Do Tennessee's residency rules for retail liquor licenses (two years of state residency, or ten years at any time) violate the dormant Commerce Clause?

Plain-English summary

In 2014, the General Assembly amended Tenn. Code Ann. § 57-3-204(b)(2) but retained two residency rules: an applicant for a retail liquor license had to be a Tennessee resident for at least two years before applying, and renewal applicants had to have been a resident for at least ten consecutive years at any time. The legislature added § 57-3-204(b)(4), which expressed a legislative finding that the heightened residency requirements served the state's interest in "higher degree of oversight, control and accountability" for sellers of distilled spirits.

The AG was asked whether the amended residency rules violate the Commerce Clause. The AG concluded yes. State laws that discriminate against out-of-state economic interests can survive Commerce Clause review only if the state shows that a legitimate local purpose cannot be achieved through reasonable nondiscriminatory alternatives, under Granholm v. Heald, 544 U.S. 460 (2005). The AG had already reached this conclusion about earlier residency rules in Opinion 12-59, relying on the Sixth Circuit's Jelovsek v. Bredesen, which struck down a comparable two-year residency requirement for a winery license.

The new finding in § 57-3-204(b)(4) did not save the statute, the AG concluded, because the regulatory goal (oversight, control, accountability) does not require residency. The two-year requirement in particular bears no functional relationship to the asserted goal because the applicant does not have a license to be supervised during that waiting period. The AG also pointed to Granholm's observation that background checks, financial records, and sales data can be transmitted electronically, removing the practical barriers to monitoring out-of-state licensees.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Worth noting for context: In 2019, the U.S. Supreme Court decided Tennessee Wine and Spirits Retailers Ass'n v. Thomas, 588 U.S. 504, which addressed Tennessee's two-year residency requirement for retail liquor licenses and held that the requirement violated the Commerce Clause. The Court's reasoning aligned with the conclusions in this 2014 AG opinion. Anyone researching today should read this opinion alongside the Supreme Court's 2019 decision rather than relying on it alone.

Common questions

Q: What does the Commerce Clause have to do with liquor licensing?
A: The Commerce Clause grants Congress power to regulate interstate commerce and has long been read to limit (in its "dormant" form) state laws that discriminate against out-of-state economic interests. Granholm v. Heald, 544 U.S. 460 (2005), confirmed that the Commerce Clause applies to state alcohol regulation, with the Twenty-first Amendment giving states authority over alcohol policy but not authority to discriminate against interstate commerce in alcohol.

Q: What residency rules were at issue?
A: Two of them, both in Tenn. Code Ann. § 57-3-204(b)(2)(A) as amended. An initial license applicant had to have been a Tennessee resident for at least two years. A renewal license applicant had to have been a Tennessee resident for at least ten consecutive years at any time. The renewal applicant also had to meet the two-year initial-license requirement under § 57-3-204(b)(2)(H).

Q: Why was the 2012 opinion the launching point for this one?
A: Tenn. Att'y Gen. Op. 12-59 (June 6, 2012) addressed the same residency-rule structure under the prior statute and concluded the rules were unconstitutional under the Commerce Clause, drawing on the Sixth Circuit's decision in Jelovsek v. Bredesen, 545 F.3d 431 (6th Cir. 2008), which struck down Tennessee's two-year-residency requirement for a winery license. The AG took the position that the 2014 amendment did not cure the constitutional defect.

Q: Didn't the legislature add a "legitimate local purpose" finding?
A: Yes. The amended § 57-3-204(b)(4) declared that liquor sales require "higher degree of oversight, control and accountability." Under Granholm and Jelovsek, a discriminatory state law can survive only if a legitimate local purpose cannot be served by reasonable nondiscriminatory alternatives. The AG concluded the stated purpose could be served by even-handed regulation (inspections, reporting, educational programs, background checks, financial-records review, sales monitoring), so the residency rule was not the least restrictive means.

Q: Why doesn't the two-year wait protect public safety?
A: Because during that two-year period the applicant has no license to sell liquor. There is nothing to inspect, no sales to monitor, and no need for the applicant to receive training. The AG used that observation to highlight the disconnect between the residency rule and the regulatory goal.

Q: Did the AG cite cases beyond Jelovsek?
A: Yes. Granholm v. Heald, 544 U.S. 460 (2005), is the controlling U.S. Supreme Court framework for evaluating state-alcohol regulation under the Commerce Clause. Cooper v. McBeath, 11 F.3d 547 (5th Cir. 1994), struck down Texas's residency and citizenship rule. Anheuser-Busch, Inc. v. Schnorf, 738 F. Supp. 2d 793 (N.D. Ill. 2010), held an Illinois distributor-residency rule unconstitutional. Glazer's Wholesale Drug Co. v. Kansas, 145 F. Supp. 2d 1234 (D. Kan. 2001), did the same with a Kansas distributor rule.

