Discrimination Against Interstate Commerce

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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.

In a series of decisions rendered shortly after ratification of the Twenty-First Amendment, the Court established the proposition that states are competent to adopt legislation discriminating against imported intoxicating liquors in favor of those of domestic origin and that such discrimination offends neither the Commerce Clause of Article I nor the Equal Protection and Due Process Clauses of the Fourteenth Amendment. Modern cases, however, have recognized that “state regulation of alcohol is limited by the nondiscrimination principle of the Commerce Clause,” 1 also known as the Dormant Commerce Clause.2

Initially, the Court upheld a California statute that exacted a $500 annual license fee for the privilege of importing beer from other states and a $750 fee for the privilege of manufacturing beer,3 and a Minnesota statute that prohibited a licensed manufacturer or wholesaler from importing any brand of intoxicating liquor containing more than 25% alcohol by volume and ready for sale without further processing, unless such brand was registered in the United States Patent Office.4 Also validated were retaliation laws prohibiting sale of beer from states that discriminated against sale of beer from the enacting state.5

Conceding, in State Board of Equalization v. Young’s Market Co.,6 that, “[p]rior to the Twenty-first Amendment it would obviously have been unconstitutional to have imposed any fee for [the privilege of importation] . . . even if the State had exacted an equal fee for the privilege of transporting domestic beer from its place of manufacture to the [seller’s] place of business,” the Court proclaimed that this Amendment “abrogated the right to import free, so far as concerns intoxicating liquors.” Because the Amendment was viewed as conferring on states an unconditioned authority to prohibit totally the importation of intoxicating beverages, it followed that any discriminatory restriction falling short of total exclusion was equally valid, notwithstanding the absence of any connection between such restriction and public health, safety, or morals. As to the contention that the unequal treatment of imported beer would contravene the Equal Protection Clause, the Court succinctly observed that “[a] classification recognized by the Twenty-first Amendment cannot be deemed forbidden by the Fourteenth.” 7

In Seagram & Sons v. Hostetter8 the Court upheld a state statute regulating the price of intoxicating liquors, asserting that the Twenty-First Amendment bestowed upon the states broad regulatory power over the liquor sales within their territories.9 The Court also noted that states are not totally bound by traditional Commerce Clause limitations when they restrict the importation of intoxicants destined for use, distribution, or consumption within their borders.10 In such a situation the Twenty-First Amendment demands wide latitude for regulation by the state.11 The Court added that there was nothing in the Twenty-First Amendment or any other part of the Constitution that required state laws regulating the liquor business to be motivated exclusively by a desire to promote temperance.12

More recent cases undercut the expansive interpretation of state powers in Young’s Market and the other early cases. The first step was to harmonize Twenty-First Amendment and Commerce Clause principles where possible by asking “whether the interests implicated by a state regulation are so closely related to the powers reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies.” 13 Because “[t]he central purpose of the [Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition,” the “central tenet” of the Commerce Clause will control to invalidate “mere economic protectionism,” at least where the state cannot justify its tax or regulation as “designed to promote temperance or to carry out any other purpose of the . . . Amendment.” 14 But the Court eventually came to view the Twenty-First Amendment as not creating an exception to the commerce power. “[S]tate regulation of alcohol is limited by the nondiscrimination principle of the Commerce Clause,” the Court stated in 2005.15 Discrimination in favor of local products can be upheld only if the state “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” 16 This interpretation stemmed from the Court’s conclusion that the Twenty-First Amendment restored to states the powers that they had possessed prior to Prohibition “to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use” in a manner that did not discriminate against out-of-state goods.17

Consequently, in Granholm v. Heald, the Supreme Court struck down regulatory schemes employed by Michigan and New York that discriminated against out-of-state wineries.18 Both states employed a “three-tier system,” in which producers, wholesalers, and retailers had to be separately licensed by the state.19 The Court first affirmed its prior cases holding that as a general matter, “States can mandate a three-tier distribution scheme in the exercise of their authority under the Twenty-first Amendment.” 20 But within their three-tier systems, Michigan and New York gave certain advantages to in-state wineries by creating special licensing systems allowing them to directly ship wine to in-state consumers.21 While recognizing that both states did have significant authority to regulate the importation and sale of liquor, the Court said that the challenged systems “involve[d] straightforward attempts to discriminate in favor of local producers . . . contrary to the Commerce Clause,” and that these schemes could not be “saved by the Twenty-first Amendment.” 22

The states argued in Granholm that their restrictions on direct shipments by out-of-state wineries passed muster under Dormant Commerce Clause principles because they advanced two legitimate local purposes: “keeping alcohol out of the hands of minors and facilitating tax collection.” 23 The Supreme Court rejected these claims, concluding that there was insufficient evidence to show that prohibiting direct shipments would solve either of these problems.24 The Court also suggested that the states could achieve “their regulatory objectives . . . without discriminating against interstate commerce.” 25

