[ Kennedy ]
[ Stevens ]
[ Thomas ]
ON WRITS OF CERTIORARI TO THE UNITED STATES
APPEALS FOR THE SIXTH CIRCUIT
ON WRIT OF CERTIORARI TO THE UNITED STATES
APPEALS FOR THE SECOND CIRCUIT
[May 16, 2005]
Justice Kennedy delivered the opinion of the Court.
These consolidated cases present challenges to state laws regulating the sale of wine from out-of-state wineries to consumers in Michigan and New York. The details and mechanics of the two regulatory schemes differ, but the object and effect of the laws are the same: to allow in-state wineries to sell wine directly to consumers in that State but to prohibit out-of-state wineries from doing so, or, at the least, to make direct sales impractical from an economic standpoint. It is evident that the object and design of the Michigan and New York statutes is to grant in-state wineries a competitive advantage over wineries located beyond the States borders.
We hold that the laws in both States discriminate against interstate commerce in violation of the Commerce Clause, Art. I, §8, cl. 3, and that the discrimination is neither authorized nor permitted by the Twenty-first Amendment. Accordingly, we affirm the judgment of the Court of Appeals for the Sixth Circuit, which invalidated the Michigan laws; and we reverse the judgment of the Court of Appeals for the Second Circuit, which upheld the New York laws.
Like many other States, Michigan and New York regulate the sale and importation of alcoholic beverages, including wine, through a three-tier distribution system. Separate licenses are required for producers, wholesalers, and retailers. See FTC, Possible Anticompetitive Barriers to E-Commerce: Wine 57 (July 2003) (hereinafter FTC Report), available at http://www.ftc.gov/os/2003/07/ winereport2.pdf (all Internet materials as visited May 11, 2005, and available in Clerk of Courts case file). The three-tier scheme is preserved by a complex set of overlapping state and federal regulations. For example, both state and federal laws limit vertical integration between tiers. Id., at 5; 27 U.S.C. § 205; see, e.g., Bainbridge v. Turner, 311 F.3d 1104, 1106 (CA11 2002). We have held previously that States can mandate a three-tier distribution scheme in the exercise of their authority under the Twenty-first Amendment. North Dakota v. United States, 495 U.S. 423, 432 (1990); id., at 447 (Scalia, J., concurring in judgment). As relevant to todays cases, though, the three-tier system is, in broad terms and with refinements to be discussed, mandated by Michigan and New York only for sales from out-of-state wineries. In-state wineries, by contrast, can obtain a license for direct sales to consumers. The differential treatment between in-state and out-of-state wineries constitutes explicit discrimination against interstate commerce.
This discrimination substantially
limits the direct sale of wine to consumers, an otherwise
emerging and significant business. FTC Report 7. From 1994 to
1999, consumer spending on direct wine shipments doubled,
reaching $500 million per year, or three percent of all wine
sales. Id., at 5. The expansion has been influenced by
several related trends. First, the number of small wineries in
the United States has significantly increased. By some
estimates there are over 3,000 wineries in the country,
WineAmerica, The National Association of American Wineries,
Wine Facts 2004,
than three times the number 30 years ago, FTC Report 6. At the
same time, the wholesale market has consolidated. Between 1984
and 2002, the number of licensed wholesalers dropped from 1,600
to 600. Riekhof & Sykuta, Regulating Wine by Mail, 27
Regulation, No. 3, pp. 30, 31 (Fall 2004), available at
pubs/regulation/regv27n3/v27n3-3.pdf. The increasing winery-to-wholesaler ratio means that many small wineries do not produce enough wine or have sufficient consumer demand for their wine to make it economical for wholesalers to carry their products. FTC Report 6. This has led many small wineries to rely on direct shipping to reach new markets. Technological improvements, in particular the ability of wineries to sell wine over the Internet, have helped make direct shipments an attractive sales channel.
Approximately 26 States allow some direct shipping of wine, with various restrictions. Thirteen of these States have reciprocity laws, which allow direct shipment from wineries outside the State, provided the State of origin affords similar nondiscriminatory treatment. Id., at 78. In many parts of the country, however, state laws that prohibit or severely restrict direct shipments deprive consumers of access to the direct market. According to the Federal Trade Commission (FTC), [s]tate bans on interstate direct shipping represent the single largest regulatory barrier to expanded e-commerce in wine. Id., at 3.
The wine producers in the cases before us are small wineries that rely on direct consumer sales as an important part of their businesses. Domaine Alfred, one of the plaintiffs in the Michigan suit, is a small winery located in San Luis Obispo, California. It produces 3,000 cases of wine per year. Domaine Alfred has received requests for its wine from Michigan consumers but cannot fill the orders because of the States direct-shipment ban. Even if the winery could find a Michigan wholesaler to distribute its wine, the wholesalers markup would render shipment through the three-tier system economically infeasible.
Similarly, Juanita Swedenburg and David Lucas, two of the plaintiffs in the New York suit, operate small wineries in Virginia (the Swedenburg Estate Vineyard) and California (the Lucas Winery). Some of their customers are tourists, from other States, who purchase wine while visiting the wineries. If these customers wish to obtain Swedenburg or Lucas wines after they return home, they will be unable to do so if they reside in a State with restrictive direct-shipment laws. For example, Swedenburg and Lucas are unable to fill orders from New York, the Nations second-largest wine market, because of the limits that State imposes on direct wine shipments.