Background and statutory framework

State alcohol regulation sits at a constitutional cross-section. The Twenty-first Amendment, which repealed Prohibition, grants states broad authority to regulate the importation and sale of alcohol within their borders. But the U.S. Supreme Court has consistently held that this authority does not permit state laws that discriminate against interstate commerce, at least where the discrimination is not tied to a legitimate temperance or public-safety purpose that cannot be served any other way.

Tennessee's retail-liquor-license residency rules date back many decades and were tightened over time. The structure at issue here, two-year and ten-year residency requirements, mirrors patterns the federal courts had already invalidated in winery, distributor, and out-of-state-retailer contexts. The 2014 amendment kept those structural rules but added an explicit legislative purpose to support them. The AG concluded that the purpose statement does not change the constitutional analysis because the question is not whether a state interest exists, but whether the discriminatory means is the only practical way to serve it.

The opinion's reliance on Granholm's observations about modern monitoring technology (electronic background checks, electronic transmission of records, local supervision at the point of sale) is a key part of the reasoning. The argument is that traditional residency justifications (proximity for oversight, knowledge of local conditions, ease of service of process) have lost most of their force in the modern regulatory environment.

Citations and references

Constitutional provisions:
- U.S. Const. art. I, § 8 (Commerce Clause)
- U.S. Const. amend. XXI (Twenty-first Amendment; background)

Statutes:
- Tenn. Code Ann. § 57-3-204 (retail liquor license requirements)
- Tenn. Code Ann. § 57-5-101(b) (beer definition referenced in legislative finding)
- 2014 Tenn. Pub. Acts, ch. 554, § 27 (amendment at issue)

Cases:
- Granholm v. Heald, 544 U.S. 460 (2005) (U.S. Supreme Court; dormant Commerce Clause + alcohol)
- Jelovsek v. Bredesen, 545 F.3d 431 (6th Cir. 2008) (federal court of appeals; Tennessee winery residency)
- Cooper v. McBeath, 11 F.3d 547 (5th Cir. 1994) (federal court of appeals; Texas residency)
- Anheuser-Busch, Inc. v. Schnorf, 738 F. Supp. 2d 793 (N.D. Ill. 2010) (federal district court; Illinois distributor)
- Glazer's Wholesale Drug Co. v. Kansas, 145 F. Supp. 2d 1234 (D. Kan. 2001) (federal district court; Kansas distributor)

Earlier AG opinion:
- Tenn. Att'y Gen. Op. 12-59 (June 6, 2012)

Subject

Opinion No. 14-83, Constitutionality of 2014 Residency Requirement for Retailer's Liquor License, September 12, 2014

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-083.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
September 12, 2014
Opinion No. 14-83
Constitutionality of 2014 Residency Requirement for Retailer's Liquor License

QUESTION

Do the residency requirements for a retail liquor license set forth in Tenn. Code Ann. § 57-3-204(b)(2)(A), as amended by 2014 Tenn. Pub. Acts, ch. 554, § 27, violate the Commerce Clause of the United States Constitution?

OPINION

Yes. The residency requirements facially discriminate against nonresidents, and the intent expressed in Tenn. Code Ann. § 57-3-204(b)(4) does not establish a local purpose sufficient to justify the discriminatory licensing provisions.

ANALYSIS

State laws that "mandate differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter" discriminate against interstate commerce in violation of the Commerce Clause of the United States Constitution. Granholm v. Heald, 544 U.S. 460, 472 (2005). In Tenn. Att'y Gen. Op. 12-59 (June 6, 2012), this Office examined the residency requirements for a retail liquor license in the 2012 version of Tenn. Code Ann. § 57-3-204(b)(2), which allowed for the issuance of a retail license to those "who are residents of the state of Tennessee and either have been bona fide residents of the state for at least two (2) years next preceding or who have at any time been residents of the state of Tennessee for at least ten (10) consecutive years." Tenn. Att'y Gen. Op. 12-59, at 1 (quoting Tenn. Code Ann. § 57-3-204(b)(2) (2012)). The Office opined that those requirements were unconstitutional under the Commerce Clause in light of the decision in Jelovsek v. Bredesen, 545 F.3d 431 (6th Cir. 2008). In Jelovsek, the Sixth Circuit concluded that Tennessee's two-year-residency requirement for a winery license discriminated against out-of-state wineries in violation of the Commerce Clause, 545 F.3d at 438, 440, and the residency requirements for a retail liquor license were essentially the same as those found unconstitutional in Jelovsek. See Tenn. Att'y Gen. Op. 12-59, at 6.

