By Susan L. Martin
We are used to ordering all kinds of goods from all over the country and having them shipped to our homes. If, however, we want to order wine from a California winery, we cannot (even if we are over 21) because New York law prohibits an out-of-state winery from shipping directly to homes in New York. The same situation exists in about half the states. Last May the Supreme Court agreed to hear during this term, which started on Oct. 4, three related cases about the constitutionality of the prohibition on direct shipment of wine. Oral arguments are scheduled for Dec. 7, and the Court’s opinion is expected in late Spring 2005.
The constitutional issue concerns the 21st Amendment, which repealed Prohibition and gave each state the power to regulate alcoholic beverages within its boundaries, and the Commerce Clause, which prohibits states from burdening interstate commerce through economic protectionism that discriminates against out-of-staters. New York, Michigan, and other states that prohibit direct shipment argue that their laws are constitutional under the 21st Amendment, and they are necessary to prevent under-age drinking and to collect state taxes on wine. Other states, such as California and Washington, along with owners of small wineries, and wine consumers argue that the prohibition violates the Commerce Clause. In addition, they argue that minors are not interested in buying expensive wine on the Internet and waiting days or weeks for it to be shipped when cheaper alcoholic beverages are so readily available in their own communities. Moreover, in New York and Michigan and other states with prohibitions on out-of-state shipments, wineries within the state are permitted to ship directly to consumers’ homes.
Interest in this case has been enormous with many parties filing briefs with the Court supporting one side or the other. Seven well-known economists, including three who have won Nobel Prizes, submitted a brief arguing that the prohibitions on direct shipment of wine give liquor wholesalers almost a monopoly in the industry, distorting the market. Most states have a three-tier system for the distribution of alcoholic beverages. The manufacturer (tier one) must sell to a wholesaler/distributor (tier two) who must sell to a retailer (tier three) who then sells to the consumer. The system was set up after Prohibition to keep organized crime out of the alcoholic beverage business. A problem with the system is that there are fewer than 400 wholesalers in the country and more than 10,000 wineries. (Did you know that wine is produced commercially in all fifty states? Yes, even Alaska!) Small wineries cannot find distributors to handle their wines. Their only means of selling to consumers is at their winery location or on the Internet or by mail order.
Senators and Representatives from both parties filed a brief against the prohibitions, and so have trucking companies like UPS and Internet businesses like Ebay. Briefs supporting the prohibitions were filed by the National Conference of State Liquor Administrators and the Michigan Association of Secondary School Principals who expressed their concern about alcohol abuse.
Although the Supreme Court has specifically stated in an earlier case that the 21st Amendment does not remove state regulation of alcoholic beverages from a Commerce Clause compliance requirement, most informed commentators are not predicting the outcome of the pending case. The current Court’s position on federalism has generally been to strengthen states’ rights. Furthermore, wine (as well as other alcoholic beverages) has never been treated as just another product in the United States. It is reasonable to predict that at least some of the Justices will be persuaded that states should have the freedom under our federalist system to decide how to regulate alcoholic beverages entering their borders.
On the other hand, this country was based on the notion that interstate economic protectionism is bad economically and politically. There is no reason for the business of wine to be exempt from that notion. It is reasonable for states to want anyone shipping wine into the state to have a local permit; to refuse to ship to minors and to enlist shipping companies that will be diligent about not leaving wine shipments with minors; and to collect taxes equal to those that would be imposed if the wine were purchased from a local retailer through the usual three-tier system. All that can be accomplished through appropriate state regulation that has already been tested in more than a dozen states.
The name of the case is Granholm v. Heald. You will be reading about it in the newspapers in December when the Court hears oral arguments and in June when the decision is announced.