Economy & Business

Are Crazy State Liquor Laws Constitutional?

Liquor store in Louisville, Ky., in 2014. (John Sommers II/Reuters)
Many states’ regulations seem more designed to suppress competition than to encourage safety.

This year marks the 100th anniversary of the beginning of Prohibition. While that odd chapter in American history officially concluded with the 21st Amendment’s ratification in 1933, the restless ghosts of a 14-year national experiment in teetotallery still haunt the country’s bars, liquor stores, and breweries. The contradictions and ironies of Prohibition, which is now a shorthand cliché for well-intentioned government regulation gone awry, have only deepened with time. Today, the labyrinth-like legal apparatus constructed in Prohibition’s wake is just as likely to provide protection for entrenched alcohol interests as it is to encourage the responsible distribution and sale of beer, wine, and spirits.

Consider Tennessee. To obtain a liquor license, applicants must have lived in the state for a minimum of two years, but reapplying for the one-year license requires applicants to have lived there for at least a decade. The state’s liquor-store lobbying organization has argued that the residency requirement ensures that merchants are locals who have a vested interest in keeping their communities safe, but one doesn’t need the cynicism of a Chicago mobster to understand the rule’s protectionist subtext. The Supreme Court is expected to release its decision on the constitutionality of Tennessee’s residency requirement by summer, and a ruling against the regulation could loosen some of the grip states have over alcohol under the 21st Amendment. For consumers, that would be a nice Prohibition-anniversary gift.

Whatever the original intent, in practice, many of today’s regulations on alcohol have very little to do with promoting a healthy relationship between the American people and alcoholic beverages. At the end of Prohibition, states assumed near-total control of the traffic of alcohol within their borders, a move later protected by the Supreme Court’s broad interpretation of the 21st Amendment. The swing from total to minimal federal control splashed the country, à la Jackson Pollock, with a dizzying miscellany of regulations diverging sometimes wildly between states, counties, and towns.

Mississippi is a great example of this oddly charming mess. It’s notable as the only state in the country to allow alcohol consumption while driving, so long as the person’s blood-alcohol content doesn’t rise above the legal limit. The state’s permissiveness toward automobile operators, however, is a peculiar anomaly in an otherwise long history of exacting alcohol regulations.

In fact, Mississippi was the last state to end prohibition fully. It legalized beer in 1933, but liquor had to wait another 30 years. When the sale of liquor finally did become legal, Mississippi permitted it only through a state-run Alcoholic Beverage Control authority similar, though by no means identical, to agencies in states such as Virginia, North Carolina, and roughly a dozen others. Until 2012, Mississippi banned the sale of beer with an alcohol-by-volume content of more than 6.25 percent, and it didn’t allow breweries to sell beer on-site until 2017.

Undoubtedly, such restrictions made more sense when the state still outlawed liquor, and local breweries were more prominent suppliers of beer. More recently, though, these laws have produced ridiculous contradictions. Why should the state have capped the alcohol content of beer at 6.25 percent, for instance, when it permitted the sale of much stronger wines and liquors? Meanwhile, the brewery-sales restriction, among other regulations, was stifling to the state’s craft-brewery entrepreneurs: In 2012, the state had exactly one craft brewery. By comparison, neighbors Louisiana and Alabama each had about ten. Surely, if Budweiser is widely available, Mississippi beer — which creates local industry, jobs, and something for the state’s official tourism organization to brag about — should be, too.

To their credit, state lawmakers eventually identified these contradictions (thanks, in part, to the lobbying efforts of a grassroots organization called Raise Your Pints) and revised some of Mississippi’s beer rules accordingly. This wave of reform included ending the last statewide ban on homebrewing (though it remains illegal in the roughly one third of Mississippi’s counties that remain dry). Today Mississippi is home to at least a dozen craft breweries.

Some state legislators have attempted similar liberalizing efforts for rules on wine but have met less success. Mississippi is one of five states that still ban wine shipments directly to consumers, a consumer trend that has exploded across the country in recent years, including in Mississippi despite its illegality. Out-of-state wine sellers have reportedly sent thousands of bottles into the state, much to the chagrin of the state’s alcohol regulators, who are missing out on tax revenue. (Last August, a county judge dismissed a lawsuit brought by Mississippi’s attorney general against several of these companies, citing lack of personal jurisdiction to hear and decide the case.) For the past few years, Mississippi lawmakers have introduced bills to roll back the ban. Undoubtedly, the prudence of such a policy — whether it is, in fact, good for Mississippi to permit direct-to-consumer wine shipments from out of state — should be debated, weighing the benefits of such a policy to consumers while, say, questioning how easily minors in search of booze could exploit it. It’s doubtful, however, that such considerations are really driving the debate.

