STATE OF NORTH DAKOTA, ROBERT E. HANSON, STATE TREASURER OF NORTH
DAKOTA, APPELLANTS V. UNITED STATES OF AMERICA

   No. 88-926

   In the Supreme Court of the United States

   October Term, 1989

   On Appeal from the United States Court of Appeals for the Eighth
Circuit

   Brief for the United States

            TABLE OF CONTENTS
   Question Presented
   Opinions below
   Jurisdiction
   Constitutional, statutory, and regulatory provisions involved
   Statement
   Summary of argument
   Argument:
      The State of North Dakota's regulation of the United States
      military's purchase of alcoholic beverages from out-of-state
      suppliers for its North Dakota installations unconstitutionally
      interferes with federal procurement of those products
      A. Federal law requires the military to purchase alcoholic
         beverages at the lowest available price in order to maximize
         profits to support morale, welfare, and recreational
         activities on military bases
      B. North Dakota's liquor regulations are invalid under the
         Supremacy Clause since they prevent the United States
         military from obtaining alcoholic beverages from the most
         competitive source, as required by federal law
      C. The Twenty-first Amendment does not authorize the State of
         North Dakota to interfere with the federal government's
         exclusive authority to regulate military procurement of
         alcoholic beverages
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (J.S. App. A1-A22) is reported
at 856 F.2d 1107.  The opinion of the district court (J.S. App.
A23-A32) is reported at 675 F. Supp. 555.

                             JURISDICTION

   The judgment of the court of appeals was entered on September 9,
1988.  The notice of appeal was filed on November 16, 1988 (J.S. App.
A35), and the jurisdictional statement was docketed on December 5,
1988.  The Court noted probable jurisdiction on March 27, 1989.  The
jurisdiction of this Court is invoked under 28 U.S.C. 1254(2).  /1/

     CONSTITUTIONAL, STATUTORY, AND REGULATORY PROVISIONS INVOLVED

   1. Article I, Section 8 of the United States Constitution provides
in pertinent part:  "The Congress shall have Power * * * To raise and
support Armies * * * (and) To make Rules for the * * * Regulation of
the land and naval Forces * * *."

   Article I, Section 8 of the United States Constitution further
provides in pertinent part:  "The Congress shall have Power * * * To
exercise * * * Authority over all Places purchased by the Consent of
the Legislature of the State in which the Same shall be, for the
Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful
Buildings * * *."

   Article IV, Section 3 of the United States Constitution provides in
pertinent part:  "The Congress shall have Power to dispose of and make
all needful Rules and Regulations respecting the Territory or other
Property belonging to the United States * * *."

   Article VI, Section 2 of the United States Constitution provides in
pertinent part:  "This Constitution, and the laws of the United States
which shall be made in Pursuance thereof * * * shall be the supreme
Law of the Land * * *."

   Section 2 of the Twenty-first Amendment to the United States
Constitution provides:  "The transportation or importation into any
State, Territory, or possession of the United States for delivery or
use therein of intoxicating liquors, in violation of the laws thereof,
is hereby prohibited."

   2. Title 10, United States Code, Section 2488 (Supp. V 1987),
provides in pertinent part:

         (a) The Secretary of Defense shall provide that --

         (1) covered alcoholic beverage purchases made for resale on a
      military installation located in the United States shall be made
      from the most competitive source, price and other factors
      considered, except that

         (2) in the case of malt beverages and wine, such purchases
      shall be made from, and delivery shall be accepted from, a
      source within the State in which the military installation
      concerned is located.

   Department of Defense Armed Services Military Club and Package
Store Regulation 1015.3-R, ch. 4, Section C (codified at 32 C.F.R.
261.4), /2/ provides in pertinent part:

         The Department of Defense shall cooperate with local, state,
      and federal officials to the degree that their duties relate to
      the provisions of this chapter.  However, the purchase of all
      alcoholic beverages for resale at any camp, post, station, base,
      or other DoD installation within the United States shall be in a
      manner and under such conditions as shall obtain for the
      government the most advantageous contract, price and other
      factors considered.  These other factors shall not be construed
      as meaning any submission to state control, nor shall
      cooperation be construed or represented as an admission of any
      legal obligation to submit to state control, pay state or local
      taxes, or purchase alcoholic beverages within geographical
      boundaries or at prices or from suppliers prescribed by any
      state.

   3. Section 84-02-01-05(7), N.D. Admin. Code (1986), provides:

         All liquor destined for delivery to a federal enclave in
      North Dakota for domestic consumption and not transported
      through a licensed North Dakota wholesaler for delivery to such
      bona fide federal enclave in North Dakota shall have clearly
      identified on each individual item that such shall be for
      consumption within the federal enclave exclusively.  Such
      identification must be in a form and manner prescribed by the
      state treasurer.

   Section 84-02-01-05(1), N.D. Admin. Code (1986), provides:

         All persons sending or bringing liquor into North Dakota
      shall file a North Dakota Schedule A Report of all shipments and
      returns for each calendar month with the state treasurer.  The
      report must be postmarked on or before the fifteenth day of the
      following month.

                          QUESTION PRESENTED

   Whether regulations of the State of North Dakota, requiring
out-of-state liquor suppliers to affix to each bottle of liquor sold
to federal enclaves located in North Dakota a label stating that the
liquor must be consumed on those premises and requiring those
suppliers to file monthly reports, imperissibly interfere with the
federal procurement scheme and otherwise fall outside the State's
authority under the Twenty-first Amendment.

                               STATEMENT

   1. The State of North Dakota contains two federal enclaves, Grand
Forks Air Force Base and Minot Air Force Base, over which the State
and the federal government exercise concurrent jurisdiction.  Each
military installation contains clubs and package goods stores that
sell alcoholic beverages exclusively to military personnel and their
families.  These clubs and stores are "non-appropriated fund
instrumentalities" (NFIs) of the federal government.  Although
operated by the military, they do not receive congressionally
appropriated funds.  Instead, the facilities support themselves;  any
profits generated from liquor sales are used to finance recreational
and other support services for each base's military personnel and
their families.  J.S. App. A3, A23.

   Under 10 U.S.C. 2488(a)(1) (Supp. V 1987), the military must obtain
liquor (exclusive of beer and wine) for the NFIs from "the most
competitive source, price and other factors considered * * *." /3/ In
order to minimize cost, the military operates a "joint-military
service consolidated purchasing program for distilled spirits" (J.A.
25).  Under this program, at the time pertinent here, all military
facilities in a thirteen-state area, including the two North Dakota
installations, purchase alcoholic beverages in bulk directly from
distillers/suppliers, as opposed to purchasing from local wholesalers.
 This program enables the military to negotiate the best possible
price, since it can avoid buying from distributors at local wholesale
prices (which include additional markups).  /4/ Prices for liquor
purchased by the military from out-of-state suppliers are
significantly lower than those for liquor bought from licensed
wholesalers within North Dakota.  /5/ See J.A. 5, 25.

   2. Effective January 1, 1986, the State of North Dakota issued
specific regulations aimed at the federal government's purchase of
liquor for the two military bases located in the State.  /6/ The
principal regulation, the labeling provision, requires all
out-of-state liquor suppliers to affix to each bottle of liquor sold
to those federal installations a label stating that the liquor must be
consumed on those premises.  N.D. Admin. Code Section 84-02-01-05(7)
(1986).  The regulation imposes no such labeling requirement on local
suppliers and distributors.  A companion provision calls for all
suppliers to file a monthly report showing the quantity of liquor
shipped into the State during the preceding month.  N.D. Admin. Code
Section 84-02-01-05(1) (1986).

   In early November 1986, the State held a meeting for
representatives of out-of-state distillers/suppliers to explain the
labeling and reporting requirements for direct sales of liquor to the
two bases.  /7/ As a result of the added administrative burdens and
costs imposed by compliance with those new requirements, five
out-of-state suppliers, Heublein, Inc., James B. Beam, Joseph
Seagrams, Somerset Importers, and Hiram Walker & Sons, Inc., informed
the military that they would no longer ship liquor to the bases in
North Dakota.  /8/ Another out-of-state distiller, Kobrand Importers,
Inc., agreed to continue supplying liquor to the NFIs in North Dakota,
but told the military that its prices would increase from $.85 to
$20.50 per case in order to cover the additional costs of complying
with the State's regulations.  /9/ In light of these developments, the
official responsible for the military's procurement of liquor stated:
"If the installations in North Dakota are forced to purchase their
distilled spirits requirements from in-State sources in the future, it
will cost the installations involved between $200,000 and $250,000 per
year more than if the purchases are made from out-of-State
distillers/importers" (J.A. 27).  J.S. App. A4, A25-A26;  J.A. 23, 25,
26.  /10/

   3. On November 26, 1986, the United States filed this action
against appellants in the United States District Court for the
District of North Dakota.  Reciting the factual background set out
above, the complaint alleged that the labeling and reporting
requirements of the State's regulations interfere with the federal
military's procurement of liquor, conflict with governing federal
procurement law, and therefore violate the Supremacy Clause.  The
complaint sought a judgment declaring those regulations invalid and an
injunction barring the State's enforcement of them as applied to
military bases in North Dakota.  J.S. App. A2;  J.A. 3-8.

