Ongoing litigation seeks to end ban on liquor sales by public corporations

The 86th Legislature last year revised laws governing the sale of alcohol in Texas but did not eliminate a ban on public corporations selling hard liquor. The ban is being challenged in a long-running lawsuit brought by Walmart against the state. In December 2019, a panel of the 5th U.S. Circuit Court of Appeals ruled for the state and sent the case back to be reconsidered by a district court that had ruled the ban unconstitutional.

Ban on sales by public corporations

Under current law, retailers must have a package store permit from the Texas Alcoholic Beverage Commission (TABC) to sell hard liquor in Texas. The permits are regulated under chapter 22 of the Alcoholic Beverage Code. Sec. 22.16 bans public corporations from obtaining permits and defines a public corporation as an entity listed on a public stock exchange or one in which more than 35 persons hold an ownership interest.

Retailers must have a permit for each location selling liquor, and permits may be obtained by individuals who are part of family-owned businesses. As of late January 2020, TABC had issued 2,719 package store permits, with 648 of those going to 22 retail chains, which are defined as entities holding six or more permits.

Before legislative revisions last year, Alcoholic Beverage Code sec. 22.04 limited individuals to five package store permits. Sec. 22.05 allowed family members who were closely related to consolidate their individual package store permits into one legal entity, which allowed a company to operate more than five stores.

HB 1545 by Paddie, enacted last year, continued the Texas Alcoholic Beverage Commission for 12 years and increased from five to 250 the number of liquor store permits that an individual may hold. The bill also prohibited TABC from issuing more than 15 original package store permits to a person in a calendar year and removed provisions that allowed close family members to consolidate permits into one business.

Litigation responding to ban on public corporations

In 2015, Walmart sued Texas in federal court, challenging several of the state’s restrictions on who may be issued a package store permit, including the ban on liquor sales by public corporations. In March 2018, a federal district court sided with Walmart in the original lawsuit, ruling that the ban was unconstitutional. However, the state, Walmart, and the Texas Package Store Association all appealed parts of the ruling to the 5th U.S. Circuit Court of Appeals.

In December 2019, a three-judge panel of the 5th Circuit ruled that the district court committed errors in its findings on the public corporation ban and sent the case back to the district court for reconsideration. The panel noted that while the appeal was pending, legislation went into effect increasing the per-person limit on package store permits and eliminating the consolidation of permits by family members. Walmart withdrew challenges to these issues, leaving the ban on sales by public corporations as the sole issue in the suit.

Debate on liquor sales by public corporations   

Proposals also have been made in recent legislative sessions to eliminate the ban on public corporations selling hard liquor. During the regular session of the 86th Legislature no bills that would have eliminated the ban were heard in committee.

Supporters of eliminating the ban say that the state should not pick winners and losers in the market by prohibiting a category of retailers from selling liquor. They say the law allows non-public corporations to grow into large chains that can dominate markets and that should not be considered “mom-and-pop” stores. This gives retailers that are not public corporations an unfair advantage over public corporations such as Walmart, they say, which limits consumer choice and can result in higher prices. Supporters of eliminating the ban say that public corporations are allowed to sell beer and wine, and there is no public health or safety reason to prohibit them from selling liquor.

Opponents of eliminating the ban say prohibiting large public corporate retailers from obtaining package store permits ensures that those who obtain a permit can be identified easily and held accountable for liquor sales. They say the ban helps ensure that those selling liquor are known to the communities they serve and have an interest in the communities’ well being.  Ownership of public corporations can change frequently, making accountability difficult. Eliminating the ban would move away from the Texas model of sellers who are close to the market, say opponents of eliminating the ban, and could vastly increase the number of retailers, leading to increased alcohol consumption and potential health and safety problems. In addition, opponents say, large retailers could take over markets and drive out smaller businesses that make up the majority of package stores in the state.

By Kellie A. Dworaczyk

This entry was posted in Judiciary and Jurisprudence, Regulation and Licensing and tagged , , . Bookmark the permalink.