McNutt v. US Department of Justice, recently decided by a panel of the Fifth Circuit, holds that a federal law imposing fines on home distilleries is beyond the federal taxing power. From Judge Edith Jones’ opinion for the panel:
For more than 150 years, Congress has prohibited home distilleries as an adjunct to the law establishing a federal excise tax on distilled spirits. See Act of July 20, 1868, ch. 186, §§ 1–109, 15 Stat. 125, 125–168 (imposing excise taxes on distilled spirits and tobacco). In December 2023, a non-profit organization and several of its members challenged the law as unconstitutional.
1 The district court agreed with them. We concur that, while venerable, the statute violates the Constitution’s Taxation and
Necessary and Proper clauses. U.S. Const. art. I, § 8, cls. 1, 18.
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In 1868, a bill was enacted that generally imposed excise taxes on distilled spirits and tobacco. See Act of July 20, 1868, ch. 186, §§ 1–109, 15 Stat. 125, 125–168. Section 12 of the act did more than impose taxes; it prevented a person from using “any still, boiler, or other vessel for purpose of distilling” when the still was located, among other places, “in any dwelling-house” or “in any shed, yard, or enclosure connected with any dwelling-house.” § 12, 15 Stat. at 130. Any violator could be fined and imprisoned. Id.
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Among Congress’s enumerated powers is its authority to “lay and collect Taxes . . . to pay the Debts and provide for the common Defence and general Welfare of the United States.” U.S. Const. art. I, § 8, cl. 1. The parties do not dispute that Congress may impose a tax on distilled spirits, which attaches “as soon as [the spirit] is in existence.” 26 U.S.C. § 5001(b). But Section 5178, quoted above, does not mention the tax or the means of its assessment. Instead, the provision prohibits the activity that would generate taxable spirits and, together with Section 5601, imposes criminal penalties. We return to fundamental principles to determine whether the taxation power extends to such a prohibition.
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[W]hile “a tax is not any the less a tax because it has a regulatory effect,” Sonzinsky, 300 U.S. at 513, 57 S. Ct. at 555–56, “Congress’s ability to use its taxing power to influence conduct is not without limits,” NFIB, 567 U.S. at 572, 132 S. Ct. at 2599. The Court emphasized in NFIB that “the power to tax is not the power to destroy while this Court sits.” Id. at 573, 132 S. Ct. at 2600 (internal quotations omitted). Consequently, “Congress’s authority under the taxing power is limited to requiring an individual to pay money into the Federal Treasury, no more.” Id. at 574, 132 S. Ct. at 2600 (emphasis added). In fact, “[i]f a tax is properly paid, the Government has no power to compel or punish individuals subject to it.” Id. (emphasis added). Or as the Court noted nearly a century ago, “[i]t is not contended that [the taxing] provision grants power to regulate agricultural production on the theory that such legislation would promote the general welfare.” Butler, 297 U.S. at 64, 56 S. Ct. at 318.
Section 5178(a)(1)(B) and Section 5601(a)(6) exceed these constitutional limits. Primarily, neither provision raises revenue. Not only do they prohibit at-home distilleries, but in so doing, they amount to an antirevenue provision that prevents distilled spirits from coming into existence. Cf. 26 U.S.C. § 5001(b) (taxation begins “as soon as [the spirit] is in existence”). The provisions operate to reduce revenue instead of raising it. This violates the Supreme Court’s explanation of how the federal power of taxation works: “[I]mposition of a tax nonetheless leaves an individual with a lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice.” NFIB, 567 U.S. at 574, 132 S. Ct. at 2600 (emphasis added). These plaintiffs have only the choice not to do as they wish or risk fines and imprisonment.
Sounds right to me, and in my view it illustrates a problem with reliance on “historical gloss” and similar formulations in constitutional interpretation. From early on, Congress was not necessarily inclined to respect constitutional limits on its powers. That Congress took an expansive view of its powers is not weighty evidence that the powers granted by the text were indeed expansive.
Via Ilya Somin at Volokh Conspiracy, who adds:
But I would not celebrate too much, just yet. Though this law is not authorized under the tax power or the Necessary and Proper Clause, it could pass muster under Congress’ power to regulate interstate commerce, which the Fifth Circuit did not consider, because the government chose not to argue this issue on appeal.
In Gonzales v. Raich (2005), the Supreme Court held that Congress’ power to “regulate commerce… among the several states” gives it the authority to forbid the possession and distribution of medical marijuana that had never crossed state lines or even been sold in any market within a state. I believe Raich is one of the Supreme Court’s worst-ever federalism decisions. I laid out the reasons why in a 2006 article written soon after the ruling came down. But the Supreme Court doesn’t seem inclined to overrule Raich, and indeed refused to hear a case that offered a good opportunity to reconsider it, just a few months ago.
Raich held that the Commerce Clause gives Congress almost unlimited power to regulate any “economic activity” defined as any activity involving the “production, distribution, and consumption of commodities.” Alcoholic beverages are pretty obviously commodities, and home distilling involves their production and distribution.
Thus, if the federal government is so inclined, it could potentially try to continue to enforce this law and – if challenged again – defend it under the Commerce Clause. When and if that happens, I hope the Supreme Court will take the opportunity to overrule or at least limit Raich. But I am not optimistic it will happen, at least not in the near future.
Agreed, although I think Raich is distinguishable: There is no federal law generally banning interstate commerce in distilled spirits, so regulation of local production is not incidental to a broader interstate ban (as it was, or at least was held to be, in Raich).
Posted at 6:03 AM