   Appellants answered by contending that their regulations did not
conflict with federal law.  Appellants also argued that in any event
the Twenty-first Amendment authorized the regulations as necessary "to
prevent the unlawful diversion of alcohol from military enclaves into
the internal commerce of North Dakota" (J.A. 11).  The parties
thereafter entered into a stipulation of facts and filed cross-motions
for summary judgment.  /11/

   4. The district court granted appellants' motion for summary
judgment, concluding that the State's regulations do not conflict with
the federal law requiring the military to purchase liquor at the
"lowest cost" (J.S. App. A28).  The court reasoned that the "state's
regulations may have indirectly caused the price of out-of-state
supplies of alcoholic beverages to increase, but they do not prevent
the federal government from obtaining those beverages at the 'lowest
cost.' The 'lowest cost' has merely increased" (ibid.).

   Even if there were a conflict, the court stated, it would need to
balance the State's authority to regulate liquor under the
Twenty-first Amendment against the federal government's interests
(J.S. App. A28-A29).  In that regard, the court ruled that a State
enjoys authority to impose regulations designed to prevent the
unlawful diversion of liquor.  The court accepted that proffered
reason for the State's regulations, stating that it was not
"pretextual," /12/ and therefore concluded that those regulations are
"a valid exercise of (the State's) core power under the Twenty-first
Amendment" (id. at A31).  Turning to the competing interests, the
court found that the State's "significant interest in preventing
unlawful diversion of alcoholic beverages" clearly outweighed the
federal government's interest "in keeping its costs down" (ibid.).
Accordingly, the court held, alternatively, that the regulations at
issue fall within the State's powers under the Twenty-first Amendment
and are not barred by the Supremacy Clause (ibid.).

   5. The court of appeals reversed (J.S. App. A1-A22).  It first
noted that Congress, in 10 U.S.C. 2488(a)(1) (Supp. V 1987),
implemented "a longstanding policy of purchasing alcoholic beverages
at the lowest available price and using the proceeds for the benefit
of the welfare and morale of military personnel and their families"
(J.S. App. A12).  The court recognized the State's power under the
Twenty-first Amendment, but observed that such power "reaches its
limits when the state attempts to exercise that power over an
instrumentality of the federal government itself" (id. at A10).
Accordingly, the court concluded that the Twenty-first Amendment
"provides no basis for regulating the means by which Congress has
sought to order military liquor procurement and to provide for the
welfare and morale activities of military personnel" (id. at A13).

   The court of appeals also weighed the competing interests at stake
in concluding that federal law preempts the State's regulations (J.S.
App. A13-A18).  It recognized the State's "traditional power to
regulate unlawful diversion of liquor in transit to the (military)
bases" (id. at A17), but found that the State's efforts here
impermissibly conflict with federal law.  "Congress has mandated that
the military procure liquor on a competitive basis in order to
maximize profits for the support of welfare and morale activities"
(id. at A15).  The court observed that the State's regulations will
increase the military's annual liquor bill by more than $200,000, and
that "the effect (of the regulations) in large part is to require the
military to make purchases within the State -- purchases that would
not otherwise be competitive with out-of-state sources" (id. at
A15-A16).  The court held that "this result conflicts with Congress'
desire for open competition designed to maximize revenue for welfare
and morale activities" (id. at A16).

   Chief Judge Lay dissented (J.A. App. A18-A22).  He concluded that
the State's regulations, designed solely "to prevent diversion of
out-of-state liquor destined for military bases," fall within the
State's power under the Twenty-First Amendment (id. at A22).  In his
view, under those circumstances, "(t)he federal government must accept
the resulting increase in the cost of out-of-state liquor when it
considers sources from which to purchase its liquor" (ibid.).

                          SUMMARY OF ARGUMENT

   A. Federal law mandates that the military purchase alcoholic
beverages (exclusive of beer and wine) to be resold on military
installations located in the United States "from the most competitive
source, price and other factors considered * * *." 10 U.S.C.
2488(a)(1) (Supp. V 1987).  As the statutory language suggests, the
federal procurement scheme directs the military to purchase liquor for
its facilities at the lowest available price.  And as the legislative
history of this provision makes plain, Congress, by this statute,
reinstituted what until recently had been a longstanding military
procurement policy -- the purchase of alcoholic beverages from
suppliers and distillers at the lowest available price, regardless of
whether those sources are located in a base's home state, in order to
maximize the profits that support non-appropriated morale, welfare,
and recreational activities on military bases.  By contrast, Congress
has specified in related legislation that in-state suppliers must be
used for the military's purchase of beer and wine and for the purchase
of distilled spirits for bases in Alaska and Hawaii.  These
distinctions, evident on the face of the pertinent military
procurement statutes, are not inadvertent.  They should not be
subjected to state nullification.

   By enacting Section 2488(a)(1), Congress did not intend the
military to consider price as only one of several equally competing
factors in determining whether a particular liquor supplier is the
"most competitive source." In choosing liquor suppliers, the military
must take into account, among other factors, a supplier's reliability,
service record, and access to particular brands.  But as the court of
appeals recognized (J.S. App. A12), and the legislative history of
Section 2488(a)(1) confirms, Congress enacted the statute for the
specific purpose of ensuring that the military purchases alcoholic
beverages "in the most efficient and economic manner, without regard
to the location of the source of the beverages, except as that
location may affect cost * * *." S. Rep. No. 331, 99th Cong., 2d Sess.
283 (1986).

   B. As applied to the two military bases in North Dakota, the
federal procurement scheme under 10 U.S.C. 2488(a)(1) (Supp. V 1987)
effectively requires military procurement officials to purchase liquor
in bulk quantities directly from out-of-state distillers/suppliers
because those suppliers offer lower prices than licensed wholesalers
within the State.  In the face of this carefully crafted framework,
North Dakota's liquor regulations imposed burdensome labeling and
reporting requirements on the military's out-of-state sources of
liquor;  those requirements will, in effect, force the military to
obtain liquor for its North Dakota facilities from less competitive
in-state sources at an increased annual cost of more than $200,000.
This forced change in military procurement wrought by North Dakota's
new regulatory regime is precisely what Congress sought to preclude by
enacting Section 2488(a)(1), since the military is required by that
measure to purchase alcoholic beverages from "the most competitive
source" in order to maximize profits from the resale of those
beverages -- profits that are the principal source of funding for the
Armed Services' nonappropriated morale, welfare, and recreational
programs on military installations.

   Under the Supremacy Clause, federal law preempts State regulation
where the latter "stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress." Hines v.
Davidowitz, 312 U.S. 52, 67 (1941).  That well-established principle
applies here.  North Dakota's protectionist regulations plainly
interfere with and thwart the federal procurement scheme mandating
"open competition" (J.S. App. A16).  As a result, the State's
regulatory efforts must fail under the Supremacy Clause.

   Moreover, a longstanding companion principle under the Supremacy
Clause, namely "that the activities of the Federal Government are free
from regulation by any state," Mayo v. United States, 319 U.S. 441,
445 (1943), likewise bars the State's regulatory efforts over the
military's procurement of alcoholic beverages.  In decisions such as
Mayo v. United States, supra, Leslie Miller, Inc. v. Arkansas, 352
U.S. 187 (1956), and Paul v. United States, 371 U.S. 245 (1963), this
Court applied that Supremacy Clause principle in striking down States'
efforts to interfere with federal activities.  Those decisions compel
the conclusion that North Dakota may not regulate the military's
procurement of distilled spirits for its installations.  Just as the
California minimum price regulation in Paul collided with the
applicable federal procurement law requiring the "most advantageous
contract -- price, quality, and other factors considered," 371 U.S. at
252, the restrictions imposed by North Dakota upon the military's
procurement of alcoholic beverages clash with federal law governing
the military's procurement of liquor.

   North Dakota's regulatory efforts may not evade this Supremacy
Clause principle on the basis that the State's regulations apply only
to third-party suppliers who happen to do business with the
government.  First, as is apparent from decisions such as Paul and
Leslie Miller, Inc., the fact that a State's regulation applies by its
terms only to the federal government's suppliers (as opposed to the
government itself) does not free that regulation from the constraints
of the Supremacy Clause.  Second, although nominally aimed at
out-of-state suppliers, North Dakota's regulations are, in point of
fact, designed to regulate the federal enclaves' procurement of
alcoholic beverages.  Finally, although the district court stated that
"the purpose advanced by the State (for its regulations) does not
appear to be pretextual" (J.S. App. A31), and the court of appeals did
not quarrel with that assessment (id. at A15), a close examination of
North Dakota's regulatory scheme leads to the contrary conclusion --
appellants imposed the regulations for the very purpose of forcing the
military to purchase its alcoholic beverages from in-state wholesalers
subject to the State's taxing authority.

