years after the end of Prohibition, it is illegal for Arizona
consumers to purchase wine directly from out-of-state wineries.
Arizona is one of two dozen states that prohibit
the direct shipment of out-of-state wines to in-state consumers.
Although the number of nationwide wineries and available wines
has increased by over 500 percent over the past 30 years, wholesalers
continue to dictate the availability of out-of-state wines to
This is because of an antiquated “three-tiered”
distribution system which unnecessarily and unconstitutionally
discriminates against out-of-state commerce.
The distribution system, a vestige of the Prohibition
era, requires that out-of-state producers sell their wines to
licensed wholesalers (tier 1), who sell to retailers (tier 2),
who then make a selection of beverages available for sale to
consumers (tier 3). Under Arizona law, an out-of-state producer’s
failure to use a licensed wholesaler is illegal. Arizona wineries,
however, are not prohibited from directly selling and shipping
Last year, Sen. Barbara Leff (R-Paradise Valley)
introduced legislation to allow out-of-state wineries to ship
directly to consumers in Arizona. But the final version of the
bill authorized only consumers who are physically present at
an out-of-state winery to purchase up to two cases of wine and
have them shipped to their homes. While a step in the right
direction, that reform falls far short of allowing for the free
movement of interstate commerce in wine.
A 2003 report by the Federal Trade Commission
concluded that bans on interstate direct shipping represent
the single largest barrier to expanded e-commerce in wine. The
report also concluded that consumers would reap significant
benefits if they had the option of purchasing wines online from
out-of-state sources. The benefits include a much greater variety
of wine, lower costs, and the convenience of home delivery.
The irony is that this protectionism may be
harming Arizona’s wine industry. Because of Arizona’s
current prohibition on direct shipping, the following states
prohibit their residents from ordering Arizona wines: California,
Colorado, Hawaii, Idaho, Illinois, Iowa, Minnesota, Missouri,
New Mexico, Oregon, Washington, West Virginia and Wisconsin.
The U.S. Supreme Court has held that protecting
in-state interests at the expense of out-of-state parties violates
the U.S. Constitution. Recently, advocates for the free flow
of commerce between states have achieved significant victories.
Statutes in Michigan, North Carolina, Texas and New York have
been struck down as violations of the Commerce Clause, and the
Institute for Justice has recently filed a challenge to Arizona’s
distribution system. Given the state’s on-going budget
difficulties, it is clear that defending a law of suspect constitutionality
is a waste of resources.
Meanwhile, Arizona legislators should not sit
on their hands. Judicial decisions frequently leave matters
unresolved. For example, in declaring a North Carolina shipping
statute unconstitutional, the Fourth Circuit remedied the situation
by prohibiting all direct shipments, including those by in-state
Although the ruling leveled the commercial
playing field, in-state wineries lost the ability to ship directly
to consumers. To prevent such calamities, legislators should
work to repeal Arizona’s three-tiered distribution system.
Arizona consumers and wineries will continue
to suffer if changes are not implemented concerning the three-tiered
distribution system. As the Federal Trade Commission concluded,
enacting direct shipment legislation will benefit consumers
by providing a wider selection of wines at lower prices. It
will also serve as a good starting point to address other anticompetitive
state statutes and put Arizona on the road to being a national
leader in e-commerce trade.
Mark Brnovich is director of the Goldwater
Institute's Center for Constitutional Government. His full
report on Trading Grapes: The Case for Direct Wine Shipments
in Arizona, can be found here.
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