Was Idaho's lower wine excise tax on Idaho-produced wine constitutional, and could distributors of out-of-state wine get a refund?

Subject

Opinion 86-14: Higher tax on wines produced outside the state of Idaho is unconstitutional.

Plain-English summary

The Tax Commission asked Attorney General Jim Jones whether Idaho Code § 23-1319, which taxed Idaho-produced wine at 20 cents per gallon and out-of-state wine at 45 cents, could survive constitutional review. The opinion withdrew an earlier 1984 legal guideline that had blessed the differential and substituted a new conclusion: under the U.S. Supreme Court's 1984 decision in Bacchus Imports, Ltd. v. Dias, the differential rate violated the Commerce Clause. The AG's analysis was direct: the 1984 amendment to § 23-1319 was openly intended to aid the Idaho wine industry, and Bacchus had struck down a substantively identical Hawaii preference for the same protectionist purpose. The Twenty-first Amendment did not save the statute, because the discrimination targeted economic protectionism rather than the temperance concerns the amendment was meant to protect.

On the refund question, the opinion concluded that distributors who paid the higher 45-cent rate could claim refunds under the procedure built into § 23-1319(c) and (d), which had been added by the 1986 legislature. Subsection (c) directed the Tax Commission to credit or refund any tax "erroneously or illegally collected." Subsection (d) imposed a three-year limit on refund claims. A 1971 severance clause meant that even if the differential portion of the statute was struck down, the refund procedure would survive. So distributors had a clear administrative path to recover the excess tax, provided they filed within three years of payment.

Currency note

This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Idaho's wine tax framework has been amended repeatedly since 1986, and the differential structure was eventually replaced. Anyone facing an alcoholic beverage tax dispute should look to the current text of Title 23 and the Tax Commission's current rules, not to the 1986 statutory citations in this opinion.

What the opinion meant for the parties at the time

For wine distributors in 1986, the opinion was the green light to file refund claims for the difference between the 45-cent rate they had been paying and the 20-cent rate that applied to Idaho-produced wine. The refund had to be requested through the Tax Commission's administrative process under § 23-1319(c), and the three-year window in subsection (d) ran from the date each tax payment was made, so distributors with older payments needed to act quickly to avoid losing claims.

For the Idaho Department of Revenue and Taxation, the opinion meant the differential tax was no longer enforceable against out-of-state wine. The Commission had to either stop collecting the higher rate or expect the courts to strike it down on a refund challenge. The opinion noted that the legislature could still impose a uniform tax on all wine sold in Idaho, since the constitutional defect was the discrimination, not the tax itself.

For Idaho's wine producers, the opinion eliminated the protective tax preference the 1984 legislature had built for them. They were now competing with out-of-state wineries on tax-equal terms, with whatever marketing or shipping advantages each side actually held.

Common questions

Why was the lower in-state tax considered unconstitutional?
Because the U.S. Supreme Court in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), had ruled that a state cannot use its tax code to favor local industry over out-of-state competitors. The Commerce Clause prohibits states from imposing taxes that discriminate against interstate commerce. The Idaho legislature's stated reason for enacting the differential, in 1984 committee minutes, was to encourage Idaho wine production. That openly protectionist motive was exactly what Bacchus had condemned.

Did the Twenty-first Amendment save the discrimination?
No. The opinion noted that the Twenty-first Amendment lets states regulate alcohol, including for temperance purposes, but does not give them a free pass to enact "mere economic protectionism" dressed up as alcohol regulation. The Idaho preference was openly aimed at industry support, not at the perceived evils of liquor traffic, so the amendment provided no shelter.

How would a wine distributor have claimed a refund?
By filing a claim with the Tax Commission under Idaho Code § 23-1319(c). The Commission was authorized to set the overpayment off against any current tax liability and refund the balance. The State Board of Tax Appeals could also order refunds. The three-year clock in subsection (d) ran from the date of payment, so claims for older payments had to be filed promptly.