   C. The Twenty-first Amendment does not authorize North Dakota to
interfere with the federal government's exclusive authority to
regulate military procurement of distilled spirits.  As this Court has
held, that Amendment generally permits the States to regulate and tax
private commerce in alcoholic beverages in a manner that, without the
Amendment, would be prohibited under the Commerce Clause.  See Craig
v. Boren, 429 U.S. 190, 206 (1976).  But even in this limited area,
the Court has rejected the proposition that the Twenty-first Amendment
renders the Commerce Clause inoperative simply because the State seeks
to regulate alcoholic beverages.  See Hostetter v. Idlewild Bon Voyage
Liquor Corp., 377 U.S. 324, 331-332 (1964).  And outside the context
of the Commerce Clause, the Court has made clear that "the relevance
of the Twenty-first Amendment to other Constitutional provisions
becomes increasingly doubtful." Craig v. Boren, 429 U.S. at 206.

   In light of the limited scope of the Twenty-first Amendment with
respect to competing constitutional commands, this Court has held that
the immunity of federal activities and property from state control or
regulation remains wholly unaffected by the Amendment.  See Collins v.
Yosemite Park & Curry Co., 304 U.S. 518, 537-538 (1938).  And the
Court's companion decisions in United States v. Mississippi Tax
Comm'n, 412 U.S. 363 (1973), and 421 U.S. 599 (1975), which struck
down Mississippi's efforts to regulate shipments of liquor destined
for both exclusive and concurrent jurisdiction military bases located
in the State, establish beyond doubt that the Twenty-first Amendment
does not confer authority on the States to regulate the federal
government's procurement of alcoholic beverages.  Here, North Dakota's
regulations conflict with federal procurement law and with federal
regulation of military enclaves;  the State's regulatory regime thus
does not survive scrutiny under the Supremacy Clause.  Those
regulations may not be resurrected under the Twenty-first Amendment.

                               ARGUMENT

   THE STATE OF NORTH DAKOTA'S REGULATION OF THE UNITED STATES
MILITARY'S PURCHASE OF ALCOHOLIC BEVERAGES FROM OUT-OF-STATE SUPPLIERS
FOR ITS NORTH DAKOTA INSTALLATIONS UNCONSTITUTIONALLY INTERFERES WITH
FEDERAL PROCUREMENT OF THOSE PRODUCTS

   A. Federal Law Requires The Military To Purchase Alcoholic
Beverages At The Lowest Available Price In Order To Maximize Profits
To Support Morale, Welfare, And Recreational Activities On Military
Bases

   1. In 10 U.S.C. 2488(a)(1) (Supp. V 1987), Congress mandated that
the military purchase alcoholic beverages (exclusive of beer and wine)
to be resold on military installations located in the United States
"from the most competitive source, price and other factors considered
* * *." /13/ As the statutory language suggests, the federal
procurement scheme directs the military to purchase liquor for NFIs
and other facilities at the lowest available price.  In other words,
the military, operating as a rational business firm, must follow
practices designed to maximize profits by purchasing at the lowest
prices the products that consumers demand.  This straightforward
reading of the statute is hardly surprising.  The federal procurement
regulation at issue in Paul v. United States, 371 U.S. 245 (1963), for
example, directed officials to buy milk under "the most advantageous
contract -- price, quality, and other factors considered" (id. at 252
(internal quotation marks omitted)).  This Court construed that
regulation as "command(ing) * * * federal officials to procure
supplies at the lowest cost to the United States" (id. at 253).

   2. The legislative purpose of Section 2488(a)(1) becomes all the
more manifest when its language is contrasted with that of Section
2488(a)(2), requiring in-state purchases of beer and wine, and with
that of contemporaneously enacted provisions requiring in-state
purchases of distilled spirits for bases in Alaska and Hawaii (see pp.
20-21 & n.15, infra).  Moreover, as the court of appeals found (J.S.
App. A12), the legislative history of Section 2488 confirms that
Congress, by this statute, reinstituted what until recently had been a
longstanding military procurement policy -- the purchase of alcoholic
beverages at the lowest available price in order to maximize the
profits that support non-appropriated morale, welfare, and
recreational (MWR) activities on military bases.

   a. In 1985, the House of Representatives, by voice vote, passed an
amendment to the Department of Defense authorization bill for fiscal
year 1986.  That amendment required the military to purchase alcoholic
beverages to be resold on military installations from suppliers and
distributors in the State in which an installation was located.  The
House amendment, however, drew opposition in the Senate.  Senate
opponents of this in-state purchasing requirement contended that it
would increase the military's costs of purchasing alcoholic beverages
for its NFI facilities by as much as $30 million annually.  See, e.g.,
131 Cong. Rec. 35,490-35,491 (1985) (statement of Sen. Glenn).  As
Senator Kennedy, one of the sponsors of the Senate's amendment to
delete the House provision pointed out:

         While these dollar amounts may not be very significant in
      comparison with the other sums the Senate will be discussing in
      the defense appropriation bill, these sums are of enormous
      importance to the services' morale, welfare, and recreation
      programs.  These MWR funds depend heavily on revenues obtained
      from sales of alcohol on installations, and if installations
      were required to purchase their alcohol requirements from within
      the State in which they are located, the costs will skyrocket
      and the MWR funds will be correspondingly depleted.

   131 Cong. Rec. 35,492 (1985).

   The Senate succeeded in deleting the in-state purchasing
requirement from the Department of Defense authorization bill for
fiscal year 1986.  Nevertheless, Congress included such a provision in
that fiscal year's Department of Defense Appropriations Act.  See Act
of Dec. 19, 1985, Pub. L. No. 99-190, Tit. VIII, Section 8099, 99
Stat. 1219.  Consequently, from December 1985 through October 1986,
all alcoholic beverages for military bases had to be procured in the
State in which the particular base was located.

   b. The following year, Congress again confronted the issue of
requiring military bases to purchase liquor only from in-state
suppliers.  The Senate Armed Services Committee decided to drop that
requirement from the National Defense Authorization bill for fiscal
year 1987.  The Committee explained that it

      continues to object to such a requirement and has included a
      provision mandating that purchases of such alcoholic beverages
      for resale be made in the most efficient and economic manner,
      without regard to the location of the source of the beverage,
      except as that location may affect cost.  * * * (T)he committee
      believes that procurement of alcoholic beverage(s) for resale
      should be subjected to the same favorable effects of competition
      as is useful in the procurement of other goods and services.
      Additionally, the committee does not believe it appropriate to
      impose upon the Department, or the morale and welfare activities
      of the Department, a requirement which will result in additional
      costs of tens of millions of dollars, caused by the imposition
      of indirect State taxation in (sic) the Federal government and
      the lack of competition.

   S. Rep. No. 331, 99th Cong., 2d Sess. 283 (1986).

   The House Armed Services Committee agreed to delete the in-state
purchasing requirement for distilled spirits, but decided to include a
provision which retained that requirement for beer and wine.  The
House Committee noted that it was customary for the military to buy
beer and wine from local sources and that, accordingly, retaining the
in-state purchasing requirement for those beverages would have little
effect on the military's overall cost of procuring liquor for its
facilities.  H.R. Rep. No. 718, 99th Cong., 2d Sess. 183-184 (1986).
On the other hand, the House Committee heeded the military's estimate
that the in-state purchasing requirement "will raise its costs for
alcoholic beverages by $20 million per year * * *(,) increased costs
(that) relate almost entirely to distilled spirits that were
previously purchased directly from manufacturers." H.R. Rep. No. 718,
supra, at 183.  The House Committee thus joined its Senate colleagues
in recommending "a return to competitive procurement of alcoholic
beverages," namely, "allow(ing) the (military) to return to direct
procurement of distilled spirits -- the acceptable industry practice."
H.R. Rep. No. 718, supra, at 184.

   The full House agreed with the Armed Services Committee's
recommendation on this point, specifically voting down a proposed
amendment to change it.  /14/ On the Senate floor, however, Senator
Andrews of North Dakota also sponsored an amendment to reinstitute the
in-state purchasing requirement for all alcoholic beverages, and that
amendment was adopted by a voice vote.  See 132 Cong. Rec.
20,219-20,223 (1986).  The House and Senate conferees then adopted
instead the Committee-sponsored House provisions retaining the
in-state purchasing requirement only for beer and wine and directing
the military to buy distilled spirits at the lowest price available.
See H.R. Conf. Rep. No. 1001, 99th Cong., 2d Sess. 39,464 (1986).
Several weeks later, Congress passed the 1987 National Defense
Authorization bill and the procurement provision was signed into law.
See Act of Nov. 14, 1986, Pub. L. No. 99-661, Tit. III, Section 313,
100 Stat. 3853 (codified at 10 U.S.C. 2488(a) (Supp. V 1987)).
Significantly, legislation enacted less than three weeks earlier
required the military to purchase from in-state sources all alcoholic
beverages for installations located in the States of Alaska and
Hawaii, while explicitly providing otherwise for bases located in the
contiguous 48 States and the District of Columbia.  /15/ See Act of
Oct. 30, 1986, Pub. L. No. 99-591, Tit. IX, Section 9090, 100 Stat.
3341-116.

