Retailer Wine Shipping Has NO RELATIONSHIP TO the Three-Tier System
Tomorrow the United States Supreme Court is scheduled to meet in conference and consider a petition that the Court hear a retailer wine shipping case out of Missouri and the 8th Circuit Court of Appeals. The case is a familiar one. Missouri allows its own wine retailers to ship to Missouri residents but bans out-of-state retailers from doing the same.
While not impossible, it is unlikely the Court will take the case. Yet because the implications of the Court agreeing to take this case are so great for the wine industry and wine consumers there has been a good deal written about it of late. Because of the interest generated by the possibility of the Court taking another alcohol case is so great, this is an opportune time to explain what many don’t seem to understand but really should: This retailer wine shipping case has no implications or impact on the so-called “three-tier system”.
Commonly interstate wine shipping has been set up as being in opposition to this “three-tier system” that so many claim governs wine sales and distribution in most states. It shouldn’t be understood like this. But one of the problems is that the term “three-tier system” is too often incorrectly used as a euphemism for the entirely of a state’s alcohol regulatory system. In fact, the proper understanding of a “three-tier system” must focus on a very narrow set of provisions sometimes found in states’ alcohol regulatory codes.
The term “three-tier system” is properly used to describe the following set of provisions: 1) That suppliers, wholesalers and retailers hold separate licenses or permits, 2) that cross-ownership between these tiers is prohibited (a licensed. retailer may not also be licensed as a wholesaler, for example) and 3) that a state’s retailers are required by law to procure their inventory from an in-state wholesaler, which in turn is the only licensed entity in the state able to obtain wine from suppliers and wholesale it to retailers and restaurants.
It happens that these three provisions also make up the Supreme Court’s understanding of the “three-tier system”. In a variety of decisions, the court has noted that this system is one that “funnels” alcohol through a wholesaler and that each tier is separately licensed.
The most obvious purpose of these three laws that make up the three-tier system is that together they theoretically prevent vertical integration of the three separate elements of the distribution system. The system was also designed to prevent members of one tier (usually thought of as the producer tier) from controlling or exerting undue influence over members of the retail tier. These goals could be achieved without a state’s laws incorporating these three provisions that makeup what we know of the three-tier system. But this is less important for this discussion. I want to point out something else important about this system.
First, the system governs how a bottle of wine must make its way to a retail setting within the state where the laws are enshrined (supplier to wholesaler to retailer). Second, It is important to note that these provisions that make up the famed three-tier system do not govern where a consumer may purchase wine.
A resident of Missouri may, of course, purchase wine at a Missouri wine retail store, which offers wine that went through the funnel of the state’s three tiers. But there is nothing in Missouri law (nor could there be any such law) that prohibits the same consumer from purchasing wine from Florida, California, Illinois or retailers in any other state. The Missouri wine lover can legally purchase wine from a Florida retailer online at the retailer’s website. The consumer could also travel to Florida and buy that wine from the Florida retailer in person. Neither of these transactions has any association with or relationship to, let alone are governed by, Missouri law or its three-tier system. The Internet or in-person purchase of the wine by a Missouri wine lover from the Florida retailer is considered to have occurred in Florida and is governed by Florida law. Moreover, because the transaction takes place in Florida, the Sunshine state gets to charge and collect sales tax on the transaction, while Missouri, despite being the home of the consumer, does not have a right to that sale tax. Missouri has no right to any sales tax when one of its wine-loving citizens travels to Florida, buys a bottle of wine at retail, and drinks it at the home of their friend in Portland.
Missouri law is only implicated when the wine purchased in Florida, either in person or over the internet, arrives back in Missouri. And no matter how it arrives, either by the retail store shipping it to Missouri or the consumer arranging shipment on their own, the Missouri three-tier system remains untouched and unimplicated because, as we know, the provisions of the three-tier system governs how wine comes to retail inside Missouri.
This brings us back the Supreme Court and the retailer wine shipping case. If we understand that the question of the purchase of wine is not in question, then it’s easy to see that the only issue is the movement of the wine across state lines. However, the state of Missouri as well as most other states don’t see it this way.
Missouri, along with other states, sees the arrival of a bottle of wine into their state and into the hands of a consumer as a wine that did not travel through their three-tier system and, more importantly, a bottle of wine that was not purchased by a Missouri licensed retailer from a Missouri licensed wholesaler. If out-of-state retailers are allowed to ship into Missouri, they say, it will unravel their three-tier system, which they like to remind everyone has been blessed by the Supreme Court as “unquestionably legitimate”. This view represents a fundamental misunderstanding of what the three-tier system is, who it governs and how it operates. Out-of-state wine retailers do not want a Missouri retail license. They simply want to be able to ship to Missouri residents. What’s key is understanding that neither the Missouri retailer shipping to a Missouri address nor a Florida retailer shipping to a Missouri address in any way touches upon or implicates what actually is, or what the Supreme Court understands to be, the “three-tier system”.
While all this seems somewhat arcane, it likely won’t surprise anyone with a passing understanding of alcohol law that what is actually in question in the case being appealed to the Supreme Court is even more arcane. Yes, questions of discriminating against out-of-state interests and the dormant Commerce Clause and the 21st Amendment are in play. However, this case actually has more to do with the process by which a federal court must analyze these issues in deciding the case. I don’t want to explore that, however.
What I want instead, and what I hope I’ve done, is bring a little clarity to what the “three-tier system” is and means and make the case that retailer interstate shipping does not implicate a state’s three-tier system. Because, in the end, a discriminatory law like Missouri’s that is at issue in the appeal to the Supreme Court does not prevent the “sale and shipment” of wine to Missouri consumers. It only prevents the shipment of the wine. This not a nit being picked. This point is fundamental to the various laws surrounding interstate shipping.