In their motion to dismiss, which was granted without opinion, defendants attacked the constitutionality of this subsection on the ground that it levied a penalty, not a tax. The validity of this levy is the issue here. In enacting the Marihuana Tax Act, the Congress had two objectives: "First, the development of a plan of taxation which will raise revenue and at the same time render extremely difficult the acquisition of marihuana by persons who desire it for illicit uses and, second, the development of an adequate means of publicizing dealings in marihuana in order to tax and control the traffic effectively." S. Rep. No. 900, 75th Cong., 1st Sess. 3. To the same effect, see H. R. Rep. No. 792, 75th Cong., 1st Sess. 2.
[...] It is obvious that 2590, by imposing a severe burden on transfers to unregistered persons, implements the congressional purpose of restricting traffic in marihuana to accepted industrial and medicinal channels. Hence the attack here rests on the regulatory character and prohibitive burden of the section as well as the penal nature of the imposition. But despite the regulatory effect and the close resemblance to a penalty, it does not follow that the levy is invalid.
First. It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. Sonzinsky v. United States, 300 U.S. 506, 513 -514 (1937). The principle applies even though the revenue obtained is obviously negligible, Sonzinsky v. United States, supra, or the revenue purpose of the tax may be secondary, Hampton & Co. v. United States, 276 U.S. 394 (1928). Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate. As was pointed out in Magnano Co. v. Hamilton, 292 U.S. 40, 47 (1934):
From the beginning of our government, the courts have sustained taxes although imposed with the collateral intent of effecting ulterior ends which, considered apart, were beyond the constitutional power of the lawmakers to realize by legislation directly addressed to their accomplishment."
These principles are controlling here. The tax in question is a legitimate exercise of the taxing power despite its collateral regulatory purpose and effect.
(Emphasis supplied.) My understanding is that Sanchez continues to be good law (but see Leary v. US..) Why was this argument not emphasized by the government? It's a good question (I never understood why the Anti Injunction Act argument was abandoned.) Balkin offers these thoughts on that point:
The government's position was more complicated, and evolved over time. The Justice Department always included the tax power argument in its briefs, but rarely devoted much attention to it. At first the government argued that lawsuits challenging the mandate were barred by the Tax Anti-Injunction Act, which says that taxpayers cannot seek injunctions against taxes but must first pay the tax and then sue for a refund. That would mean that constitutional challenges could not begin in earnest until after 2014, when the mandate takes effect. But it also meant that if courts wanted to uphold the mandate on the merits, they would have to find a way to get around the Tax Anti-Injunction Act. This gave them reasons not to treat the mandate as a tax.
After two district courts struck down the mandate, the government's litigation strategy changed. It worried that states would begin to delay implementation and it sought a quick resolution of the constitutionality of the ACA. To that end, the government began to argue that the Tax Anti-Injunction Act did not apply because the mandate was not a "tax" for purposes of the act. This made it harder to push the tax power theory. As Justice Samuel Alito remarked in the oral argument, "General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax." Technically, the the two positions are consistent: The tax power, which includes taxes, duties, imposts, excises and other devices for raising revenue, could be and probably is far broader than the definition of a "tax" in a particular statute. Still, Alito's comment showed the government's rhetorical difficulty.
From my perspective, that dog won't hunt. WINNING the case was by far the most important thing. Sacrificing a compelling argument over concerns in delay in implementation simply can not be justified against the potential catastrophe of losing the case. Speaking as a practicing litigator, I could not disagree more strongly with the rationale Balkin offers for the government (I doubt Balkin endorse the strategy.) Who made the call? Probably not Donald Verrilli, who has taken much heat for his performance at oral argument. But Verrilli could end up being a fall guy. We'll see.
