Supreme Court Rules on Out-of-State Shipping
By Jim Clarke

Citing the Commerce Clause, the Supreme Court today ruled 5-4 that laws permitting in-state shipping of wine while forbidding such shipments from out-of-state are protectionist, discriminatory, and unconstitutional. They ruled specifically on two cases in New York and Michigan, but 24 other states have similar laws that could be affected. The decision comes as a defeat for wine wholesalers, who are concerned about being passed by as wineries take advantage of their new ability to reach consumers directly via the Internet. Many wineries, especially smaller ones, hope to benefit from the decision, claiming their smaller output was being slighted by a three-tier producer-wholesaler-retailer system which encourages distributors to concentrate on larger producers.

The laws could have stood despite their discriminatory nature if the States had demonstrated that the laws had a legitimate purpose that could not have been achieved using non-discriminatory means. They advanced two arguments: the laws kept wine out of the hands of minors and facilitated tax collection. Regarding the former, the Court found that allowing direct shipment of wine was not a greater problem in states that already allowed such shipping. In the Court’s opinion, Justice Kennedy wrote, “Even were we to credit the States’ largely unsupported claim that direct shipping of wine increases the risk of underage drinking, this would not justify regulations limiting only out-of-state direct shipments. As the wineries point out, minors are just as likely to order wine from in-state producers as from out-of-state ones.”

They also felt tax collection could be achieved by non-discriminatory means; in fact, Michigan’s tax structure for alcohol already taxes out-of-state wineries directly.

The Supreme Court has not, however, proposed a remedy in the case, so the legislatures of New York, Michigan, and eventually other states will have to decide how to respond. While it is generally expected that many states will open up to direct shipping, there is nothing preventing them from forbidding wine shipments of any sort, as long as they don’t discriminate against out-of-state producers. Wholesalers are expected to put a lot of money into the fight to protect their control of the industry.

See A Bottle for my Mother for more background on this case.

   Published: May 2005