The Court struck down another discriminatory regulation in Tennessee Wine and Spirits Retailers Association v. Thomas.26 In that case, the Court considered specific aspects of Tennessee’s three-tier system.27 In particular, Tennessee would only issue new retail licenses to individuals who had been residents of the state for the previous two years.28 In defense of the law, a trade association representing Tennessee liquor stores argued that the case was not governed by Granholm.29 In its view, Granholm's analysis was limited to laws that discriminate against out-of-state products and producers, whereas Tennessee’s provision concerned “the licensing of domestic retail alcohol stores.” 30 The Court disagreed, explaining that instead, Granholm established that the Constitution “prohibits state discrimination against all ‘out-of-state economic interests.’” 31

Ultimately, the Court concluded in Tennessee Wine that the challenged law was unconstitutional because its predominant effect was protectionism, saying that the law had “at best a highly attenuated relationship to public health or safety.” 32 The trade association argued that the provision was justified because it made retailers “amenable to the direct process of state courts,” allowed the state “to determine an applicant’s fitness to sell alcohol,” and “promote[d] responsible alcohol consumption.” 33 But in the Court’s view, there was no “'concrete evidence’ showing that the two-year residency requirement actually promotes public health or safety; nor [was] there evidence that nondiscriminatory alternatives would be insufficient to further those interests.” 34

When passing upon the constitutionality of legislation regulating the carriage of liquor interstate, a majority of the Justices seemed disposed to bypass the Twenty-First Amendment and to resolve the issue exclusively in terms of the Commerce Clause and state power. This trend toward devaluation of the Twenty-First Amendment was set in motion by Ziffrin, Inc. v. Reeves35 in which a Kentucky statute that prohibited the transportation of intoxicating liquors by carriers other than licensed common carriers was enforced as to an Indiana corporation engaged in delivering liquor obtained from Kentucky distillers to consignees in Illinois but licensed only as a contract carrier under the Federal Motor Carriers Act. After acknowledging that “the Twenty-first Amendment sanctions the right of a State to legislate concerning intoxicating liquors brought from without, unfettered by the Commerce Clause,” 36 the Court proceeded to found its ruling largely upon decisions antedating the Amendment that sustained similar state regulations as a legitimate exercise of the police power not unduly burdening interstate commerce. In light of the contemporaneous cases enumerated in the preceding topic construing the Twenty-First Amendment as according a plenary power to the states, such extended emphasis on the police power and the Commerce Clause would seem to have been unnecessary. Thereafter, a total eclipse of the Twenty-First Amendment was recorded in Duckworth v. Arkansas37 and Carter v. Virginia,38 in which, without even considering that Amendment, a majority of the Court upheld, as not contravening the Commerce Clause, statutes regulating the transport through the state of liquor cargoes originating and ending outside the regulating state’s boundaries.39

