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Border Battles Escalate

Consumers have become increasingly comfortable with purchasing products over the Internet. At the same time, software allowing retailers to accept orders and process credit cards is now available to almost all retailers. Consequently, sale of wine and spirits over the Internet continues to flourish. There appears to be only one major obstacle: Section 2 of the Twenty-First Amendment to the Constitution of the United States. It provides, “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”

Although following the 2005 Supreme Court case of Granholm v. Held most states have permitted limited direct shipment from wineries to consumers within their borders, only a few states permit out-of-state retail licensees to ship some form of alcoholic beverage to consumers within its borders.

According to the National Conference of State Legislatures, Florida, Hawaii, Kentucky, Nebraska, New Hampshire and Rhode Island—and the District of Columbia—authorize the direct shipment of all spirits; Delaware, Massachusetts, Montana, North Dakota, Ohio, Oregon, Vermont and Virginia allow direct shipment of beer and wine; Connecticut and New Jersey allow shipments of wine, cider and mead; New Mexico authorizes the shipment of wine and cider; and Oregon allows the shipment of beer, wine and cider.

Each state has its own rules as to what permit is required before one may ship into the state and the limits of how much of any beverage may be delivered. For instance: Arkansas requires a consumer to be present at the time of purchase unless shipping from a small farm winery licensee; Delaware requires shipments to go through a wholesaler and a Delaware retail license before being delivered to a consumer; Mississippi provides that a consumer may purchase at a winery and have the shipment sent to an in-state package retailer; Rhode Island requires that the consumer be present at the place of purchase; and Utah authorizes consumers to purchase wine through a wine subscription program, but the shipments must be delivered to a state store or package agency.

Some states have become proactive in an effort to stop what they consider illegal shipments from out-of-state retailers. Illinois, Massachusetts, and Louisiana began sending “cease-and-desist” letters to out-of-state retailers shipping into their borders. Dave Yost, Ohio’s Attorney General, brought an action in federal court seeking to enjoin a number of wine clubs and other out-of-state shippers from violating Ohio laws. Mississippi used its long-arm jurisdiction statute to bring an action in state court against a number of out-of-state shippers.

Many states have found it easier and more effective to pressure Federal Express and United Parcel Service to refuse shipping alcohol from retailers who do not have an appropriate license into their states.

The stakes are high, and some retailers are fighting back. Retailers in Missouri and Michigan brought actions in federal courts claiming that state laws that permit shipment by in-state retailers to consumers but forbid out-of-state retailers from doing the same violate the Dormant Commerce Clause of the United States Constitution. The Commerce Clause reserves to Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian Tribes.” The Supreme Court has ruled that by reserving the right to regulate commerce among the states to Congress, the Constitution also generally forbids states from interfering with that commerce in a way that grants an advantage to citizens of its state. This prohibition is often called the “Dormant Commerce Clause” because it is unspoken.

Thus far, courts have rejected the retailers’ arguments, finding in favor of the states. The courts generally agree with the states, who argue that the three-tier system is legitimate and that direct shipment by out-of-state retailers would allow the retailer-shipper to bypass an in-state wholesalers and circumvent the states’ core Twenty-First-Amendment powers.

However, the Supreme Court of the United States may soon intervene in this battle. On September 29, it will consider whether to hear an appeal from an Indiana retailer who lost its case involving out-of-state shipping into the State of Michigan. If the Supreme Court agrees with the retailer, the entire system under which alcohol is distributed will come under even more scrutiny.

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