Courts could change ways to buy

Wine has been sold in most of the United States through a legally mandated system of wholesale distribution for over 70 years. That system is now being challenged — by consumers, producers and at least one powerful corporate interest.

Its defenders, themselves powerful and politically influential, are fighting back. When the dust settles, both how you shop for wine and which wines you can buy may well have changed.

Although the issues here certainly prove contentious, they are not especially complicated. At heart, the fight concerns a set of successful companies maintaining power or being compelled to give up power. All the other topics — consumer rights, states’ rights, protecting minors, collecting taxes and the like — are tangential.

Trying to predict what will happen in this dispute is difficult. As Bob Dylan once sang, “the wheel’s still in spin,” so writers and critics shouldn’t prophesy too much. Still, the intensity of the controversy, coupled with the fact that the disputants keep ending up in court, suggests that the status quo is unlikely to survive. Mr. Dylan’s lyrics get to the heart of the matter. “The loser now,” he wrote, “will be later to win / For the times they are a-changin’.”

In order to understand what the hullabaloo is all about, begin with a little history. In 1933, when Prohibition ended, Congress gave the states, and, by extension, local municipalities, the authority to regulate the sale and distribution of alcohol.

Different states did different things. Some ran the booze business themselves, while others licensed private companies to do so. Some permitted wine sales in specialized liquor stores, while others allowed food markets to carry the product. Some states imposed high taxes as others levied no fees at all.

The result was what historian Thomas Pinney calls “a crazy, ramshackle structure of state and local regulations,” a structure that “impeded, obstructed, and diverted” the flow of wine “in a thousand unpredictable and arbitrary ways.” Although things have calmed down a bit during subsequent decades, wine availability is still affected.

Few states now monopolize the sale of alcohol. Pennsylvania remains the most prominent holdout. Consumers there still must buy wine from a store owned and run by the state, and, so, managed and staffed by state employees whose union politicians feel the need to court. Much the same is true in select local municipalities throughout the country, Montgomery County in Maryland being a prime example.

In other jurisdictions, however, local and state governments license (usually for a hefty fee) private entities to sell wine. They usually do so twice. First come establishments where consumers can buy wine — retail stores, restaurants, bars and such. Second come the companies that can sell wine to those establishments. These are the wine (and liquor) wholesalers or distributors, and this licensing structure is what is often called the “three-tier system.”

This system is what is now being challenged in courtrooms and legislatures throughout the country. The challenges come from three separate parties — individual consumers, small wineries and, most recently, one powerful mega-retailer.

For consumers, the question concerns why one has to purchase wine from a retailer who buys it from a wholesaler who in turn buys it from a producer (the three tiers). Why can’t one order it directly from the person who made it? That question is being asked more often these days, especially with the increased popularity of online shopping and wine tourism.

For small wineries, the question is much the same. Why should a family-run operation in California that produces only a few hundred cases a year have to sell to a wholesaler in Virginia in order to get wine to a customer living in Alexandria? Why shouldn’t that winery be able to sell directly to the consumer?

The answer most often given to those questions is that the three-tier system protects government interests — first by ensuring revenue and second by enforcing law. Without the system, could government collect the taxes and fees it does now? And if direct sales were permitted, what would prevent minors from placing orders and making purchases?

Many states, however, have had one set of regulations for in-state producers and another for those out-of-state. Laws in Michigan and New York, for example, permitted in-state wineries to sell wine directly while forcing out-of-state producers to sell to wholesalers. Over the years, neither state failed to collect the revenue it was due, and neither experienced any significant increase in under-age drinking.

In May, the United States Supreme Court ruled the laws in those two states unconstitutional. Although their decision was split, the justices had little patience for the arguments about protecting government interests. Writing for the majority, Justice Anthony Kennedy declared: “States have broad power to regulate liquor. … This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously allowing direct shipment by in-state producers. If a state chooses to allow direct shipping of wine, it must do so on evenhanded terms.”

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