U.S. Const. amend. XXI did not entirely remove state regulation of alcoholic beverages from the ambit of the Commerce Clause.
Liquor wholesalers brought an action seeking to recover taxes paid under protest pursuant to the Hawaii Liquor Tax which imposed a 20 percent excise tax on sales of liquor at wholesale, but which exempted certain locally produced alcoholic beverages from the tax. The complaint alleged that the tax was unconstitutional because it violated both the import-export clause and the commerce clause of the United States. The Hawaii Tax Appeal Court rejected both constitutional claims and on appeal, the Supreme Court of Hawaii affirmed the decision of the Tax Appeal Court and rejected an equal protection challenge as well. With respect to the commerce clause argument, the Hawaii court held that the tax did not illegally discriminate against interstate commerce because incidence of the tax was on wholesalers of liquor in Hawaii and the ultimate burden was born by consumers in Hawaii.
Did the Hawaii liquor tax exemption for the locally produced alcoholic beverages violate the commerce clause?
The Supreme Court held that the Hawaii liquor tax exemption for the locally produced alcoholic beverages violated the commerce clause because it had both the purpose and effect of discriminating in favor of local products, and that the tax was not saved by the Twenty-First Amendment because the tax violated a central facet of the commerce clause but was not supported by any clear concern of the Twenty-First Amendment in combating the perceived evils of an unrestricted traffic in liquor.