Incident to South Carolina's valid scheme of regulating the sale
of liquor within the State, a requirement that a manufacturer do
more, as a condition of doing business, than merely solicit sales
is not impermissible even though it has the effect of requiring the
out-of-state manufacturer to undertake activities that eliminate
its protection under 15 U.S.C. § 381(a) from the state income
tax. Pp.
409 U. S.
278-284.
257 S. C. 17, 183 S.D.2d 710, affirmed.
MARSHALL, J., delivered the opinion of the Court, in which
BURGER, C.J., and DOUGLAS, BRENNAN, WHITE, POWELL, and REHNQUIST,
JJ., joined. BLACKMUN, J., filed a statement concurring in the
result,
post, p.
409 U. S. 284.
STEWART, J., took no part in the consideration or decision of the
case.
Page 409 U. S. 276
MR. JUSTICE MARSHALL delivered the opinion of the Court.
In this case, we must determine whether South Carolina may tax
the income from local sales of Heublein's products, consistent with
the limitations on the State's power to tax imposed by 15 U.S.C.
§ 381(a). [
Footnote 1] The
South Carolina Tax Commission assessed Heublein, Inc., a
Connecticut corporation that produces alcoholic beverages, a total
of $21,549.50 in taxes on income derived from the sale of its goods
in South Carolina. [
Footnote 2]
After a hearing before the Tax Commission, Heublein paid the taxes
and brought suit to recover them. The Court of Common Pleas held
that § 381(a) protected Heublein from tax liability in South
Carolina. The Supreme Court of South Carolina reversed. 257 S.C.
17,
183 S.E.2d
710. We noted probable Jurisdiction, 405 U.S. 952 (1972), and
now affirm. We hold that Heublein's activities within South
Carolina exceed the minimum standards established in 15 U.S.C.
§ 381(a),
Page 409 U. S. 277
and that South Carolina may, pursuant to an otherwise valid
regulatory scheme, compel Heublein to undertake activities that
take it beyond the protection of 15 U.S.C. § 381(a).
I
During the years in question, Heublein had one employee in South
Carolina. He maintained an office in his home and a desk at the
warehouse of Ben Arnold Co., the local distributor of Heublein's
products. Heublein's representative briefed Ben Arnold's salesmen
on Heublein's products, and traveled throughout the State to liquor
retailers, telling them of the products and leaving promotional
literature with them. Ordinarily, the retailers sent orders
directly to Ben Arnold, but occasionally Heublein's representative
transmitted them. Ben Arnold, in turn, placed its orders with
Heublein's home office in Connecticut. Heublein then acknowledged
its acceptance of the orders and indicated to Ben Arnold when the
goods would be shipped. They were sent by common carrier consigned
to Heublein in care of its representative at the premises of Ben
Arnold.
This arrangement, which served none of Heublein's business
interests, was adopted to conform to the requirements of the South
Carolina Alcoholic Beverage Control Act. S.C.Code Ann. § 4-1
et seq. (1962 and Supp. 1971). Under that Act, only
registered producers of registered brands of alcoholic beverages
may ship those brands of alcoholic beverages into the State.
§§ 4-134, 4-135. Such producers must have a resident
representative who has no direct or indirect interest in a local
liquor business. §§ 4-131(3), 4-139. Shipments of liquor
into the State may be made only to the producer in care of its
representative. § 4-141. Prior to the shipment, the producer
must mail a copy of the invoice showing the quantity and price of
the items shipped, and a copy of the bill of lading, to the
Alcoholic Beverage Control
Page 409 U. S. 278
Commission. Immediately after accepting delivery, the
representative must furnish the Commission a copy of the invoice
showing the time and place of delivery.
Ibid. When
received, the shipment must be stored in a licensed warehouse of
the producer, or, after delivery is complete, the shipment may be
transferred to a licensed wholesaler. §§ 4-140, 4-141.
Before the goods are shipped to a wholesaler, however, the
representative must obtain the Commission's permission to make the
transfer. § 4-141. Heublein complied with this regulatory
scheme.