What about distributors who had not paid under protest?
The opinion noted that ordinarily, a state is not required to refund taxes collected under a statute later found illegal unless the taxpayer paid under protest. But the 1986 amendment to § 23-1319 effectively overrode that rule for wine excise tax. The refund mechanism applied to all "erroneously or illegally collected" tax, regardless of whether the distributor had filed a protest at the time of payment.

Did this opinion strike down the entire wine excise tax?
No. The opinion was careful to note that the 1971 enactment of § 23-1319 included a severance clause, so striking the discriminatory portion would not invalidate the rest of the statute, including the 20-cent uniform component and the refund procedure. The legislature was free to set a single tax rate going forward.

Background and statutory framework

Before 1984, § 23-1319 imposed a single excise tax on all wine sold in Idaho. The 1984 legislature amended the statute to create a 20-cent rate for in-state wine and a 45-cent rate for out-of-state wine. House Revenue and Taxation Committee minutes from February 21 and March 2 and 23, 1984 documented that the change was intended to help Idaho wineries grow.

In a March 21, 1984 legal guideline, the AG's office had concluded the differential survived constitutional review, relying on the Hawaii Supreme Court's 1982 decision in Matter of Bacchus Imports, Ltd. upholding a similar Hawaii preference. The U.S. Supreme Court reversed that Hawaii decision in 1984 in Bacchus Imports, Ltd. v. Dias, holding that the preference violated the Commerce Clause regardless of whether the state's stated intent was to help local industry rather than penalize importers.

The 1986 Idaho legislature amended § 23-1319 to add subsections (c) and (d), creating an administrative refund procedure. Together with the 1971 severance clause, these provisions gave the Tax Commission a clear path to refund excess tax without invalidating the underlying excise.

The opinion drew on the broader Commerce Clause cases of the period: Boston Stock Exchange v. State Tax Commission (1977) and Northwestern States Portland Cement Co. v. Minnesota (1959), both for the principle that a state cannot favor local business over out-of-state competitors through its tax code. It also cited the Ninth Circuit's Stein Distributing Co. v. Dept. of Treasury (1986) as a contemporaneous federal application of Bacchus.

Citations

• Idaho Code § 23-1319 (subsection (c) and (d) refund procedure as amended in 1986)
• Idaho Code § 63-3049
• 1971 Idaho Sess. Laws, Ch. 156 (severance clause)
• 1984 Idaho Sess. Laws, Ch. 283 (creation of differential rate)
• 1986 Idaho Sess. Laws, Ch. 73 (administrative refund procedure)
• U.S. Const. art. I, § 8 (Commerce Clause)
• U.S. Const. amend. XXI
• Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984)
• Boston Stock Exchange v. State Tax Commission, 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977)
• Stein Distributing Co. v. Dept. of Treasury, Bureau of Alcohol, Tobacco and Firearms, 779 F.2d 1407 (9th Cir. 1986)
• Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959)

Source

• Landing page: https://www.ag.idaho.gov/office-resources/opinions/
• Original PDF: https://ag.idaho.gov/content/uploads/2018/04/OP86-14.pdf

Original opinion text

STATE OF IDAHO
OFFICE OF THE ATTORNEY GENERAL

JIM JONES
ATTORNEY GENERAL

BOISE 83720

TELEPHONE
(208) 334-2400

ATTORNEY GENERAL OPINION NO. 86-14

TO: Larry G. Looney
Chairman
Idaho Department of Revenue and Taxation
700 West State Street, P.O. Box 36
Boise, Idaho 83720
STATEHOUSE MAIL

Per Request for Attorney General's Opinion

QUESTIONS PRESENTED:

1. Under Idaho Code § 23-1319, wine produced in Idaho is taxed $.20 per gallon, whereas wine produced out of state, but sold in Idaho, is taxed $.45 per gallon. Is this tax preference constitutional?