1: Granholm v. Heald, 544 U.S. 460, 487 (2005).
2: See, e.g., Tenn. Wine & Spirits Retailers Ass’n. v. Thomas, No. 18-96, slip op. (June 26, 2019).
3: State Board of Equalization v. Young’s Market Co., 299 U.S. 59 (1936).
4: Mahoney v. Triner Corp., 304 U.S. 401 (1938).
5: Brewing Co. v. Liquor Comm’n, 305 U.S. 391 (1939) (Michigan law); Finch & Co. v. McKittrick, 305 U.S. 395 (1939) (Missouri law).
6: 299 U.S. 59, 62 (1936).
7: 299 U.S. at 64. In the three decisions rendered subsequently, the Court merely restated these conclusions. The contention that discriminatory regulation of imported liquors violated the Due Process Clause was summarily rejected in Brewing Co. v. Liquor Comm’n, 305 U.S. 391, 394 (1939).
8: 384 U.S. 35 (1966).
9: 384 U.S. at 42. See United States v. Frankfort Distilleries, 324 U.S. 293, 299 (1945) and Nippert v. City of Richmond, 327 U.S. 416 (1946).
10: 384 U.S. at 35. See, e.g., Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 330 (1964) and State Bd. of Equalization v. Young’s Market Co., 299 U.S. 59 (1936).
11: 384 U.S. at 35. The Court added that it was not deciding then whether the mode of liquor regulation chosen by a state in such circumstances could ever constitute so grave an interference with a company’s operations elsewhere as to make the regulation invalid under the Commerce Clause. Id. at 42–43.
12: 384 U.S. at 47.
13: Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714 (1984). “[T]he central power reserved by § 2 of the Twenty-first Amendment [is] that of exercising ‘control over whether to permit importation or sale of liquor and how to structure the liquor distribution system.’” 467 U.S. at 715 (quoting California Retail Liquor Dealers Ass’n v. Midcal Aluminum, 445 U.S. 97 (1980)).
14: Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 276 (1984). See also, e.g., Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 713 (1984) ( “In rejecting the claim that the Twenty-first Amendment ousted the Federal Government of all jurisdiction over interstate traffic in liquor, we have held that when a State has not attempted directly to regulate the sale or use of liquor within its borders—the core § 2 power—a conflicting exercise of federal authority may prevail.” ).
15: Granholm v. Heald, 544 U.S. 460, 487 (2005). See also Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 276 (1984) (invalidating tax that discriminated in favor of specific locally produced products); Healy v. The Beer Institute, 491 U.S. 324, 343 (1989) (invalidating “price affirmation” statute requiring out-of-state brewers and beer importers to affirm that their prices are not higher than prices charged in border states); Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 585 (1986) (invalidating “price affirmation” statute requiring distillers or agents who sell to in-state wholesalers to affirm that their prices would not be higher than prices elsewhere in the United States).
16: Granholm v. Heald, 544 U.S. 460, 487, 489 (2005) (invalidating Michigan and New York laws allowing in-state but not out-of-state wineries to make direct sales to consumers). This is the same test the Court applies outside the context of alcoholic beverages. See Maine v. Taylor, 477 U.S. 131, 138 (1986) (once discrimination against interstate commerce is established, “the burden falls on the State to demonstrate both that the statute ‘serves a legitimate local purpose,’ and that this purpose could not be served as well by available nondiscriminatory means” ) (quoting Hughes v. Oklahoma, 441 U.S. 322, 336 (1979)).
17: 460 U.S. at 484. According to Justice Anthony Kennedy’s opinion for the Court, these pre-Prohibition state powers were framed by the Wilson and Webb-Kenyon Acts, and the Twenty-First Amendment evidenced a “clear intention of constitutionalizing the Commerce Clause framework established under those statutes.” Id., accord Tenn. Wine & Spirits Retailers Ass’n v. Thomas, No. 18-96, slip op. (June 26, 2019). However, in Tennessee Wine, the Court rejected the suggestion that a law should be deemed constitutional under the Twenty-First Amendment merely because it—or a similar law—predated Prohibition. Id. at 30. The Court clarified that pre-Prohibition laws that were “never tested” in the Supreme Court could have been held invalid then and, consequently, might remain invalid in modern times. Id.
18: 544 U.S. 460, 493 (2005).
19: Id. at 466–67.
20: Id. at 466 (discussing North Dakota v. United States, 495 U.S. 423, 444 (1990) (plurality opinion); id. at 444 (Scalia, J., concurring)).
21: Id. at 469–70.
22: Id. at 489.
23: Id.
24: Id. at 490–91.
25: Id. at 491.
26: No. 18-96, slip op. (June 26, 2019).
27: Id. at 2.
28: Id. at 3. Some additional aspects of Tennessee’s regulatory scheme had been invalidated by the lower courts, and the state did not defend those provisions on appeal to the Supreme Court. Id. at 1.
29: Id. at 26.
30: Id.
31: Id. at 27 (quoting Granholm v. Heald, 544 U.S. 460, 472 (2005)). The Court also characterized the association’s reading of the Twenty-First Amendment as “implausible.” Id. While the association conceded that Section 2 of the Twenty-First Amendment could not shield discriminatory laws that address the importation of alcohol, it argued that Section 2 authorized its discriminatory law regarding licensing domestic stores. Id. The Court noted that the Twenty-First Amendment specifically prohibits the “importation” of alcohol into a state in violation of that state’s laws, but does not literally address states’ ability to license domestic retailers. Id. The majority argued that “if § 2 granted States the power to discriminate in the field of alcohol regulation, that power would be at its apex when it comes to regulating the activity to which the provision expressly refers.” Id. at 26–27. But because Section 2 did not shield importation laws from analysis under the Dormant Commerce Clause, the Court reasoned that it would be odd for the provision to nonetheless protect other types of discriminatory regulations. Id.
32: Id. at 33.
33: Id. at 33–35.
34: Id. at 33.
35: 308 U.S. 132 (1939).
36: 308 U.S. at 138.
37: 314 U.S. 390 (1941).
38: 321 U.S. 131 (1944). See also Cartlidge v. Raincey, 168 F.2d 841 (5th Cir. 1948), cert. denied, 335 U.S. 885 (1948).
39: Arkansas required a permit for the transportation of liquor across its territory, but granted the same upon application and payment of a nominal fee. Virginia required carriers engaged in similar through-shipments to use the most direct route, carry a bill of lading describing that route, and post a $1,000 bond conditioned on lawful transportation; and also stipulated that the true consignee be named in the bill of lading and be one having the legal right to receive the shipment at destination.