The Biggest Retailer in the World vs. the TABC

Wal-Mart sells spirits in 25 states, and it would very much like to sell spirits in Texas.  However, Wal-Mart can’t sell spirits in any of its 543 Texas stores because of several bizarre legal restrictions on package store ownership in Texas.  So last month Wal-Mart filed a suit in federal district court in Texas against the Texas Alcoholic Beverage Commission challenging those statutes on constitutional equal protection, commerce clause and general “these crazy statutes don’t make any sense at all” grounds.

Wal-Mart does not qualify to sell spirits in Texas because (a) Wal-Mart is a publicly traded company, and (b) Wal-Mart does not operate hotels (publicly traded hotels may have package stores inside their hotels).  Texas’ ban on publicly traded corporations holding package store licenses goes back to 1995.  Before 1995, Texas prohibited any out of state company from owning a package store license in Texas, but this was struck down by the Fifth Circuit, as the court found the state couldn’t offer a justification substantial enough to authorize such discrimination against non-Texans. 

Immediately after the Fifth Circuit put the kibosh on barring non-Texans from holding package store permits, the Texas legislature passed the bill that prohibits public corporations from doing so, though it made an exception for publicly traded hotel corporations.   The Texas Package Store Association was the principal supporter of the bill, not surprisingly.  The fact that Walmart would be the largest private employer in Texas apparently held no sway in the legislature that year.

Walmart stores and Sam’s Clubs now hold 543 beer and wine off-premise permits in Texas, which are called “Q” permits, but if Wal-Mart got even one package store permit (ignoring the fact that they can’t, as a public corporation), they would have to give up all 543 of those permits.  So Wal-Mart is challenging that restriction as well.

Then there's the five package store limit.  Even if Wal-Mart were able to qualify for a package store license (ignoring for the moment that it would have to give up its 543 beer and wine store permits to do so), it would be limited to five package stores in the entire state.  There are similar restrictions in other states - MA comes to mind - but Texas has a Texas-sized loophole in its law. If you are a Texan and own five package stores, and your Texan parents own five, and your Texan sister and brother both own five, the law allows you to consolidate all twenty of those stores into one entity.  Not only that, but you can sell your business and transfer all of those licenses to another entity who doesn't have to be related to you. That's how Spec's and Twin Liquors own so many package store in Texas; 160 and 76, respectively.

Wal-Mart isn’t challenging the three-tier system in Texas in any way. Its claims revolve solely around the discriminatory laws that Texas imposes on package store licensure, and it does a good job of arguing that those laws should not stand up under the Equal Protection Clause and the Commerce Clause of the U.S. Constitution. It's true that Wal-Mart can be seen as a Goliath in a lot of ways, but everyone should be cheering for them this time.