S. 209 This goal of the interstate highway system had been frustrated
by varying drinking ages among the States. A Presidential
commission appointed to study alcohol-related accidents and
fatalities on the Nation's highways concluded that the lack of
uniformity in the States' drinking ages created "an incentive to
drink and drive" because "young persons commut[e] to border States
where the drinking age is lower." Presidential Commission on Drunk
Driving, Final Report 11 (1983). By enacting § 158, Congress
conditioned the receipt of federal funds in a way reasonably
calculated to address this particular impediment to a purpose for
which the funds are expended.

															The remaining question about the validity of § 158 -- and the
basic point of disagreement between the parties -- is whether the
Twenty-first Amendment constitutes an "independent constitutional
bar" to the conditional grant of federal funds. Lawrence County
v. Lead-Deadwood School Dist., supra, at 469 U. S.
269 -270. Petitioner, relying on its view that the
Twenty-first Amendment prohibits direct regulation of
drinking ages by Congress, asserts that

															"Congress may not use the spending power to regulate that which
it is prohibited from regulating directly under the Twenty-first
Amendment."

															Brief for Petitioner 52-53. But our cases show that this
"independent constitutional bar" limitation on the spending power
is not of the kind petitioner suggests. United States v.
Butler, supra, at 297 U. S. 66 , for
example, established that the constitutional limitations on
Congress when exercising its spending power are less exacting than
those on its authority to regulate directly. Page 483 U. S. 210 We have also held that a perceived Tenth Amendment limitation on
congressional regulation of state affairs did not concomitantly
limit the range of conditions legitimately placed on federal
grants. In Oklahoma v. Civil Service Comm'n, 330 U.
S. 127 (1947), the Court considered the validity of the
Hatch Act insofar as it was applied to political activities of
state officials whose employment was financed in whole or in part
with federal funds. The State contended that an order under this
provision to withhold certain federal funds unless a state official
was removed invaded its sovereignty in violation of the Tenth
Amendment. Though finding that "the United States is not concerned
with, and has no power to regulate, local political activities as
such of state officials," the Court nevertheless held that the
Federal Government "does have power to fix the terms upon which its
money allotments to states shall be disbursed." Id. at 330 U. S. 143 .
The Court found no violation of the State's sovereignty because the
State could, and did, adopt

															"the 'simple expedient' of not yielding to what she urges is
federal coercion. The offer of benefits to a state by the United
States dependent upon cooperation by the state with federal plans,
assumedly for the general welfare, is not unusual." Id. at 330 U. S.
143 -144 (citation omitted). See also Steward Machine
Co. v. Davis, 301 U.S. at 301 U. S. 595 ("There is only a condition which the state is free at pleasure to
disregard or to fulfill"); Massachusetts v. Mellon, 262 U. S. 447 , 447 U. S. 482 (1923).

															These cases establish that the "independent constitutional bar"
limitation on the spending power is not, as petitioner suggests, a
prohibition on the indirect achievement of objectives which
Congress is not empowered to achieve directly. Instead, we think
that the language in our earlier opinions stands for the
unexceptionable proposition that the power may not be used to
induce the States to engage in activities that would themselves be
unconstitutional. Thus, for example, a grant of federal funds
conditioned on invidiously discriminatory state action or the
infliction of cruel and unusual punishment would be an illegitimate
exercise of the Congress' Page 483 U. S. 211 broad spending power. But no such claim can be or is made here.
Were South Dakota to succumb to the blandishments offered by
Congress and raise its drinking age to 21, the State's action in so
doing would not violate the constitutional rights of anyone.

															Our decisions have recognized that, in some circumstances, the
financial inducement offered by Congress might be so coercive as to
pass the point at which "pressure turns into compulsion." Steward Machine Co. v. Davis, supra, at 301 U. S. 590 .
Here, however, Congress has directed only that a State desiring to
establish a minimum drinking age lower than 21 lose a relatively
small percentage of certain federal highway funds. Petitioner
contends that the coercive nature of this program is evident from
the degree of success it has achieved. We cannot conclude, however,
that a conditional grant of federal money of this sort is
unconstitutional simply by reason of its success in achieving the
congressional objective.

															When we consider, for a moment, that all South Dakota would lose
if she adheres to her chosen course as to a suitable minimum
drinking age is 5% of the funds otherwise obtainable under
specified highway grant programs, the argument as to coercion is
shown to be more rhetoric than fact. As we said a half century ago
in Steward Machine Co. v. Davis: "[E]very rebate from a tax when conditioned upon conduct is in
some measure a temptation. But to hold that motive or temptation is
equivalent to coercion is to plunge the law in endless
difficulties. The outcome of such a doctrine is the acceptance of a
philosophical determinism by which choice becomes impossible. Till
now, the law has been guided by a robust common sense which assumes
the freedom of the will as a working hypothesis in the solution of
its problems."

