Regulating liquor stores: third time’s the charm?

by | February 15, 2018 12:04 pm

Last Updated: February 15, 2018 at 11:09 am

In Best and Worst of the General Assembly 2017, we discussed a newly-passed law that reinserted a regulation into state law in direct defiance of a Supreme Court ruling. That provision effectively limits the number of brick-and-mortar liquor stores a person or company can own to three – at least until April 2018.

The background of this regulation is quite convoluted. The three-license limit was originally added to state law years ago with the goal (presumably) of protecting small businesses from their larger competitors. Unsurprisingly, one large competitor eventually challenged this law as unconstitutional, and in a March 2017 decision, the state Supreme Court agreed.

The Court’s reasoning was simple: While the General Assembly does have broad regulatory powers – particularly when it comes to alcohol – those powers do have their limits. Lawmakers’ regulatory powers are tied to policing for the health and welfare of the state: Pure economic protectionism is not, according to the court decision, a sufficient reason for regulation.

Lawmakers’ first attempt to get around this ruling was an artfully drafted budget proviso that placed a large tax on a subsequent liquor store. Under that proviso, a retail dealer could technically have more than three licenses, but the state would make it impossible to profit from any additional store(s). That proviso did not pass into the final budget.

The second attempt to dodge the court ruling was more blatant: Legislators simply inserted the old law into another alcohol regulatory bill, with a sunset clause ending the regulation in April 2018. This bought time for lawmakers to figure out a permanent solution. As a Statehouse source explained to SCPC, “They figured they could drop it back into the code and there’d be no court challenge in the next year. They’ll figure out what to do between now and then.” That bill (H.3137) passed into law.

That brings us to the third attempt to circumvent the Supreme Court’s ruling: H.4729, which just received second reading in the House. This bill contains the original regulation struck by the courts: No business owner can have more than three retail liquor dealer licenses. The primary difference is that there is a lot of explanation (not to be confused with actual policy) in the bill:

“Regulation of the number and localities of retail dealer licenses prevents monopolies and avoids problems associated with indiscriminate price cutting, excessive advertising of alcoholic products, and concentration of retail liquor stores in close proximity thereby affecting the health and morals of the State…”

Setting aside the General Assembly’s rather questionable position on the prevention of monopolies, this line of reasoning is a direct response to the Supreme Court’s position that sole protectionism – the only reason given by the state during the legal challenge – is not a constitutional basis for the regulation of liquor. In addition, the court ruling stated that the regulation itself was protectionist in nature:

“Not only is there no indication in this record that these provisions exist for any other reason than economic protectionism, the provisions themselves and statutory scheme to which they belong lend further support (emphasis added) to Appellant’s position. As Appellant points out, the provisions do not limit the number of liquor stores that can be licensed in a certain area—only the number than can be owned by one person or entity. Another provision governs the specific placement of retail establishments away from churches, schools and playgrounds. See S.C. Code Ann. § 61-6-120. Therefore, Respondents’ contention that the provisions advance the safety and moral interests of the State, no doubt a legitimate State interest, is unavailing with respect to sections 61-6-140 and -150.”

This bill does nothing to address the protectionist elements referred to by the court. It simply reenacts them. Therefore, the bill is still in direct violation of the court’s ruling.

Putting a provision back into state law after the Supreme Court declared that provision unconstitutional is not the sort of behavior one expects from public officials in a constitutional republic. Unfortunately, this approach to lawmaking is not surprising for South Carolina lawmakers.

When there is no real balance of power in state government, lawmakers are emboldened to ignore the rule of law and constitutional concerns – because they can.

It should be noted that the bill does contain another unrelated regulation that allows wholesalers to bypass retail dealers, and deliver liquor straight to restaurants and bars – but only under certain circumstances and for limited periods of time.

This leads to the most obvious point of all: Favoring specific constituencies through laws and regulations is intrinsically inequitable. Why protect small liquor stores from their large corporate competitors, but not, say, mom-and-pop clothing stores?

This regulation is only one small element of the intense regulatory burden borne by the alcohol industry in South Carolina – a regulatory system that inherently favors certain businesses over others to the ultimate detriment of the consumer.

The Supreme Court concluded its decision by remarking, “Ultimately, the Respondents’ and dissent’s position amounts to ‘it’s just liquor,’ which is not a legitimate basis for regulation.”

Unfortunately, “it’s just liquor” seems to be quite sufficient for lawmakers.

The House passed this bill 106-1. It will be debated in the Senate in the upcoming weeks.

“Posted by South Carolina Policy Council” on Thursday

The South Carolina Policy Council was founded in 1986 as an independent, private, non-partisan research organization to promote the principles of limited government, free enterprise, and individual liberty and responsibility in the state of South Carolina.

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