McKesson Corp. v. Division of Alcoholic Beverages and Tobacco

Supreme Court of the United States · 1990 · Federal Courts

Federal CourtsDue ProcessState Tax RefundsCommerce ClauseEleventh Amendmentpostdeprivation remedyclear and certain remedystate taxes

Facts

Florida's liquor excise tax gave preferential rate reductions to certain specified citrus, grape, and sugarcane products commonly grown in Florida and used in alcoholic beverages produced there. McKesson was a licensed wholesale distributor whose products did not qualify for those reductions, yet it was required to pay the tax monthly under a system backed by sanctions and summary collection remedies. After paying the taxes, McKesson sought a refund and challenged the scheme as unconstitutional. The Florida courts held the tax discriminated against interstate commerce but denied any refund or other backward-looking relief for taxes already paid.

Issue

When a State requires taxpayers to pay a tax before they can challenge its legality, does the Due Process Clause permit the State, after the tax is found unconstitutional as discriminatory under the Commerce Clause, to provide only prospective relief and deny meaningful retrospective relief for taxes already paid? Also, does the Eleventh Amendment bar the Supreme Court's appellate review of the state-court judgment?

Rule

If a State penalizes taxpayers for failure to remit taxes when due and relegates them to a postpayment refund action to challenge the tax's validity, the Due Process Clause requires the State to provide a meaningful opportunity for backward-looking relief and a clear and certain remedy for taxes paid under a scheme later found unconstitutional. In the case of a discriminatory tax, the State may satisfy this obligation by refunding the excess tax, by retroactively assessing taxes against favored competitors, or by some combination that cures the discrimination during the contested period.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Osprey Beverage Supply, a distributor in Tampa, must pay a monthly state excise tax before it may challenge the tax. If it does not pay on time, state officials may seize inventory and suspend its license. Two years later, the state's highest court rules that the tax was unconstitutional because it favored locally sourced products, but the court grants only an injunction against future collection under the old scheme.

Which statement best describes the distributor's federal constitutional entitlement?

Explanation. When a State requires taxpayers to pay first and challenge later, due process requires a meaningful postpayment remedy and a clear and certain avenue for backward-looking relief if the tax is later held unconstitutional. Prospective relief alone is insufficient where the taxpayer was effectively compelled to pay first under threat of sanctions.