   3. In sum, with the exception of legislation relating to bases
located in Alaska and Hawaii, Congress has made no pertinent change in
the federal law governing the military's procurement of alcoholic
beverages since the enactment of 10 U.S.C. 2488(a).  See, e.g., Act of
Oct. 1, 1988, Pub. L. No. 100-463, Tit. VIII, Section 8122, 102 Stat.
2270-40.  Accordingly, Congress has maintained the policy of requiring
the military to purchase liquor for its NFI facilities from suppliers
and distillers at the lowest available price, regardless of whether
those sources are located in a base's home state.  In contending
otherwise, appellants and their supporting amici are asking this Court
effectively to nullify the very distinctions Congress deliberately
drew between the acquisition of beer and wine and the acquisition of
distilled spirits and, with respect to the latter, between
acquisitions for bases in Alaska and Hawaii and those for bases in the
48 other States.  Those telling differences on the face of closely
related procurement provisions are not drafting errors;  they are
clear distinctions that Congress purposefully adopted.  Those
distinctions should be fully honored by the courts to achieve their
intended pro-competitive purpose.  As we have recounted (see p. 20 &
n. 14, supra), members of the House and Senate from North Dakota
tried, but failed, to eliminate those distinctions on the floor of
Congress.  Under the Supremacy Clause, it is not the proper role of
the State to attempt through regulation to nullify those federal
statutory distinctions, in whole or in part.

   To be sure, under the federal procurement scheme, price is the
predominant, but not the sole, determinant.  In choosing liquor
suppliers, the military must also take into account, among other
factors, a supplier's reliability, service record, and access to
particular brands.  But as the court of appeals recognized, "the
history of military alcohol procurement reflects a longstanding policy
of purchasing alcoholic beverages at the lowest available price and
using the proceeds for the benefit of the welfare and morale of
military personnel and their families" (J.A. App. A12);  see United
States v. South Carolina, 578 F. Supp. 549, 553 (D.S.C. 1983).
Indeed, as detailed above, the legislative history of Section
2488(a)(1) makes plain that Congress enacted the statute for the
specific purpose of ensuring that the military purchases its alcoholic
beverages "in the most efficient and economic manner, without regard
to the location of the source of the beverages, except as that
location may affect cost * * *." S. Rep. No. 331, supra, at 283
(1986);  see H.R. Rep. No. 718, supra, at 183-184.  /16/

   B. North Dakota's Liquor Regulations Are Invalid Under The
Supremacy Clause Since They Prevent The United States Military From
Obtaining Alcoholic Beverages From The Most Competitive Source, As
Required By Federal Law

   1. a. As we have explained, under governing federal law, /17/ the
military must purchase liquor from the "most competitive source." As
applied to the two military bases in North Dakota, that federal scheme
requires military procurement officials to purchase the liquor in bulk
quantities directly from out-of-state distillers/suppliers because
those suppliers offer lower prices than licensed wholesalers within
the State.  See J.A. 5, 25;  see also note 4, supra.  By virtue of the
added administrative burdens and costs of complying with the State's
labeling and reporting requirements, however, five major out-of-state
suppliers informed the military that they would no longer ship liquor
to the bases in North Dakota.  Another major out-of-state supplier
advised the military that it would increase its prices on North Dakota
sales by as much as $20.50 per case in order to recover the additional
costs of complying with the state-imposed regime.  J.S. App. A4.  In
sum, the record shows that the State's regulations, if left intact,
will effectively force the military to obtain liquor for its North
Dakota facilities from less competitive in-state sources at an
increased annual cost of more than $200,000.  J.S. App. A4, A15-A16,
A25-A26;  J.A. 25-27.

   This forced change in military procurement is precisely what
Congress sought to preclude by enacting 10 U.S.C. 2488(a)(1).
Congress directed that distilled spirits be procured from "the most
competitive source" in order to maximize profits from the resale of
those beverages -- profits that are the principal source of funding
for the Armed Services' non-appropriated MWR programs on military
installations.  Congress was acutely aware that the military's annual
cost of purchasing alcoholic beverages could increase by as much as
$30 million if the military were required to purchase its liquor from
less competitive in-state sources, and was concerned that such
increased cost would have a devastating effect on the funding of the
MWR programs -- programs that do not receive appropriated funds.  See,
e.g., S. Rep. No. 331, supra, at 283;  131 Cong. Rec. 35,490-35,491
(1985) (statement of Sen. Glenn);  id. at 35,491-35,492 (statement of
Sen. Kennedy).

   b. The Court has long held that, under the Supremacy Clause,
federal law preempts state regulation where the latter "stands as an
obstacle to the accomplishment and execution of the full purposes and
objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941);
e.g., California v. ARC America Corp., 109 S. Ct. 1661, 1665 (1989);
Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 699 (1984).  That
established principle applies with full force in this case.  Under
Section 2488(a)(1), as the court of appeals correctly observed,
"Congress has mandated that the military procure liquor on a
competitive basis in order to maximize profits for the support of
welfare and morale activities" (J.S. App. A15).  That is a legitimate
federal legislative purpose which fully justifies pro tanto
displacement of state regulatory authority over a subject matter
otherwise principally regulated by the States.  Cf. United States v.
Oregon, 366 U.S. 643 (1961) (upholding federal statutory provision
that estate of a veteran who dies in a VA hospital intestate and
without legal heirs shall escheat to the United States,
notwithstanding contrary state law on devolution of property).

   Here, as detailed above, the record shows that the State's
regulations will, in effect, increase the military's annual liquor
bill by more than $200,000 and "require the military to make purchases
within the State -- purchases that would not otherwise be competitive
with out-of-state sources" (J.S. App. A15-A16).  In these
circumstances, the State's regulations plainly interfere with and
thwart the federal procurement scheme mandating "open competition"
(id. at A16).  Under the Supremacy Clause, the State's regulatory
efforts must fall.

   2. a. A longstanding companion principle under the Supremacy Clause
likewise bars the State's attempt to regulate the military's
procurement of alcoholic beverages.  As this Court has explained:

         Since the United States is a government of delegated powers,
      none of which may be exercised throughout the Nation by any one
      state, it is necessary for uniformity that the laws of the
      United States be dominant over those of any state.  Such
      dominancy is required also to avoid a breakdown of
      administration through possible conflicts arising from
      inconsistent requirements.  The supremacy clause of the
      Constitution states this essential principle.  Article VI.  A
      corollary to this principle is that the activities of the
      Federal Government are free from regulation by any state.  No
      other adjustment of competing enactments or legal principles is
      possible.

   Mayo v. United States, 319 U.S. 441, 445 (1943) (footnote omitted;
emphasis added).  Thus, putting aside for the moment the potential
impact of the Twenty-first Amendment (see pp. 35-42, infra), there can
be no serious doubt that the constitutional command of the Supremacy
Clause, as construed by this Court since M'Culloch v. Maryland, 17
U.S. (4 Wheat.) 316 (1819), together with the specific constitutional
authority to provide for, maintain, and regulate the nation's military
forces, /18/ would bar North Dakota from directly regulating the
military's procurement of alcoholic beverages.  /19/ A close look at
this case reveals that the State's liquor regulations represent a
thinly veiled effort to accomplish that forbidden goal.

   The corollary Supremacy Clause principle, as the Court's decisions
show, imposes limits on state power as regards the federal government
that extend well beyond taxation, the issue in M'Culloch v. Maryland.
In Johnson v. Maryland, 254 U.S. 51, 55-57 (1920), for example, the
Court held that Maryland could not require a post office employee to
obtain a state driver's license in order to drive a postal truck.  In
so holding, the Court viewed the principle expressed in M'Culloch and
succeeding cases as providing to "the instruments of the United States
(an immunity) from state control in the performance of their duties."
254 U.S. at 57.  Similarly, in Mayo v. United States, supra, the Court
made clear that the Supremacy Clause precludes any State from
attempting to regulate the activities of the federal government.
There, the Court struck down a Florida law insofar as it would have
required agents of the United States Department of Agriculture, as a
condition of distributing fertilizer under a federal statute, to
submit the fertilizer for state inspection and pay the accompanying
inspection fee.  319 U.S. at 444-448.  Such attempted state regulation
of federal activities, the Court concluded, was fundamentally at odds
with Supremacy Clause principles and thus the federal government's
"inherent freedom continues" (id. at 448).  And in Public Utilities
Comm'n v. United States, 355 U.S. 534 (1958), the Court held that
California could not prohibit common carriers from transporting
federal government property at rates lower than those approved by the
State's Public Utilities Commission.  The State's law, the Court
concluded, impermissibly interfered with federal law requiring
negotiated rates and the use of the "least costly means of
transportation." Id. at 542.  See also United States v. Georgia Public
Service Comm'n, 371 U.S. 285 (1963).

   In this same vein, the Court has specifically vindicated Congress's
exclusive right under Article I, Section 8 of the Constitution to
authorize the military to procure goods and services from whatever
sources it chooses, free of state limitations or restrictions.  In
Leslie Miller, Inc. v. Arkansas, 352 U.S. 187 (1956), for example, the
Air Force had awarded a base construction contract to a private firm
under Section 3 of the Armed Services Procurement Act of 1947, ch. 65,
62 Stat. 23, 41 U.S.C. 152 (1952), providing that awards on advertised
bids "shall be made * * * to that responsible bidder whose bid,
conforming to the invitation for bids, will be most advantageous to
the Government, price and other factors considered * * *" (352 U.S. at
188 (internal quotation marks omitted)).  The State then instituted
proceedings against the contractor for its failure to obtain a license
before executing the contract and starting to build, as required by
state law.  The Court rebuffed that regulatory intrusion, concluding
that the state licensing standards, designed to ensure a contractor's
reliability, created "a virtual power of review over the federal
determination of 'responsibility'" (id. at 190).  Accordingly,
following the rationale of Johnson v. Maryland, supra, the Court held
that the State had no authority to regulate the Air Force's awarding
of the base construction contract, since application of state law
would "frustrate the expressed federal policy of selecting the lowest
responsible bidder" (352 U.S. at 190).