We first address the background of the suit challenging the Michigan direct-shipment law. Most alcoholic beverages in Michigan are distributed through the States three-tier system. Producers or distillers of alcoholic beverages, whether located in state or out of state, generally may sell only to licensed in-state wholesalers. Mich. Comp. Laws Ann. §§436.1109(1), 436.1305, 436.1403, 436.1607(1) (West 2000); Mich. Admin. Code Rules 436.1705 (1990), 436.1719 (2000). Wholesalers, in turn, may sell only to in-state retailers. Mich. Comp. Laws Ann. §§436.1113(7), 436.1607(1) (West 2001). Licensed retailers are the final link in the chain, selling alcoholic beverages to consumers at retail locations and, subject to certain restrictions, through home delivery. §§436.1111(5), 436.1203(2)(4).
Under Michigan law, wine producers, as a general matter, must distribute their wine through wholesalers. There is, however, an exception for Michigans approximately 40 in-state wineries, which are eligible for wine maker licenses that allow direct shipment to in-state consumers. §436.1113(9) (West 2001); §§436.1537(2)(3) (West Supp. 2004); Mich. Admin. Code Rule 436.1011(7)(b) (2003). The cost of the license varies with the size of the winery. For a small winery, the license is $25. Mich. Comp. Laws Ann. §436.1525(1)(d) (West Supp. 2004). Out-of-state wineries can apply for a $300 outside seller of wine license, but this license only allows them to sell to in-state wholesalers. §§436.1109(9) (West 2001), 436.1525(1)(e) (West Supp. 2004); Mich. Admin. Code Rule 436.1719(5) (2000).
Some Michigan residents brought suit against various state officials in the United States District Court for the Eastern District of Michigan. Domaine Alfred, the San Luis Obispo winery, joined in the suit. The plaintiffs contended that Michigans direct-shipment laws discriminated against interstate commerce in violation of the Commerce Clause. The trade association Michigan Beer & Wine Wholesalers intervened as a defendant. Both the State and the wholesalers argued that the ban on direct shipment from out-of-state wineries is a valid exercise of Michigans power under §2 of the Twenty-first Amendment.
On cross-motions for summary judgment the District Court sustained the Michigan scheme. The Court of Appeals for the Sixth Circuit reversed. Heald v. Engler, 342 F.3d 517 (2003). Relying on Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), the court rejected the argument that the Twenty-first Amendment immunizes all state liquor laws from the strictures of the Commerce Clause, 342 F.3d, at 524, and held the Michigan scheme was unconstitutional because the defendants failed to demonstrate the State could not meet its proffered policy objectives through nondiscriminatory means, id., at 527.
New Yorks licensing scheme is somewhat different. It channels most wine sales through the three-tier system, but it too makes exceptions for in-state wineries. As in Michigan, the result is to allow local wineries to make direct sales to consumers in New York on terms not available to out-of-state wineries. Wineries that produce wine only from New York grapes can apply for a license that allows direct shipment to in-state consumers. N. Y. Alco. Bev. Cont. Law Ann. §76a(3) (West Supp. 2005) (hereinafter N. Y. ABC Law). These licensees are authorized to deliver the wines of other wineries as well, §76a(6)(a), but only if the wine is made from grapes at least seventy-five percent the volume of which were grown in New York state, §3(20a). An out-of-state winery may ship directly to New York consumers only if it becomes a licensed New York winery, which requires the establishment of a branch factory, office or storeroom within the state of New York. §3(37).
Juanita Swedenburg and David Lucas, joined by three of their New York customers, brought suit in the Southern District of New York against the officials responsible for administering New Yorks Alcoholic Beverage Control Law seeking, inter alia, a declaration that the States limitations on the direct shipment of out-of-state wine violate the Commerce Clause. New York liquor wholesalers and representatives of New York liquor retailers intervened in support of the State.
The District Court granted summary judgment to the plaintiffs. 232 F. Supp. 2d 135 (2002). The court first determined that, under established Commerce Clause principles, the New York direct-shipment scheme discriminates against out-of-state wineries. Id., at 146147. The court then rejected the States Twenty-first Amendment argument, finding that the [d]efendants have not shown that New Yorks ban on the direct shipment of out-of-state wine, and particularly the in-state exceptions to the ban, implicate the States core concerns under the Twenty-first Amendment. Id., at 148.
The Court of Appeals for the Second Circuit reversed. 358 F.3d 223 (2004). The court recognize[d] that the physical presence requirement could create substantial dormant Commerce Clause problems if this licensing scheme regulated a commodity other than alcohol. Id., at 238. The court nevertheless sustained the New York statutory scheme because, in the courts view, New Yorks desire to ensure accountability through presence is aimed at the regulatory interests directly tied to the importation and transportation of alcohol for use in New York, ibid. As such, the New York direct shipment laws were within the ambit of the powers granted to states by the Twenty-first Amendment. Id., at 239.
We consolidated these cases and
granted certiorari on the following question:
For ease of exposition, we refer to the respondents from the Michigan challenge (Nos. 031116 and 031120) and the petitioners in the New York challenge (No. 031274) collectively as the wineries. We refer to their opposing partiesMichigan, New York, and the wholesalers and retailerssimply as the States.
Time and again this Court has held that, in all but the narrowest circumstances, state laws violate the Commerce Clause if they mandate differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter. Oregon Waste Systems, Inc. v. Department of Environmental Quality of Ore., 511 U.S. 93, 99 (1994). See also New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 274 (1988). This rule is essential to the foundations of the Union. The mere fact of nonresidence should not foreclose a producer in one State from access to markets in other States. H. P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 539 (1949). States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses. This mandate reflect[s] a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation. Hughes v. Oklahoma, 441 U.S. 322, 325326 (1979).
