The U.S. Supreme Court has announced that it will hear a challenge to the federal ban on home distilling, which dates to 1868.
The court announced October 19 that it had granted writ certiorari—a commitment to review a case that has been petitioned, in this case by the federal government—to the U.S. Fifth Circuit Court’s decision in Department of Justice vs. McNutt. In April, the Fifth Circuit ruled that the current federal ban on home distilling is unconstitutional.
Less than two weeks after that April decision, the Sixth Circuit Court upheld the federal ban in a separate case, Ream vs. Department of the Treasury. That creates what is known as a circuit split, raising expectations for Supreme Court hearing on the ban. Congress enacted the ban on home distilling in 1868 to fight excise-tax evasion on distilled spirits.
A circuit split often leads to a Supreme Court hearing to ensure that federal laws are consistent and coherent in different states and different jurisdictions. The court also tends to consider cases that declare a federal statute to be unconstitutional, says Andrew Grossman, senior legal fellow at the Buckeye Institute and partner at BakerHostetler.
Grossman is one of the attorneys who represented Ohio resident John Ream at the Sixth Circuit Court, as well as Scott McNutt of Texas and members of the Hobby Distillers Association at the Fifth Circuit Court. Grossman also will represent McNutt at the Supreme Court.
In both cases, the would-be home distillers are pursuing a pre-enforcement review, where a citizen who wants to pursue a prohibited activity can go to court and argue that the prohibition is unlawful.
“They didn’t want to violate the law,” Grossman says. “These are not people who violate the law in their day-to-day lives. They wanted to be able to do something without what they viewed as unlawful federal interference. If your view is that some statute is unconstitutional, I guess you could just go do it and see what happens. But the law recognizes that there ought to be a way that a reasonable law-abiding person can get a ruling on that without having to put themselves and their families in legal jeopardy.”
A Ban’s Necessity in Question
While there may be additional arguments that the Supreme Court takes into consideration, the circuit court decisions have hinged on the Necessary and Proper Clause in the U.S. Constitution.
That clause grants Congress the power to make any laws that are “necessary and proper” to the execution of the federal government’s powers, including its powers to tax.
“This case is, at bottom, about Congress’s authority under the Constitution,” Grossman says. “There is, of course, a tax on distilled spirits, but the prohibition here is not a tax. Presumably, Congress’s theory is that the prohibition is necessary and proper under the Necessary and Proper Clause to execution of the distilled spirits tax. But if that’s right, then there really is no meaningful limit on the federal government’s ability to regulate inherently local conduct—including conduct within the home—because the same sort of argument could be made about home working, home childcare, any sort of home-based activity, or any other sort of local activity. So, this case asks the court to reaffirm that there are limits on federal power, and to clarify where those limits lie.”
The Sixth Circuit’s opinion included an assertion that there’s a long history of home distillers evading the spirits tax. However, Grossman says, the court didn’t underpin that claim with records or historical materials. And while the Sixth admitted that it’s unusual for the federal government to regulate and prohibit activity in people’s homes, it simply declared alcohol to be a special case, Grossman says.
“There’s not really any logic to that,” he says. “There’s no doctrine to that. I’ve read the Constitution. There are the Prohibition amendments, but there is no ‘alcohol is different amendment’ as to the fundamental separation of powers between the federal government and the state governments. So, to my mind, the Sixth Circuit recognized that there was a problem with its analysis, but its resolution of that analysis is entirely unsatisfying—just saying, ‘Well, this case is different than every other case, and we’ll just leave it at that.’ That’s not a principled way to do constitutional law.”
Meanwhile, the Fifth Circuit found that the prohibition violated Congress’ taxing authority because its authority extends only to existing activities—not to possible, future tax-generating activities. The tax on distilled spirits is somewhat unusual because the distiller registers with the government as an entry point into the taxing structure.
“When you consider that there is this registration requirement at the outset before you can even start paying the tax, it really sheds a different light on the prohibition on home distilling,” Grossman says. “Because somebody who is determined to evade the tax, they’re not going to register to begin with. The home distilling prohibition does absolutely nothing for them. It doesn’t make them any more or less likely to violate the law or to be caught, whereas for somebody who wants to comply with the law, for somebody who wants to distill at home and who follows the law in all of their other pursuits and wants to follow the law in this case, the prohibition means they can’t. They can’t lawfully enter that taxing regime, and so it really isn’t necessary to the taxing system in any sense because it only frustrates the taxing system. It means you can’t do this lawfully in your home if you want to comply with the law. And so, it really does have this one-sided effect, and the Sixth Circuit never really dug into the details as to how the scheme works.”
Grossman says the case would likely be heard in the court’s February sitting, which runs from late February into early March, though it could also slip back to the March session. He says he expects the court to have a decision by the end of the term in mid- to late June. “This case does raise some very significant constitutional issues, and so those are the kinds of cases that tend to linger a little bit longer because the court recognizes the importance of what it is that’s being decided.”
While safety is often a point of discussion around home distilling, Grossman says, the Constitution leaves those concerns for the states to decide.
“The federal government does not for a second contend that this is a safety regulation,” he says. “They actually can’t argue that it’s a safety measure because if it is a safety measure, and that’s the rationale for it, then it’s blatantly unconstitutional because there is no federal safety power or something like that. When you have these types of discussions there are these interesting policy questions, but they very quickly come back to these very fundamental constitutional principles.”
Regulations and Innovations
Under the regulatory framework, even if home distillers score a win at the Supreme Court, they’ll still have to register with the TTB, keep careful records, file a lot of paperwork, and pay taxes on the spirits they distill. That’s in addition to any state of local regulations.
However, the Buckeye Institute is laying the groundwork to ease that burden if they see a victory at the Supreme Court.
“What I will say, as to the burden of compliance, is that a lot of it is discretionary on the TTB,” Grossman says. “The statutes are very broadly written, and they delegate a lot of authority to fill in the details to Treasury and to TTB. We’re working on a policy paper and a proposal from the Buckeye Institute to TTB as to how it could streamline the regulatory process for home distillers, making it easier to do aging, changing the tax-reporting periods, and really just streamline that entire thing. Which would be beneficial to the agency, because why should the agency be wasting a lot of time and effort on home-scale distilling operations? Up until now, there’s never been a reason for it to exercise that flexibility because home distilling was banned, and so there was nobody really to take advantage of that.”
If the door is opened, he paints a picture of innovation and diversification similar to what has happened in beer since the federal legalization of homebrewing in 1979.
“We’ve seen that homebrewing in particular has revolutionized beer consumption and the beer industry and beer culture in the United States. It really revitalized the way that people think about beer, and even cider as well,” Grossman says. “But while there has been a lot of evolution in the spirits industry, it simply lacks that amateur enthusiasm and experimentation because people can’t distill in their own homes.
“And so, if we prevail in this litigation, it could give people that freedom and revitalize the spirits industry with new thinking, new approaches, new experiments in the same way that we’ve seen that happen in the brewing space.”