															301 U.S. at 301 U. S.
589 -590.

															Here Congress has offered relatively mild encouragement to the
States to enact higher minimum drinking ages than they would
otherwise choose. But the enactment of such laws remains the
prerogative of the States not merely in theory, Page 483 U. S. 212 but in fact. Even if Congress might lack the power to impose a
national minimum drinking age directly, we conclude that
encouragement to state action found in § 158 is a valid use of the
spending power. Accordingly, the judgment of the Court of Appeals
is Affirmed. [ Footnote 1 ]

															Section 2 of the Twenty-first Amendment provides:

															"The transportation or importation into any State, Territory, or
possession of the United States for delivery or use therein of
intoxicating liquors, in violation of the laws thereof, is hereby
prohibited."

															[ Footnote 2 ]

															The level of deference to the congressional decision is such
that the Court has more recently questioned whether "general
welfare" is a judicially enforceable restriction at all. See
Buckley v. Valeo, 424 U. S. 1 , 424 U. S. 90 -91
(1976) (per curiam).

															[ Footnote 3 ]

															Our cases have not required that we define the outer bounds of
the "germaneness" or "relatedness" limitation on the imposition of
conditions under the spending power. Amici urge that we
take this occasion to establish that a condition on federal funds
is legitimate only if it relates directly to the purpose of the
expenditure to which it is attached. See Brief for
National Conference of State Legislatures et al. as Amici Curiae 10. Because petitioner has not sought such a
restriction, see Tr. of Oral Arg.19-21, and because we
find any such limitation on conditional federal grants satisfied in
this case in any event, we do not address whether conditions less
directly related to the particular purpose of the expenditure might
be outside the bounds of the spending power.

															JUSTICE BRENNAN, dissenting.

															I agree with JUSTICE O'CONNOR that regulation of the minimum age
of purchasers of liquor falls squarely within the ambit of those
powers reserved to the States by the Twenty-first Amendment. See post at 483 U. S. 218 .
Since States possess this constitutional power, Congress cannot
condition a federal grant in a manner that abridges this right. The
Amendment, itself, strikes the proper balance between federal and
state authority. I therefore dissent.

															JUSTICE O'CONNOR, dissenting.

															The Court today upholds the National Minimum Drinking Age
Amendment, 23 U.S.C. § 158 (1982 ed., Supp. III), as a valid
exercise of the spending power conferred by Article I, § 8. But §
158 is not a condition on spending reasonably related to the
expenditure of federal funds, and cannot be justified on that
ground. Rather, it is an attempt to regulate the sale of liquor, an
attempt that lies outside Congress' power to regulate commerce
because it falls within the ambit of § 2 of the Twenty-first
Amendment.

															My disagreement with the Court is relatively narrow on the
spending power issue: it is a disagreement about the application of
a principle, rather than a disagreement on the principle itself. I
agree with the Court that Congress may attach conditions on the
receipt of federal funds to further "the federal interest in
particular national projects or programs." Massachusetts v.
United States, 435 U. S. 444 , 435 U. S. 461 (1978); see Oklahoma v. Civil Service Comm'n, 330 U.
S. 127 , 330 U. S.
143 -144 (1947); Steward Machine Co. v. Davis, 301 U. S. 548 (1937). I also subscribe to the established proposition Page 483 U. S. 213 that the reach of the spending power "is not limited by the
direct grants of legislative power found in the Constitution." United States v. Butler, 297 U. S. 1 , 297 U. S. 66 (1936). Finally, I agree that there are four separate types of
limitations on the spending power: the expenditure must be for the
general welfare, Helvering v. Davis, 301 U.
S. 619 , 301 U. S.
640 -641 (1937), the conditions imposed must be
unambiguous, Pennhurst State School and Hospital v.
Halderman, 451 U. S. 1 , 451 U. S. 17 (1981), they must be reasonably related to the purpose of the
expenditure, Massachusetts v. United States, supra, at 483 U. S. 461 ,
and the legislation may not violate any independent constitutional
prohibition, Lawrence County v. Lead-Deadwood School
Dist., 469 U. S. 256 , 469 U. S.
269 -270 (1985). Ante at 483 U.S. 207 -208. Insofar as two of
those limitations are concerned, the Court is clearly correct that
§ 158 is wholly unobjectionable. Establishment of a national
minimum drinking age certainly fits within the broad concept of the
general welfare, and the statute is entirely unambiguous. I am also
willing to assume, arguendo, that the Twenty-first
Amendment does not constitute an "independent constitutional bar"
to a spending condition. See ante at 483 U. S.
209 -211.