The rule prohibiting state discrimination against interstate commerce follows also from the principle that States should not be compelled to negotiate with each other regarding favored or disfavored status for their own citizens. States do not need, and may not attempt, to negotiate with other States regarding their mutual economic interests. Cf. U.S. Const., Art. I, §10, cl. 3. Rivalries among the States are thus kept to a minimum, and a proliferation of trade zones is prevented. See C & A Carbone, Inc. v. Clarkstown, 511 U.S. 383, 390 (1994) (citing The Federalist No. 22, pp. 143145 (C. Rossiter ed. 1961) (A. Hamilton); Madison, Vices of the Political System of the United States, in 2 Writings of James Madison 362363 (G. Hunt ed. 1901)).
Laws of the type at issue in the instant cases contradict these principles. They deprive citizens of their right to have access to the markets of other States on equal terms. The perceived necessity for reciprocal sale privileges risks generating the trade rivalries and animosities, the alliances and exclusivity, that the Constitution and, in particular, the Commerce Clause were designed to avoid. State laws that protect local wineries have led to the enactment of statutes under which some States condition the right of out-of-state wineries to make direct wine sales to in-state consumers on a reciprocal right in the shipping State. California, for example, passed a reciprocity law in 1986, retreating from the States previous regime that allowed unfettered direct shipments from out-of-state wineries. Riekhof & Sykuta, 27 Regulation, No. 3, at 30. Prior to 1986, all but three States prohibited direct-shipments of wine. The obvious aim of the California statute was to open the interstate direct-shipping market for the States many wineries. Ibid. The current patchwork of lawswith some States banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocityis essentially the product of an ongoing, low-level trade war. Allowing States to discriminate against out-of-state wine invite[s] a multiplication of preferential trade areas destructive of the very purpose of the Commerce Clause. Dean Milk Co. v. Madison, 340 U.S. 349, 356 (1951). See also Baldwin v. G. A. F. Seelig, Inc., 294 U.S. 511, 521523 (1935).
The discriminatory character of the Michigan system is obvious. Michigan allows in-state wineries to ship directly to consumers, subject only to a licensing requirement. Out-of-state wineries, whether licensed or not, face a complete ban on direct shipment. The differential treatment requires all out-of-state wine, but not all in-state wine, to pass through an in-state wholesaler and retailer before reaching consumers. These two extra layers of overhead increase the cost of out-of-state wines to Michigan consumers. The cost differential, and in some cases the inability to secure a wholesaler for small shipments, can effectively bar small wineries from the Michigan market.
The New York regulatory scheme differs from Michigans in that it does not ban direct shipments altogether. Out-of-state wineries are instead required to establish a distribution operation in New York in order to gain the privilege of direct shipment. N. Y. ABC Law §§3(37), 96. This, though, is just an indirect way of subjecting out-of-state wineries, but not local ones, to the three-tier system. New York and those allied with its interests defend the scheme by arguing that an out-of-state winery has the same access to the States consumers as in-state wineries: All wine must be sold through a licensee fully accountable to New York; it just so happens that in order to become a licensee, a winery must have a physical presence in the State. There is some confusion over the precise steps out-of-state wineries must take to gain access to the New York market, in part because no winery has run the States regulatory gauntlet. New Yorks argument, in any event, is unconvincing.
The New York scheme grants in-state wineries access to the States consumers on preferential terms. The suggestion of a limited exception for direct shipment from out-of-state wineries does nothing to eliminate the discriminatory nature of New Yorks regulations. In-state producers, with the applicable licenses, can ship directly to consumers from their wineries. §§76a(3), 76(4) (West Supp. 2005), and §77(2) (West 2000). Out-of-state wineries must open a branch office and warehouse in New York, additional steps that drive up the cost of their wine. §§3(37), 96 (West Supp. 2005). See also App. in No. 031274, pp. 159160 (Affidavit of Thomas G. McKeon, General Counsel to the New York State Liquor Authority). For most wineries, the expense of establishing a bricks-and-mortar distribution operation in 1 State, let alone all 50, is prohibitive. It comes as no surprise that not a single out-of-state winery has availed itself of New Yorks direct-shipping privilege. We have viewed with particular suspicion state statutes requiring business operations to be performed in the home State that could more efficiently be performed elsewhere. Pike v. Bruce Church, Inc., 397 U.S. 137, 145 (1970). New Yorks in-state presence requirement runs contrary to our admonition that States cannot require an out-of-state firm to become a resident in order to compete on equal terms. Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 72 (1963). See also Ward v. Maryland, 12 Wall. 418 (1871).
In addition to its restrictive in-state presence requirement, New York discriminates against out-of-state wineries in other ways. Out-of-state wineries that establish the requisite branch office and warehouse in New York are still ineligible for a farm winery license, the license that provides the most direct means of shipping to New York consumers. N. Y. ABC Law §76a(5) (No licensed farm winery shall manufacture or sell any wine not produced exclusively from grapes or other fruits or agricultural products grown or produced in New York state). Out-of-state wineries may apply only for a commercial winery license. See §§3(37), 76. Unlike farm wineries, however, commercial wineries must obtain a separate certificate from the state liquor authority authorizing direct shipments to consumers, §77(2) (West 2000); and, of course, for out-of-state wineries there is the additional requirement of maintaining a distribution operation in New York. New York law also allows in-state wineries without direct-shipping licenses to distribute their wine through other wineries that have the applicable licenses. §76(5) (West Supp. 2005). This is another privilege not afforded out-of-state wineries.
