STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6724

June 30, 1992

TAXATION:

Preferential tax reduction for Michigan wines

The tax preference in section 16a of the Michigan Liquor Control Act for wine manufactured from grapes grown in Michigan discriminates against interstate commerce in violation of the Commerce Clause of the United States Constitution and is, therefore, void. The remaining provisions of section 16a are severable and valid.

Mr. Douglas Roberts

State Treasurer

Michigan Department of Treasury

Lansing, MI

You have requested my opinion on a question which may be stated as follows:

Your request is prompted by a February 7, 1992, General Agreement on Tariffs and Trades (GATT) Panel Report, which was considered by the GATT Council on April 30, 1992. That report concludes that the preferential tax reduction for Michigan wines in section 16a(3) of the Michigan Liquor Control Act, MCL 436.16a; MSA 18.987(1), discriminates against Canadian wine in violation of GATT. The Office of The United States Trade Representative has requested information as to how and when Michigan will comply with the United States GATT obligations, and, in effect, cease discriminating against non-Michigan wine.

Section 16a provides in pertinent part:

Section 16a clearly discriminates against wine imported into Michigan for resale, regardless of origin, by subjecting those wines to a higher rate of tax than is imposed upon wines manufactured from grapes grown in Michigan. Thus, the tax preference in section 16a must be tested against the Commerce Clause, which prohibits discrimination against interstate commerce.

In Bacchus v Dias, Director of Taxation of Hawaii, 468 US 263, 104 SCt 3049; 82 LEd2d 200 (1984), the United States Supreme Court considered the constitutionality of a Hawaii statute which imposed a 20% excise tax on sales of liquor at wholesale but exempted several locally-produced alcoholic beverages from that tax. The Court held that the tax exemption violated the Commerce Clause because its purpose and effect was to discriminate against interstate commerce.

In reaching that result, the Court stated:

468 US at 269.

The Court also discussed state regulation of alcoholic beverages under the Twenty-first Amendment and the Commerce Clause as follows:

Doubts about the scope of the Amendment's authorization notwithstanding, one thing is certain:

468 US at 275-276.

The Supreme Court rejected Hawaii's argument that sales of the exempted beverages constituted only a small part of the total liquor sales in Hawaii and, therefore, there was not sufficient competition between local beverages and foreign beverages for a violation of the Commerce Clause. The Court ruled that as long as there is some competition between the exempt beverages and the non-exempt beverages, there is a discriminatory effect on the non-exempt products. The Supreme Court concluded that Hawaii's excise tax exemption for locally-produced liquor violated the Commerce Clause, because it had both the purpose and effect of discriminating in favor of local products. The Court rejected Hawaii's argument that its tax exemption for some domestic liquor was saved by the Twenty-first Amendment to the United States Constitution. Instead, the Court concluded that the tax exemption was not designed to promote any of the purposes of that Amendment and was economic protectionism that violated the Commerce Clause. See also McKesson Corp v Division of Alcoholic Beverages and Tobacco, 496 US 18; 110 SCt 2238; 110 LEd2d 17 (1990), and American Trucking Assoc, Inc v Maurice Smith, 496 US 167; 110 SCt 2323; 110 LEd2d 148 (1990).

The effect of the tax preference in section 16a is to discriminate in favor of wine manufactured from grapes grown in Michigan, and against other wine. The tax preference in section 16a is clearly a discriminatory tax not linked to furthering any purpose of the Twenty-first Amendment.

It is my opinion, therefore, that the decision of the United States Supreme Court in Bacchus, supra, compels the conclusion that the tax preference language underscored above in section 16a of the Michigan Liquor Control Act for wine manufactured from grapes grown in Michigan discriminates against interstate commerce in violation of the Commerce Clause of the United States Constitution. That discriminatory tax preference is void and may not be implemented by the Michigan Liquor Control Commission. Wines manufactured from grapes grown in Michigan must be taxed at the same rate as all other wines of the same alcoholic content under the provisions of subsections (1) and (2) of section 16a.

In MCL 8.5; MSA 2.216, the Legislature has mandated that a statute be construed so that any unconstitutional portion be severed from the rest of the statute with the remaining portions being given effect unless doing so would be inconsistent with the manifest intent of the Legislature. Highland Park v Fair Employment Practices Comm'n, 364 Mich 508, 520; 111 NW2d 797 (1961). There is no language in section 16a suggesting that the Legislature intended its provisions to be nonseverable. The remaining provisions of section 16a are independent and capable of being given effect without reference to the invalid portion. Thus, the remaining provisions of section 16a are severable and valid. OAG, 1989-1990, No 6603, p 229, 236 (October 9, 1989).

Frank J. Kelley

Attorney General