For the state’s liquor-store owners, mail-order wine is simply bad for business. “It wouldn’t be good to lose the revenue if [customers] could just order from home and get it directly from the manufacturer,” Shawn Guider, owner of Petit Bois Liquors in Biloxi, told a local TV station. “We would lose the sales here.” Lobbyists representing Guider and liquor-store owners around the state (who, it’s worth noting, are basically state contractors under Mississippi’s Alcoholic Beverage Control authority) opposed the legislation, and it died in committee in early February.

There is a reason mail-order wine has caught fire in recent years: People like it. More than providing consumers with an Amazon-like shopping center, online wine clubs often help consumers figure out what wines they like and connect them to new wines they’ve never tried. Getting wine in the mail is not exactly a crucial service, essential to living the good life in America, but it’s nice. Government taxation and entrenched business interests being what they are, however, it seems unlikely that Mississippians will have (legal) access to these services anytime soon.

The scenes and themes of Mississippi’s alcohol dramas are performed regularly around the country, just with different players. A Supreme Court battle over liquor-license residency requirements could have started in any number of states besides Tennessee. In fact, 33 others (including Mississippi) and the District of Columbia all signed on to the suit in support of Tennessee’s stringent rules. More than just a question about the constitutionality of a particular regulation, though, Tennessee Wine and Spirits Retailers Association v. Blair could end up having profound implications on the states’ authority over alcohol under the 21st Amendment.

TWSRA v. Blair began when Tennessee’s alcohol regulators were poised to grant liquor licenses to two store owners who did not meet the two-year requirement (one license was for liquor-store megachain Total Wine, the other for a family operation in Memphis). TWSRA, a trade association representing the state’s liquor stores, threatened to sue if the state did not follow the law and deny their applications. In other words, industry reps used restrictive licensing requirements to keep out competition in a move so ham-fisted that it could be a case study for an Economics 101 class on “rent-seeking” and the unintended consequences of regulation. Tennessee’s alcohol regulators complied, although, one gets the sense, somewhat reluctantly.

During Supreme Court arguments last month, Justice Brett Kavanaugh expressed skepticism about the rather tortured reading of the 21st Amendment that justifies rules such as Tennessee’s. The amendment’s language prohibits the “transportation or importation” of alcohol into states that don’t want it, while saying nothing explicit about other powers the states have over alcohol regulation. The very existence of the 21st Amendment, however, implies that the Constitution views alcohol as different from other goods. The question is how different — and what does that difference mean to the states? The Court is considering TWSRA v. Blair in context of the Constitution’s protections for interstate commerce. It will likely decide whether Tennessee’s liquor-licensing rules are discriminatory against the residents of other states — and then whether the 21st Amendment actually allows such discrimination. Meanwhile, Justices Elena Kegan and Neil Gorsuch “fretted aloud” that a ruling against the two-year rule would undermine other state regulations on alcohol and welcome further legal challenges.

TWSRA’s view of state authority over alcohol is unsurprisingly broad. Representing the organization, attorney Shay Dvoretzky argued before the Court that the 21st Amendment does not have an “economic protectionism” exception. Even if Tennessee’s residency requirement is more concerned with protecting local businesses than with promoting safe alcohol consumption or supporting consumers, Tennessee is well within its rights to enforce it. Justice Stephen Breyer noted that past courts seemed to concur with that understanding of the 21st Amendment: “The history favors the other side,” Breyer told Total Wine’s attorney. A little later, while reflecting on the last century of alcohol laws, Breyer added: “Not all laws make that much sense.”

There are many ways to describe the U.S.’s alcohol laws. “Nonsensical” is just one of them; another, more often than not, would be “anti-consumer.” Government and business interests have animated the corpses of rotting temperance laws, ironically employing them to prop up some of the forces that the Prohibition movement was intent on knocking down. As a result, consumers pay more for alcohol, have access to less variety, and are more limited in where they can purchase it than they otherwise would be. Reasonable restrictions on alcohol are, of course, appropriate, but — at the risk of sounding pollyannaish — ideally lawmakers would craft those restrictions with reference to a common good greater than replenishing state coffers or protecting local liquor stores’ bottom lines.

A century later, the old temperance slogans still echo throughout the country’s legal codes, even if the words have been rearranged and their meanings distorted over time. A Supreme Court ruling against Tennessee’s anti-competitive, anti-consumer licensing requirements would help quiet the noise.

Caleb Whitmer is a communications associate at Consumers’ Research.

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