South Carolina Supreme Court gets it right on economic protectionism

April 17, 2017 | By CALEB TROTTER

As pointed out by Eugene Volokh, the South Carolina Supreme Court recently considered a case in which the S.C. Department of Revenue defended a law on the sole basis of protecting one industry group (operators of small liquor stores) from competing with larger operations like Total Wine & More. The controversy arose because South Carolina law limits “liquor-selling entities” to three retail liquor licenses. It seems that in South Carolina, operating three stores is sufficient for the majority of small businesses. But for large retail outlets looking to have a significant footprint within a state, they may seek to open more than three stores. Accordingly, when Total Wine was denied a license to open a fourth store in South Carolina, it sued, claiming the law violated the state constitution.

The South Carolina Constitution establishes that “[i]n the exercise of the police power the General Assembly has the right to prohibit and to regulate the manufacture, sale, and retail of alcoholic liquors or beverages within the State.” (emphasis added). The question, then, is how broad is the “police power” in the context of regulating liquor?

The lower court upheld the three-license-cap as justified under the police power by the need for “preserving the right of small, independent liquor dealers to do business.” At oral argument, the government’s attorney repeatedly stated that the only purpose for the license cap is to support small business. Therefore, it was quite clear that the cap only exists to protect small liquor store operators from having to compete with large retail chains (i.e. economic protectionism).

Indeed, the evidence in the record and the text of the statutory scheme itself showed that the cap was intended to protect business interests rather than public health and safety. For example, the law does not limit the number of liquor stores in the state, only the number owned by individual entities. And another separate provision—not challenged in this case—regulates the placement of liquor stores near schools, churches, and playgrounds.

After concluding that the license cap only served as economic protection for small liquor outlets, the Court then declared the cap unconstitutional because “economic protectionism for a certain class of retailers is not a constitutionally sound basis for regulating liquor sales.” Therefore, engaging in economic protectionism exceeds the scope of the police power.

This decision is a solid victory for economic liberty in South Carolina, and a firm rebuke to cronyism. The full case name is Retail Services & Systems, Inc. v. South Carolina Dep’t of Revenue, and the decision can be read here.