The Supreme Court Is Poised To Remind States That the Constitution Doesn’t Stop at the Liquor Store
Twice in the past two decades, the U.S. Supreme Court has heard landmark cases involving protectionist alcohol laws, and twice the Court has made clear that states violate the U.S. Constitution when they discriminate against out-of-state alcohol establishments. However, so far many lower courts rejected to listen. Now the Supreme Court may be ready to step in and make clear that regulators can’t just ignore the Constitution when it comes to alcohol.
Latest case In Arizona, many wine enthusiasts are legally challenging the state’s requirement that all wine retailers have a physical store within the state so they can ship wine directly to Arizona consumers. Opponents argue that this physical presence requirement violates the so-called Dormant Commerce Clause, which prohibits states from unduly interfering with interstate commerce by discriminating against out-of-state economic interests.
The need for in-state storefronts casts a shadow over what is known: direct to consumer alcohol shipping, which allows out-of-state wine retailers to ship their products to Arizona customers’ doorsteps. Since it is financially impossible for most out-of-state wine shops to open brick-and-mortar storefronts in Arizona, the rule effectively locks out-of-state competitors out of the state’s wine shipping market.
The Supreme Court has dealt with similar questions before. In the 2005 case Granholm/HealdThe Supreme Court struck down in-state physical presence requirements for wineries (but not wine retailers), allowing out-of-state wineries to ship directly to consumers across state lines. In 2019, the Court entered the fray again, hit A Tennessee law that requires liquor store owners to reside in the state for several years before becoming eligible for a retail license.
The importance of these landmark cases is clear: States cannot enact protectionist alcohol laws that discriminate against out-of-state economic interests unless they can show that such rules support legitimate, non-protectionist interests such as public health and safety. Instead of pursuing these simple arguments, numerous lower courts interpreting them narrowly or create manufactured spaces to avoid them.
Leading the charge is the notorious 9th Circuit, which adopted what’s known as the “essential feature” test to evaluate alcohol laws like Arizona’s. Within the scope of this test, the 9th Circuit afflicted Because Arizona’s in-state physical presence mandate is an “essential feature” of the state’s three-tier alcohol regulation system, the law was immune to a Dormant Commerce Clause challenge.
In the 9th Circuit’s opinion, the three-tier system that requires alcohol producers, wholesalers, and retailers to be legally separate entities is vital to regulating alcohol in America today. Therefore, if out-of-state wine retailers were allowed to deliver directly to Arizona residents without a physical store in-state, they would bypass the wholesale and retail sales tiers in Arizona.
Under the framework of the “essential feature” test, courts may simply: to think separate alcohol laws are “mandatory” for the three-tier system, creating a get-out-of-jail-free card that shields these protectionist laws from constitutional scrutiny. The 9th Circuit’s test not only clearly and deliberately evades the Supreme Court’s past decisions, but also makes no sense on its own merits.
There is alcohol distribution exploded Since COVID-19, the vast majority of states have implemented some form of pro-delivery reform for liquor. This wave of deployments has proven relatively simple to regulate, thanks to states using simple licensing and permitting rules.
Just as a brewery, winery, bar, or liquor store must obtain a license to operate, alcohol distribution likewise requires a license. If a retail store continues to distribute or transport alcohol in a questionable or dangerous manner, the license may simply be revoked; just like a bar is trapped for serving underage customers.
The need for in-state storefronts is as follows: non-essential As you might expect, it’s a feature of the alcohol regulation system. Moreover, 13 states plus Washington DC already allow it Out-of-state wine retailers ship their products directly to in-state residents. All of these states have a three-tier system, just like Arizona, underscoring that in-state physical storefronts aren’t entirely necessary.
Given this background, it is clear that the 9th Circuit’s “essential feature” test is disconnected from the reality on the ground of how alcohol regulation actually works. Allowing states to deem parts of their alcohol-related regulatory laws to be “necessary” and thus magically escape a constitutional challenge is a blatant evasion of the Supreme Court’s past decisions.
Manhattan Institute and Reason Foundation offered a friendly briefing In support of the petitioners in the Arizona case. Maybe the third time this goes to the Supreme Court will be appealing.
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