On July 10th, 2024, the Northern District Court of Texas issued an order in Hobby Distillers Association, et al., v. Alcohol and Tobacco Tax and Trade Bureau, et al. The Court held the federal ban on at-home distilling and other location restrictions for distilled spirits plants unconstitutional. The Court gave the Government 14 days to file an emergency appeal, which is likely. If upheld, the ultimate impact of this ruling is the removal of most, if not all, location restrictions for U.S. distilleries as enacted in 1868. With no restrictions on the location of licensed premises, locations long unavailable for use in spirit production will be fair game. This means that industry members could get permits to produce vodka or whisky in Places such as their homes or on a seafaring vessel.
The order declares the federal ban on distilled spirits plants being “located in any dwelling house, in any shed, yard, or inclosure connected with any dwelling house, or on board any vessel or boat, or on premises where beer or wine is made or produced, or liquors of any description are retailed, or on premises where any other business is carried on” unconstitutional. Hobby Distillers Ass. v. Alcohol and Tobacco Tax and Trade Bureau, No. 4:23-cv-1221-P (N.D. Tx. 2024) (citing 26 U.S.C. § 5178(a)(1)(B)).
Criminal penalties associated with the restrictions on distillery locations were also summarily declared unconstitutional. Id. (citing 26 U.S.C. § 5601(6)). The Court held that both provisions are neither necessary nor proper to support the exercise of Congress’s tax power. The Court uses two main findings to justify its position. First, the location of a distillery is separate from the logistics of collecting liquor taxes. Second, the taxing power is only authoritative from the time a tax liability arises to the point in which it is paid. The Court takes the view that the tax power cannot apply to conduct that occurs before the creation of a distilled spirit on which the tax applies, and the location is irrelevant to collecting taxes. The order also holds the law is not a proper exercise of the power of Congress to regulate commerce because the restrictions on locations of distilleries are included in the Internal Revenue Code (IRC) and not part of a comprehensive statute that directly regulates commerce on its face. Then, even if the IRC is a comprehensive statute regulating commerce, the provision at hand is not necessary to effectuate it.
The Department of Justice, which represents TTB, will almost certainly appeal this decision. The government is also very likely to be granted a stay, postponing the order’s effect until a decision is rendered by the Fifth Circuit Court of Appeals. The sweeping nature and interpretive theory in this case are likely to receive significant discussion in the appeals process. The order raises questions about precedents in Raich v. Gonzales and Wickard v. Filburn, and the District Court goes to great lengths to distinguish this case from those longstanding Supreme Court rulings. Those seeking to obtain a distilled spirits plant permit in their homes will have to be patient. The appeals process could take a year or longer. If upheld, any federal restrictions on where a distilled spirits plant can be located would have to be passed by Congress and made part of a different portion of the U.S. Code such as the Federal Alcohol Administration Act. Several sections of the IRC deal with brewery, winery, and distillery operations. If Congress is motivated to amend the alcohol beverage excise tax chapter in the IRC, many outdated sections governing alcohol beverage manufacturing activities could be reviewed and updated. It is more likely that states would take action to update their code to allow, or regulate away, home distilling. West Virginia has already passed a law allowing for households of two or more persons to produce up to 10 gallons of spirits a year for personal consumption despite the federal ban on at-home distilling. This decision brings residents of states like West Virginia one step closer to their whisky dreams.