We have no difficulty concluding that New York, like Michigan, discriminates against interstate commerce through its direct-shipping laws.
State laws that discriminate against interstate commerce face a virtually per se rule of invalidity. Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978). The Michigan and New York laws by their own terms violate this proscription. The two States, however, contend their statutes are saved by §2 of the Twenty-first Amendment, which 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.
The States position is inconsistent with our precedents
and with the Twenty-first Amendments history. Section 2
does not allow States to regulate the direct shipment of wine
on terms that discriminate in favor of
Before 1919, the temperance movement fought to curb the sale of alcoholic beverages one State at a time. The movement made progress, and many States passed laws restricting or prohibiting the sale of alcohol. This Court upheld state laws banning the production and sale of alcoholic beverages, Mugler v. Kansas, 123 U.S. 623 (1887), but was less solicitous of laws aimed at imports. In a series of cases before ratification of the Eighteenth Amendment the Court, relying on the Commerce Clause, invalidated a number of state liquor regulations.
These cases advanced two distinct principles. First, the Court held that the Commerce Clause prevented States from discriminating against imported liquor. Scott v. Donald, 165 U.S. 58 (1897); Walling v. Michigan, 116 U.S. 446 (1886); Tiernan v. Rinker, 102 U.S. 123 (1880). In Walling, for example, the Court invalidated a Michigan tax that discriminated against liquor imports by exempting sales of local products. The Court held that States were not free to pass laws burdening only out-of-state products:
A discriminating tax imposed by a State operating to the disadvantage of the products of other States when introduced into the first mentioned State, is, in effect, a regulation in restraint of commerce among the States, and as such is a usurpation of the power conferred by the Constitution upon the Congress of the United States. 116 U.S., at 455.
Second, the Court held that the Commerce Clause prevented States from passing facially neutral laws that placed an impermissible burden on interstate commerce. Rhodes v. Iowa, 170 U.S. 412 (1898); Vance v. W. A. Vandercook Co., 170 U.S. 438 (1898); Leisy v. Hardin, 135 U.S. 100 (1890); Bowman v. Chicago & Northwestern R. Co., 125 U.S. 465 (1888). For example, in Bowman v. Chicago & Northwestern R. Co., 125 U.S. 465 (1888), the Court struck down an Iowa statute that required all liquor importers to have a permit. Bowman and its progeny rested in part on the since-rejected original-package doctrine. Under this doctrine goods shipped in interstate commerce were immune from state regulation while in their original package. As the Court explained in Vance,
the power to ship merchandise from one State into another carries with it, as an incident, the right in the receiver of the goods to sell them in the original packages, any state regulation to the contrary notwithstanding; that is to say, that the goods received by Interstate Commerce remain under the shelter of the Interstate Commerce clause of the Constitution, until by a sale in the original package they have been commingled with the general mass of property in the state. 170 U.S., at 444445.
Bowman reserved the question whether a State could ban the sale of imported liquor altogether. 125 U.S., at 499500. Iowa responded to Bowman by doing just that but was thwarted once again. In Leisy, supra, the Court held that Iowa could not ban the sale of imported liquor in its original package.
Leisy left the States in a bind. They could ban the production of domestic liquor, Mugler, supra, but these laws were ineffective because out-of-state liquor was immune from any state regulation as long as it remained in its original package, Leisy, supra. To resolve the matter, Congress passed the Wilson Act (so named for Senator Wilson of Iowa), which empowered the States to regulate imported liquor on the same terms as domestic liquor:
That all fermented, distilled, or other intoxicating liquors or liquids transported into any State or Territory or remaining therein for use, consumption, sale or storage therein, shall upon arrival in such State or Territory be subject to the operation and effect of the laws of such State or Territory enacted in the exercise of its police powers, to the same extent and in the same manner as though such liquids or liquors had been produced in such State or Territory, and shall not be exempt therefrom by reason of being introduced therein in original packages or otherwise. Ch. 728, 26 Stat. 313 (codified at 27 U.S.C. § 121).
By its own terms, the Wilson Act did not allow States to discriminate against out-of-state liquor; rather, it allowed States to regulate imported liquor only to the same extent and in the same manner as domestic liquor.
The Court confirmed this interpretation in Scott, supra. Scott involved a constitutional challenge to South Carolinas dispensary law, 1895 S. C. Acts p. 721, which required that all liquor sales be channeled through the state liquor commissioner. 165 U.S., at 92. The statute discriminated against out-of-state manufacturers in two primary ways. First, §15 required the commissioner to purchase his supplies from the brewers and distillers in this State when their product reaches the standard required by this Act: Provided, Such supplies can be purchased as cheaply from such brewers and distillers in this State as elsewhere. 1895 S. C. Acts p. 732. Second, §23 of the statute limited the States markup on locally produced wines to a 10-percent profit but provided no such limitation of charge in the case of imported wines. 165 U.S., at 93. Based on these discriminatory provisions, the Court rejected the argument that the South Carolina dispensary law was authorized by the Wilson Act. Id., at 100. It explained that the Wilson Act was not intended to confer upon any State the power to discriminate injuriously against the products of other States in articles whose manufacture and use are not forbidden, and which are therefore the subjects of legitimate commerce. Ibid. To the contrary, the Court said, the Wilson Act mandated equality or uniformity of treatment under state laws, ibid., and did not allow South Carolina to provide an unjust preference to its products as against similar products of the other States, id., at 101. The dissent also understood the validity of the dispensary law to turn in large part on §§15 and 23, but argued that even if these provisions were discriminatory the correct remedy was to sever them from the rest of the Act. Id., at 104106 (opinion of Brown, J.).
