Liggett & Myers Tobacco Co. v. United States

Background

Liggett and Myers Tobacco Company, a manufacturer, shipped four packages containing ninety-six pounds of tobacco to Boston State Hospital. The packages had Internal Revenue stamps worth $17.28 already affixed. The hospital was owned and maintained by the Commonwealth of Massachusetts and distributed the tobacco free to patients. Federal law then imposed an 18-cent-per-pound tax on tobacco, and Treasury regulations required stamps to be affixed before removal. The Court of Claims found the hospital’s operation was not an essential governmental function and dismissed the claims seeking refund of the stamp value. The Commonwealth argued the state and its hospital were immune from the tax.

Reasoning

The key question was whether the tax fell directly on the State or was an excise on manufacture. The Court explained the statute fixes an 18-cent tax per pound of manufactured tobacco regardless of its sale price. The timing rule that payment could wait until sale or removal did not convert the tax into a sales tax. Treasury regulations and the statute showed Congress treated the charge as a manufacturing excise. Because the burden on the State was indirect, the asserted immunity did not prevent the tax. For these reasons, the Supreme Court affirmed the lower court’s judgment.

Real world impact

The ruling means manufacturers must pay and affix the per-pound tobacco tax even when goods go to state institutions. States cannot block this manufacturer-focused federal excise by claiming direct immunity in these circumstances. The decision resolves these test suits and affirms the stamp-tax practice.