   More recently, the case of Paul v. United States, 371 U.S. 245
(1963), involved California's efforts to apply its minimum milk price
regulation to military bases' milk purchases, where the applicable
federal regulation required procurement by the method that would
"obtain for the Government the most advantageous contract -- price,
quality, and other factors considered" (id. at 252 (internal quotation
marks and citation omitted)).  The Court struck down the State's
regulation under the Supremacy Clause, recognizing that the "collision
between the federal policy of negotiated prices and the state policy
of regulated prices is * * * clear and acute" (id. at 253), and
concluding that the State's regulation precluded the military from
complying with federal law to obtain milk at the lowest cost.  As the
Court explained:

         While the federal procurement policy demands competition, the
      California policy, as respects milk, effectively eliminates
      competition.  The California policy defeats the command to
      federal officers to procure supplies at the lowest cost to the
      United States, by having a state officer fix the price on the
      basis of factors not specified in the federal law.

   Ibid.

   b. This Court's decisions compel the conclusion that North Dakota
may not regulate the military's procurement of distilled spirits for
its installations.  Just as the California minimum price regulation in
Paul collided with the applicable federal procurement law requiring
the "most advantageous contract -- price, quality, and other factors
considered," the restrictions imposed by North Dakota upon the
military's procurement of alcoholic beverages clash with federal law
governing the military's procurement of liquor.  Congress has mandated
that the military obtain its liquor from the "most competitive source,
price and other factors considered" (10 U.S.C. 2488(a)(1) (Supp. V
1987)).  Yet in the face of this federal directive, the State seeks to
impose labeling and reporting requirements on the military's
out-of-state suppliers of distilled spirits that will essentially
eliminate those suppliers as available sources of those products.  As
a result, the State's regulations will, in effect, require the
military to procure those beverages locally at an annual increased
cost of more than $200,000.  In these circumstances, as the court of
appeals correctly held (J.S. App. A11-A18), the Supremacy Clause
invalidates the State's liquor regulations directed solely to
procurement by the federal government, just as it did the attempted
state regulation of federal activities in Paul, Leslie Miller, Inc.,
Mayo, and Public Utilities Comm'n.

   3. Appellants (Br. 17-20), joined by the National Beer Wholesalers'
Association, Inc. (Br. 9-14)), the National Alcoholic Beverage Control
Association, et al. (Br. 7-9), and the National Conference of State
Legislatures, et al. (Br. 17-19), as amici curiae, contend that this
case does not even implicate the federal government's constitutional
immunity from state regulation of its activities since North Dakota's
regulations apply only to third-party suppliers who do business with
the federal government.  In their view, the fact that suppliers may
choose to treat the regulations as so onerous as to cause them to stop
dealing with the military entirely, or to raise their prices on
military sales, does not implicate Supremacy Clause principles.  For
several reasons, that argument misses the mark.

   a. First, as is apparent from this Court's decisions in Paul,
Leslie Miller, Inc., and Public Utilities Comm'n, the fact that a
State's regulation applies by its terms to the federal government's
suppliers, as opposed to the federal government itself, does not free
that regulation from the constraints of the Supremacy Clause.  In each
of those decisions, the Court struck down on Supremacy Clause grounds
state laws that were both applicable to and enforceable against only
third parties with whom the government did business.  The Court thus
recognized that a State's attempted regulation of the conditions or
terms upon which the United States chooses to do business with a third
party contravenes the Supremacy Clause, notwithstanding the fact that
the State ostensibly has aimed its regulatory efforts at the
activities of the third party.  Here, North Dakota's liquor
regulations are just as much an impermissible attempt to regulate the
activities of the federal government as were the ill-fated regulatory
efforts in Paul, Leslie Miller, Inc., and Public Utilities Comm'n.

   b. Second, although nominally aimed at out-of-state suppliers,
North Dakota's regulations admittedly are designed to regulate the
federal enclaves' procurement and handling of alcoholic beverages.
/20/ The State has contended throughout the litigation that it imposed
the labeling and reporting requirements "in order to prevent the
unlawful diversion of liquor, either en route to the military enclaves
or off the enclaves after delivery, into the state's domestic
commerce" (J.S. 9).  Indeed, appellants have now made clear that the
real targets of their regulatory efforts are the State's two federal
military installations, not the military's out-of-state suppliers:
"The State's significant interest underlying the regulations
challenged here is predicated on the fact that liquor is diverted off
the military bases into the State's commerce.  The NFIs sell packaged
liquor to authorized purchasers who reside off base.  This practice
alone guarantees that liquor will be diverted into the State's
territory * * *." (Appellants' Br. 21).

   In other words, appellants object, so they claim, to the military's
practice of selling packaged alcoholic beverages (obtained from
out-of-state sources) to military personnel who reside off-base, and
seek through the State's regulations to put a stop to, or at least
inhibit, this practice.  But in our federal system it is simply not
the province of the States to regulate activities of the United States
or its instrumentalities.  This Court made that point with
unmistakable clarity in Mayo v. United States, 319 U.S. at 445,
stating that "the activities of the Federal Government are free from
regulation by any state." And that constitutional principle, as the
Court has held, obtains with particular force where a State seeks to
regulate the government's exclusive authority over military
procurement derived from Article I, Section 8 of the Constitution.
E.g., Paul v. United States, 371 U.S. at 253;  Leslie Miller, Inc. v.
Arkansas, 352 U.S. at 190.  /21/

   Furthermore, the Secretary of Defense, under his rulemaking
authority conferred by 50 U.S.C. App. 473, has promulgated a
regulation that specifically states that military package stores, such
as the NFIs located on the two bases in North Dakota, "shall provide
the sale of alcoholic beverages purchased for off-premise consumption
by authorized patrons * * * ." 47 Fed. Reg. 34,533 (1982) (codified at
32 C.F.R. 261.3).  Accordingly, to the extent the State's regulations
are aimed at preventing, inhibiting, or burdening the military from
selling packaged alcoholic beverages to military personnel who reside
off-base (where, as here, consumption of alcoholic beverages off-base
is not in itself prohibited by the State), the regulations directly
contravene federal law and must, accordingly, fall by virtue of the
Supremacy Clause.  /22/

   c. Finally, although the district court indicated that "the purpose
advanced by the State (for its regulations) does not appear to be
pretextual" (J.S. App. A31, and the court of appeals accepted that
assessment (id. at A15), a close examination of North Dakota's
regulatory scheme leads to the contrary conclusion -- appellants
imposed the regulations in order to force the military to purchase
more of its alcoholic beverages from in-state wholesalers subject to
the State's taxing authority.

   Appellants now assert (Br. 21) that the liquor regulations'
principal purpose is to put a stop to the diversion of liquor from the
two federal enclaves into the State's commerce that results from the
military's practice of selling packaged alcoholic beverages to
military personnel who reside off-base.  The military facilities,
however, not only sell packaged liquor purchased from out-of-state
suppliers;  those facilities also sell packaged beer and wine that, as
required by federal law, are obtained from licensed wholesalers
located in the State, see 10 U.S.C. 2488(a)(2) (Supp. V 1987), and, if
prices are competitive, the facilities are entirely at liberty to
purchase packaged liquor from such local wholesalers.  But the State's
labeling and reporting requirements apply only to liquor obtained by
the federal enclaves from out-of-state suppliers.  The State's
wholesalers, unlike out-of-state suppliers, are not required to affix
special labels to the alcoholic beverages they sell to the military
installations stating that the items must be consumed on those
premises, or to file monthly reports concerning their sales.  This
disparate treatment of out-of-state liquor suppliers and in-state
wholesalers is telling evidence that the real aim of the State's
regulations is not to prevent the diversion of alcoholic beverages
from the federal enclaves into the State's commerce.  To the contrary,
those regulations seek to compel the military to purchase its
alcoholic beverages from in-state wholesalers -- transactions in which
the State has a direct pecuniary interest since it imposes a tax on
such wholesale transactions.  See N.D. Cent. Code Sections 5-03-04 and
5-03-07 (1975).

