Many Americans think of Prohibition as a closed chapter in American history, ending with the re-legalization of alcohol by the Twenty-First Amendment in 1933. But one vestiges remains: the federal prohibition on home distilling. NTUF’s Taxpayer Defense Center just filed an amicus curiae (“friend of the court”) brief asking the Supreme Court to weigh in on a circuit split on whether this ban on home distilling is a constitutional use of the federal taxing power.
The federal government says it has the power to ban home distilling of liquor because it has long levied an excise tax on distilled spirits. The ban on home distilling in some locations, it argues, is needed to preserve the broader tax base of distilled spirits production.
Under the current legal regime, even home distillers who offer to register their still, track production, and pay all taxes are forbidden from doing so. This makes it difficult to see how the prohibition raises revenue for the federal government—the core purpose of the taxing power. Indeed, by preventing willing taxpayers from engaging in taxable activity, the provision ultimately hurts the federal government’s bottom line. More worryingly, the government’s justification here could be used to expand its reach over Americans’ private conduct through the tax code. If the government may wield broad regulatory power over private behavior simply by levying a tax on goods or services, structural limits on the reach of Congress would be significantly eroded.
The prohibition on home distilling (26 U.S.C. § 5178(a)(1)(B)) is the subject of two recent challenges and may soon be heading to the U.S. Supreme Court. In McNutt v. Department of Justice, the Fifth Circuit (covering Louisiana, Mississippi, and Texas) ruled that the home distilling prohibition was not a legitimate implementation of Congress’s taxing power through the Necessary and Proper Clause. The court reasoned that the prohibition actually hurts revenue by preventing home distilling, thereby depriving the government of the revenue that would otherwise be collected from that activity. The same federal ban was challenged in the Sixth Circuit in Ream v. Department of the Treasury. Unlike its sister court, the Sixth Circuit (covering Kentucky, Michigan, Ohio, and Tennessee) upheld the home distilling ban as a valid implementation of the taxing power. The Sixth Circuit reasoned that, given alcohol’s unique history, the ban was necessary to prevent tax evasion.
This split between the circuits leaves the law in limbo, almost comically so—the federal prohibition on home distilling is unenforceable in Mississippi, the last state to repeal prohibition and located in the Fifth Circuit, while it is fully enforceable in Kentucky and Tennessee, both located in the Sixth Circuit and famous for their distilled spirits. Such inconsistent application of federal laws creates confusion and unequal treatment, just by crossing a state border.
Only the Supreme Court can resolve this conflict between the circuits. Our amicus brief with the Court urges it to grant review in Ream and correct the Sixth Circuit’s error. While the immediate impact of the split is felt most strongly in the distilling industry, the case could have much broader implications depending on how the Court interprets the taxing power. If the Sixth Circuit’s broad reading of the Necessary and Proper Clause prevails, it would give Congress the broad power to prohibit activities through the imposition of a tax.
For example, Congress could prohibit the home reloading of ammunition to protect and enforce the excise tax on ammunition, or prohibit the home production of sporting goods like fishing flies or traditional archery equipment to enforce the excise tax on sporting goods. If the Sixth Circuit decision stands, it creates an incentive for Congress to levy new taxes as a means of prohibiting private conduct in emerging areas like 3-D printing. While Congress may be able to pass some regulations on distilling to aid in tax collection (for example, record-keeping requirements to track the volume produced), it cannot use the taxing power to prevent taxable events from occurring.
The case is Ream v. United States Department of the Treasury, et al., U.S. No. 26-93.