Although the Wilson Act increased the States authority to police liquor imports, it did not solve all their problems. In Vance and Rhodestwo cases decided soon after Scottthe Court made clear that the Wilson Act did not authorize States to prohibit direct shipments for personal use. In Vance, the Court characterized Scott as embodying two distinct holdings: First, the South Carolina dispensary law amount[ed] to an unjust discrimination against liquors, the products of other States. 170 U.S., at 442. This aspect of the Scott holding, which confirmed the Wilson Acts nondiscrimination principle, was based on particular provisions of the law by which the discrimination was brought about. 170 U.S., at 442. Second, in so far as the law then in question forbade the sending of intoxicating liquors for the use of the person to whom it was shipped, the statute was repugnant to [the Commerce Clause]. Ibid. (citing Scott, 165 U.S. 58). See also 170 U.S., at 443 (distinguishing between the provisions at issue in Scott which were held to operate a discrimination and those which barred direct shipment for personal use).
This second holding, that consumers had the right to receive alcoholic beverages shipped in interstate commerce for personal use, was only implicit in Scott. 165 U.S., at 78, 99100. The Court expanded on this point, however, not only in Vance but again in Rhodes. Rhodes construed the Wilson Act narrowly to avoid interference with this right. The Act, the Court said, authorized States to regulate only the resale of imported liquor, not direct shipment to consumers for personal use. 170 U.S., at 421. Without a clear indication from Congress that it intended to allow States to ban such shipments, the Rhodes Court read the words upon arrival in the Wilson Act as authorizing the power of the State to attach to an interstate commerce shipment, only after its arrival at the point of destination and delivery there to the consignee. Id., at 426. See also id., at 424; Bridenbaugh v. Freeman-Wilson, 227 F.3d 848, 852 (CA7 2000). The Court interpreted the Wilson Act to overturn Leisy but leave Bowman intact. Rhodes, supra, at 423424. The right to regulate did not attach until the liquor was in the hands of the customer. As a result, the mail-order liquor trade continued to thrive. Rogers, Interstate Commerce in Intoxicating Liquors Before the Webb-Kenyon Act, 4 Va. L. Rev. 353, 364365 (1917).
After considering a series of bills in response to the Courts reading of the Wilson Act, Congress responded to the direct-shipment loophole in 1913 by enacting the Webb-Kenyon Act, 37 Stat. 699, 27 U.S.C. § 122. See Rogers, supra, at 363370. The Act, entitled An Act Divesting intoxicating liquors of their interstate character in certain cases, provides:
That the shipment or transportation of any spirituous, vinous, malted, fermented, or other intoxicating liquor of any kind, from one State into any other State which said spirituous, vinous, malted, fermented, or other intoxicating liquor is intended, by any person interested therein, to be received, possessed, sold, or in any manner used, either in the original package or otherwise, in violation of any law of such State is hereby prohibited. 37 Stat., at 699700.
The constitutionality of the Webb-Kenyon Act itself was in doubt. Vance and Rhodes implied that any law authorizing the States to regulate direct shipments for personal use would be an unlawful delegation of Congress Commerce Clause powers. Indeed, President Taft, acting on the advice of Attorney General Wickersham, vetoed the Act for this specific reason. S. Rep. No. 103, 63 Cong., 1st Sess., 36 (1913); 30 Op. Atty. Gen. 88 (1913). Congress overrode the veto and in Clark Distilling Co. v. Western Maryland R. Co., 242 U.S. 311 (1917), a divided Court upheld the Webb-Kenyon Act against a constitutional challenge.
The Court construed the Act to close the direct-shipment gap left open by the Wilson Act. States were now empowered to forbid shipments of alcohol to consumers for personal use, provided that the States treated in-state and out-of-state liquor on the same terms. Id., at 321322 (noting that the West Virginia law at issue in Clark Distilling forbade the shipment into or transportation of liquor in the State whether from inside or out). The Court understood that the Webb-Kenyon Act was enacted simply to extend that which was done by the Wilson Act. Id., at 324. The Acts purpose was to prevent the immunity characteristic of interstate commerce from being used to permit the receipt of liquor through such commerce in States contrary to their laws, and thus in effect afford a means by subterfuge and indirection to set such laws at naught. Ibid. The Court thus recognized that the Act was an attempt to eliminate the regulatory advantage, i.e. its immunity characteristic, afforded imported liquor under Bowman and Rhodes.
Michigan and New York now argue the Webb-Kenyon Act went even further and removed any barrier to discriminatory state liquor regulations. We do not agree. First, this reading of the Webb-Kenyon Act conflicts with that given the statute in Clark Distilling. Clark Distilling recognized that the Webb-Kenyon Act extended the Wilson Act to allow the States to intercept liquor shipments before those shipments reached the consignee. The States contention that the Webb-Kenyon Act also reversed the Wilson Acts prohibition on discriminatory treatment of out-of-state liquors cannot be reconciled with Clark Distillings description of the Webb-Kenyon Acts purposesimply to extend that which was done by the Wilson Act. 242 U.S., at 324. See also McCormick & Co. v. Brown, 286 U.S. 131, 140141 (1932).