   C. The Twenty-First Amendment Does Not Authorize The State Of North
Dakota To Interfere With The Federal Government's Exclusive Authority
To Regulate Military Procurement Of Alcoholic Beverages

   Appellants (Br. 12-14), again joined by the National Beer
Wholesalers' Association, Inc. (Br. 14-28), the National Alcoholic
Beverage Control Association, et al. (Br. 5-7), and the National
Conference of State Legislatures, et al. (Br. 19-22), as amici curiae,
seek to vindicate North Dakota's interference with the military's
procurement of alcoholic beverages on the basis of the State's
reserved power under the Twenty-first Amendment to regulate intrastate
commerce in alcoholic beverages.  To be sure, as the court of appeals
fully recognized, "the state has always had the right pursuant to its
police power to take reasonable measures to prevent the unlawful
diversion of liquor into its stream of commerce" (J.S. App. A16
(citations omitted)).  But contrary to the assertion of the State and
amici, the Twenty-first Amendment does not authorize the States to
pursue that objective by regulating federal procurement of liquor to
be supplied to federal military enclaves.  /23/

   1. Section 2 of the Twenty-first Amendment /24/ generally permits
the States to regulate and tax private commerce in alcoholic beverages
in a manner that, without the Amendment, would be prohibited under the
Commerce Clause as a burden on interstate commerce.  See Craig v.
Boren, 429 U.S. 190, 206 (1976).  Thus, in State Bd. of Equalization
v. Young's Market Co., 299 U.S. 59, 62-63 (1936), the Court held that
the Twenty-first Amendment permitted California to impose a license
fee upon private parties wishing to import beer into the State,
although the Commerce Clause would otherwise have barred such a fee.

   But even in this limited area, the Court has rejected the
proposition that the Twenty-first Amendment renders the Commerce
Clause inoperative simply because the State seeks to regulate
alcoholic beverages.  /25/ "To draw a conclusion * * * that the
Twenty-first Amendment has somehow operated to 'repeal' the Commerce
Clause wherever regulation of intoxicating liquors is concerned would,
however, be an absurd oversimplification." Hostetter v. Idlewild Bon
Voyage Liquor Corp., 377 U.S. 324, 331-332 (1964).  Thus, in
Hostetter, the Court held that New York had no authority to interfere
with the sale of liquor at a local airport for delivery to consumers
in foreign countries, where the airport was under the supervision of
the Bureau of Customs (now the Customs Service).  And the Court there
noted that to conclude that Congress had retained no regulatory power
over commerce in alcoholic beverages would be "patently bizarre and *
* * demonstrably incorrect" (377 U.S. at 332).  See Bacchus Imports,
Ltd. v. Dias, 468 U.S. 263, 274 (1984);  California Retail Liquor
Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 110 (1980);  see
also Healy v. Beer Institute, Inc., No. 88-449 (June 19, 1989), slip
op. 17-19.

   2. As this Court has made clear, "(o)nce passing beyond
consideration of the Commerce Clause, the relevance of the
Twenty-first Amendment to other constitutional provisions becomes
increasingly doubtful." Craig v. Boren, 429 U.S. at 206.  For example,
in Department of Revenue v. James B. Beam Distilling Co., 377 U.S. 341
(1964), Kentucky attempted to tax the importation of Scotch whiskey
into the State for later sale throughout the United States.
Recognizing that the tax violated the Export-Import Clause (U.S.
Const. Art. I, Section 10, Cl. 2), the State argued that the
Twenty-first Amendment nevertheless authorized its imposition.  In
rejecting the State's argument, the Court distinguished those cases
involving conflicts between state liquor laws and the Commerce Clause
and noted that it had never so much as intimated that the Twenty-first
Amendment permits what the Export-Import Clause explicitly forbids
(377 U.S. at 344).  Indeed, the Court emphasized:

         Nothing in the language of the Amendment nor in its history
      leads to such an extraordinary conclusion.  * * * (N)ow that the
      claim for the first time is squarely presented, we expressly
      reject it.

   Id. at 345-346.

   Similarly, the Twenty-first Amendment has not insulated state
liquor provisions from the commands of the Fourteenth Amendment.  In
striking down under the Equal Protection Clause a state law
prohibiting the sale of 3.2% beer to males under 21 years of age, but
permitting such sales to women aged 18 years or over, the Court in
Craig v. Boren, supra, specifically held that "the operation of the
Twenty-first Amendment does not alter the application of equal
protection standards that otherwise govern this case" (429 U.S. at
209).  And in Wisconsin v. Constantineau, 400 U.S. 433, 436-439
(1971), where a state statute authorized the posting in a public place
of the names of excessive drinkers, the Court held that the
Twenty-first Amendment could not save that statute from violating the
Due Process Clause, where such persons were not first given notice and
an opportunity to be heard.  /26/

   3. In light of the limited scope of the Twenty-first Amendment with
respect to competing constitutional commands, this Court has held that
the immunity of federal activities and property from state control or
regulation remains wholly unaffected by the Amendment.  In Collins v.
Yosemite Park & Curry Co., 304 U.S. 518 (1938), for example,
California sought to apply its liquor licensing requirements to a
corporation selling alcoholic beverages in Yosemite National Park
under a lease from the United States.  The Court squarely held that
the Twenty-first Amendment did not give the State jurisdiction to
regulate the sale of alcoholic beverages on an enclave of exclusive
federal jurisdiction, and thus the State could not apply its
regulations.  304 U.S. at 537-538.

   In more recent decisions involving Mississippi's efforts to
regulate military facilities' procurement of alcoholic beverages, the
Court has made clear that the rationale of Collins is not limited to
situations where the federal government exercises exclusive
jurisdiction.  In United States v. Mississippi Tax Comm'n, 412 U.S.
363 (1973) (Mississippi Tax Comm'n I), Mississippi sought to compel
the four military facilities located in that State to purchase liquor
either from the State Tax Commission (at a 17 or 20% markup) or from
distillers who were required to collect and remit the same markup to
the State.  Since two of the four bases were areas of exclusive
federal jurisdiction, the case initially turned on the resolution of a
conflict between the State's asserted power under the Twenty-first
Amendment and the federal government's exclusive authority over such
bases under Article I, Section 8, Clause 17 of the Constitution.  See
412 U.S. at 364-368.  Following Collins, the Court held that "the
Twenty-first Amendment confers no power on a State to regulate --
whether by licensing, taxation, or otherwise -- the importation of
distilled spirits into territory over which the United States
exercises exclusive jurisdiction" (id. at 375).  Indeed, the Court
recognized that a different result would not obtain even if it were
assumed that some of the liquor purchased on the installations would
be consumed off-base and hence within the State's jurisdiction (id. at
376-377).

   The Court, however, remanded the case for consideration, among
other issues, of whether the Twenty-first Amendment empowers the State
to regulate shipments of liquor destined for its two concurrent
jurisdiction bases.  See 412 U.S. at 379-381.  On appeal from the
remand, this Court squarely held that the State's reliance on the
Twenty-first Amendment to regulate the military's importation of
liquor for the two concurrent jurisdiction bases rested on no stronger
foundation than its ill-fated attempt to regulate out-of-state
shipments to exclusive jurisdiction bases.  United States v.
Mississippi Tax Comm'n, 421 U.S. 599, 613-614 (1975) (Mississippi Tax
Comm'n II).  As the Court made clear:

         Nor does the Twenty-first Amendment require a different
      result.  When the case was last here we held that "the
      Twenty-first Amendment confers no power on a State to regulate
      -- whether by licensing, taxation, or otherwise -- the
      importation of distilled spirits into territory over which the
      United States exercises exclusive jurisdiction (pursuant to Art.
      I, Section 8, cl. 17, of the Constitution)." 412 U.S., at 375;
      see Collins v. Yosemite Park & Curry Co., 304 U.S. 518, 538
      (1938).  Cf. James v. Dravo Contracting Co., 302 U.S. 134, 140
      (1937).  We reach the same conclusion as to the concurrent
      jurisdiction bases to which Art. I, Section 8, cl. 17, does not
      apply * * *.

   421 U.S. at 613 (brackets in original)).  /27/

   4. Taken together, this Court's decisions in Mississippi Tax Comm'n
I and Mississippi Tax Comm'n II, when considered in light of settled
doctrine that the Twenty-first Amendment has little force outside the
Commerce Clause arena, establish that the Amendment does not confer
authority on the States to regulate the federal government's
procurement of alcoholic beverages.  In this area, as in all others,
the Supremacy Clause precludes state regulation of federal activities.
 E.g., Leslie Miller, Inc. v. Arkansas, 352 U.S. at 190;  Mayo v.
United States, 319 U.S. at 448;  Johnson v. Maryland, 254 U.S. at 57.
Here, as we have shown, North Dakota's regulations conflict with
federal procurement law and with federal regulation of military
enclaves and thus do not survive scrutiny under the Supremacy Clause.
And, as this Court's decisions make clear, those regulations may not
be resurrected under the Twenty-first Amendment.  /28/

   5. Confronted with this daunting line of precedent, appellants and
their supporting amici seize upon the Court's statement in Mississippi
Tax Comm'n I, 412 U.S. at 377 -- that a State may, "in the absence of
conflicting federal regulation," regulate liquor shipments destined
for military bases located within the State -- as support for North
Dakota's regulations.  Appellants and amici have grasped a straw man.

   First, the Court plainly stated that as a necessary (but not
sufficient) condition, any state regulatory effort must not conflict
with federal law.  Here, as we have shown and as the court of appeals
correctly held, the State's regulations contravene applicable federal
procurement law.  See pp. 16-30, supra.  Thus, North Dakota has not
even satisfied the criteria for valid state liquor regulation
suggested in Mississippi Tax Comm'n I.

