U.S. Beverage Alcohol Laws Navigate The Constitution And The Internet

Source: Forbes

Thomas Pellechia

December 21, 2015

Repeal of Prohibition in 1933 allowed beverage alcohol to flow again, but in many cases not as freely across state lines as it had during Prohibition. It took until a 2005 U.S. Supreme Court ruling against Michigan and New York State to fix the situation-after a fashion.

Pushing in the early 2oth century for a constitutional amendment to prohibit manufacture, distribution and sale of “intoxicating liquors,” the powerful Anti-Saloon League leader, Wayne Wheeler believed an amendment would be impossible to reverse. He got his wish with passage of the 18th Amendment to the U.S. Constitution (Prohibition) but his prophecy was off base.

Fifteen years after Prohibition wiped out businesses, jobs and created a nation of law breakers, the 21st Amendment to the U.S. Constitution (Repeal of Prohibition) became the only amendment ever to reverse a prior amendment. But Repeal created its own issues.

In the 21st Amendment Congress gave individual states the right to regulate alcohol as they saw fit, a move that created a dazzling array of confusing alcohol control laws under seemingly arbitrary regulatory agencies. For example, more than 80 years after Repeal, some 200 counties nationwide, most in the South, remain “dry,” and although most states allow private companies to distribute and sell beverage alcohol, 33% of the states monopolize those activities for themselves.

Until 2005, beverage alcohol producers were effectively banned from engaging directly in interstate commerce. That year the Supreme Court heard a challenge against New York and Michigan wine shipping laws centered on two opposing constitutional concepts: the Dormant Commerce Clause in Article One of the Constitution that gave Congress regulatory authority over interstate commerce, and Section Two of the 21st Amendment that gave the states regulatory authority over beverage alcohol.

The court came down on the side of the Dormant Commerce clause, ruling unconstitutional New York and Michigan laws permitting in-state wineries to ship wine directly to consumers living within their respective borders while prohibiting out-of-state wineries from direct access to those same consumers. Since 2005, states could either allow direct wine shipping to all residents or ban direct shipping altogether, adding more confusion, as some states allow it and others do not. That year, Wine Direct, a three year-old marketing company servicing the wine industry developed Ship Compliant, software to help wineries navigate state shipping regulatory waters, especially in Internet commerce.

The narrow Supreme Court ruling applied only to wineries. Beverage alcohol retailers want in on direct Internet sales to consumers too, which is how an Albany NY retailer, Empire Wine got itself into trouble. In 2014, when the NY State Liquor Authority (SLA) found out Empire had shipped wine to consumers in Illinois, the agency threatened a fine and a temporary shut down penalty for the infringement of Illinois law. Empire struck back with a law suit claiming the SLA overstepped its bounds by policing another state’s laws.

Unresolved, Empire’s case prompted the NY legislature earlier this month to pass A.5920, a bill to prevent the SLA from overreaching. Governor Andrew Cuomo was expected to sign the bill; instead, on December 11, he vetoed it. The governor believes he has a better idea.

In his veto statement Cuomo said, “I am directing the New York State Liquor Authority to work collaboratively with liquor authorities in other states to address these issues and propose recommendations for legal interstate (alcohol) sales.”

Beverage alcohol remains the only product in America constitutionally banned and then constitutionally reinstated. Today, odds of its ongoing survival are in its favor, because the bricks and mortar world of wine retailing has been a low hanging fruit for states to pluck a revenue crop of taxes and fees, not to mention fines for infringement of confusing laws. Now, with the entrance of Amazon into wine shipping, the development of wine shipping and buying Apps, and Governor Cuomo’s vision, the Internet appears to have ripened.

One thing is almost certain, however: a lawsuit is just around the corner.