															But the Court's application of the requirement that the
condition imposed be reasonably related to the purpose for which
the funds are expended is cursory and unconvincing. We have
repeatedly said that Congress may condition grants under the
spending power only in ways reasonably related to the purpose of
the federal program. Massachusetts v. United States,
supra, at 435 U. S. 461 ; Ivanhoe Irrigation Dist. v. McCracken, 357 U.
S. 275 , 357 U. S. 295 (1958) (the United States may impose "reasonable conditions
relevant to federal interest in the project and to the over-all
objectives thereof"); Steward Machine Co. v. Davis, supra, at 301 U. S. 590 ("We do not say that a tax is valid, when imposed by act of
Congress, if it is laid upon the condition that a state may escape
its operation through the adoption of a statute unrelated in
subject matter to activities fairly within the scope of national
policy and power"). In my view, establishment of a minimum
drinking Page 483 U. S. 214 age of 21 is not sufficiently related to interstate highway
construction to justify so conditioning funds appropriated for that
purpose.

															In support of its contrary conclusion, the Court relies on a
supposed concession by counsel for South Dakota that the State "has
never contended that the congressional action was . . . unrelated
to a national concern in the absence of the Twenty-first
Amendment." Brief for Petitioner 52. In the absence of the
Twenty-first Amendment, however, there is a strong argument that
the Congress might regulate the conditions under which liquor is
sold under the commerce power, just as it regulates the sale of
many other commodities that are in or affect interstate commerce.
The fact that the Twenty-first Amendment is crucial to the State's
argument does not, therefore, amount to a concession that the
condition imposed by § 158 is reasonably related to highway
construction. The Court also relies on a portion of the argument
transcript in support of its claim that South Dakota conceded the
reasonable relationship point. Ante at 483 U. S.
208 -209, n. 3, citing Tr. of Oral Arg.19-21. But
counsel's statements there are, at best, ambiguous. Counsel
essentially said no more than that he was not prepared to argue the
reasonable relationship question discussed at length in the Brief
for the National Conference of State Legislatures et al. as Amici Curiae. Aside from these "concessions" by counsel, the Court asserts the
reasonableness of the relationship between the supposed purpose of
the expenditure -- "safe interstate travel" -- and the drinking age
condition. Ante at 483 U. S. 208 .
The Court reasons that Congress wishes that the roads it builds may
be used safely, that drunken drivers threaten highway safety, and
that young people are more likely to drive while under the
influence of alcohol under existing law than would be the case if
there were a uniform national drinking age of 21. It hardly needs
saying, however, that, if the purpose of § 158 is to deter drunken
driving, it is far too over- and under-inclusive. It is
overinclusive because it stops teenagers from drinking even when
they are not about to drive on interstate Page 483 U. S. 215 highways. It is under-inclusive because teenagers pose only a
small part of the drunken driving problem in this Nation. See,
e.g., 130 Cong.Rec. 18648 (1984) (remarks of Sen. Humphrey)
("Eighty-four percent of all highway fatalities involving alcohol
occur among those whose ages exceed 21"); id. at 18651
(remarks of Sen. McClure) ("Certainly, statistically, if you use
that one set of statistics, then the mandatory drinking age ought
to be raised at least to 30"); ibid. (remarks of Sen.
Symms) ("[M]ost of the studies point out that the drivers of age
21-24 are the worst offenders").

															When Congress appropriates money to build a highway, it is
entitled to insist that the highway be a safe one. But it is not
entitled to insist as a condition of the use of highway funds that
the State impose or change regulations in other areas of the
State's social and economic life because of an attenuated or
tangential relationship to highway use or safety. Indeed, if the
rule were otherwise, the Congress could effectively regulate almost
any area of a State's social, political, or economic life on the
theory that use of the interstate transportation system is somehow
enhanced. If, for example, the United States were to condition
highway moneys upon moving the state capital, I suppose it might
argue that interstate transportation is facilitated by locating
local governments in places easily accessible to interstate
highways -- or, conversely, that highways might become overburdened
if they had to carry traffic to and from the state capital. In my
mind, such a relationship is hardly more attenuated than the one
which the Court finds supports § 158. Cf. Tr. of Oral Arg.
39 (counsel for the United States conceding that to condition a
grant upon adoption of a unicameral legislature would violate the
"germaneness" requirement).

															There is a clear place at which the Court can draw the line
between permissible and impermissible conditions on federal grants.
It is the line identified in the Brief for the National Conference
of State Legislatures et al. as Amici Curiae: Page 483 U. S. 216 "Congress has the power to spend for the general
welfare, it has the power to legislate only for delegated
purposes. . . ."

															"The appropriate inquiry, then, is whether the spending
requirement or prohibition is a condition on a grant or whether it
is regulation. The difference turns on whether the requirement
specifies in some way how the money should be spent, so that
Congress' intent in making the grant will be effectuated. Congress
has no power under the Spending Clause to impose requirements on a
grant that go beyond specifying how the money should be spent. A
requirement that is not such a specification is not a condition,
but a regulation, which is valid only if it falls within one of
Congress' delegated regulatory powers." Id. at 19-20.

