Scope of Regulatory Power Conferred upon the States

Discrimination Between Domestic and Imported Products.

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

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,2 and a Minnesota statute that prohibited a licensed manufacturer or wholesaler from importing any brand of intoxicating liquor containing more than 25 percent alcohol by volume and ready for sale without further processing, unless such brand was registered in the United States Patent Office.3 Also validated were retaliation laws prohibiting sale of beer from states that discriminated against sale of beer from the enacting state.4

Conceding, in State Board of Equalization v. Young’s Market Co.,5 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.”6

In Seagram & Sons v. Hostetter7 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.8 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.9 In such a situation the Twenty-first Amendment demands wide latitude for regulation by the state.10 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.11

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.”12 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.”13 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. 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.”14 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.15

Regulation of Transportation and “Through” Shipments.

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. Reeves16 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,”17 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. Arkansas18 and Carter v. Virginia,19 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.20

Regulation of Imports Destined for a Federal Area.

Importation of alcoholic beverages into a state for ultimate delivery at a National Park located in the state but over which the United States retained exclusive jurisdiction has been construed as not constituting “transportation . . . into [a] State for delivery and use therein” within the meaning of § 2 of the Amendment. The importation having had as its objective delivery and use in a federal area over which the state retained no jurisdiction, the increased powers that the state acquired from the Twenty-first Amendment were declared to be inapplicable. California therefore could not extend the importation license and other regulatory requirements of its Alcoholic Beverage Control Act to a retail liquor dealer doing business in the Park.21 On the other hand, a state may apply nondiscriminatory liquor regulations to sales at federal enclaves under concurrent federal and state jurisdiction, and may require that liquor sold at such federal enclaves be labeled as being restricted for use only within the enclave.22

Foreign Imports, Exports; Taxation, Regulation.

The Twenty-first Amendment did not repeal the Export-Import Clause, Art. I, § 10, cl. 2, nor obliterate the Commerce Clause, Art. I, § 8, cl. 3. Accordingly, a state cannot tax imported liquor while it remains “in unbroken packages in the hands of the original importer and prior to [his] resale or use” thereof.23 Likewise, New York is precluded from terminating the business of an airport dealer who, under sanction of federal customs laws, acquired “tax-free liquors for export” from out-of-state sources for resale exclusively to airline passengers, with delivery deferred until the latter arrive at foreign destinations.24 Similarly, a state “affirmation law” prohibiting wholesalers from charging lower prices on out-of-state sales than those already approved for in-state sales is invalid as a direct regulation of interstate commerce. “The Commerce Clause operates with full force whenever one State attempts to regulate the transportation and sale of alcoholic beverages destined for distribution and consumption in a foreign country . . . or another State.”25

Effect of Section 2 upon Other Constitutional Provisions.

Notwithstanding the 1936 assertion that “[a] classification recognized by the Twenty-first Amendment cannot be deemed forbidden by the Fourteenth,”26 the Court has now in a series of cases acknowledged that § 2 of the Twenty-first Amendment did not repeal provisions of the Constitution adopted before ratification of the Twenty-first, save for the severe cabining of Commerce Clause application to the liquor traffic, but it has formulated no consistent rationale for a determination of the effect of the later provision upon earlier ones. In Craig v. Boren,27 the Court invalidated a state law that prescribed different minimum drinking ages for men and women as violating the Equal Protection Clause. To the state’s Twenty-first Amendment argument, the Court replied that the Amendment “primarily created an exception to the normal operation of the Commerce Clause” and that its “relevance . . . to other constitutional provisions” is doubtful. “ ‘Neither the text nor the history of the Twenty-first Amendment suggests that it qualifies individual rights protected by the Bill of Rights and the Fourteenth Amendment where the sale or use of liquor is concerned.’ ”28 The holding on this point is “that the operation of the Twenty-first Amendment does not alter the application of the equal protection standards that would otherwise govern this case.”29 Other decisions reach the same result but without discussing the application of the Amendment.30 Similarly, a state “may not exercise its power under the Twenty-first Amendment in a way which impinges upon the Establishment Clause of the First Amendment.”31