The statutes text does not compel a different result. The Webb-Kenyon Act readily can be construed as forbidding shipment or transportation only where it runs afoul of the States generally applicable laws governing receipt, possession, sale, or use. Cf. id., at 141 (noting that the Act authorized enforcement of valid state laws). At the very least, the Webb-Kenyon Act expresses no clear congressional intent to depart from the principle, unexceptional at the time the Act was passed and still applicable today, Hillside Dairy Inc. v. Lyons, 539 U.S. 59, 66 (2003), that discrimination against out-of-state goods is disfavored. Cf. Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 U.S. 648, 652653 (1981) (holding that the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., removed all dormant Commerce Clause scrutiny of state insurance laws; 15 U.S.C. § 1011 provides: Congress declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States).
Last, and most importantly, the Webb-Kenyon Act did not purport to repeal the Wilson Act, which expressly precludes States from discriminating. If Congress aim in passing the Webb-Kenyon Act was to authorize States to discriminate against out-of-state goods then its first step would have been to repeal the Wilson Act. It did not do so. There is no inconsistency between the Wilson Act and the Webb-Kenyon Act sufficient to warrant an inference that the latter repealed the former. See Washington v. Miller, 235 U.S. 422, 428 (1914) (noting that implied repeals are disfavored). Indeed, this Court has twice noted that the Wilson Act remains in effect today. Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 333, n. 11 (1964); Department of Revenue v. James B. Beam Distilling Co., 377 U.S. 341, 345, n. 7 (1964). See 27 U.S.C. § 121.
The Wilson Act reaffirmed, and the Webb-Kenyon Act did not displace, the Courts line of Commerce Clause cases striking down state laws that discriminated against liquor produced out of state. The rule of Tiernan, Walling, and Scott remained in effect: States were required to regulate domestic and imported liquor on equal terms. [T]he intent of the Webb-Kenyon Act was to take from intoxicating liquor the protection of the interstate commerce laws in so far as necessary to deny them an advantage over the intoxicating liquors produced in the state into which they were brought, yet, [the Act does not] show an intent or purpose to so abdicate control over interstate commerce as to permit discrimination against the intoxicating liquor brought into one state from another. Pacific Fruit & Produce Co. v. Martin, 16 F. Supp. 34, 3940 (WD Wash. 1936). See also Friedman, Constitutional Law: State Regulation of Importation of Intoxicating Liquor Under Twenty-first Amendment, 21 Cornell L. Q. 504, 509 (1936) (The cases under the Webb-Kenyon Act uphold state prohibition and regulation in the exercise of the police power yet they clearly forbid laws which discriminate arbitrarily and unreasonably against liquor produced outside of the state (footnote omitted)).
The ratification of the Eighteenth Amendment in 1919 provided a brief respite from the legal battles over the validity of state liquor regulations. With the ratification of the Twenty-first Amendment 14 years later, however, nationwide Prohibition came to an end. Section 1 of the Twenty-first Amendment repealed the Eighteenth Amendment. Section 2 of the Twenty-first Amendment is at issue here.
Michigan and New York say the provision grants to the States the authority to discriminate against out-of-state goods. The history we have recited does not support this position. To the contrary, it provides strong support for the view that §2 restored to the States the powers they had under the Wilson and Webb-Kenyon Acts. The wording of §2 of the Twenty-first Amendment closely follows the Webb-Kenyon and Wilson Acts, expressing the framers clear intention of constitutionalizing the Commerce Clause framework established under those statutes. Craig v. Boren, 429 U.S. 190, 205206 (1976) (footnote omitted).
The aim of the Twenty-first Amendment was to allow States to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use. The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they had not enjoyed at any earlier time.
Some of the cases decided soon after ratification of the Twenty-first Amendment did not take account of this history and were inconsistent with this view. In State Bd. of Equalization of Cal. v. Youngs Market Co., 299 U.S. 59, 62 (1936), for example, the Court rejected the argument that the Amendment did not authorize discrimination:
The plaintiffs ask us to limit this broad command [of §2]. They request us to construe the Amendment as saying, in effect: The State may prohibit the importation of intoxicating liquors provided it prohibits the manufacture and sale within its borders; but if it permits such manufacture and sale, it must let imported liquors compete with the domestic on equal terms. To say that, would involve not a construction of the Amendment, but a rewriting of it.
The Court reaffirmed the States broad powers under §2 in a series of cases, see Mahoney v. Joseph Triner Corp., 304 U.S. 401 (1938); Indianapolis Brewing Co. v. Liquor Control Commn, 305 U.S. 391 (1939); Ziffrin, Inc. v. Reeves, 308 U.S. 132 (1939); Joseph S. Finch & Co. v. McKittrick, 305 U.S. 395 (1939), and unsurprisingly many States used the authority bestowed on them by the Court to expand trade barriers. T. Green, Liquor Trade Barriers: Obstructions to Interstate Commerce in Wine, Beer, and Distilled Spirits 4, and App. I (1940) (stating in the wake of Youngs Market that [r]ivalries and reprisals have thus flared up).
