The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN
JENNIFER M. GRANHOLM, ATTORNEY GENERAL
Profit payable to Liquor Control Commission on brandy sold from manufacturer's premises
The Michigan Liquor Control Code of 1998 requires the Liquor Control Commission to retain the gross profit payable to the Commission on brandy produced in Michigan and sold to consumers at the manufacturer's premises.
Opinion No. 7035
September 30, 1999
Honorable George A. McManus, Jr.
Honorable Harry Gast
You have asked whether the Michigan Liquor Control Code of 1998 requires the Liquor Control Commission to retain the gross profit payable to the Commission on brandy produced in Michigan and sold to consumers at the manufacturer's premises. Stated another way, you have asked whether brandy manufacturers may retain the Commission's profit on sales from their premises.
US Const, Am XXI, "grants the States virtually complete control over . . . how to structure the [intra-state] liquor distribution system." California Retail Liquor Dealers Ass'n v Midcal Aluminum, Inc, 445 US 97, 110; 100 S Ct 937; 63 L Ed 2d 233 (1980). In Michigan, Const 1963, art 4, § 40, which authorizes the creation of a liquor control commission to control alcoholic beverage traffic, provides that:
[T]he legislature may by law establish a liquor control commission which, subject to statutory limitations, shall exercise complete control of the alcoholic beverage traffic within this state, including the retail sales thereof.
The Michigan Liquor Control Code of 1998 (Code), 1998 PA 58, MCL 436.1101 et seq; MSA 18.1175(101) et seq, creates a Liquor Control Commission (Commission) to control the alcoholic beverage traffic within this state. As noted in its preamble, the Code provides for the licensing and taxation of activities regulated under the Code and "the disposition of the money received under this act." Section 105(9) of the Code, which defines "brandy manufacturer," provides in part that: "The commission may approve a brandy manufacturer to sell at retail brandy which it manufactures, blends or rectifies, or both, at its licensed premises or at other premises authorized in this act."
Section 233(1), which requires the Commission to set alcoholic liquor prices that return a gross profit to it, provides that: "The commission shall establish uniform prices for the sale of alcoholic liquor in state liquor stores and by specially designated distributors. The prices shall return a gross profit to the commission of not less than 51% and not greater than 65%." (Emphasis added.) The price established by the Commission for the sale of alcoholic liquor must be uniform for each class of liquor and must include a gross profit to the Commission of not less than 51% and not greater than 65% based on cost of the product. OAG, 1947-1948, No 792, pp 719, 720 (June 30, 1948). The term "gross profit" appearing in the predecessor statute, 1933 Ex Sess PA 8, section 16, was defined to mean the excess in the selling price over the cost involved in production or purchase. OAG, 1947-1948, No 274, pp 274, 275 (May 8, 1947).
A study of the legislative history of 1933 Ex Sess PA 8, section 16, and continued in section 233(1) of the present Code, is instructive as to the Legislature's intent. Although it was amended numerous times, the statute (except when first enacted) always contained the requirement of a "gross profit" payable to the Commission. Initially, the Legislature imposed no minimum profit payable to the Commission, fixing only a maximum cap of not more than 40% in gross profit payable to the Commission. By amendatory 1974 PA 188, the Legislature established that the uniform prices for alcoholic liquors "shall not return a gross profit to the commission of less than 48% or in excess of 65%." The minimum gross profit was subsequently raised to not "less than 51%" by amendatory 1980 PA 73 and which continued in 1981 PA 139. (Emphasis added.)
In section 233(1) of the Code, the Legislature has mandated that the Commission, when establishing uniform prices for each class of alcoholic liquor, shall require a gross profit to be returned to the Commission. The Legislature's use of the term "shall" means that the prescribed conduct is mandatory, not permissive. Oakland County v Michigan, 456 Mich 144, 153; 566 NW2d 616 (1997). "[W]hen the word 'shall' is used in a command to a public official, it excludes the idea of discretion." People v De La Mater, 213 Mich 167, 171; 182 NW 57 (1921). Because the Legislature has commanded the Commission to establish prices which shall return a gross profit to it of not less than 51%, the Commission lacks the authority to waive this minimum gross profit for any manufacturer, including brandy manufacturers who sell brandy at the site of their manufacturing facilities.
Information supplied with your request correctly notes that a brandy manufacturer's premises is not a state liquor store or a specially designated distributor. Nevertheless, a brandy manufacturer may be licensed by the Commission to manufacture, blend or rectify brandy products and may also be licensed to "sell at retail brandy . . . at its licensed premises." Section 105(9). Although brandy products manufactured and sold on a manufacturer's premises do not physically enter the Commission's distribution system, Const 1963, art 4, § 40, gives the Commission complete control over alcoholic beverage traffic within this state, "subject to statutory limitations." Thus, brandy sold at the manufacturer's premises comes under the Commission's control, and must return the statutorily-required "gross profit to the commission."
It is my opinion, therefore, that the Michigan Liquor Control Code of 1998 requires the Liquor Control Commission to retain the gross profit payable to the Commission on brandy produced in Michigan and sold to consumers at the manufacturer's premises.
JENNIFER M. GRANHOLM
STATE OF MICHIGAN