Wineries toast easing of shipping regulations

In a ruling that Washington state wineries said eliminates discrimination, the U.S. Supreme Court on Monday decided that states cannot prohibit out-of-state wineries from shipping directly to consumers when in-state businesses can.

Some 24 states have laws barring interstate shipments of wine.

“This is a big ruling,” said Jim van Loben Sels, general manager of Arbor Crest Winery in Spokane Valley.

Some 50,000 people visit Arbor Crest every year, about one-third of them from states that bar out-of-state shipments. That prevents tourists from buying a case of wine they like and shipping it home, van Loben Sels said.

“It gives us a lot more opportunity to get our wine across the country where it should be,” he said. “We’re a free trade country and a democracy, yet our business was probably more regulated than many. We couldn’t take advantage of the freedoms we’re granted.”

However, the 5-4 decision, which overturns laws in New York and Michigan, doesn’t immediately take effect. It directs state legislatures to adjust their laws so that in-state and out-of-state businesses are treated equally. As a result, states could choose to allow wineries to sell to consumers directly, but could also bar all wineries — in-state and out — from doing so.

“If a state chooses to allow direct shipments of wine, it must do so on evenhanded terms,” Justice Anthony Kennedy wrote for the majority, joined by Justices Antonin Scalia, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer.

The case centered on the 21st Amendment, which ended Prohibition in 1933 and granted states authority to regulate alcohol sales. Nearly half the states passed laws requiring outside wineries to sell their products through licensed wholesalers within the state, allowing state governments to collect millions in alcohol taxes. But the Constitution also prohibits states from passing laws that discriminate against out-of-state businesses. That led to a challenge to the Michigan and New York laws.

In a dissent, Justice Clarence Thomas argued the ruling needlessly overturns long-established regulations aimed partly at protecting minors. State regulators under the 21st Amendment have clear authority to regulate alcohol as they see fit, he wrote. He was joined by Chief Justice William H. Rehnquist and Justices Sandra Day O’Connor and John Paul Stevens.

The wine industry is booming, with an estimated $21.6 billion in sales and tourists flocking to wineries for tastings and tours. Washington is the nation’s second-largest wine producer — following California — with more than 300 wineries contributing to the state’s $2.9 billion industry. However, industry consolidations have made it more difficult for smaller wineries, who say they can’t compete with huge companies unless they can sell directly to customers over the Internet or by allowing visitors to ship bottles home.

“We have one of the finest grape-growing regions in the world, we just need more people to know about it,” said Craig Leuthold, owner of Maryhill Winery in Goldendale, Wash. He said he’s happy about the ruling “just because of the message it sends to consumers.”

Most vintners agreed the impact of the ruling would not be immediate. However, long-term, the ruling could create “unfettered access potentially to every consumer,” said John Bookwalter, owner of Bookwalter Winery in the Columbia Valley. “The ruling says it was illegal for these states to discriminate. They leveled the playing field.”

Mike Conway, owner of Latah Creek Winery in Spokane Valley, said the ruling could easily have a 5 percent impact on his business in the long-term. “We have consumers in Spokane that want to ship to their families in those states for gifts,” he said. Though it will take work to promote his wines in those states, he said, now, “at least we have that ability.”

While the ruling only involves wine sales, industry groups expect that it will soon apply to beer and other alcoholic beverages currently regulated through state-licensed wholesalers and retailers.

Critics of the decision said the ruling was a setback for efforts to battle underage drinking because minors may purchase wine over the Internet. However, Justice Kennedy argued there is little evidence that unauthorized wine sales to minors over the Internet is a problem that justifies discriminating against out-of-state businesses. Washington vintners said shipping companies already take measures to deter minors by requiring adults to sign for wine packages.

This report includes information from the Associated Press.