It is unclear whether the broad language in Youngs Market was necessary to the result because the Court also stated that the case [did] not present a question of discrimination prohibited by the commerce clause. 299 U.S., at 62. The Court also declined, contrary to the approach we take today, to consider the history underlying the Twenty-first Amendment. Id., at 6364. This reluctance did not, however, reflect a consensus that such evidence was irrelevant or that prior history was unsupportive of the principle that the Amendment did not authorize discrimination against out-of-state liquors. There was ample opinion to the contrary. See, e.g., Youngs Market Co. v. State Bd. of Equalization of Cal., 12 F. Supp. 140 (SD Cal. 1935), revd, 299 U.S. 59 (1936); Pacific Fruit & Produce Co. v. Martin, supra, at 39; Joseph Triner Corp. v. Arundel, 11 F. Supp. 145, 146147 (Minn. 1935); Friedman, supra, at 511512; Note, Recent Cases, Twenty-first AmendmentCommerce Clause, 85 U. Pa. L. Rev. 322, 323 (1937); W. Hamilton, Price and Price Policies 426 (1938); Note, Legislation, Liquor Control, 38 Colum. L. Rev. 644, 658 (1938); Wiser & Arledge, Does the Repeal Empower a State to Erect Tariff Barriers and Disregard the Equal Protection Clause in Legislating on Intoxicating Liquors in Interstate Commerce? 7 Geo. Wash. L. Rev. 402, 407409 (1939); de Ganahl, The Scope of Federal Power Over Alcoholic Beverages Since the Twenty-first Amendment, 8 Geo. Wash. L. Rev. 819, 822828 (1940); Note, 55 Yale L. J. 815, 819820 (1946).
Our more recent cases, furthermore, confirm that the Twenty-first Amendment does not supersede other provisions of the Constitution and, in particular, does not displace the rule that States may not give a discriminatory preference to their own producers.
The modern §2 cases fall into three categories.
First, the Court has held that state laws that violate other provisions of the Constitution are not saved by the Twenty-first Amendment. The Court has applied this rule in the context of the First Amendment, 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996); the Establishment Clause, Larkin v. Grendels Den, Inc., 459 U.S. 116 (1982); the Equal Protection Clause, Craig, supra, at 204209; the Due Process Clause, Wisconsin v. Constantineau, 400 U.S. 433 (1971); and the Import-Export Clause, Department of Revenue v. James B. Beam Distilling Co., 377 U.S. 341 (1964).
Second, the Court has held that §2 does not abrogate Congress Commerce Clause powers with regard to liquor. Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984); California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980). The argument that the Twenty-first Amendment has somehow operated to repeal the Commerce Clause for alcoholic beverages has been rejected. Hostetter, 377 U.S., at 331332. Though the Courts language in Hostetter may have come uncommonly close to hyperbole in describing this argument as an absurd oversimplification, patently bizarre, and demonstrably incorrect, ibid., the basic point was sound.
Finally, and most relevant to the issue at hand, the Court has held that state regulation of alcohol is limited by the nondiscrimination principle of the Commerce Clause. Bacchus, 468 U.S., at 276; Brown&nbhyph;Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573 (1986); Healy v. Beer Institute, 491 U.S. 324 (1989). When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry. Brown-Forman, supra, at 579.
Bacchus provides a particularly telling example of this proposition. At issue was an excise tax enacted by Hawaii that exempted certain alcoholic beverages produced in that State. The Court rejected the argument that Hawaiis discrimination against out-of-state liquor was authorized by the Twenty-first Amendment. 468 U.S., at 274276. The central purpose of the [Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition. Id., at 276. Despite attempts to distinguish it in the instant cases, Bacchus forecloses any contention that §2 of the Twenty-first Amendment immunizes discriminatory direct-shipment laws from Commerce Clause scrutiny. See also Brown-Forman, supra, at 576 (invalidating a New York price affirmation statute that required producers to limit the price of liquor based on the lowest price they offered out of state); Healy, 491 U.S., at 328 (invalidating a similar Connecticut statute); id., at 344 (Scalia, J., concurring in part and concurring in judgment) (The Connecticut statutes invalidity is fully established by its facial discrimination against interstate commerce . This is so despite the fact that the law regulates the sale of alcoholic beverages, since its discriminatory character eliminates the immunity afforded by the Twenty-first Amendment).
Recognizing that Bacchus is fatal to their position, the States suggest it should be overruled or limited to its facts. As the foregoing analysis makes clear, we decline their invitation. Furthermore, Bacchus does not stand alone in recognizing that the Twenty-first Amendment did not give the States complete freedom to regulate where other constitutional principles are at stake. A retreat from Bacchus would also undermine Brown-Forman and Healy. These cases invalidated state liquor regulations under the Commerce Clause. Indeed, Healy explicitly relied on the discriminatory character of the Connecticut price affirmation statute. 491 U.S., at 340341. Brown-Forman and Healy lend significant support to the conclusion that the Twenty-first Amendment does not immunize all laws from Commerce Clause challenge.
The States argue that any decision invalidating their direct-shipment laws would call into question the constitutionality of the three-tier system. This does not follow from our holding. The Twenty-first Amendment grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system. Midcal, supra, at 110. A State which chooses to ban the sale and consumption of alcohol altogether could bar its importation; and, as our history shows, it would have to do so to make its laws effective. States may also assume direct control of liquor distribution through state-run outlets or funnel sales through the three-tier system. We have previously recognized that the three-tier system itself is unquestionably legitimate. North Dakota v. United States, 495 U.S., at 432. See also id., at 447 (Scalia, J., concurring in judgment) (The Twenty-first Amendment empowers North Dakota to require that all liquor sold for use in the State be purchased from a licensed in-state wholesaler). State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent. The instant cases, in contrast, involve straightforward attempts to discriminate in favor of local producers. The discrimination is contrary to the Commerce Clause and is not saved by the Twenty-first Amendment.
