Spirits Shipping Coming to New York: Does It Matter the Law is Unconstitutional?
The answer is Yes (and No).
New York’s Senate and Assembly approved a bill allowing New Yorkers to receive direct shipments of spirits and cider from both In-state and out-of-state distillers and cideries. The bill, which only needs to be signed by Governor Kathy Hochol to become law, is almost certainly unconstitutional. Does it matter?
It does matter. However…
Before I address the matter of “however”, let me explain why it’s unconstitutional. The bill, while allowing out-of-state distillers and cideries to ship their products directly to New Yorkers, only allows those shipments from distillers and cideries in states that allow New York distilleries and cideries to ship products to their consumers.
The NY bill is a “reciprocity” law: you can ship here if we can ship there. While this might seem fair to some, the U.S. Supreme Court has said such laws are unconstitutional:
“The rule prohibiting state discrimination against interstate commerce follows also from the principle that States should not be compelled to negotiate with each other regarding favored or disfavored status for their own citizens. States do not need, and may not attempt, to negotiate with other States regarding their mutual economic interests.
Laws of the type…contradict these principles. They deprive citizens of their right to have access to the markets of other States on equal terms. The perceived necessity for reciprocal sale privileges risks generating the trade rivalries and animosities, the alliances and exclusivity, that the Constitution and, in particular, the Commerce Clause were designed to avoid.”
U.S. Supreme Court, Granholm v. Heald (2005)
That’s the Supreme Court saying reciprocity laws like the one for spirits DTC shipping in NY awaiting the Governor’s signature are unconstitutional because they require states to negotiate with one another in order for their residents to have access to their market.
So, does it matter?
Yes, it matters because it’s one more example of a state law screwing its consumers in order to protect the interests of its own businesses. Once the bill is passed, New Yorkers will not be allowed to have distilled spirits shipped to them from distilleries in 44 states. This is because currently only Alaska, Arizona, Kentucky, Nebraska, New Hampshire, and North Dakota (and the District of Columbia) allow their own residents to receive shipments of spirits from out-of-state (read: NY) distillers.
The kind of protectionism inherent in a reciprocal shipping law like this is seen with no other products. The reason lawmakers think of including it in the NY distiller DtC bill is because they think they can get away with it. Lawmakers would ban shipments from out-of-state booksellers if they thought they could get away with it. It’s not that alcohol is somehow unique or terribly dangerous in its direct ship form and requires limiting factors. It’s that lawmakers were asked by constituents who give them campaign contributions and vote for them to write the bill this way.
But, does it REALLY Matter?
In a sense, no. The reason is it’s a partial but important victory for commonsense, for alcohol regulatory reform, for consumers, and for well-regulated free trade. The alcohol industry needs a lot more of these sorts of things and the passage of a bill in NY that delivers on some of them is very encouraging.
There was some significant opposition to this bill. Opponents spent a lot of time in Albany, New York telling lawmakers that direct shipment of spirits by both in-state and out-of-state distillers would get kids killed, ruin liquor stores in the state, and lead to Amazon taking over the business of alcohol sales in the state. We’ll see. It hasn’t happened with wine.
It is an encouraging development. More importantly, it will result in other states legalizing the direct shipment of spirits, which will give consumers access to products they normally can’t find locally. And this will all continue apace up until the moment the state of New York is sued over the reciprocity requirement in the bill.
But what’s interesting about the reciprocity approach is that while it was written this way as a form of protectionism, it will, as I note above, encourage other states to open their own states for spirits shipments, albeit on a reciprocal basis. Of course, this kind of building of reciprocal spirits shipping rights all falls apart the minute a Texas distillery (where a reciprocal law is highly unlikely to pass) decides to sue the state of New York on dormant commerce clause grounds in order to have that state opened to their products. The Texas distillery will win and New York will be forced to either open up its market to all comers or close it down entirely. One wonders how NY distilleries will feel about that after having two or three years under their belt enjoying the fruits of (relatively) free trade.