2. If the preference provided by Idaho Code § 23-1319 is unconstitutional, must the state refund those taxes in excess of $.20 per gallon, paid by distributors of non-Idaho produced wine?

CONCLUSION:

1. The legal guideline issued by our office on March 21, 1984, is withdrawn and this opinion substituted therefor. Based upon the U.S. Supreme Court decision in Bacchus Imports Ltd., et al. v. Dias, 468 U.S. 263, 82 L.Ed. 2d 200, 104 S.Ct. 3049 (1984), we now conclude that § 23-1319 is unconstitutional as a violation of the commerce clause of the U.S. Constitution.

2. Because § 23-1319 is unconstitutional, distributors of non-Idaho produced wine are entitled to a refund for those taxes paid in excess of $.20 per gallon, provided they comply with the procedure and time limit set forth in § 23-1319(c) and (d) in making a refund claim.

ANALYSIS:

Originally, § 23-1319 applied a single tax on all wine sold or produced for use in the state of Idaho. 1971 Idaho Sess. Laws, Ch. 156, p.767. However, in 1984, that section was amended to create the differential tax between Idaho and non-Idaho produced wines:

Upon all wines sold by a distributor or winery to a retailer or consumer for use within the state of Idaho pursuant to this act there is hereby imposed an excise tax of forty-five cents (45¢) per gallon on all wines produced outside the state of Idaho, and there is hereby imposed an excise tax of twenty cents (20¢) per gallon on all wines produced inside the state of Idaho.

1984 Idaho Session Laws, Ch. 283, pp. 656-657.

On March 21, 1984, this office issued a legal guideline which construed the differential tax as constitutional. Our analysis in that guideline was based largely on the Hawaii Supreme Court's decision in Matter of Bacchus Imports, Ltd., 565 P.2d 724 (1982). In that case, the state of Hawaii had imposed a substantially similar tax at wholesale on all alcoholic beverages with specific exemptions provided for certain locally produced products. The purpose of the exemption was to encourage development of the Hawaiian liquor industry.

The Hawaii Supreme Court held that the challenged exemption was a rational means to a legitimate state purpose and thus did not violate the equal protection clause. The court further held that the statutory exemption for Hawaiian products had not been applied selectively to discourage imports or to threaten the federal treasury and thus did not violate the import-export clause. Finally, the court held that the selective tax did not violate the commerce clause because it did not discriminate against interstate commerce and was fairly related to services provided by the state.

In Bacchus Imports, Ltd., et al. v. Dias, 468 U.S. 263, 82 L.Ed.2d 200, 104 S.Ct. 3049 (1984), the U.S. Supreme Court overturned the decision of the Hawaii Supreme Court and ruled that the differential liquor tax was clearly discriminatory and thus was unconstitutional as a violation of the commerce clause.

The Court affirmed that although a state can encourage the development of domestic industry, it cannot tax interstate transactions or take other discriminatory action which favors local business over out-of-state business. Bacchus Imports, Ltd., 82 L.Ed.2d at 209. See also, Boston Stock Exchange v. State Tax Commission, 429 U.S. 318, 50 L.Ed.2d 514, 97 S.Ct. 599 (1977); and Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 3 L.Ed.2d 421, 79 S.Ct. 357 (1959). The Court found irrelevant the assertion by Hawaii that its intent was to aid local businesses rather than harm out-of-state producers. Id. at 211.

Hawaii raised the additional argument that even if the exemption violated the commerce clause, the twenty-first amendment to the United States Constitution saved it. Hawaii relied on section 2 of the amendment which reads: "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."

The Supreme Court indicated that, under the twenty-first amendment, a state may be properly concerned with matters such as temperance. However, state laws which 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." Id. at 212. The purpose of the Hawaii statute was clear and that was to aid local business. Such a purpose, the Court ruled, was a clear violation of the commerce clause and no real concern of the twenty-first amendment.

As a result, the statute was declared unconstitutional. See also, Stein Distributing Co. v. Dept. of Treasury, Bureau of Alcohol, Tobacco and Firearms, 779 F.2d 1407 (9th Cir. 1986).

