Applying Heightened Scrutiny to Protectionist Alcohol Laws
Recently, the South Carolina Supreme Court issued a decision striking down a state law that limited the number of liquor retail outlets that a single owner could operate within state boundaries. The Court held that the law’s sole justification was economic protectionism, which made it an improper use of the state’s police powers to regulate alcohol. R Street Institute fellow Jarrett Dieterle takes an in-depth look at case in this three-part blog series.
Part one and two of the series analyzed the South Carolina Supreme Court’s reasoning and the varying levels of constitutional scrutiny economic regulations have received throughout history. Part three will analyze how the recent revival in economic liberty litigation could apply to the world of alcohol.
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While protectionist alcohol laws might appear to be nothing more than garden variety restrictions on economic liberty, the role of Prohibition and its subsequent repeal add an additional constitutional dimension when it comes to regulating booze.
Today, nearly every state has a three-tiered alcohol distribution system that maintains a strict wall of separation between alcohol producers, distributors and retailers. Even more stringent are the numerous states in which the government still controls alcohol distribution. In addition to these structural restrictions, close observers have no difficulty finding arbitrary, bizarre, and overtly protectionist alcohol laws in nearly every state in the union. From Virginia’s food-beverage ratio law, which arbitrarily mandates how much booze versus food a restaurant can sell, to Indiana’s cold beer law, which only allows liquor stores (but not gas stations or grocery stores) to sell refrigerated beer, the examples are legion.
In many ways, state and local alcohol laws are ground zero for cronyist and protectionist legal regimes, which makes this area ripe for a more robust application of economic liberty-based constitutional litigation. However, whether more courts will adopt South Carolina's approach and start rigorously scrutinizing booze laws is an open question, given the broad power states are recognized to possess over alcohol.
While many present-day Americans celebrate Repeal Day and the ratification of the 21st Amendment, which repealed the 18th Amendment and thus ended nation’s 13-year experiment with Prohibition, few appreciate the broad authority the 21st Amendment transferred to state governments to control and regulate alcohol within their borders.
In fact, the language of the 18th Amendment is remarkably similar to that of the 21st Amendment, except that the 21st Amendment gave prohibitory powers over alcohol to states rather than to the federal government. The 18th Amendment prohibited the “manufacture, sale, or transportation,” as well as the importation and exportation, of “intoxicating liquors” within the United States, whereas the 21st Amendment prohibits the “transportation or importation into any state” of “intoxicating liquors” if doing so was “in violation of the laws thereof.”
As legal scholars like Baylen Linnekin have noted, the 21st Amendment “basically transferred the language from federal prohibition and made it essentially state prohibition,” giving states near plenary power over alcohol. Unsurprisingly, state governments rushed to fill the gap left by Prohibition’s repeal, resulting in a dizzying array of state laws concerning spirits. Many state constitutions mirror South Carolina’s in explicitly laying out the state’s comprehensive ability to legislate and regulate alcohol, underscoring the broad powers enjoyed by states in this area.
Furthermore, given alcohol’s intoxicating tendencies, it’s rarely difficult for states to justify their restrictions over the alcohol trade based on legitimate public health and safety concerns. As the U.S. Supreme Court has put it:
The police power of the state is fully competent to regulate the [alcohol] business, to mitigate its evils, or to suppress it entirely. There is no inherent right in a citizen to thus sell intoxicating liquors by retail. It is not a privilege of a citizen of the state or of a citizen of the United States. As it is a business attended with danger to the community, it may, as already said, be entirely prohibited or be permitted under such conditions as will limit to the utmost its evils. The manner and extent of regulation rest in the discretion of the governing authority.
As the dissent in Retail Services was also quick to point out, “virtually every other court” that has considered state alcohol-licensing laws similar to South Carolina’s has upheld them against constitutional challenges.
To be sure, the Supreme Court has found at least some limits on state power under the 21st Amendment. For example, in Granholm v. Heald, the Court struck down state laws banning out-of-state wineries from directly shipping their products to consumers. Granholm, however, relied on Dormant Commerce Clause reasoning to hold that the 21st Amendment did not permit states to discriminate against out-of-state producers in favor of in-state ones. The Court was careful to note that states still had “virtually complete control” over the liquor trade within their borders.
Although state powers are at an apogee in the realm of alcohol regulation, Retail Services has shown how, in at least some states, the government’s power over booze may still be subject to certain limitations. If more courts begin to conclude that some ends—such as promoting economic protectionism—remain beyond state governments' proper police powers, it could usher in an era of booze-related economic liberty litigation.
Whether more courts follow the South Carolina Supreme Court’s lead remains to be seen, but many state booze laws across the country would certainly provide ripe targets for challenge.
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C. Jarrett Dieterle is an attorney and fellow at the R Street Institute in Washington, DC. He also is an editor of DrinksReform.org, which tracks and analyzes alcohol laws from around the country.