II
Title 15 U.S.C. § 381(a)(1), on which Heublein relies,
provides that no State shall have power to impose a net income tax
on income derived within the State from interstate commerce if the
recipient of the income confined its business within the State
to
"the solicitation of orders . . . in such State for sales of
tangible personal property, which orders are sent outside the State
for approval or rejection, and, if approved, are filled by shipment
or delivery from a point outside the State."
We need not decide whether, as the State urges, the actions of
Heublein's representative in maintaining a local office, meeting
with retailers, distributing promotional literature, and personally
delivering some orders to the wholesaler, do not fall within the
term "solicitation."
Compare Smith Kline & French v. Tax
Comm'n, 241 Ore. 50,
403 P.2d
375 (1965),
with Clairol, Inc. v. Kingsley, 109
N.J.Super. 22,
262 A.2d 213,
aff'd, 57 N.J. 199,
270 A.2d
702 (1970),
appeal dismissed, 402 U.S. 902 (1971). For
here Heublein has done more than just those acts. It sent its
products to its local representative, who transferred them to a
local wholesaler. This transfer occurred within the State, and
clearly was neither "solicitation" nor the filling of
Page 409 U. S. 279
orders "by shipment or delivery from a point outside the State"
within the meaning of § 381(a)(1).
Heublein contends, however, that the transfer never would have
occurred had not South Carolina required it as a condition of
conducting business within the State. Heublein argues that a State
may not evade the purpose of § 381(a) by requiring a firm to
do more than solicit business within the State and then taxing the
firm for engaging in this compelled additional activity.
If we were persuaded that South Carolina has evaded the intent
of the statute, we would, of course, be reluctant to uphold its
actions. But that is not what South Carolina has done here. The
legislative history of § 381 shows that Congress had rather
limited purposes which are not evaded by South Carolina's
regulation of liquor sales in the manner it has chosen. Congress
did not focus on the consequences of its actions for such local
regulatory schemes. We therefore will not read the statute as
prohibiting the States from adopting such schemes, even when the
regulation requires the producer to have more than the minimum
contacts with the State for which § 381 provides tax immunity.
Such a reading would require us to assume that Congress carefully
considered the difficult problems of accommodating the federal
interest in an open national economy with local interest in
regulating the sale of liquor. The evidence is clear that Congress
did not do so.
The impetus behind the enactment of § 381 was this Court's
opinion in
Northwestern States Portland Cement Co. v.
Minnesota, 358 U. S. 450
(1959). There, we held that
"net income from the interstate operations of a foreign
corporation may be subjected to state taxation provided the levy is
not discriminatory and is properly apportioned to local activities
within the taxing State forming sufficient nexus to support the
same."
358 U.S. at
358 U. S. 452.
Congress promptly responded to the "considerable
Page 409 U. S. 280
concern and uncertainty" [
Footnote 3] and the "serious apprehension in the
commercial community" [
Footnote
4] generated by this decision by enacting Pub.L. 8272, 73 Stat.
555, 15 U.S.C. § 381, within seven months.
In this statute, Congress attempted to allay the apprehension of
businessmen that "mere solicitation" would subject them to state
taxation. Such apprehension arose because, as businessmen who
sought relief from Congress viewed the situation,
Northwestern
States Portland Cement did not adequately specify what local
activities were enough to create a "sufficient nexus" for the
exercise of the State's power to tax. [
Footnote 5] Section 381 was designed to define clearly a
lower limit for the exercise of that power. Clarity that would
remove uncertainty was Congress' primary goal. By establishing such
a limit, Congress did, of course, implicitly determine that the
State's interest in taxing business activities below that limit was
weaker than the national interest in promoting an open economy. But
it did not address the questions raised by a requirement, incident
to a valid regulatory scheme, that a business undertake activities
above the limit as a condition of doing business within the State.