The Court departed from this line of reasoning in California v. LaRue,32 in which it sustained the facial constitutionality of regulations barring a lengthy list of actual or simulated sexual activities and motion picture portrayals of these activities in establishments licensed to sell liquor by the drink. In an action attacking the validity of the regulations as applied to ban nude dancing in bars, the Court considered at some length the material adduced at the public hearings which resulted in the rules demonstrating the anti-social consequences of the activities in the bars. It conceded that the regulations reached expression that would not be deemed legally obscene under prevailing standards and reached expressive conduct that would not be prohibitable under prevailing standards,33 but the Court thought that the constitutional protection of conduct that partakes “more of gross sexuality than of communication” was outweighed by the state’s interest in maintaining order and decency. Moreover, the Court continued, the second section of the Twenty-first Amendment gave an “added presumption in favor of the validity” of the regulations as applied to prohibit questioned activities in places serving liquor by the drink.34

A much broader ruling resulted when the Court considered the constitutionality of a state regulation banning topless dancing in bars. “Pursuant to its power to regulate the sale of liquor within its boundaries, it has banned topless dancing in establishments granted a license to serve liquor. The State’s power to ban the sale of alcoholic beverages entirely includes the lesser power to ban the sale of liquor on premises where topless dancing occurs.”35 This recurrence to the greater-includes-the-lesser-power argument, relatively rare in recent years,36 would if it were broadly applied give the states in the area of regulation of alcoholic beverages a review-free discretion of unknown scope.

In 44 Liquormart, Inc. v. Rhode Island,37 the Court disavowed LaRue and Bellanca, and reaffirmed that, “although the Twenty-first Amendment limits the effect of the dormant Commerce Clause on a state’s regulatory power over the delivery or use of intoxicating beverages within its borders, ‘the Amendment does not license the States to ignore their obligations under other provisions of the Constitution,’ ”38 and therefore does not afford a basis for state legislation infringing freedom of expression protected by the First Amendment. There is no reason, the Court asserted, for distinguishing between freedom of expression and the other constitutional guarantees (e.g., those protected by the Establishment and Equal Protection Clauses) held to be insulated from state impairment pursuant to powers conferred by the Twenty-first Amendment. The Court hastened to add by way of dictum that states retain adequate police powers to regulate “grossly sexual exhibitions in premises licensed to serve alcoholic beverages.” “Entirely apart from the Twenty-first Amendment, the State has ample power to prohibit the sale of alcoholic beverages in inappropriate locations.”39