If challenged in court, § 23-1319 likely would be declared unconstitutional for substantially the same reasons. When § 23-1319 was amended, the purpose was quite clear. Preferential treatment was given in order to aid the growth and development of the Idaho wine industry. Idaho House of Representatives, Revenue and Taxation Committee, minutes, February 21, March 2 and 23, 1984. Under Bacchus Imports, Ltd., such a preference would be found to violate the commerce clause. Furthermore, no claim can be made that the preference was enacted to combat the perceived evils of alcohol pursuant to the twenty-first amendment since the express purpose was to aid the Idaho wine industry.

Your second question concerns any remedy which might be imposed as the result of the unconstitutionality of the preferential tax. Whether refund is the proper remedy for an unconstitutional tax is left largely up to state law. In Bacchus Imports, Ltd., the U.S. Supreme Court remanded to the state court, but in footnote 14 pointed out that state law might mandate a full refund given an unconstitutional tax. In our case, Idaho Code § 23-1319 does mandate a refund for taxes illegally collected.

In 1986, Idaho Code § 23-1319 was amended to provide for an administrative refund procedure. 1986 Idaho Sess. Laws, ch. 73, p.201. Subsections (c) and (d) of § 23-1319 now read:

(c) If the tax commission determines that any amount due under this chapter has been paid more than once or has been erroneously or illegally collected or computed, the commission shall set forth that fact in its records and the excess amount paid or collected may be credited on any amount then due and payable to the commission from that person and any balance refunded to the person by whom it was paid or to his successors, administrators or executors. The commission is authorized and the state board of tax appeals is authorized to order the commission in proper cases to credit or refund such amounts whether or not the payments have been made under protest and certify the refund to the state board of examiners.

(d) No credit or refund shall be allowed or made after three (3) years from the time the payment was made, unless before the expiration of that period a claim is filed by the taxpayer. The three (3) year period allowed by this subsection for making refunds or credit claims shall not apply in cases where the tax commission asserts a deficiency of tax imposed by law, and taxpayers desiring to appeal or otherwise seek a refund of amounts paid in obedience to deficiencies must do so within the time limits elsewhere prescribed by law.

This statutory procedure effectively negates the general rule of law that a state is not required to refund taxes paid under a tax later found to be illegal unless the taxpayer paid the taxes under protest. Thus, any tax paid by distributors which is illegal would be subject to refund pursuant to the procedure and time limits set forth in § 23-1319(c) and (d).

It should also be noted that the refund provisions would not be invalidated if the tax preference portion of the statute is held unconstitutional. The severance clause contained in the original enactment, 1971 Idaho Sess. Laws, Ch. 156, will allow the remainder of the statute, including the refund procedure, to stand.

AUTHORITIES CONSIDERED:

Constitutions
Article 8, § 8, United States Constitution
Twenty-first amendment, United States Constitution

Idaho Statutes
Idaho Code § 23-1319
Idaho Code § 63-3049
Chapter 73, 1986 Idaho Sess. Laws
Chapter 156, 1971 Idaho Sess. Laws

Cases
Bacchus Imports Ltd., et al. v. Dias, 468 U.S. 263, 82 L.Ed. 2d 200, 104 S.Ct. 3049 (1984)
Boston Stock Exchange v. State Tax Commission, 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed. 2d 514 (1977)
Stein Distributing Co. v. Dept. of Treasury, Bureau of Alcohol, Tobacco and Firearms, 779 F.2d 1407 (9th Cir. 1986)
Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 3 L.Ed.2d 421, 79 S.Ct. 357 (1959)

DATED this 11th day of December, 1986.

JIM JONES
Attorney General
State of Idaho

Analysis by:
DANIEL G. CHADWICK
Deputy Attorney General
Intergovernmental Affairs

cc:
Idaho Supreme Court
Supreme Court Library
Idaho State Library