															This approach harks back to United States v. Butler, 297 U. S. 1 (1936),
the last case in which this Court struck down an Act of Congress as
beyond the authority granted by the Spending Clause. There the
Court wrote that

															"[t]here is an obvious difference between a statute stating the
conditions upon which moneys shall be expended and one effective
only upon assumption of a contractual obligation to submit to a
regulation which otherwise could not be enforced." Id. at 297 U. S. 73 . The Butler Court saw the Agricultural Adjustment Act for what
it was -- an exercise of regulatory, not spending, power. The error
in Butler was not the Court's conclusion that the Act was
essentially regulatory, but rather its crabbed view of the extent
of Congress' regulatory power under the Commerce Clause. The
Agricultural Adjustment Act was regulatory but it was regulation
that today would likely be considered within Congress' commerce
power. See, e.g., Katzenbach v. McClung, 379 U.
S. 294 (1964); Wickard v. Filburn, 317 U.
S. 111 (1942).

															While Butler's authority is questionable insofar as it
assumes that Congress has no regulatory power over farm
production, Page 483 U. S. 217 its discussion of the spending power and its description of both
the power's breadth and its limitations remain sound. The Court's
decision in Butler also properly recognizes the gravity of
the task of appropriately limiting the spending power. If the
spending power is to be limited only by Congress' notion of the
general welfare, the reality, given the vast financial resources of
the Federal Government, is that the Spending Clause gives

															"power to the Congress to tear down the barriers, to invade the
states' jurisdiction, and to become a parliament of the whole
people, subject to no restrictions save such as are
self-imposed." United States v. Butler, supra, at 297 U. S. 78 .
This, of course, as Butler held, was not the Framers' plan
and it is not the meaning of the Spending Clause.

															Our later cases are consistent with the notion that, under the
spending power, the Congress may only condition grants in ways that
can fairly be said to be related to the expenditure of federal
funds. For example, in Oklahoma v. CSC, 330 U.
S. 127 (1947), the Court upheld application of the Hatch
Act to a member of the Oklahoma State Highway Commission who was
employed in connection with an activity financed in part by loans
and grants from a federal agency. This condition is appropriately
viewed as a condition relating to how federal moneys were to be
expended. Other conditions that have been upheld by the Court may
be viewed as independently justified under some regulatory power of
the Congress. Thus, in Fullilove v. Klutznick, 448 U. S. 448 (1980), the Court upheld a condition on federal grants that 10% of
the money be "set aside" for contracts with minority business
enterprises. But the Court found that the condition could be
justified as a valid regulation under the commerce power and § 5 of
the Fourteenth Amendment. Id. at 448 U. S. 476 , 448 U. S. 478 . See also Lau v. Nichols, 414 U. S. 563 (1974) (upholding nondiscrimination provisions applied to local
schools receiving federal funds). Page 483 U. S. 218 This case, however, falls into neither class. As discussed
above, a condition that a State will raise its drinking age to 21
cannot fairly be said to be reasonably related to the expenditure
of funds for highway construction. The only possible connection,
highway safety, has nothing to do with how the funds Congress has
appropriated are expended. Rather than a condition determining how
federal highway money shall be expended, it is a regulation
determining who shall be able to drink liquor. As such, it is not
justified by the spending power.

															Of the other possible sources of congressional authority for
regulating the sale of liquor, only the commerce power comes to
mind. But in my view, the regulation of the age of the purchasers
of liquor, just as the regulation of the price at which liquor may
be sold, falls squarely within the scope of those powers reserved
to the States by the Twenty-first Amendment. Capital Cities
Cable, Inc. v. Crisp, 467 U. S. 691 , 467 U. S. 716 (1984). As I emphasized in 324 Liquor Corp. v. Duffy, 479 U. S. 335 , 479 U. S. 356 (1987) (dissenting opinion):

															"The history of the Amendment strongly supports Justice Black's
view that the Twenty-first Amendment was intended to return
absolute control of the liquor trade to the States, and that the
Federal Government could not use its Commerce Clause powers to
interfere in any manner with the States' exercise of the power
conferred by the Amendment."

															Accordingly, Congress simply lacks power under the Commerce
Clause to displace state regulation of this kind. Ibid. The immense size and power of the Government of the United
States ought not obscure its fundamental character. It remains a
Government of enumerated powers. McCulloch
v. Maryland , 4 Wheat. 316, 17 U. S. 405 (1819). Because 23 U.S.C. § 158 (1982 ed., Supp. III) cannot be
justified as an exercise of any power delegated to the Congress, it
is not authorized by the Constitution. The Court errs in holding it
to be the law of the land, and I respectfully dissent.