Liquor Licensing: Are Residency Requirements Constitutional?

The United States Constitution’s 21st Amendment gives states the power to regulate the distribution of alcohol within its borders. However, as a check to the states power, the dormant commerce clause prevents states from discriminating against interstate commerce. In summary, this means that a state cannot impose harsher restrictions on an out of state business than an in state business. However, there is an argument to be made, which has been made, that because the Constitution gives additional powers with regards to alcohol, there are some exceptions.

On January 16, 2019, the Supreme Court heard oral argument on a challenge to a Tennessee law, §§ 57-3-201, 203 and 204, Tennessee Code. that requires a two-year residency before one can qualify for a retail liquor license. A federal appeals court ruled that the law violates the Constitution by discriminating against out-of-state residents. Defending the law, a trade association representing the state’s liquor retailers argued that the Constitution treats alcohol differently from other products, giving states more powers to regulate it than other products entering interstate commerce. There, the court determined the residency requirement was unconstitutional.

The retailers appealed to the U.S. Court of Appeals for the 6th Circuit. A divided panel of the 6th Circuit affirmed. It ruled that Tennessee’s two-year requirement discriminates against out-of-state residents and that the state could have achieved its goals of protecting the public welfare using other strategies. The retailers then appealed to the Supreme Court, which to hear the case in the middle of last year. Several justices said the restriction unconstitutionally discriminates against out-of-state economic interests, despite strong state interests in regulating liquor sales. Meanwhile, the two entities the residency requirement originally affected that spurred this lawsuit have setup shop. The Ketchum family received a liquor license and bought a store in Memphis, while Total Wine opened a 30,000-square-foot store in Knoxville.

This is a monumental case in the licensing arena for all states and for all licenses. We will soon have an answer from the SCOTUS as to whether residency requirements, such as the Tennessee liquor license residency requirement, can be enforced. It is important that businesses understand that these laws can and should be challenged. If you are interested in attaining a license, not only liquor license, but are kept out because of a residency requirement, contact us as we can discuss your options with you. Sometimes, states will even allow variances to their laws on a case by case basis upon request. This opinion will affect states’ rights with regards to liquor licensing as well as other licensing restrictions. It will be interesting to follow how this opinion unravels and affects states rights and those going after various licenses regulated by states. We will provide an update once SCOTUS has released its opinion.   

Paula Savchenko is an associate attorney at the Law Offices of Moffa, Sutton, & Donnini, P.A, based in Fort Lauderdale, Florida. Ms. Savchenko joined the firm in 2013 and practices primarily in the areas of Taxation and Administrative Law matters, as she counsels and represents businesses and individuals in their dealings with government agencies. More specifically, most of her work involves tax and regulatory matters, with an emphasis on state and local taxation.