The uncorking of online alcohol sales

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Association. New York's law says that "no alcoholic beverages shall be shipped into the state unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages."

The 21st Amendment is so sweeping, Spitzer argues, that it permits almost any kind of state law regulating alcohol to survive constitutional scrutiny. In addition, he said, such laws are especially important to combat out-of-state shipping, "which by its nature eliminates a face-to-face sale and thereby increases the risk that minors will be able to obtain alcohol through Internet sales or otherwise."

The Institute for Justice (IJ), a public interest law firm in Washington, D.C., that's suing New York in the Swedenburg case, dubs those arguments "economic protectionism" that is prohibited by the Commerce Clause of the U.S. Constitution. The Commerce Clause generally restricts states from interfering with interstate commerce, but the 21st Amendment carves out something of an exception to that rule.

Map
Interstate restrictions

See which states put curbs
on out-of-state shipments
of wine.

The Supreme Court's attempts to reconcile those two portions of the Constitution have been mixed. A 1936 decision upheld a fee charged to beer importers. But in 1984, a 6-3 majority struck down Hawaii's protectionist law that levied a 20 percent excise tax, saying the 21st Amendment's purpose "was not to empower states to favor local liquor industries by erecting barriers to competition."

"At issue here is whether the states can discriminate in favor of in-state businesses and against out-of-state businesses," said Steve Simpson, an IJ senior attorney. "We argue that states have to treat all businesses equally. With the advent of the Internet, it becomes all the more important for states to allow commerce to flow freely."

The IJ alleges that New York's law is designed more to benefit the state's powerful beer and wine wholesalers, not potential customers. Markups tend to be in the 25 percent range, the group said, and any concerns about minors ordering a few bottles from a Napa Valley winery could be ameliorated by requiring an adult's signature for delivery.

In Swedenburg's case, total production is less than 2,000 cases a year--not enough to interest major distributors--and half of the customers who travel to her winery live in other states. Were it not for protectionist laws, she estimates, her winery could sell another few hundred cases a year to those customers.

"At issue here is whether the states can discriminate in favor of in-state businesses and against out-of-state businesses."

--Steve Simpson, senior attorney, Institute for Justice

"It's very important to us," she said. "That would pay the taxes on the farm."

Mike Faul, a former Silicon Valley software engineer who decided to enter the winery business this year, estimated that he could triple his sales if state laws were changed in New York, Florida, Pennsylvania and Texas. "That's based on people right now that are sending me e-mails and (who) want to order online," he said.

Faul--a veteran of Lotus Development and Netscape--runs Rabbits Foot Meadery from a warehouse in Sunnyvale, Calif. The government classifies him as a winery, but his primary product is mead, which is made of fermented honey.

"It's a very niche product, and it's quite unique," Faul said. "It's super difficult for me to get distributors to pick it up. If they do agree to pick it up, it's usually for an outrageous discount and a very low volume."