The Revenooers
For years in New York City (and probably still today) a small cartel of garbage collection companies used various means to coerce customers into doing business with only them - thus keeping out competition and propping up artificially high prices. Controlling the garbage collection business was such good business that they used threats, intimidation, and violence to keep customers in line and drive off would-be independent competitors. "They" were the mob and what they were doing is called "organized crime."

Strangely, a similar effort to stop an elderly Tennessee man from trying to make a living selling beer is called a "compliance effort." Consider this Tennessee Department of Revenue press release dated Aug. 6:

Bristol, TN - The Tennessee Department of Revenue today announced it has arrested a Greenville man for illegally transporting 200 cases of beer from Virginia to Tennessee. The suspect, Leonard H. Cutshall, 74, was apprehended by special agents of the Tennessee Department of Revenue, in cooperation with the Sullivan County Sheriffs Department and the Virginia Alcoholic Beverage Commission, on Interstate 81 as he entered Tennessee from Virginia. The illegal transportation of over 100 cases of untaxed beer is a Class E felony. Tennessee and Virginia agents video taped Cutshall loading and transporting 200 cases of beer he purchased at a retail store in Bristol, Virginia. The beer was allegedly destined for Cutshall’s businesses in Greeneville, Tenn. It is unlawful for any untaxed beer to be brought into Tennessee from another state by an individual or business except for immediate delivery to a licensed brewery, wholesaler or distributor. The beer and vehicle used in transporting it are subject to seizure, and the perpetrator may face criminal sanctions. Since taxes on beer, cigarettes and tobacco products increased as of July 15, 2002, the Tennessee Department of Revenue has increased its compliance efforts to discourage individuals and businesses from crossing state lines to purchase these products and illegally transport them back into Tennessee.

Consider just this one sentence in the press release: "It is unlawful for any untaxed beer to be brought into Tennessee from another state by an individual or business except for immediate delivery to a licensed brewery, wholesaler or distributor."

Here's a question: Why, unless you deliver it to a "licensed brewery, wholesaler or distributor," it is illegal for you to buy beer in another state and bring it into Tennessee?

The answer is simple: Tennessee state legislators have put in place a system of licensing, taxation and law enforcement to protect a very small cartel of liquor/wine/beer wholesaler-distributors, who reward legislators for perpetuating that system with copious financial support in the form of sizable donations to legislators' campaign funds. The entire system is run solely for the benefit of the wholesalers and the legislators - while you, the consumer, get screwed via higher prices and less competition for your business.

One ripple effect is that you can not legally purchase wine direct from out-of-state wineries that might wish to sell it to you over the Internet. Instead, you can only buy wine that is distributed by a licensed wholesaler or distributor, who have tacked on a hefty mark-up. The Tennessean published this fairly in-depth report on this a few weeks ago. I also posted a commentary on it on July 28. You can scroll down, but here's the relevant excerpt:

Tennessee is one of about three dozen states that prohibit out-of-state wineries from shipping direct to retail customers in Tennessee. Such protectionist laws in all likelihood violate the Commerce Clause of the U.S. Constitution, which forbids states from regulating interstate commerce. Such protectionist laws involving the sale of wine are also among the laws hampering the growth of e-commerce - and costing U.S. consumers an estimated $15 billion a year in higher prices for such things as wine, real estate, cars and caskets, according to the Progressive Policy Institute.

The Federal Trade Commission recently announced it will investigate such laws. E-Commerce Times reports here the FTC study whether individual states' legislative and regulatory actions are hampering the growth of e-commerce, and will host a three-day workshop in October where representatives of several industries that face such regulations and restrictions can state their case. Giga Information Group analyst Andrew Bartels told E-Commerce Times that the FTC will learn of "a patchwork of specific state laws governing industries, particularly those like alcohol sales and real estate" that are "undoubtedly a hindrance to interstate commerce." Other industries likely to be looked at by the FTC: online wine sales, online real estate, online automobile sales, online education, healthcare, pharmaceutical sales and online casket sales.

Any legitimate study of Tennessee's tax code with an eye toward positive reform would include a plan to end the regulations that have made Tennessee's wine and liquor wholesalers a government-protected cartel, and open the market so that Tennesseans can benefit from more choice and rational pricing.

The Commerce Clause of the federal constitution was intended to prevent the very sort of thing Tennessee (and, to be honest, every other state) does involving the sale of alcoholic beverages. The Commerce Clause was intended to prevent states from using tariffs, licenses and such to "regulate" interstate commerce. Under the federal constitution, Greeneville businessman Leonard Cutshall should have the right to buy alcoholic beverages in Virginia - paying whatever tax Virginia levies - and then bring them into Tennessee to sell - and collect whatever tax Tennessee levies. By forcing him to only use wholesalers in the state-protected cartel, the state of Tennessee has stolen his right - and your right - to do business with whomever you please. Here's hoping the FTC will soon strike down such regulations as a violation of the Commerce Clause and the personal economic freedoms it is supposed to guarantee.