   Second, after stating that there was no need at that time to
delineate the precise contours of the State's authority to regulate
liquor passing through its territory, the Court in Mississippi Tax
Comm'n I, 412 U.S. at 378, concluded that the State could not regulate
direct transactions between the two exclusively federal enclaves in
Mississippi and its out-of-state suppliers.  And in Mississippi Tax
Comm'n II, as discussed above, the Court made clear that its earlier
holding was not grounded on rigid notions of territoriality.  To the
contrary, after noting its earlier conclusion that the Twenty-first
Amendment "confers no power on a State to regulate -- whether by
licensing, taxation, or otherwise -- the importation of distilled
spirits into territory over which the United States exercises
exclusive jurisdiction * * *," the Court expressly held that "(w)e
reach the same conclusion as to the concurrent jurisdiction bases * *
*." Mississippi Tax Comm'n II, 421 U.S. at 613 (internal quotation
marks and citations omitted)).  Accordingly, the Twenty-first
Amendment does not save North Dakota's regulations, which, in
contravention of the Supremacy Clause, interfere with the federal
government's procurement of liquor for bases located within the State.
 /29/

                              CONCLUSION

   The judgment of the court of appeals should be affirmed.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   SHIRLEY D. PETERSON

      Assistant Attorney General

   LAWRENCE G. WALLACE

      Deputy Solicitor General

   MICHAEL R. LAZERWITZ

      Assistant to the Solicitor General

   RICHARD FARBER

      Attorney

   JULY 1989

   /1/ The Court's appellate jurisdiction conferred in Section 1254(2)
was repealed by the Act of June 27, 1988, Pub. L. No. 100-352, Section
2(a), 102 Stat. 662, but the repeal did not take effect until
September 25, 1988 (Section 7, 102 Stat. 664).  The repeal does not
apply to this case, because it does "not * * * affect the right to
review or the manner of reviewing the judgment or decree of a court
which was entered before such effective date" (ibid.).

   /2/ In 1983, the Department of Defense amended the regulation by
substituting the phrase "price and other factors considered" for the
phrase "price and other considered factors." Department of Defense
Change No. 1 for Armed Services Military Club and Package Store
Regulation 1015.3-R, ch. 4, Section C.  The Code of Federal
Regulations inaccurately contains the original phrasing.  We have
inserted the corrected phrasing in our citation to the codified
version of the regulation in the Code of Federal Regulations and will
refer to that corrected version.

   /3/ Department of Defense Armed Services Military Club and Package
Store Regulation 1015.3-R, ch. 4, Section C, also requires the
military to obtain liquor for the NFIs "under such conditions as shall
obtain for the government the most advantageous contract, price and
other factors considered" (32 C.F.R. 261.4).  The Secretary of Defense
promulgated the Department of Defense Armed Services Military Club and
Package Store Regulations under his rulemaking authority conferred by
50 U.S.C. App. 473, which empowers him "to make such regulations as he
may deem to be appropriate governing the sale, consumption, possession
of or traffic in beer, wine, or any other intoxicating liquors to or
by members of the Armed Forces."

   /4/ In response to prodding by Congress, the military recently has
further consolidated its purchasing program for alcoholic beverages
sold by NFIs located on Army and Air Force bases.  See H.R. Rep. No.
563, 100th Cong., 2d Sess. 200-201 (1988);  H.R. Conf. Rep. No. 753,
100th Cong., 2d Sess. 375-376 (1988).  Effective March 25, 1989, the
Army and Air Force Exchange Service (AAFES) became solely responsible
for operating those NFIs.  See Transfer of Function Agreement Between
the Departments of the Army and Air Force and the Army and Air Force
Exchange Service for the Management and Operation of Army and Air
Force Class VI (Package Beverage) Stores (Nov. 1, 1988).  AAFES, whose
primary purpose is to provide discount goods and services to military
personnel, is an established entity within the Army and the Air Force.
 See Department of the Army Regulation 60-10/Department of the Air
Force Regulation 147-7, ch. 1 (1984).  As a result of this transfer of
authority, AAFES currently coordinates alcoholic beverage purchases
for NFIs on military bases located throughout the country;  AAFES
purchases in bulk quantities whenever appropriate and utilizes a
central distribution system.  With respect to purchases of alcoholic
beverages for the North Dakota installations, AAFES continues to buy
most of those spirits directly from out-of-state distillers/suppliers.

   /5/ Under the State's regulatory scheme, there are three levels of
liquor suppliers:  out-of-state distillers/suppliers, state-licensed
wholesalers, and state-licensed retailers.  The State imposes a tax at
the wholesale and retail levels.  See N.D. Cent. Code Sections 5-03-04
and 5-03-07 (1975);  N.D. Cent. Code Section 57-39.2-03.2 (1983 &
Supp. 1987).

   /6/ Appellant Robert E. Hanson, as the State Treasurer of North
Dakota, promulgated the regulations under his statutory authority to
regulate the State's liquor distribution system.  See N.D. Cent. Code
Section 5-03-05 (1975).  The regulations "have the force of law thirty
days after the date of mailing to the persons affected by such
regulations" (ibid.).

   /7/ From December 1985 through October 1986, federal law required
the military to procure liquor from suppliers within the State in
which the base was located.  See Act of Dec. 19, 1985, Pub. L. No.
99-190, Tit. VIII, Section 8099, 99 Stat. 1219.  As of November 1,
1986, however, Congress authorized the military once again to purchase
liquor from the most competitive source regardless of location.  See
Act of Oct. 30, 1986, Pub. L. No. 99-591, Tit. IX, Section 9090, 100
Stat. 3341-116;  Act of Nov. 14, 1986, Pub. L. No. 99-661, Tit. III,
Section 313, 100 Stat. 3853.  Hence, the labeling and reporting
requirements imposed by appellants' regulations had no practical
effect until November 1986.

   /8/ We have been informed by military officials responsible for
liquor procurement that these suppliers are the primary distillers or
importers of many popular brands of distilled spirits, including
Smirnoff vodka, Jose Cuervo tequila, Johnnie Walker Black Label and
Red Label scotch, Tanqueray gin, Canadian Club whiskey, Courvoisier
cognac, Jim Beam bourbon, Chivas Regal scotch, and Seagrams 7 Crown
whiskey.

   /9/ Kobrand imports Beefeaters gin, another popular brand of
   liquor.

   /10/ That official also estimated that the State's regulations
would impose an additional cost of $50,000 for the military's
immediate liquor procurement needs in November and December 1986 (J.A.
26-27).

   /11/ Appellants did not dispute the declaration submitted by the
United States detailing the expected additional costs imposed by the
regulations.  Nor did appellants dispute that the five identified
out-of-state suppliers would no longer service the bases in North
Dakota and that another supplier would substantially raise its prices.
 See Declaration of Kim Keltz, Chief of the Special Contracts Branch,
Air Force Nonappropriated Fund Purchasing Office, San Antonio, Texas
(J.A. 25-27).

   In support of their position, however, appellant submitted an
affidavit of appellant Robert E. Hanson.  That affidavit stated that
"(v)arious distillers/suppliers have notified (him) that they intend
to comply with (the regulations)" (J.A. 34).  The affidavit did not
identify those out-of-state suppliers.  Moreover, the affidavit
declared that Hanson, in his capacity as State Treasurer, is "aware of
the diversion of alcoholic beverages from North Dakota federal
enclaves into the state's domestic commerce in contravention of the
state's established liquor distribution system" (J.A. 35).  The
affidavit did not identify any such diversions, although it mentioned
two such incidents in Hawaii and Washington (J.A. 36).  In a second
affidavit, Hanson ultimately did mention two instances of apparent
diversion of liquor from the North Dakota military bases.  Hanson
could neither confirm that those diversions actually occurred nor
relate the amount of liquor involved.  J.A. 49-52.

   /12/ The court stated that "(w)hether or not there have been actual
cases of unlawful diversion is not particularly relevant" (J.S. App.
A31);  see note 11, supra.

   /13/ In enacting the statute, Congress, in effect, codified the
provisions of Department of Defense Armed Services Military Club and
Package Store Regulation 1015.3-R, ch. 4, Section C (codified at 32
C.F.R. 261.4), which similarly states that the purchase of all
alcoholic beverages for resale on any military installation "shall be
in a manner and under such conditions as shall obtain for the
government the most advantageous contract, price and other factors
considered."

   /14/ On the House floor, Representative Robinson of Arkansas had
sponsored an amendment to reinstitute the in-state purchasing
requirement for all alcoholic beverages.  See 132 Cong. Rec. 21,225
(1986).  That amendment, which Representative Dorgan of North Dakota
supported (see 132 Cong. Rec. 21,639 (1986)), was defeated by a
recorded vote (see 132 Cong. Rec. 21,638-21,640 (1986)).

