In 1919, Congress and the states ratified the Eighteenth Amendment, which outlawed alcohol across the country. For roughly fourteen years, the manufacture, sale, and transportation of alcoholic beverages was illegal in the United States - in many ways setting the stage for modern organized crime. Then, in 1933, Congress repealed the Eighteenth Amendment by passing the Twenty-First, ending Prohibition and leaving the regulation of alcohol up to state governments.
"The eighteenth article of amendment to the Constitution of the United States is hereby repealed. 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. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress."
United States Library of Congress, The Constitution of the United States of America: Analysis and Interpretation
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 also known as the "dormant Commerce Clause."2
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,3 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.4 Also validated were retaliation laws prohibiting the sale of beer from states that discriminated against the sale of beer from the enacting state.5
Conceding, in State Board of Equalization v. Young's Market Co.,6 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."7
In Seagram & Sons v. Hostetter8 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.9 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.10 In such a situation the Twenty-first Amendment demands wide latitude for regulation by the state.11 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.12
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.13 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."14 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 2005.15 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.16 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.17
Consequently, in Granholm v. Heald, the Supreme Court struck down regulatory schemes employed by Michigan and New York that discriminated against out-of-state wineries.18 Both states employed a three-tier system, in which producers, wholesalers, and retailers had to be separately licensed by the state.19 The Court first affirmed its prior cases holding that as a general matter, States can mandate a three-tier distribution scheme in the exercise of their authority under the Twenty-first Amendment.20 But within their three-tier systems, Michigan and New York gave certain advantages to in-state wineries by creating special licensing systems allowing them to directly ship wine to in-state consumers.21 While recognizing that both states did have significant authority to regulate the importation and sale of liquor, the Court said that the challenged systems "involve[d] straightforward attempts to discriminate in favor of local producers . . . contrary to the Commerce Clause," and that these schemes could not be "saved by the Twenty-first Amendment."22
The states argued in Granholm that their restrictions on direct shipments by out-of-state wineries passed muster under dormant Commerce Clause principles because they advanced two legitimate local purposes: keeping alcohol out of the hands of minors and facilitating tax collection.23 The Supreme Court rejected these claims, concluding that there was insufficient evidence to show that prohibiting direct shipments would solve either of these problems.24 The Court also suggested that the states could achieve their regulatory objectives . . . without discriminating against interstate commerce.25
The Court struck down another discriminatory regulation in Tennessee Wine and Spirits Retailers Association v. Thomas.26 In that case, the Court considered specific aspects of Tennessee's three-tier system.27 In particular, Tennessee would only issue new retail licenses to individuals who had been residents of the state for the previous two years.28 In defense of the law, a trade association representing Tennessee liquor stores argued that the case was not governed by Granholm.29 In its view, Granholm's analysis was limited to laws that discriminate against out-of-state products and producers, whereas Tennessee's provision concerned the licensing of domestic retail alcohol stores.30 The Court disagreed, explaining that instead, Granholm established that the Constitution prohibits state discrimination against all 'out-of-state economic interests.'31
Ultimately, the Court concluded in Tennessee Wine that the challenged law was unconstitutional because its predominant effect was protectionism, saying that the law had at best a highly attenuated relationship to public health or safety.32 The trade association argued that the provision was justified because it made retailers amenable to the direct process of state courts, allowed the state to determine an applicant's fitness to sell alcohol, and promote[d] responsible alcohol consumption.33 But in the Court's view, there was no 'concrete evidence' showing that the 2-year residency requirement actually promotes public health or safety; nor "[was] there evidence that nondiscriminatory alternatives would be insufficient to further those interests."34
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. Reeves35 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,36 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. Arkansas37 and Carter v. Virginia,38 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.39
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.40 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.41
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."42 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.43 "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."44
Notwithstanding the 1936 assertion that "[a] classification recognized by the Twenty-first Amendment cannot be deemed forbidden by the Fourteenth,"45 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 the 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,46 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.'"47
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."48 Other decisions reach the same result but without discussing the application of the Amendment.49 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.50
The Court departed from this line of reasoning in California v. LaRue,51 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,52 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.53
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.54 This recurrence to the greater-includes-the-lesser-power argument, relatively rare in recent years,55 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,56 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,'"57 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.58
The Twenty-first Amendment does not oust all federal regulatory power affecting transportation or sale of alcoholic beverages. Thus, the Court held, the Amendment does not bar a prosecution under the Sherman Antitrust Act of producers, wholesalers, and retailers charged with conspiring to fix and maintain retail prices of alcoholic beverages in Colorado.59 In a concurring opinion, supported by Justice Roberts, Justice Frankfurter took the position that if the State of Colorado had in fact "authorized the transactions here complained of, the Sherman Law could not override such exercise of state power. . . . [Because] the Sherman Law . . . can have no greater potency than the Commerce Clause itself, it must equally yield to state power drawn from the Twenty-first Amendment."60
Following a review of the cases in this area, the Court has observed "that there is no bright line between federal and state powers over liquor. 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. Although States retain substantial discretion to establish other liquor regulations, those controls may be subject to the federal commerce power in appropriate situations. The competing state and federal interests can be reconciled only after careful scrutiny of those concerns in a 'concrete case.'"61
Invalidating under the Sherman Act a state fair trade scheme imposing a resale price maintenance policy for wine, the Court balanced the federal interest in free enterprise expressed through the antitrust laws against the asserted state interests in promoting temperance and orderly marketing conditions. Because the state courts had found that the policy under attack promoted neither interest significantly, the Supreme Court experienced no difficulty in concluding that the federal interest prevailed. Whether more substantial state interests or means more suited to promoting the state interests would survive attack under federal legislation must await further litigation.
Congress may condition receipt of federal highway funds on a state's agreeing to raise the minimum drinking age to 21, the Twenty-first Amendment not constituting an independent constitutional bar to this sort of spending power exercise even though Congress may lack the power to achieve its purpose directly.62