by Lisa Soronen, executive director, State and Local Legal Center
The Twenty-First Amendment to the U.S. Constitution is famous because it repealed prohibition. The second section, which prohibits the transportation or importation of alcohol into a state in violation of state law, is less well known. Despite this section’s broad language and the Supreme Court’s repeated affirmation that the states’ three-tier system of regulating alcohol (manufacturers sell to wholesalers; wholesalers sell to retailers; retailers to consumers) is constitutional, the Supreme Court has limited states’ ability to regulate the distribution of alcohol.
The question the Supreme Court will decide in Tennessee Wine & Spirits Retailers Association v. Byrd is whether Tennessee’s law requiring alcohol retailers to live in the state for two years to receive a license violates the Constitution’s Dormant Commerce Clause. The Dormant Commerce Clause prevents states from “discriminat[ing] against interstate commerce” or “favor[ing] in-state economic interests over out-of-state interests.”
According to Tennessee Wine & Spirits, “[a]t least twenty-one States impose some form of durational-residency requirement for liquor retailers or wholesalers. And many States impose other residency-based requirements on those entities.”
Tennessee Wine & Spirits argues that the Dormant Commerce Clause doesn’t apply to durational-residency requirements because they “treat liquor produced out of state the same as its domestic equivalent.” Tennessee Wine & Spirits relies on Granholm v. Heald (2005), where the Supreme Court struck down a state law that permitted in-state wineries, but not out-of-state ones, to ship directly to in-state consumers. The court reasoned that the Twenty-First Amendment did not “save” this law from violating the Dormant Commerce Clause. According to Tennessee Wine & Spirits per Granholm, the Dormant Commerce Clause only applies to regulation of alcohol producers and products. In short, Tennessee’s durational-residency law doesn’t treat alcohol produced in-state or out-of-state differently.
The Sixth Circuit disagreed with Tennessee Wine & Spirits and concluded the Dormant Commerce Clause applied to this statute and was violated. The statute’s legitimate purposes of protecting the health, safety, and welfare of Tennessee residents and having a higher level of oversight over liquor retailers could be accomplished through non-discriminatory alternatives, according to the court. Possibilities included requiring a retailer’s general manager to be a resident of the state and implementing such technological improvements as creating an electronic database to monitor liquor retailers.
The Supreme Court likely took this case to resolve a circuit split over the scope of the Granholm decision. The Fifth and Sixth Circuits have held that durational-residency requirements violate the Dormant Commerce Clause. The Eighth Circuit has held that they are a valid exercise of states’ Twenty-first Amendment authority. The Second and Fourth Circuits have upheld other kinds of residency-related restrictions on retailers and wholesalers post-Granholm.
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Preemption Clause Too Narrow? Expand It Via Regulations! This 2016 blog post focuses on another issue related to state versus federal authority. In this case, the question was how much flexibility a federal agency has to interpret statutes.
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