   /15/ That statute provides in pertinent part:

         None of the funds appropriated by this Act shall be used for
      the support of any nonappropriated fund activity of the
      Department of Defense that procures malt beverages and wine with
      nonappropriated funds for resale * * * on a military
      installation located in the United States, unless such malt
      beverages and wine are procured in that State, or in the
      District of Columbia, within the District of Columbia, in which
      the military installation is located:  Provided, That in a case
      in which a military installation is located in more than one
      State, purchases may be made in any State in which the
      installation is located:  Provided further, That such local
      procurement requirements for malt beverages and wine shall apply
      to all alcoholic beverages for military installations in states
      which are not contiguous with another state:  Provided further,
      That alcoholic beverages other than wine and malt beverages in
      contiguous states and the District of Columbia shall be procured
      from the most competitive source, price and other factors
      considered.

   Act of Oct. 30, 1986, Pub. L. No. 99-591, Tit. IX, Section 9090,
100 Stat. 3341-116.

   /16/ Without support in the statutory language or history,
appellants (Br. 16-17, 22), joined by the National Beer Wholesalers'
Association, Inc. (Br. 6-7 & n.6), the National Alcoholic Beverage
Control Association, et al. (Br. 9-10), and the National Conference of
State Legislatures, et al. (Br. 16), as amici curiae, appear to
suggest that federal law itself directs the military to consider
complying with state liquor control laws as a factor overriding price
considerations in choosing its suppliers for alcoholic beverages.
That notion is not only antithetical to the federal statutory purpose,
it flies in the face of the controlling federal regulation, Department
of Defense Armed Services Military Club and Package Store Regulation
1015.3-R, ch. 4, Section C (codified at 32 C.F.R. 261.4).  That
regulation provides that, although the Department of Defense will
cooperate with state and local officials regarding alcoholic
beverages, the purchase of all alcoholic beverages for resale at any
military facility shall be

      under such conditions as shall obtain for the government the
      most advantageous contract, price and other factors considered.
      These other factors shall not be construed as meaning any
      submission to state control, nor shall cooperation be construed
      or represented as an admission of any legal obligation to submit
      to state control, pay state or local taxes, or purchase
      alcoholic beverages within geographical boundaries or at prices
      or from suppliers prescribed by any state.

   Department of Defense Armed Services Military Club and Package
Store Regulation 1015.3-R, ch. 4, Section C (emphasis added).

   The National Conference of State Legislatures, et al. (Br. 14-15),
as amici curiae, seek to blunt the force of that regulation by
pointing out that the Secretary of Defense promulgated it not under
Section 2488(a)(1), but rather under 50 U.S.C. App. 473.  That
observation, although factually accurate, see note 3, supra, is
legally irrelevant, since it is undisputed that the Secretary's
regulation has the force of law, and is wholly consistent with
Congress's statutory directive.

   /17/ 10 U.S.C. 2488(a)(1) (Supp. V 1987);  see Department of
Defense Armed Services Military Club and Package Store Regulation
1015.3-R, ch. 4, Section C (codified at 32 C.F.R. 261.4).

   /18/ See U.S. Const. Art. I, Section 8, Cls. 12, 14.

   /19/ Appellants (Br. 18-19 & n.5), together with the National Beer
Wholesalers' Association, Inc. (Br. 6-7 & n.6), the National Alcoholic
Beverage Control Association, et al. (Br. 9-11), and the National
Conference of State Legislatures, et al. (Br. 17-19), as amici curiae,
appear to concede as much.

   /20/ By its express terms, the State's labeling regulation applies
only to sales by out-of-state suppliers to the federal military
installations located within the State.  See N.D. Admin. Code Section
84-02-01-05(7) (1986) (quoted p. 4, supra).

   /21/ Appellants (Br. 18-19), together with the National Alcoholic
Beverage Control Association, et al. (Br. 7), and the National
Conference of State Legislatures, et al. (Br. 12-14 & n.13), as amici
curiae, mistakenly rely on Penn Dairies, Inc. v. Milk Control Comm'n,
318 U.S. 261, 269-275 (1943).  In that case, the Court upheld a
State's refusal to renew the license of a milk dealer who had sold
milk to a military installation at prices below those prescribed by
state law.  In holding that state law did not impermissibly interfere
with federal procurement law, the Court made clear that the
then-applicable federal regulation, which otherwise called for
competitive procurement, suspended that requirement "when the price is
fixed by federal, state, municipal or other competent legal authority"
(318 U.S. at 277 (internal quotation marks and citation omitted)).  In
other words, the State's regulatory efforts had not been preempted
because Congress effectively had implemented a "hands off policy"
concerning state minimum price laws (id. at 278).  By contrast, here,
as in Paul v. United States, 371 U.S. at 254-255 (implementing a
procurement policy revised by Congress after Penn Dairies), applicable
federal law requires, without exception, that the military's
procurement proceed on a competitive basis.  Thus, as the court of
appeals correctly concluded (J.S. App. A16-A17), Penn Dairies does not
save North Dakota's regulations.

   /22/ For that reason as well, this case is readily distinguishable
from the hypothetical examples cited by appellants (Br. 17-18) and the
National Conference of State Legislatures, et al. (Br. 12), as amici
curiae, where a particular State's health or safety regulation applies
equally to all firms, whether owned by private parties, state or local
governments, or the United States.

   /23/ To the extent the real aim of the State's regulations is to
force the military to purchase its alcoholic beverages from in-state
sources and thereby to increase the State's liquor tax revenues,
appellants and amici can take no refuge in the Twenty-first Amendment.

   /24/ Section 2 of the Twenty-first Amendment provides:

         The transportation or importation into any State, Territory,
      or possession of the United States for delivery or use therein
      of intoxicating liquors, in violation of the laws thereof, is
      hereby prohibited.

   /25/ The Court's decision in Bacchus Imports, Ltd. v. Dias, 468
U.S. 263, 274-276 (1984), even casts doubt on the continuing vitality
of Young's Market Co.

   /26/ Furthermore, the Court has not given controlling weight to
state law when resolving conflicts between State regulation of
alcoholic beverages under the Twenty-first Amendment and competing
federal law.  Thus, in South Dakota v. Dole, 483 U.S. 203 (1987), the
State, which had established 19 as its legal drinking age for 3.2%
beer, challenged a federal law that required the Secretary of
Transportation to withhold a percentage of federal highway funds
available to the State if the State did not raise its minimum drinking
age to 21.  The federal government defended the provision as a valid
exercise of Congress's spending power;  the State relied upon its
exclusive right, under the Twenty-first Amendment, to set the drinking
age for its residents.  483 U.S. at 205-206.  In upholding the federal
law, the Court concluded that the Twenty-first Amendment could not
nullify Congress's valid exercise of its spending power (id. at
209-212).  See also Kleppe v. New Mexico, 426 U.S. 529 (1976)
(recognizing Congress's broad power under the Property Clause (U.S.
Const. Art. IV, Section 3, Cl. 2)).

   /27/ See also United States v. Texas, 695 F.2d 136, 139-141 (5th
Cir.) (invalidating state regulation of military's procurement of
alcoholic beverages), cert. denied, 464 U.S. 933 (1983);  United
States v. South Carolina, 578 F. Supp. 549, 553 (D.S.C. 1983) (same).

   /28/ Appellants suggest (Br. 20-24) that the Court should balance
the State's interests in regulating the sale of alcoholic beverages
with the federal government's interest in military procurement.  That
suggestion is inappropriate.  To be sure, this Court has applied a
balancing test in certain cases to determine the validity of state
liquor laws enacted under authority of the Twenty-first Amendment that
conflict with other constitutional provisions or federal law.  But
none of those cases has involved the federal government's immunity
under the Supremacy Clause from state regulation of its affairs.
Rather, each of those decisions involved a challenge to state liquor
laws by private parties claiming the protection of federal law or
overriding federal policy.  See, e.g., Bacchus Imports, Ltd. v. Dias,
468 U.S. 263 (1984) (conflict between Hawaii liquor tax provision and
Commerce Clause resolved in favor of Commerce Clause);  California
Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97
(1980) (conflict between State's wine minimum pricing system and the
Sherman Act resolved in favor of federal interests reflected in the
Sherman Act);  Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S.
324 (1964) (conflict between New York State liquor regulation and
Commerce Clause resolved in favor of Commerce Clause).  See also 324
Liquor Corp. v. Duffy, 479 U.S. 335 (1987);  Brown-Forman Distillers
Corp. v. New York State Liquor Authority, 476 U.S. 573 (1986);
Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984).

   /29/ The National Beer Wholesalers' Association, Inc. (Br. 22-24 &
n.9) and the National Conference of State Legislatures, et al. (Br.
18), as amici curiae, seek to blunt the force of Mississippi Tax
Comm'n II by suggesting that the decision "has only forbidden state
taxation -- and specifically, only where the state places the legal
incidence of the tax on the United States or its instrumentalities"
(National Beer Wholesalers' Association, Inc. Br. 22).  That
contention cannot be squared with the Court's express conclusion (421
U.S. at 613) that the Twenty-first Amendment does not empower the
States to regulate the federal government's direct importation of
liquor into federal enclaves, like military bases, where the
government exercises exclusive or concurrent jurisdiction.  Moreover,
as we have shown (see pp. 31-34, supra), North Dakota, through its
regulations, is effectively trying to "tax" the federal government
(and favor in-state business interest in the process) by forcing it to
change its procurement policy and purchase liquor from in-state
suppliers.