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The only color for the assertion of congressional power to ordain a penalty for violation of state liquor laws is the Eighteenth Amendment, which gave to the federal government power to enforce nation-wide prohibition. That has been recalled; and a case must be decided in the light of constitutional principles which would have been applicable had the Amendment never been adopted. In the acts which have carried the provision at issue, the item is variously denominated an occupation tax, an excise tax, and a special tax. If in reality a penalty, it cannot be converted into a tax by so naming it, and the court must ascribe to it the character disclosed by its purpose and operation, regardless of name. Disregarding the designation of the exaction, and viewing its substance and application, the Supreme Court holds that it is a penalty for the violation of state law, and as such beyond the limits of federal power.
In November, 1934, an information was filed in the District Court for Northern Alabama charging that on October 8, 1934, at Birmingham, Alabama, the respondent conducted the business of a retail dealer in malt liquor, contrary to the laws of the State, without having paid the special excise tax of $1,000 imposed by § 701 of the Revenue Act of 1926. Respondent was sentenced. Respondent appealed, claiming that the taxes underlying the conviction were improperly laid because the statute's sole purpose was to punish, and because of that, it was in violation of the U.S. Constitution. The Circuit Court of Appeals reversed the judgment on the ground that the section became inoperative upon the repeal of the Eighteenth Amendment. Petitioner prosecution appealed.
Did § 701 of the Revenue Act of 1926 become inoperative upon the repeal of the Eighteenth Amendment, thereby warranting the reversal of the respondent’s conviction?
The Court affirmed the reversal of the respondent’s conviction, concluding that the indicia that section exhibited, an intent to prohibit and to punish violations of state law as such, were too strong to be disregarded. Moreover, the stamp the sum exacted as a penalty was violative of the Constitution. In addition, the Court said that the statute was a clear invasion of the police power, inherent in the states, reserved from the grant of powers to the federal government by the United States Constitution. The Court further noted that the only color for the assertion of congressional power to ordain a penalty for violation of state liquor laws was the Eighteenth Amendment, which gave to the federal government power to enforce nation-wide prohibition. However, after the repeal of the Eighteenth Amendment, the Court concluded that the statute in question was no longer valid.