[
Footnote 6]
Page 409 U. S. 281
Congress recognized, instead, that the accommodation of local
and national interests in this area was a delicate matter. The
committees reporting the bill to the House and Senate emphasized
the difficulty of devising appropriate limitations on state taxing
powers. Both Committees called their bills temporary solutions to
meet only the most pressing problems created by
Northwestern
States Portland Cement. [
Footnote 7] More comprehensive legislation could only
follow careful study, in the Committees' view. Congress agreed,
and, in Title II of Pub.L. 8272, provided that the Committee on the
Judiciary of the House of Representatives and the Committee on
Finance of the Senate study the entire problem of state taxation of
interstate commerce. [
Footnote
8]
Congress, then, did not address in § 381 the problem of
taxing a business when it undertook local activities simply in
order to comply with the requirements of a valid regulatory scheme.
Such regulation is an important function of local governments in
our federal scheme. As we said last Term, "unless Congress conveys
its purpose
Page 409 U. S. 282
clearly, it will not be deemed to have significantly changed the
Federal-State balance."
United States v. Bass,
404 U. S. 336,
404 U. S. 349
(1971).
Congress, of course, did not enact in § 381 a statute which
a State can deliberately evade by requiring a firm to undertake
more than mere solicitation. When a State enacts a regulatory
scheme that serves legitimate State purposes other than assuring
that the State may tax the firm's income, it is not evading §
381; it is pursuing permissible ends in a manner that Congress did
not address. Thus, if South Carolina's system of regulating the
sale of liquor is valid, § 381 does not prohibit taxation of
Heublein's local sales. [
Footnote
9]
III
South Carolina's Alcoholic Beverage Control Act is a long and
detailed statute. Requirements that certain records be kept by the
manufacturer, the wholesaler, and the retailer pervade the scheme.
There must be complete records of the quantities, brands, and
prices involved at every stage of each liquor sale. By requiring
manufacturers to localize their sales, South Carolina establishes a
check on the accuracy of these records. For
Page 409 U. S. 283
example, when a manufacturer can transfer its goods to a
wholesaler in the State only after it submits an invoice showing
the price and after it receives permission for the transfer, it is
easier for the State to enforce its requirement that the wholesale
price in South Carolina be no higher than that elsewhere in the
country. S.C.Code Ann. § 4-137.1 (Supp. 1971). The requirement
that sales be localized is, unquestionably, reasonably related to
the State's purposes, and is not simply an attempt by the State to
provide a basis for the taxation of an out-of-state seller's local
sales.
Nor does this requirement violate the Commerce Clause. The
Twenty-first Amendment, § 2, provides that
"[t]he transportation or importation into any State . . . for
delivery or use therein of intoxicating liquors, in violation of
the laws thereof, is hereby prohibited."
As this Court said in
Hostetter v. Idlewild Bon Voyage
Liquor Corp., 377 U. S. 324,
377 U. S. 330
(1964):
"This Court made clear in the early years following the adoption
of the Twenty-first Amendment that, by virtue of its provisions, a
State is totally unconfined by traditional Commerce Clause
limitations when it restricts the importation of intoxicants
destined for use, distribution, or consumption within its
borders."
The requirement that, before engaging in the liquor business in
South Carolina, a manufacturer do more than merely solicit sales
there is an appropriate element in the State's system of regulating
the sale of liquor. [
Footnote
10]
Page 409 U. S. 284
The regulation in question here is therefore valid, and §
381(a) does not apply. The judgment of the Supreme Court of South
Carolina is
Affirmed.
MR. JUSTICE STEWART took no part in the consideration or
decision of this case.
MR. JUSTICE BLACKMUN, being of the opinion that the Twenty-first
Amendment provides the sole authority for what South Carolina has
required of Heublein by its Alcoholic Beverage Control Act and, to
that extent, overrides what otherwise would be proscribed by 15
U.S.C. § 381, concurs in the result.
[
Footnote 1]
Title 15 U.S.C. § 381(a) provides in pertinent part:
"No State . . . shall have power to impose . . . a net income
tax on the income derived within such State by any person from
interstate commerce if the only business activities within such
State by or on behalf of such person . . . are either, or both, of
the following: "
"(1) the solicitation of orders by such person, or his
representative, in such State for sales of tangible personal
property, which orders are sent outside the State for approval or
rejection, and, if approved, are filled by shipment or delivery
from a point outside the State; and"
"(2) the solicitation of orders by such person, or his
representative, in such State in the name of or for the benefit of
a prospective customer of such person, if orders by such customer
to such person to enable such customer to fill orders resulting
from such solicitation are orders described in paragraph (1)."
