Unfortunately, it appears both Kentucky and Indiana have joined the efforts at the U.S. Supreme Court to defend laws banning interstate shipments of wine directly to consumers:
“We are supporting Kentucky’s existing law here and similar laws of most states generally because if you allow direct shipments to consumers in your state, you run into a situation where it’s almost impossible to regulate alcohol sales,” said Rob Jones, acting director of the civil and environmental law division of the Kentucky attorney general’s office.Jones said that keeping alcohol from minors is a primary reason for the law. “I could speculate that there are others, like to assure shipments aren’t made for resale under the radar of regulators, which would essentially be bootlegging.”
These laws are often defended as protection against sales to minors. Thus you have Dan Gahafer, deputy commissioner of Kentucky’s Office of Alcoholic Beverage Control, arguing that “Kentucky’s always had this sort of law, and the main reason has always been to assure that people under 21 aren’t doing the buying.” The real reason, of course is completely different. These laws amount to, in the words of Ken Starr, representing the wineries at the Court, economic protectionism. The laws protect in-state wineries against out-of-state competition (New York’s law allows New York wineries to ship directly to customers, but require out-of-state wineries to sell through licensed wholesalers and retailers). They protect state “sin tax” revenue, both by ensuring that taxes are collected (the Maryland law imposes a tax on wholesalers of 40 cents per gallon), and by ensuring that prices remain high through mandatory minimum pricing schemes. And they protect the monopoly wholesalers and licensed retailers from competition. Absurdly, the District of Columbia argues that restricting the number of sources of wine helps alcohol retailers:
Wine must be shipped to licensed wholesalers, who then provide it to licensed retailers, who make the sale to consumers. “This results in a thriving retail industry in the District, which would be undercut by permitting direct sales to consumers from out-of-state wineries in any appreciable quantity,” said Tarifah Coaxum, spokeswoman for the D.C. Corporation Counsel.
Of course, freeing retailers from the bottleneck of licensed wholesalers would also help retailers compete, both against each other and against direct sales, but government regulators are apparently blind to that fact.
Are these laws necessary to protect state tax revenue and to protect against sales to minors (protection of wither wholesalers or retailers from competition is simply not a proper justification for any law in a free-market economy)? Simply put, no. State tax revenue from exorbitant taxes on alcohol might decline, but the idea that non-drinkers and non-smokers should get a free ride in welfare state benefits on the backs of users of legal products is a weak defense of regulations that impede competition. Even if the laws are more difficult to enforce, they are thus no different from laws imposes tax on out-of-state sales of other products.
As for sales to the under-21 set, one should always be highly suspicious of any law justified as necessary to “protect the children.” This is almost always cover for otherwise weak justification. In this case, the system itself will weed out most underage purchases. To buy wine direct from the vinter, a minor would have to (1) have access to a credit card, (2) buy generally expensive wines not available through retailers, (3) by the case, and (4) sign for the deliveries. In addition, because wineries would likely face prosecution for sales to minors if caught, one would expect wineries to implement some sort of age verification system (say, requiring the purchaser to fax a notarized copy of a driver’s license before setting up an account, as many internet registrars do if the registrant no longer has the required password or access to the email account on file). Minors clearly could evade this requirement with enough effort, but inasmuch as most lower-cost wineries are unlikely to see this as a significant market opportunity, this is not going to be the way teenagers stock the bar for their parents-out-of-town bash or fraternity party. Need proof that your 16-year old won’t be buying cheap wine online?
Lee Tatum, assistant to the president of Brown-Forman Wines, said the Louisville-based company believes the best way to sell its Fetzer, Bolla and Korbel wines is through its network of retailers.“We want our brands in the broadest distribution possible,” he said.
Tatum said that online sales have been “a blip” for the company and that the opportunity online is greater for smaller, boutique wines that have difficulty getting shelf space at liquor stores.
It’s not at all clear that this sort of enforcement mechanism would “protect the children” any more than our current system, where despite the layers of state regulation, monopoly wholesalers and licensed retailers, the entire protection against sale of alcohol to a minor is the efforts of a clerk at Rite Aid or Kroger. State enforcement is largely through “secret shopper” stings, and there is no reason the state liquor enforcers couldn’t use teenagers to order wine mail order to test wine sellers’ systems.
Virginia also used to have a law forbidding sales directly to customers (I was aware when I lived there of several individuals who had wines delivered from the West Coast to addresses where direct sales were permitted, in an effort to evade the law). According to the Washington Times article linked above,
The new law allows wineries and retailers in any state to obtain a Virginia shipper’s permit for $50 per year and allows adult consumers to order and receive up to two cases of wine per month from anyone who has a license.The Virginia General Assembly changed the law because federal courts looked as if they were about to change it if state lawmakers did not, said Tim Murtaugh, spokesman for Virginia Attorney General Jerry W. Kilgore.
There is no evidence that this new law has led to a rash of sales to minors, so there doesn’t seem to be much justification for continuing the system of economic protectionism.
