The Volokh Conspiracy

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Volokh Conspiracy

Protecting small businesses from competition isn't a sufficient basis for regulation in South Carolina


So the South Carolina Supreme Court held in the recent Retail Services & Systems, Inc. v. South Carolina Department of Revenue, applying the South Carolina Constitution to strike down a law "limit[ing] a liquor-selling entity to three retail liquor licenses." And given that regulations of liquor sales are especially favored under the South Carolina Constitution, the logic of that opinion would extend even more clearly to economically protectionist regulation of other businesses:

Under the current paradigm, the government may "regulate any trade, occupation or business, the unrestrained pursuit of which might affect injuriously the public health, morals, safety or comfort; and in the exercise of the power particular occupations may be … required to be conducted within designated limits." … This mandate is especially broad with respect to regulating liquor ….

Here, the circuit court justified the three-license restrictions on corporations as "preserving the right of small, independent liquor dealers to do business." Moreover, counsel for Respondents repeatedly stated to this Court during oral arguments that the only justification for these provisions is that they support small businesses. The record does not contain any evidence of the alleged safety concerns incumbent in regulating liquor sales in this way. Without any other supportable police power justification present, economic protectionism for a certain class of retailers is not a constitutionally sound basis for regulating liquor sales. [Citations omitted. -EV]

Not only is there no indication in this record that these provisions exist for any other reason than economic protectionism, the provisions themselves and statutory scheme to which they belong lend further support to Appellant's position. As Appellant points out, the provisions do not limit the number of liquor stores that can be licensed in a certain area—only the number than can be owned by one person or entity. Another provision governs the specific placement of retail establishments away from churches, schools and playgrounds. Therefore, Respondents' contention that the provisions advance the safety and moral interests of the State, no doubt a legitimate State interest, is unavailing with respect to [the three-license limit]….

While we acknowledge that the State is granted broad powers with respect to regulating liquor sales, this is an example of market regulation that exceeds constitutional bounds….