Opinion ID: 1141147
Heading Depth: 4
Heading Rank: 2

Heading: Processed v. Fresh Foods

Text: HFM relies primarily on Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984), to support its argument that it should receive a refund of the GET imposed on sales of its processed foods. In Bacchus, liquor wholesalers challenged the constitutionality of a Hawai'i tax which imposed a twenty percent GET on wholesale liquor sales. Specifically, the wholesalers claimed that exemptions from the tax granted to okolehao and fruit (pineapple) wine violated, among other things, the Commerce Clause. Id. at 265, 104 S.Ct. at 3052. The United States Supreme Court agreed with the wholesalers. The Court held that the exemptions violated the Commerce Clause's cardinal rule against simple economic protectionism by discriminating against non-Hawaiian liquor products in both purpose and effect. Id. at 270-71, 104 S.Ct. at 3053-55. In so holding, the Court rejected the State of Hawai'i's argument that there was no discriminatory effect on interstate commerce because okolehao and pineapple wine do not compete with the other products sold by the wholesalers: [N]either the small volume of sales of exempted liquor nor the fact that the exempted liquors do not constitute a present competitive threat to other liquors is dispositive of the question whether competition exists between the locally produced beverages and foreign beverages; instead, they go only to the extent of such competition. It is well-settled that [w]e need not know how unequal the Tax is before concluding that it unconstitutionally discriminates. Id. at 268-69, 104 S.Ct. at 3053-54 (quoting Maryland v. Louisiana, 451 U.S. 725, 760, 101 S.Ct. 2114, 2136, 68 L.Ed.2d 576 (1981)) (footnote omitted). Thus, the Court held that [a]s long as there is some competition between the locally produced exempt products and nonexempt products from outside the State, there is a discriminatory effect. Id. at 271, 104 S.Ct. at 3055 (emphasis added). HFM argues that, under Bacchus, it can establish a constitutional violation by showing that there was at least some competition between its processed foods and exempt local fresh foods. Once it makes that showing, HFM argues, under McKesson it is entitled to a meaningful remedy, which must be adequate to redress its specific Commerce Clause injury i.e., the extra tax burden imposed on the sales of its imported processed foods. Under the refund option, HFM maintains, that means a full GET refund. The Director does not dispute that the existence of some competition between HFM's non-exempt imported processed foods and exempt local fresh foods is sufficient under Bacchus to establish a constitutional violation. He argues, however, that because he has already conceded the unconstitutionality of the exemption, the competition discussion in Bacchus is not relevant to the decision as to the scope of the remedy. The relevant inquiry for remedy purposes is the scope of the exemption. The Director's argument that the violation inquiry i.e., whether there was some competition between exempt and non-exempt productsis divorced from the remedy inquiry essentially reduces to the following: when the legislature enacted HRS § 237-24(18)(C), it clearly intended to give local fresh food products a competitive advantage over all processed foods, regardless of whether they were produced in Hawai'i or elsewhere. To effectuate this intention, the Director has always restricted HRS § 237-24(18)(C)'s exemption to sales of fresh local foods; sellers of processed foods, whether local or imported, have never been allowed to claim the exemption. Given that practice, the Director argues, the fact that HFM imported its processed foods rather than purchased them locally is irrelevant to why it is not entitled to the exemption under HRS § 237-24(18)(C); the only determinative fact is that it sold processed, not fresh, foods. Consequently, if HFM were given a refund of the GET it paid on its sales of processed foods, it would effectively be getting an exemption that no other taxpayerlocal or foreignever had received and which the legislature never intended to grant. Thus, the Director's main argument on the refund option appears to be that the Constitution requires only that HFM be put in the position that it would have been in had HRS § 237-24(18)(C) never included the local preference, and that it should not be made better off simply because the statute turned out to be constitutionally defective. That means that, even if HFM could establish an abstract violation of its Commerce Clause rights by showing that its imported processed foods were in some competition with local fresh foods, HFM would still not be entitled to a refund of any of the GET it had paid on the sales of those products. Rights, constitutional and otherwise, do not exist in a vacuum. Their purpose is to protect persons from injuries to particular interests, and their contours are shaped by the interests they protect. Our legal system's concept of damages reflects this view of legal rights. Carey v. Piphus, 435 U.S. 247, 254, 98 S.Ct. 1042, 1047, 55 L.Ed.2d 252, 259 (1978) (paragraph break omitted). The fatal flaw in the Director's argument is that it ignores the fundamental principle of law that the Supreme Court articulated in Carey: the nature of the injury determines the scope of the remedy. The Director acknowledges that, under Bacchus, HFM could establish that § 237-24(18)(C) is unconstitutional as applied to it by showing that there was some competition between its imported processed foods and the exempt local products. Thus, the tax discrimination against its processed foods is HFM's Commerce Clause injury. Once HFM demonstrates that injury, McKesson holds that it is entitled to meaningful retrospective relief. If the Director chooses to provide that relief by way of a refund, the refund must consist of the GET it paid on its sales of processed foods. Otherwise, HFM's particular Commerce Clause injury would go unremedied, and it would not receive the meaningful relief that the Due Process Clause mandates. The Director's attempt to escape these basic principles is unavailing. The mere fact that HFM hypothetically might be better off than it would have been had the statute not been constitutionally infirm in the first place is purely of the state's own doing and cannot be the basis for the state to skirt its constitutional obligations. As the Supreme Court stated in McKesson: If, through the State's own choice of relief, petitioner ends up paying a smaller tax than it would have paid if the State initially had imposed the highest rate on everyone, petitioner would not enjoy an unpalatable windfall. Rather, petitioner would merely be protected from the comparative economic disadvantage proscribed by the Commerce Clause. 496 U.S. at 43, 110 S.Ct. at 2253-54. If the state chooses the refund option, the amount refunded should include the GET that HFM paid on sales of its processed foods, as long as they were in some competition with exempt local fresh foods.