Tenn. Code Ann. § 57-3-204(b)(2) was recently amended, see 2014 Tenn. Pub. Acts, ch. 554, § 27, but both the two-year and the consecutive-ten-year-"at any time" residency requirements were retained. See Tenn. Code Ann. § 57-3-204(b)(2)(A). For the same reasons expressed in Tenn. Att'y Gen. Op. 12-59, therefore, the residency requirements in Tenn. Code Ann. § 57-3-204(b)(2)(A) continue to impermissibly discriminate against out-of-state retailers in violation of the Commerce Clause.

Residency requirements for a retailer's license may, however, be justified under the Commerce Clause if they serve a legitimate local purpose that cannot be achieved by less discriminatory means. See Granholm, 544 U.S. at 489; see also Jelovsek, 545 F.3d at 435 (discriminatory provisions may be sustained if they advance "a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives"). Subdivision (b)(4) of § 57-3-204, which was also recently amended, purports to identify such a purpose:

It is the intent of the general assembly to distinguish between licenses authorized generally under title 57 and those specifically authorized under this Section 57-3-204. Because licenses granted under this section include the retail sale of liquor, spirits and high alcohol content beer which contain a higher alcohol content than those contained in wine or beer, as defined in Section 57-5-101(b), it is in the interest of the state of Tennessee to maintain a higher degree of oversight, control and accountability for individuals involved in the ownership, management and control of licensed retail premises. For these reasons, it is in the best interest of the health, safety and welfare of the state of Tennessee to require all licensees to be residents of the state of Tennessee as provided herein and the commission is authorized and instructed to prescribe such inspection, reporting and educational programs as it shall deem necessary or appropriate to insure that the laws, rules and regulations governing such licensees are observed.

But this stated purpose is not enough to save the residency requirements in subsection (b)(2)(A) from violating the Commerce Clause; those requirements will survive constitutional challenge only if Tennessee's goal of maintaining a higher degree of oversight, control, and accountability for retail liquor sales cannot otherwise be achieved by less discriminatory means. A number of courts, including the United States Supreme Court, have rejected the argument that a state's need for greater oversight with alcohol-related licenses can be served only by favoring residents over nonresidents. See Granholm, 544 U.S. at 492 (holding state laws that favored in-state wineries did not overcome a Commerce Clause violation when the local purpose of protecting public health and safety and ensuring regulatory accountability could be achieved through alternative even-handed licensing requirements); see also Cooper v. McBeath, 11 F.3d 547, 554 (5th Cir. 1994) (holding that protecting the safety and welfare of citizens did not justify Texas' discriminatory residency and citizenship requirement for obtaining a liquor permit because those goals can be achieved through reasonable nondiscriminatory measures); Anheuser-Busch, Inc. v. Schnorf, 738 F. Supp. 2d 793, 809, 811 (N.D. Ill. 2010) (ruling that Illinois' residency requirement for distributors violated the Commerce Clause and that the state's need for local regulatory control, protection of the public against unsafe alcoholic liquor, and promoting temperance could be addressed through alternative nondiscriminatory means); Glazer's Wholesale Drug Co. v. Kansas, 145 F. Supp. 2d 1234, 1242-44 (D. Kan. 2001) (ruling that Kansas' residency requirement for a distributor's license was unconstitutional and that the state's local purposes of promoting temperance and protecting the general welfare, health, and safety of the citizens did not overcome a Commerce Clause violation when they could be served by nondiscriminatory alternatives).

Notwithstanding the statement in § 57-3-204(b)(4) that "it is in the best interest of the health, safety and welfare of the state of Tennessee to require all licensees to be residents of the state," the statute's distinction between residents and nonresidents appears unnecessary to achieve a "higher degree of oversight, control and accountability" of retail liquor sales. Indeed, the two-year residency requirement for an initial license cannot be related to any kind of regulatory or public-safety concern. The potential applicant will not have a license to sell liquor during that two-year period, so he or she will not be required to be educated about liquor sales, submit to inspections, or report to the State. The State, likewise, will have no sales to monitor or control during that period, so its regulatory needs and the public welfare will not be affected.

At the same time, as the Supreme Court observed in Granholm, advances in technology have eased the burden of monitoring out-of-state liquor licensees: "Background checks can be done electronically. Financial records and sales data can be mailed, faxed, or submitted via e-mail." 544 U.S. at 492. And retail sales for both types of retailers could be monitored locally where the sales are actually taking place.

For these reasons, it cannot be said that the stated goal of maintaining a higher degree of oversight, control, and accountability for retail liquor sales cannot otherwise be achieved by less discriminatory means. See id. at 493 (noting that the Supreme Court has upheld state regulations that discriminate against interstate commerce "only after finding, based on concrete record evidence, that a State's nondiscriminatory alternatives will prove unworkable").

ROBERT E. COOPER, JR.
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

LINDA D. KIRKLEN
Assistant Attorney General

Requested by:
The Honorable Ken Yager
State Senator
G19 War Memorial Building
Nashville, Tennessee 37243