Texas Legislature should reform unconstitutional liquor laws

In 2015, Walmart filed a lawsuit in federal court against unconstitutional and protectionist provisions of the Texas Alcoholic Beverage Code that restrict who is allowed to sell spirits at retail. The Texas Package Stores Association (TPSA), a trade group whose website boasts that it was “organized to protect the interests of package store owners in the State of Texas” and to “prevent the passage of legislation and taxes that would be harmful to the industry,” intervened in the lawsuit to defend the laws Walmart challenged:

• A ban on “public” corporations. Texas is the only state in the nation that allows private corporations to compete in the retail sale of spirits, yet it prohibits publicly traded companies (and private companies with 35 shareholders or more) from doing so.

• A “consanguinity” loophole to the five-permit limit. Although one Texas law limits liquor-store owners to five permits, another law creates a glaring and unfair loophole. This so-called “consanguinity” exception allows a liquor store owner’s closest blood relatives (i.e., relatives within the first degree of consanguinity) to obtain additional permits, and then to immediately “consolidate” those additional permits with the owner’s existing permits. In this way, liquor store owners with at least one living relative can acquire as many additional permits as they like. As a result, large chains of stores dominate the retail spirits market in communities across Texas, including Spec’s (168 stores), Twin Liquors (100 stores), Gabriel’s (49 stores) and others.

In March 2018, U.S. District Judge Robert Pitman struck down these laws, declaring them unconstitutional.

“The court concludes that the public corporation ban was enacted with discriminatory intent: one of the Legislature’s primary purposes in passing the ban was to exclude out-of-state companies from participating in the Texas retail liquor market,” Pitman wrote. He noted that when efforts were made to repeal the public corporation ban, “TPSA successfully lobbied against these repeal efforts by making blatantly discriminatory arguments in testimony to the Legislature.”

As for the “consanguinity” loophole, Judge Pitman found that the statute “does not favor family-owned businesses; it favors businesses that are owned by people with certain types of family members.” He wrote that “the [consanguinity] exception creates an opportunity for a limited class of businesses to avoid the five-permit limit and thus promotes the growth of large package store chains.”

The TPSA, which has appealed the ruling to the 5th U.S. Circuit Court of Appeals, claims to represent members as small as single-store operators. However, seven of TPSA’s eight executive committee members are affiliated with the state’s largest liquor store chains — Spec’s, Twin Liquors, Gabriel’s, WB Liquors, Pinkie’s, Sigel’s and Goody Goody — which according to TABC records own a combined 432 stores. In other words, the TPSA is fighting to protect a loophole that powerful owners have used to gain an unfair advantage over the same small operators the TPSA claims to represent. For that kind of representation, let’s hope those association dues are cheap.

But the true disappointment is that these unconstitutional laws must be litigated at all. These discriminatory laws represent government regulation at its worst, picking winners and losers in private industry and depriving Texas consumers of the choice they deserve.

Our Legislature has repeatedly deferred and let the courts do their work for them. Now it’s time for our elected officials to stand with Texas consumers, repeal these unconstitutional laws and level the playing field.

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