Footnotes

1
Granholm v. Heald, 544 U.S. 460, 487 (2005). back
2
State Board of Equalization v. Young’s Market Co., 299 U.S. 59 (1936). back
3
Mahoney v. Triner Corp., 304 U.S. 401 (1938). back
4
Brewing Co. v. Liquor Comm’n, 305 U.S. 391 (1939) (Michigan law); Finch & Co. v. McKittrick, 305 U.S. 395 (1939) (Missouri law). back
5
299 U.S. 59, 62 (1936). back
6
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). back
7
384 U.S. 35 (1966). back
8
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). back
9
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). back
10
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. back
11
384 U.S. at 47. back
12
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)). back
13
Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 276 (1984). See also Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573 (1986) (attempt to regulate prices of out-of-state sales); Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984) (state’s limited interest in banning wine commercials carried on cable TV while permitting various other forms of liquor advertisement is outweighed by federal interest in promoting access to cable TV); and 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987) (retail price maintenance in violation of Sherman Act). back
14
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)). back
15
460 U.S. at 484. According to Justice 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. back
16
308 U.S. 132 (1939). back
17
308 U.S. at 138. back
18
314 U.S. 390 (1941). back
19
321 U.S. 131 (1944). See also Cartlidge v. Raincey, 168 F.2d 841 (5th Cir. 1948), cert. denied, 335 U.S. 885 (1948). back
20
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. back
21
Collins v. Yosemite Park Co., 304 U.S. 518, 537–38 (1938). The principle was reaffirmed in United States v. Mississippi Tax Comm’n, 412 U.S. 363 (1973), holding that Mississippi could not apply its tax regulations to liquor sold to military officers’ clubs and other nonappropriated fund activities located on bases within the State and over which the United States had obtained exclusive jurisdiction. “[A]bsent an appropriate express reservation . . . the Twenty-first Amendment confers no power on a State to regulate –whether by licensing, taxation, or otherwise—the importation of distilled spirits into territory over which the United States exercises exclusive jurisdiction.” Id. at 375. Nor may states tax importation of liquor for sale at bases over which the United States exercises concurrent jurisdiction only. United States v. Mississippi Tax Comm’n, 421 U.S. 599 (1975). back
22
North Dakota v. United States, 495 U.S. 423 (1990) (also upholding application to federal enclaves of a uniform requirement that shipments into the state be reported to state officials). back
23
Department of Revenue v. Beam Distillers, 377 U.S. 341 (1964). The Court distinguished Gordon v. Texas, 355 U.S. 369 (1958) and De Bary v. Louisiana, 227 U.S. 108 (1913). back
24
Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324 (1964). back
25
Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 585 (1986) (citation omitted). Accord, Healy v. Beer Institute, 491 U.S. 324 (1989). back
26
State Bd. of Equalization v. Young’s Market Co., 299 U.S. 59, 64 (1936). In Craig v. Boren, 429 U.S. 190, 206–07 (1976), this case and others like it are distinguished as involving the importation of intoxicants into a state, an area of increased state regulatory power, and as involving purely economic regulation traditionally meriting only restrained review. Neither distinguishing element, of course, addresses the precise language quoted. For consideration of equal protection analysis in an analogous situation, the statutory exemption of state insurance regulations from Commerce Clause purview, see Western & Southern Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 655–74 (1981). back
27
429 U.S. 190 (1976). back
28
429 U.S. at 206 (quoting P. BREST, PROCESSES OF CONSTITUTIONAL DECISIONMAKINGCASES AND MATERIALS 258 (1975). back
29
429 U.S. at 209–210. back
30
E.g., Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 178–97 (1972) (invalidating a state liquor regulation as an equal protection denial in a racial context); Wisconsin v. Constantineau, 400 U.S. 433 (1971) (invalidating a state law authorizing the posting of someone as an “excessive drinker” and thus barring him from buying liquor, as reconstrued in Paul v. Davis, 424 U.S. 693, 707–09 (1976)). back
31
Larkin v. Grendel’s Den, 459 U.S. 116, 122 n.5 (1982). back
32
409 U.S. 109 (1972). back
33
Cf. Schad v. Borough of Mount Ephraim, 452 U.S. 61 (1981) (ban on live nude dancing in Borough); Doran v. Salem Inn, 422 U.S. 922 (1975) (ban on nude dancing in “any public place” applied to topless dancing in bars). back
34
409 U.S. at 114–19. In Doran v. Salem Inn, 422 U.S. 922, 932–33 (1975), the Court described its holding in LaRue more broadly, saying that “we concluded that the broad powers of the States to regulate the sale of liquor, conferred by the Twenty-first Amendment, outweighed any First Amendment interest in nude dancing and that a State could therefore ban such dancing as part of its liquor license control program.” back
35
New York State Liquor Auth. v. Bellanca, 452 U.S. 714, 717 (1981). back
36
For a rejection of the argument in another context, contemporaneously with Bellanca, see Western & Southern Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 657–68 (1981). For use of the argument in the commercial speech context, see Posadas de Puerto Rico Associates v. Tourism Co. of Puerto Rico, 478 U.S. 328, 345–46 (1986); this use of the argument in Posadas was disavowed in 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996). See also Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984), not addressing the commercial speech issue but holding state regulation of liquor advertisements on cable TV to be preempted, in spite of the Twenty-first Amendment, by federal policies promoting access to cable TV). back
37
517 U.S. 484 (1996) (statutory prohibition against advertisements that provide the public with accurate information about retail prices of alcoholic beverages is not shielded from constitutional scrutiny by the Twenty-first Amendment). back
38
517 U.S. at 516 (quoting Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 712 (1984)). back
39
517 U.S. at 515. back