## Facts

- Hawaii imposed a 20% excise tax on wholesale liquor sales.
- The legislature exempted two categories of locally produced beverages: (1) ʻokolehao and (2) fruit wine manufactured in Hawaii.
- Liquor wholesalers selling largely out-of-state products collected and remitted the tax and sought refunds for taxes paid under protest.
- The wholesalers alleged the exemptions discriminated against interstate commerce by favoring local products.
- Hawaii defended the exemptions as intended to encourage development of the local liquor industry.
- The Hawaii Tax Appeal Court and the Hawaii Supreme Court rejected the challenge, reasoning the tax’s ultimate burden fell on in-state consumers.

## Issues

1. Whether wholesalers who pass the tax through to customers have standing to challenge the tax exemption scheme.
2. Whether exempting locally produced ʻokolehao and local fruit wine from a generally applicable wholesale liquor tax violates the Dormant Commerce Clause by discriminating against interstate commerce.
3. Whether the Twenty-First Amendment saves an otherwise discriminatory tax exemption for alcoholic beverages.

## Decision

- The Supreme Court reversed and remanded.
- The wholesalers had standing because they were legally liable for the tax and alleged competitive injury from the price differential created by the exemptions.
- The exemptions violated the Commerce Clause because they had the purpose and effect of discriminating in favor of local products.
- The Twenty-First Amendment did not justify the discriminatory exemptions because it does not authorize economic protectionism favoring local liquor industries.

## Legal Principles

- A party responsible for paying and remitting a tax has standing to challenge it, even if the tax may be passed on to customers, where the taxpayer faces liability and competitive harm from price effects.
- Under the Dormant Commerce Clause, a state tax violates the nondiscrimination requirement when it confers a direct commercial advantage on in-state products over out-of-state products.
- Protectionist purpose or effect is sufficient to establish unconstitutional discrimination; small market share or limited competitive threat from the favored local products does not eliminate discriminatory effect where some competition exists.
- A state cannot avoid Commerce Clause scrutiny by asserting the tax burden falls on in-state consumers rather than out-of-state producers.
- The Twenty-First Amendment grants states substantial authority over alcohol but does not remove alcohol regulation from the Commerce Clause or permit straightforward economic protectionism unrelated to core Twenty-First Amendment interests (such as temperance or legitimate control systems).

## Conclusion

The Court held that Hawaii’s wholesale liquor tax exemptions for locally produced ʻokolehao and fruit wine unconstitutionally discriminated against interstate commerce and were not saved by the Twenty-First Amendment, reaffirming that state alcohol regulation may not use tax preferences to protect local industry.


Bacchus Imps., Ltd. v. Dias, 468 U.S. 263 (1984)