[
Footnote 2]
A license tax, which is predicated upon liability for income
taxes, was also assessed and paid. S.C.Code Ann. § 65-606
(1962). There is no dispute over the amount for which Heublein is
liable under this statute.
[
Footnote 3]
S.Rep. No. 658, 86th Cong., 1st Sess., 2.
[
Footnote 4]
H.R.Rep. No. 936, 86th Cong., 1st Sess., 1.
[
Footnote 5]
See, e.g., S.Rep. No. 658,
supra, n 3, pp. 2-3:
"Persons engaged in interstate commerce are in doubt as to the
amount of local activities within a State that will be regarded as
forming a sufficient 'nexus,' that is, connection, with the State
to support the imposition of a tax on net income from interstate
operations and 'properly apportioned' to the State."
[
Footnote 6]
That Congress was untroubled by those questions is suggested by
its emphasis on the increased overhead and recordkeeping that local
taxation of minimal activities would cause.
See, e.g., id.
at 4; H.R.Rep. No. 936,
supra, n 4, p. 2:
"These businesses are concerned not only with the costs of
taxation, but also with the inescapable fact that compliance with
the diverse tax laws of every jurisdiction in which income is
produced will require the maintenance of records for each
jurisdiction and the retention of legal counsel and accountants who
are familiar with the tax practice of each jurisdiction."
Where a valid regulatory scheme requires that records be kept,
the overhead costs about which Congress was concerned might not
rise substantially when a state income tax was imposed. South
Carolina's scheme for regulating liquor does little more than
require that Heublein keep certain records.
[
Footnote 7]
H.R.Rep. No. 936,
supra, n 4, p. 2; S.Rep. No. 658,
supra, n 3, pp. 4-5:
"Your committee recognizes that the bill it has reported is not
a permanent solution to the problem that exists. It was not
intended to be. Your committee . . . recognizes that the problem is
a complex one which requires extensive and exhaustive study in
arriving at a permanent solution fair alike to the States and to
the Nation. Your committee believes, however, that the bill it has
reported will serve as an effective stop-gap or temporary solution
while further studies are made of the problem."
[
Footnote 8]
This report is published as H.R.Rep. No. 1480, 88th Cong., 2d
Sess., H.R.Rep. No. 565, 89th Cong., 1st Sess., and H.R.Rep. No.
952, 89th Cong., 1st Sess.
[
Footnote 9]
MR. JUSTICE BLACKMUN, in his separate statement, suggests that
§ 381 does proscribe what South Carolina has done here, but
that the Twenty-first Amendment prohibits such an action by
Congress. In his view, to the extent that § 381 prohibits
taxing activities undertaken in order to comply with a regulation
valid under the Twenty-first Amendment, it is unconstitutional. We
prefer to read the statute and its legislative history, ambiguous
though they may be, to avoid such a holding.
Cf. United State
v. Jin Fuey Moy, 241 U. S. 394,
241 U. S. 401
(1916). And, though the relation between the Twenty-first Amendment
and the force of the Commerce Clause in the absence of
congressional action has occasionally been explored by this Court,
we have never squarely determined how that Amendment affects
Congress' power under the Commerce Clause.
Cf. Schwegmann Bros.
v. Calvert Distillers Corp., 341 U. S. 384
(1951).
[
Footnote 10]
In upholding a comprehensive scheme of liquor regulation rather
similar to South Carolina's, this Court said:
"[The State] has seen fit to permit manufacture of whiskey only
upon condition that it be sold to an indicated class of customers
and transported in definitely specified ways. These conditions are
not unreasonable, and are clearly appropriate for effectuating the
policy of limiting traffic in order to minimize well-known evils. .
. ."
Ziffrin, Inc. v. Reeves, 308 U.
S. 132,
308 U. S. 139
(1939).
Cf. Duckworth v. Arkansas, 314 U.
S. 390 (1941);
Carter v. Virginia, 321 U.
S. 131 (1944).