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May 24, 1996


Appeal from Autauga Circuit Court. (CV-93-175).

Released for Publication August 22, 1996.

Maddox, Shores, and Butts,* JJ., concur. Houston, J., concurs specially. Almon, Kennedy, and Cook, JJ., concur in the result. Hooper, C. J., Dissents.


Levi Welch, doing business as Party Tyme Package Store in Prattville, Alabama, sought a judgment declaring that § 6-26 of the Prattville City Code violated the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. The defendants, the City of Prattville and its mayor, David Whetstone (hereinafter together referred to as "the City"), appeal from a summary judgment in favor of Welch. We reverse and remand.

Welch's business, Party Tyme Package Store, is engaged in the retail sale of alcoholic beverages for off-premises consumption; it is located within the city limits of Prattville. Section 6-26, which is included within a chapter of the City Code entitled "Business Licenses, Taxes and Regulations," provides, in pertinent part:

"(a) Liquor: In addition to the license fee, each lounge retail restaurant liquor and club liquor licensee will pay monthly to the city clerk, on forms provided by the clerk, a tax of ten (10) percent on all liquor purchases from ABC outlets, retail and wholesale."

(Emphasis added.) Welch sued the City, alleging that § 6-26 was unconstitutional in its unequal treatment of private retail liquor licensees (which are required to pay the 10% tax) and state-owned Alcoholic Beverage Control Board stores (which are exempt from the tax imposed by § 6-26). Welch asked that § 6-26 be declared unconstitutional and that the City be ordered to reimburse him for the taxes that had been previously levied against him pursuant to § 6-26.

The trial court, agreeing with Welch's contention that there is no "rational basis for disparate treatment" of privately owned "package stores" and state-owned liquor stores, ruled that § 6-26 was unconstitutional and ordered that it be stricken from the City Code. The trial court also awarded Welch $41,370.63 in damages from the City -- a figure determined by totaling the amount of the taxes that Welch had paid between December 1991 and November 1993, pursuant to § 6-26, plus interest.

The basic issue presented in this case is whether the Fourteenth Amendment mandates that state liquor stores and private liquor stores be treated the same for tax purposes by the municipalities in which they do business. Stated differently, does the state's immunity from municipal taxation of its liquor stores violate the equal protection guarantee of the Fourteenth Amendment? The Fourteenth Amendment provides that "no state shall ... deny to any person within its jurisdiction the equal protection of the laws." In Plyler v. Doe, 457 U.S. 202, 216, 72 L. Ed. 2d 786, 102 S. Ct. 2382 (1982), the United States Supreme Court noted:

"The Equal Protection Clause directs that 'all persons similarly circumstanced shall be treated alike.' F. S. Royster Guano Co. v. Virginia, 253 U.S. 412, 415, 40 S. Ct. 560, 561, 64 L. Ed. 989 (1920). But so too, 'the Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same.' Tigner v. Texas, 310 U.S. 141, 147, 60 S. Ct. 879, 882, 84 L. Ed. 1124 (1940). The initial discretion to determine what is 'different' and what is 'the same' resides in the legislatures of the States. A legislature must have substantial latitude to establish classifications that roughly approximate the nature of the problem perceived, that accommodate competing concerns both public and private, and that account for limitations on the practical ability of the State to remedy every ill. In applying the Equal Protection Clause to most forms of state action, we thus seek only the assurance that the classification at issue bears some fair relationship to a legitimate public purpose."

After carefully considering the record and the briefs, we conclude that state liquor stores and private liquor stores are not "similarly circumstanced" for purposes of the Equal Protection Clause. State liquor stores are owned, operated, and regulated by the state pursuant to its police power. See Ex parte Alabama Alcoholic Beverage Control Board, 1996 Ala. LEXIS 49, 683 So. 2d 952 (Ala. 1996); State ex rel. Wilkinson v. Murphy, 237 Ala. 332, 186 So. 487 (1939). By refusing to consent to the local taxation of its liquor stores -- municipalities have no power to tax the state or its agencies without the state's consent, see, e.g., Greil Bros. Co. v. City of Montgomery, 182 Ala. 291, 62 So. 692 (1913), and the state has not consented in this instance -- the state has obviously chosen to eliminate a potential financial burden on its exercise of this governmental function. See 71 Am. Jur. 2d, State and Local Taxation § 336 (1973), wherein it is noted that "immunity [from taxation] rests upon fundamental principles of government, it being necessary in order that the functions of government shall not be unduly impeded" and that "to tax public property necessarily involves other taxation for the payment of the taxes so laid." This is certainly a rational basis for the state's differentiating, for tax purposes, between its own liquor stores and those owned and operated privately. In this respect, we agree with Judge Holmes's Dissenting opinion in State Department of Revenue v. B & B Beverage, Inc., 534 So. 2d 1114, 1118 (Ala.Civ.App. 1987), wherein he stated: "I find no ... plain conflict between the different methods of taxation in this case and the Fourteenth Amendment's guarantee of equal protection of the laws." The following statement of the New York Court of Appeals states the principle well:

"A municipality or agency of the State carrying out a public purpose may at times compete with private business. Those owning the private business are not deprived of their right to the equal protection of the law, guaranteed by the Constitution of the United States, because the private business is subjected to a tax from which the State agency is immune. Puget Sound Power & Light Co. v. County of King, 264 U.S. 22, 44 S. Ct. 261, 68 L. Ed. 541 [(1924)]. The general principles stated in the opinion in that case justify the exemption from taxation of property held by a public agency for a public purpose and not primarily for revenue, though as an incident of the execution of its public purpose the public agency derives revenue from a use of the property in competition with property put to similar use by private owners. Cf. State Board of Tax Commissioners v. Jackson, 283 U.S. 527, 537, 51 S. Ct. 540, 75 L. Ed. 1248, 73 ALR 1464, 75 ALR 1536 [(1931)]."

Bush Terminal Co. v. City of New York, 282 N.Y. 306, 322, 26 N.E.2d 269, 276 (1940).

In striking down § 6-26, the trial court failed to take into consideration long-standing United States Supreme Court jurisprudence establishing a deferential rationality standard for reviewing state economic (tax) legislation under the Fourteenth Amendment. Under this standard, great deference is given to a state's classification of individuals or entities for tax purposes. See 3 Rotunda and Nowak, Treatise on Constitutional Law: Substance and Procedure § 18.3, pp. 32-41 (2d ed. 1992), and the cases discussed therein, including Lehnhausen v. Lakeshore Auto Parts Co., 410 U.S. 356, 35 L. Ed. 2d 351, 93 S. Ct. 1001 (1973), and Allegheny ...

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