Home Distilling's 1868 Tax Ban Is Headed to SCOTUS

A fight over backyard stills could redraw the line between Congress's taxing power and conduct it may criminalize.

• The Supreme Court agreed to hear a challenge to a federal ban on producing distilled spirits in a home or a connected structure.

• The government says the location rule makes stills easier to inspect and tax evasion harder to hide.

• A federal appeals court said the rule is not closely enough tied to collecting tax because it can stop taxable activity altogether.

An 1868-era federal restriction has created a modern constitutional fight over home distilling. The rule does more than tax whiskey. It generally bars a distillery from operating inside a dwelling or in a shed, yard or enclosure connected to one.

That distinction is why this case matters. Congress clearly has the power to impose an excise tax on distilled spirits. The harder question is whether that power also lets Congress criminalize where a person makes the product, even when that person has not yet failed to pay tax.

The Supreme Court has now agreed to hear the government's appeal in Department of Justice v. McNutt. Its answer could say something larger about how far Congress may go when a restriction is designed to make a federal tax easier to enforce.

Scott McNutt is a member of the Hobby Distillers Association. The Alcohol and Tobacco Tax and Trade Bureau sent him a letter after learning that he had bought a still or other equipment capable of producing alcohol. The letter warned that unlawful distilled spirits production is a federal crime.

McNutt and the association challenged the location restrictions in Section 5178 of the tax code (https://www.law.cornell.edu/uscode/text/26/5178). A district court blocked the government from enforcing those restrictions against McNutt, the association and its members.

The U.S. Court of Appeals for the Fifth Circuit largely kept that injunction in place. It reasoned that the location rule was not plainly adapted to collecting the spirits tax because the ban can reduce tax revenue by preventing people from making taxable spirits in the first place.

The court also saw a slippery line. If Congress may ban at-home distilling merely because a home can conceal taxable activity, similar reasoning might support federal bans on many kinds of conduct that happen at home and could someday create a tax liability.

The Justice Department sees the mechanics differently. In its Supreme Court petition (https://cdn.sanity.io/files/pito4za5/production/b558dc931f0c5871fbfe5b5f43cca998b65d6cf6.pdf), it argues that home stills are easier to hide and harder for inspectors to reach. Moving distilling into regulated locations, the government says, channels taxable production into places where tax evasion is more difficult.

The government's legal test is also broader than the appeals court's. A law supporting an enumerated federal power does not have to be the only possible method. It can qualify if it is useful, convenient and reasonably connected to carrying that power into effect.

That makes this more than a debate about whether people should be allowed to make bourbon in a backyard shed. The justices must decide whether a rule that may shrink the tax base can still be a valid tool for protecting tax collection from the activity that remains.

A win for the government would preserve the federal location ban and reinforce Congress's room to use preventive rules around taxable activity. A win for the challengers would not erase the federal excise tax on spirits. It would limit this particular method of enforcement and could give lower courts a tighter test for similar restrictions.

The case will be argued during the Court's current term. Until the justices rule, the central puzzle remains unusually simple. Can the government protect a tax by banning some people from creating the thing that would be taxed?