Interstate shipping ban chills Illinois wine business, ices out wine consumers
Prohibition died in 1933, but alcohol-related cronyism is alive and well.
“Chicago’s retail wine scene is hopping,” the Wall Street Journal trumpeted this month. As part of a series exploring Midwestern wine culture, the Windy City was extolled as the “Great Retail Wine Town.”
But legislation signed into law in 2016 could put a damper on Chicago’s retail wine market, not to mention the liquor business statewide.
In addition to raising liquor license fees across the board, Illinois recently beefed up penalties on those illegally shipping or transporting wine from out of state. In some cases, unauthorized interstate alcohol sales can even result in a felony charge.
Furthermore, Illinois’ protectionist liquor laws have sparked something of a trade war between the Land of Lincoln and other states – leaving wine consumers and small businesses in the lurch.
The new law
Public Act 99-0904, which was signed into law by Gov. Bruce Rauner in August 2016, “enhances penalties on those illegally shipping or transporting alcohol into the state,” according to the Chicago Tribune.
Specifically, the law provides that “[a]ny person who manufactures, imports for distribution or use, transports from outside this State into this State, or distributes or sells 108 liters (28.53 gallons) or more of wine, 45 liters (11.88 gallons) or more of distilled spirits, or 118 liters (31.17 gallons) or more of beer at any place within the State without having first obtained a valid license to do so … shall be guilty of a Class 4 felony for each offense.”
Similarly, the statute punishes the unauthorized importation and distribution of smaller amounts of alcohol from out of state, albeit less harshly: “Any person who manufactures, imports for distribution, transports from outside this State into this State for sale or resale in this State, or distributes or sells less than 108 liters (28.53 gallons) of wine, less than 45 liters (11.88 gallons) of distilled spirits, or less than 118 liters (31.17 gallons) of beer at any place within the State without having first obtained a valid license to do so … shall be guilty of a business offense and fined not more than $1,000 for the first such offense and shall be guilty of a Class 4 felony for each subsequent offense.”
The law thus makes unauthorized interstate alcohol sales business offenses in some cases and Class 4 felonies in many others – in league with aggravated assault and petty theft of government property, which can be punishable by up to three years in prison.
The liquor industry’s wholesale sector has long bristled at out-of-state retailers’ ability to sidestep the traditional “three-tier” manufacturer-distributor-retailer chain and market directly to consumers. The rise of e-commerce and online shopping have played a key part in diminishing the wholesaler’s role in the system.
While this has benefited retailers and consumers in the form of a wider customer base, more product options and lower prices, wholesalers have supported efforts to limit these developments.
Sure enough, PA 99-0904 was backed by the Wine and Spirits Distributors of Illinois, or WSDI, a trade group underwritten by Illinois’ two largest wholesale distributors of alcohol. The organization, records show, gives generously to political campaigns.
And the politicians, it seems, have given back.
While the WSDI has denied that the rule is anti-competitive, the law, which took effect Jan. 1, 2017, has had harmful repercussions for Illinois retailers that previously conducted business with out-of-state customers.
Sparking a trade war
States home to wine retailers who previously enjoyed a trading relationship with Illinois have responded to the new regulation in kind.
“[A]s Illinois has shut down its borders to retailers from those states seeking to do business in Illinois, the principle of reciprocity has taken hold,” Crain’s Chicago Business reported. “[I]n sum, if we can’t do business in your state, then you can’t do business in our state.”
As a matter of principle, erecting barriers against other states’ exports will likely provoke those states to erect trade barriers of their own in retaliation. The result: Competition is compromised, and the consumer suffers.
Crain’s report highlights Johnson Ho, a suburban wine shop proprietor, who received a “warning letter from liquor control authorities in Maine” instructing him to cease all pending shipments to the state.
But punishing Illinois consumers’ demand for wine sold by out-of-state retail merchants isn’t just ill-advised for its counter-productive protectionism. The state, by repelling imports, will also forego millions in potential tax revenues, the National Association of Wine Retailers estimates.
At a time when Illinois ought to be working to attract businesses and facilitate commerce, it instead cements its position among states hostile to out-of-state alcohol shipping.
Consumers and retailers alike are fighting back against the sweeping interstate prohibition trend, including in Illinois. A Cook County resident, for example, was listed as a plaintiff in one lawsuit filed against the state by an Indiana-based wine merchant. The suit was dismissed by a U.S. District Court judge in Chicago; however, lawyers plan to appeal, according to Crain’s.
Perhaps Illinois retailers and consumers should ring in 2018 with a toast to efforts to repeal these restrictive laws.