McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Fla. Dept. of Business Regulation

Background

A licensed wholesale alcohol distributor sued Florida after paying monthly excise taxes under a revised state law that gave lower rates to beverages made from certain Florida-grown crops. The Florida trial court and then the Florida Supreme Court agreed the tax scheme discriminated against out-of-state or nonpreferred-product distributors and barred future use of the preferences. Both courts, however, refused to order refunds for the taxes the distributor had already paid and upheld only prospective relief, so the company appealed to the United States Supreme Court.

Reasoning

The central question was whether telling the State to stop the preference going forward was enough, or whether the State must also provide meaningful relief for taxes already paid under compulsion. The Court held that prospective relief alone is not sufficient when taxpayers are effectively forced to pay first and sue later. Relying on earlier cases, the Court explained that the Constitution’s guarantee of fair procedures requires a “clear and certain” remedy for unlawful exactions. The State may choose how to fix the harm — for example, by refunding the excess taxes, by retroactively taxing favored competitors to equalize treatment, or by a combination — but must ensure the tax burdens during the contested period are not discriminatory. The Court also rejected speculative arguments that refunds should be denied because taxpayers might have passed the cost on to customers.

Real world impact

The ruling sends the case back to the Florida courts to provide appropriate retroactive relief. States that require prepayment of taxes must now have procedures to correct unconstitutional extra collections, and businesses forced to pay discriminatory taxes may obtain refunds or equivalent relief.