North Coast vintners watch pivotal Supreme Court case over interstate wine sales

A two-year residence requirement to operate a liquor store in Tennessee is being challenged by a mom and pop who moved to Memphis to own a liquor store, as well as by retail giant Total Wine, which is based in Maryland.

Argued before the Supreme Court earlier this month, a decision in the case to strike down the barrier could have an effect on the wine industry and the North Coast, depending on how broad the court’s ruling turns out to be when issued later this year.

Wineries gained greater access to sell across the state lines as a result of a 2005 Supreme Court decision. Only seven states currently prohibit such sales, according to the Wine Institute, a trade group for California vintners.

Since the ruling, the online direct-to-consumer wine business now has blossomed into a $2.7 billion industry as of 2017 and is a critical ?part of the business of most local wineries.

But wine retailers were not included in the earlier court ruling and only 13 states and Washington, D.C., allow for such wine sales by them.

A broad ruling could lead toward a path for more parity for wine retailers, especially as that issue has been litigated in lower courts.

“It makes the market far more efficient,” said Tom Wark, executive director of the National Association of Wine Retailers. His group argues that wine retailer parity would increase overall wines sales with another outlet also selling the product.

“Take people who live in Texas and want to buy Williams Selyem (of Healdsburg) but the winery’s sold out on a (particular) vintage. They can find it in a shop in Chicago,” Wark said.

During oral arguments, Justice Neil Gorsuch had the line of the day when he worried that the next step after getting rid of residency requirements - a majority of the states have them - would be to expand online sales of alcohol without state involvement.

Isn’t the next business model “to try and operate as the Amazon of liquor?” Gorsuch asked Washington lawyer Carter Phillips, who is representing Total Wine.

That might be Amazon’s dream, Phillips said. But Total Wine wants more brick-and-mortar operations like the one it owns in Knoxville and in 22 other states. The case requires the court to harmonize the 21st Amendment’s authorization to states to regulate distribution of alcohol in its borders with the so-called Dormant Commerce Clause, which forbids states from erecting barriers to out-of-state economic interests. Tennessee’s law says retail licenses may be issued only to those who have been “a bona fide resident of this state during the two-year period immediately” proceeding application. Moreover, it requires those renewing the one-year license to have been a resident for a decade.

The state’s attorney general has written that the law is probably unconstitutional, and the state did not enforce it for six years. But a trade group, the Tennessee Wine and Spirits Retailers Association, objected to an out-of-state application in 2016 and is defending the law in courts.

It lost at the U.S. Court of Appeals for the 6th Circuit, and the Supreme Court agreed to review it.

Washington lawyer Shay Dvoretzky, representing the retailers, said the 21st Amendment gave states “virtually complete control over how to structure the liquor distribution system” within their borders, and protected them from Dormant Commerce Clause claims.

Press Democrat Staff Writer Bill Swindell contributed to this story.