Case Information

*1 The Attorney General of Texas November 23, 1983 JIM MATTOX

Attorney General Mr. W. S. McBeath Opinion No. JM-g6

Supreme Court Building Administrator P. 0. Box 12546 Austin. TX. 76711.2546 Texas Alcoholic Beverage Commission Re: Whether the decision in 5121475-2501 P. 0. Box 13127, Capitol Station United States v. State of Texas, Telex 9101674-1367 Austin, Texas 78711 695 F.2d 136 (5th Cir. 1983) Telecopier 512/475-0266 prohibits application of

gallonage tax to sales by Texas 714 Jackson, Suite 700 wholesalers to military instal- Dallas, TX. 75202.4506 lations 2141742-6944

Dear Mr. McBeath: 4624 Alberta Ave., Suite 160 El Paso, TX. 79905.2793

You have requested an Attorney General Opinion on the status of 9151533.3464 the $2.00 gallonage tax imposed by sections 201.02 and 201.03 of the

Texas Alcoholic Beverage Code. In your request, you asked for guidance in administering this tax j.n light of the recent denial of -01 Texas. Suite 700 petitions for writ of certiorari in United States V. State of Texas, Weston, TX. 77002.3111 Gal. 695 F.2d 136 (5th Cir. 1983). Your question is essentially as 7131223.5666 follows: 606 Broadway, Suite 312 Has the decision of the Court of Appeals for Lubbock. TX. 79401.3479 the Fifth Circuit as a matter of law effectively 6061747.5236 created an exclusion from the Texas Gallonage Tax on sales made by Texas Wholesalers for facilities 4309 N. Tenth. Suite B operating on military installations? McAllen, TX. 76501-1665 5121662.4547 The United States Court of Appeals focused its analysis in United -.. States V. State of Texas on the Supremacy Clause of the United States 200 Main Plaza, Suite 400 Co"stitutio". The court stated that the Supremacy Clause is San Antonio, TX. 76205.2797 implicated only where the United States Congress exercises a granted 5121225-4191 power. The Court went on to state that in those instances the federal

law will preempt the operation of any corresponding state legislation where there is an actual conflj.ct between the state and federal An Equal Opportunity/ Affirmative Action Employer legislation.

In determining whether or n~ot the Texas Alcoholic Beverage Commission's enforcement of the "three tiers" (manufacturing tier, wholesaler tier, and retailer tier) regulatory scheme outlined in the Texas Alcoholic Beverage Code conflicted with the Department of Defense's alcoholic procurement regulation, the Court of Appeals employed a two stage analysis. The first step questioned whether the *2 Department of Defense's alcohol procurement regulation was within the exclusive domain of the Federal Government. The Court observed that if it did determine that United States v. State of Texas involved purely a federal concern, then the Supremacy Clause would preempt "all state regulation that would vitiate the impact or intent of the federal regulatory scheme." The Court's second step addressed a conflict between a state and the federal government where Congress did not exercise plenary power. In this situation, the Court pointed to a traditional analysis that required balancing of federal and state law.

The Court cited Castlewood International Corporation v. Simon, 596 F.2d 638 (5th Cir. 1979), cert. granted, 446 U.S. 949, judgmt vacated and remanded, 626 F.2d 1200 (5th Cir. 1980) as an example of a Twenty-first Amendment case that involved the traditional analysis requiring balancing of federal and state law. In Castlewood, the Court said there was no zone of exclusive federal authority and under the balancing process of the two step analysis the Court found no federal interest of sufficient magnitude to tip the balance against the state legislation.

The Court distinguished United States v. State of Texas from the Castlewood type of Twenty-first Amendment case by categorizing United State s v. State of Texas-within a class of cases ihat included Colliru v. Yosemite PLL ~~ ark and Currv Company, 304 U.S. 518, (1938); Unitec States v. Tax Commission of ~~~~~ Mississippi, 412 U.S. 363, (1973); ,f Mississippi, 421 U.S. 599, (1975) United States v. Tax Commission c analysis, these cases belonged ("Tax Commission II"). By the Court's to the category of cases where the Federal Government occupies a zone of exclusive authority. The Court in the second Tax Commission of Mississippi case held that the Twenty-first Amendment conferred

no power on a State to regulate - whether by 11ce*s1*g, taxation, or otherwise - the importation of distilled spirits into territory over which the United States exercises exclusive jurisdiction.

This construction is buttressed by court's language in United States V. Texas:

the state may not, in any manner, regulate the distribution or consumption of alcoholic beverages on a federal enclave in the absence of an agreement between it and the federal govern- ment . . .

Id.. at 137, n. 1.

Mr. W. S. McBeath - Page 3 (~~-96)

Citing Yosemite Park and Tax Commission of Mississippi cases, the Court declared that the Federal Government as a sovereign, absent voluntary relinquishment, exercises exclusive jurisdiction over federal enclaves such as United States Armed Forces facilities and that regulation in these enclaves is an incident of sovereignty.

The Court applied its exclusive zone of federal jurisdiction theory in United States v. State of Texas and decided that the subject matter of United States v. State of Texas is within the exclusive domain of the Federal Government. Therefore, the Court reasoned that the Supremacy Clause of the United States Constitution preempts all state regulation that would "vitiate the impact or intent of the federal regulatory scheme."

The "federal regulatory scheme" in question in United States v. State of Texas is the Department of Defense's alcohol procurement regulation 32 C.F.R. section 261.4(c). The intent of that Department of Defense regulation is to insure the purchase of alcoholic beverages by the United States Armed Forces "in such a manner and under such conditions as shall obtain for the Government the most advantageous contract, price, and other factors considered." The Court's decision in United States V. State of Texas holds that this Department of Defense regulation preempts any state law which would prevent the United States Armed Forces' facilities from obtaining for the Federal Government "the most advantageous contract, price, and other factors considered." Under the Court’s in United States v. State of Texas reasoning

(especially given its reliance on the Tax Cormnission of Mississippi cases) the $2.00 gallonage tax imposed by the Texas Alcoholic Beverage Code would be an invalid exercise of state regulation-by-taxation on the importation of distilled spirits into territory over which the United States exercises exclusive jurisdiction. Furthermore, under United States v. State of Texas, the Department of Defense's alcohol procurement regulation controlling the purchase of alcoholic beverages for resale on military installations preempts any state law which would prevent the United States Armed Forces from obtaining for the Federal Government "the most advantageous contract, price, and other factors considered." The imposition of the $2.00 gallonage tax arguably prevents the United States Armed Forces from obtaining for the Federal Government "the most advantageous contract, price, and other factors considered." Therefore, it is our opinion that the $2.00 gallonage tax of sections 201.02 and 201.03 of the Texas Alcoholic Beverage Code cannot be imposed on sales of distilled spirits between Texas wholesalers and military installations of the United States Armed Forces located in Texas.

SUMMARY The decision in United States v. State of Texas, 695 F.2d 135 (5th Cir. 1983) prohibits imposition of the $2.00 gallonage tax provided by sections 201.02 and 201.03 of the Texas Alcoholic Beverage Code on sales of distilled spirits by Texas wholesalers to military installations located in Texas.

Attorney General of Texas TOM GREEN

First Assistant Attorney General

DAVID R. RICHARDS

Executive Assistant Attorney General

Prepared by Charles A. Gruber

Assistant Attorney General

APPROVED:

OPINION COMMITTEE

Rick Gilpin, Chairman

Jon Bible

Colin Carl

Susan Garrison

Charles Gruber

Jim Moellinger

Nancy Sutton