In a 5-4 ruling, the Supreme Court said that Michigan and New York had enacted protectionist laws that unconstitutionally discriminated against wineries from other states.
Justice Anthony Kennedy said that the states’ claims of possible lost taxes or shipments to minors could not justify taking such strong measures against direct shipping. “The states have not shown that tax evasion from out-of-state wineries poses such a unique threat that it justifies their discriminatory regimes,” Kennedy wrote for the majority.
Monday’s ruling effectively means that oenophiles in states with protectionist laws–about 26 do–will enjoy lower prices and more choices because they will be able to bypass distributors and order directly from a winery’s Web site. It could also open the doors to direct beer and hard liquor shipments.
Juanita Swedenburg, the Middleburg, Va., vintner who was a plaintiff in the lawsuit brought by the Institute for Justice, applauded the ruling. “This opens up interstate markets just like our Founding Fathers envisioned,” Swedenburg said. “They wanted us to be one nation when it comes to trade, not 50 states. This is a boon for America’s wine-loving consumers who like to have various wines from throughout the nation.”
The long-term effects of the court’s decision promise to be even more significant. States have been claiming the authority to impose hefty regulations on out-of-state shipments of everything from cars to funeral caskets and contact lenses. The Supreme Court’s logic indicates the justices likely will take a dim view of other protectionist measures.
At the heart of the current dispute before the justices is the 21st Amendment, which ended Prohibition and awarded states broad authority to regulate sales of “intoxicating liquors.” States with legal barriers to out-of-state wine and beer shipments insist that the laws are needed to guard against unscrupulous vendors and against minors ordering booze online.
New York and Michigan were attempting to defend their laws in two separate cases that were combined before the high court. One appeals court found New York’s rules to be acceptable; another struck down Michigan’s by ruling against the Michigan Beer and Wine Wholesalers Association. New York’s law says that “no alcoholic beverages shall be shipped into the state unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages.”
That amounts to a protectionist law designed to favor in-state businesses over out-of-state ones, Kennedy said. “Without demonstrating the need for discrimination, New York and Michigan have enacted regulations that disadvantage out-of-state wine producers. Under our Commerce Clause jurisprudence, these regulations cannot stand,” he wrote.
But a dissent by Justice Clarence Thomas argued that a federal law called the Webb-Kenyon Act explicitly permitted states to slap protectionist rules on alcohol shipments. “In sum, the Webb-Kenyon Act authorizes the discriminatory state laws before the Court today,” Thomas wrote.
Even if the Webb-Kenyon Act did not exist, a proper reading of the 21st Amendment shows that it was meant to permit states to enact these sorts of restrictions, Thomas wrote.
While alcohol sales currently occupy only a small e-commerce niche, they’re a sizable portion of the U.S. economy. The Beer Institute estimates the brewing industry employs about 1.7 million Americans and pays $47 billion a year in wages and benefits. Approximately 595 million gallons of wine were sold in the United States in 2002, according to the Wine Institute, up from 337 million gallons in 1972.
By Declan McCullagh
