De-reg: Now foreign wineries are suing states, too
Pub Date: 8/1/2006
In the words of a spirits company CEO, "As sure as night follows day..." an Italian company has now sued the state of Illinois over its laws that regulate direct shipping of wine to consumers in what most would consider the ultimate folly of "globalization."
The crux of the suit, as has been the case in other states, centers on current Illinois law which allows in-state wineries to ship directly to in-state customers but denies the same privilege to out-of-state wineries.
But this time the winery is suing not to gain the same privileges as in-state wineries enjoy, but to take that advantageous position away from home-grown vineyards, a unique way to level the business playing field.
In the wake of a May 2005 U.S. Supreme court decision that found such laws to be discriminatory, the Illinois Legislature was near adopting a compromise bill to resolve the discrimination issues when the pending deal fell apart at the behest of a merchants' association.
Some industry authorities and legal scholars have been warning that once the 21st Amendment to the U.S. Constitution is seriously breached, and states have lost the power to regulate alcohol within their borders, that industry chaos and anarchy could reign, and that the pieces of rubble might then be scavenged by big box retailers and other large business entities.
Further, some have observed that wine is legally indistinguishable from other forms of beverage alcohol and that, "as surely as night follows day," distilleries and breweries would be clamoring for direct shipping rights ( craft brewers have already started), eliminating the wholesale and retail scheme that is largely responsible for the effective regulation and taxation not to mention handling of alcohol products.
Then might follow a reactionary wave of re-regulation that could change the whole business and social landscape, and not for the better, authorities have warned.
Since the Supreme Court decision, a majority of states have been forced to overhaul direct-to-consumer regulation. But legislative changes in a number of states are nevertheless expected to be challenged again on constitutional grounds by those seeking to dismantle state regulatory authority.
California
The tables may have been turned on California, the home of the big wine interests that are at the heart of the de-regulation campaign. Now a lawsuit filed there seeks to allow alcohol retailers anywhere in the country to direct ship to any consumer in the state. What's good for wineries who have been clamoring for direct shipping privileges, the suit reasons, must be good for wine retailers.
A similar lawsuit in Texas, reported here last month, won a temporary injunction against a state law that prohibited out-of-state liquor retailers from selling and directly delivering to Texans.
California currently allows in-state retailers to sell and ship directly to consumers anywhere, and the suits are alleging that practice to be discriminatory as the state forbids out-of-state retailers from doing the same.
So what originally was all about wineries selling directly to consumers has now become about retailers. Surely, "as night follows day," wholesalers and even producers might be expected to file similar suits, producing the chaos some have been predicting.
Â
Ohio
Ohio, too, was forced to make changes to accommodate the Supreme Court's discrimination ruling, making legislative allowances for out-of-state wine to be sold and shipped directly to consumers.
However, the state's governor apparently wants to recover revenue it had enjoyed previously but then lost due to the absence of a tax and mark-up apparatus administered through the wholesale tier.
The state is now proposing that out-of-state producers of beer and wine and retailers of beer, wine and spirits apply for a permit and institute state mandated markups.
But a state legislator is proposing, instead, a simplified solution which restricts direct-to-consumer shipping privileges to wineries of under 150,000 gallons annual production. The legislature will begin hearings on the bill in the fall.