Our determination that the Michigan and New York direct-shipment laws are not authorized by the Twenty-first Amendment does not end the inquiry. We still must consider whether either State regime advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives. New Energy Co. of Ind., 486 U.S., at 278. The States offer two primary justifications for restricting direct shipments from out-of-state wineries: keeping alcohol out of the hands of minors and facilitating tax collection. We consider each in turn.
The States, aided by several amici, claim that allowing direct shipment from out-of-state wineries undermines their ability to police underage drinking. Minors, the States argue, have easy access to credit cards and the Internet and are likely to take advantage of direct wine shipments as a means of obtaining alcohol illegally.
The States provide little evidence
that the purchase of wine over the Internet by minors is a
problem. Indeed, there is some evidence to the contrary. A
recent study by the staff of the FTC found that the 26 States
currently allowing direct shipments report no problems with
minors increased access to wine. FTC Report 34. This is
not surprising for several reasons. First, minors are less
likely to consume wine, as opposed to beer, wine coolers, and
hard liquor. Id., at 12. Second, minors who decide to
disobey the law have more direct means of doing so. Third,
direct shipping is an imperfect avenue of obtaining alcohol for
minors who, in the words of the past president of the National
Conference of State Liquor Administrators,
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. Michigan, for example, already allows its licensed retailers (over 7,000 of them) to deliver alcohol directly to consumers. Michigan counters that it has greater regulatory control over in-state producers than over out-of-state wineries. This does not justify Michigans discriminatory ban on direct shipping. Out-of-state wineries face the loss of state and federal licenses if they fail to comply with state law. This provides strong incentives not to sell alcohol to minors. In addition, the States can take less restrictive steps to minimize the risk that minors will order wine by mail. For example, the Model Direct Shipping Bill developed by the National Conference of State Legislatures requires an adult signature on delivery and a label so instructing on each package.
The States tax-collection justification is also insufficient. Increased direct shipping, whether originating in state or out of state, brings with it the potential for tax evasion. With regard to Michigan, however, the tax-collection argument is a diversion. That is because Michigan, unlike many other States, does not rely on wholesalers to collect taxes on wines imported from out-of-state. Instead, Michigan collects taxes directly from out-of-state wineries on all wine shipped to in-state wholesalers. Mich. Admin. Code Rule 436.1725(2) (1989) (Each outside seller of wine shall submit a wine tax report of all wine sold, delivered, or imported into this state during the preceding calendar month). If licensing and self-reporting provide adequate safeguards for wine distributed through the three-tier system, there is no reason to believe they will not suffice for direct shipments.
New York and its supporting parties also advance a tax-collection justification for the States direct-shipment laws. While their concerns are not wholly illusory, their regulatory objectives can be achieved without discriminating against interstate commerce. In particular, New York could protect itself against lost tax revenue by requiring a permit as a condition of direct shipping. This is the approach taken by New York for in-state wineries. The State offers no reason to believe the system would prove ineffective for out-of-state wineries. Licensees could be required to submit regular sales reports and to remit taxes. Indeed, various States use this approach for taxing direct interstate wine shipments, e.g., N. H. Rev. Stat. Ann. §178.27 (Lexis Supp. 2004), and report no problems with tax collection. See FTC Report 3840. This is also the procedure sanctioned by the National Conference of State Legislatures in their Model Direct Shipping Bill. See, e.g., S. C. Code Ann. §614747(C) (West Supp. 2004).
Michigan and New York benefit,
furthermore, from provisions of federal law that supply
incentives for wineries to comply with state regulations. The
Tax and Trade Bureau (formerly the Bureau of Alcohol, Tobacco,
and Firearms) has authority to revoke a winerys
license if it violates state law. BATF Industry Circular 963 (1997). Without a federal license, a winery cannot operate in any State. See 27 U.S.C. § 204. In addition the Twenty-first Amendment Enforcement Act gives state attorneys general the power to sue wineries in federal court to enjoin violations of state law. §122a(b).
These federal remedies, when combined with state licensing regimes, adequately protect States from lost tax revenue. The States have not shown that tax evasion from out-of-state wineries poses such a unique threat that it justifies their discriminatory regimes.
Michigan and New York offer a handful of other rationales, such as facilitating orderly market conditions, protecting public health and safety, and ensuring regulatory accountability. These objectives can also be achieved through the alternative of an evenhanded licensing requirement. FTC Report 4041. Finally, it should be noted that improvements in technology have eased the burden of monitoring out-of-state wineries. Background checks can be done electronically. Financial records and sales data can be mailed, faxed, or submitted via e-mail.
In summary, the States provide little
concrete evidence for the sweeping assertion that they cannot
police direct shipments by out-of-state wineries. Our Commerce
Clause cases demand more than mere speculation to support
discrimination against out-of-state goods. The burden is
on the State to show that the discrimination is
States have broad power to regulate liquor under §2 of the Twenty-first Amendment. This power, however, does not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a State chooses to allow direct shipment of wine, it must do so on evenhanded terms. Without demonstrating the need for discrimination, New York and Michigan have enacted regulations that disadvantage out-of-state wine producers. Under our Commerce Clause jurisprudence, these regulations cannot stand.
We affirm the judgment of the Court of Appeals for the Sixth Circuit; and we reverse the judgment of the Court of Appeals for the Second Circuit and remand the case for further proceedings consistent with our opinion.
It is so ordered.