From craft brews to craft booze: it's time for home distillation.

• Author: Norris, Mark
• Position: Excise tax personal use exemption for home distillation

ABSTRACT

This Note proposes that a personal-use exemption to the federal ban and excise tax on home distillation is a historic American right. Such an exemption would result in significant economic and consumer benefits. Home distillation can be a safe and exciting hobby to develop unique liquors and reduce the distillation industry's entry barriers. Just as home brewing and the craft-brewing industry have elevated the quality of U.S. beers, propagated thousands of breweries and eateries, reinvigorated neighborhoods, and heightened beer customers' sophistication, home distillation may propel the craft-distilling industry to similar heights. Further, this Note argues that the federal ban on all home distillation violates the Constitution's Commerce and Equal Protection Clauses while failing to advance the federal government's policy objectives of public safety and revenue collection. Finally, because the popularity of craft distilleries is already on the rise, outdated laws prohibiting home distillation work only to stifle economic growth and opportunities for delicious drink.

CONTENTS INTRODUCTION: A CONFUSED LEGAL STRUCTURE I. ALCOHOL BASICS AND U.S. LIQUOR LAWS A. Colonial America and Free Distilling B. The Temperance Movement and National Prohibition C. The Twenty-First Amendment's Lingering Effects II. THE HOME BREWING BOOM AND EMERGING CRAFT-DISTILLERY MARKET A. Home Brewing Success B. Craft Distilling Is Already Here--Let's Get Intoxicated/ Involved! III. THE CURRENT PROHIBITION ON HOME DISTILLATION A. The Ban on Home Distilling Stretches the Commerce Clause Beyond Even Wickard B. The Discriminatory Treatment of Home Distillers Violates the Equal Protection Clause C. The Tax and Trade Bureau's (TTB) Misinterpretation of Congress's Intent Cannot Withstand Even Chevron Deference D. A Tax Exemption for Home Distillation Will Not Significantly Impact Federal Revenues E. Home Distilling Is at Least as Safe as Home Brewing and Far Safer Than Smoking Roll-Your-Own Cigarettes IV. PROPOSED SOLUTION: THE PERSONAL-USE EXEMPTION CONCLUSION INTRODUCTION: A CONFUSED LEGAL STRUCTURE

This Note advocates for the freedom to distill spirits at home. Although federal alcohol regulations rarely spur legal debates or incite talk show hosts into angry rants, (1) potential gains remain. And while infrequently litigated, Americans' love for high-quality spirits has undergone significant renewal, and it is now time for U.S. law to encourage this passion, rather than undermine it.

The default structure of federal alcohol regulation creates the primary problem. Typically, people are free to produce purely intrastate goods until they begin to impact the national market for those goods and are then subjected to federal regulation. (2) For example, a common backyard garden need not comply with the Department of Agriculture's requirements. (3) Similarly, people can brew beer and wine in their homes for personal consumption while not paying any federal excise taxes. (4) But when it comes to distilled spirits, the federal government bans all home distillation for personal use. (5) Instead of permitting some home distillation, the federal government, through the Alcohol and Tobacco Tax and Trade Bureau ("TTB"), requires strict licensing and imposes heavy fees. (6) Farmer Filburn may be allowed his wheat but not his whiskey. (7)

This Note argues that a complete ban on home distillation violates the Constitution and fails to advance either of the government's dual policy objectives of public safety and revenue collection. A personal-use exemption to the federal excise tax--similar to the exemptions for home brewing beer and wine--will have no appreciable impact on federal tax revenues. (8) The safety risks associated with operating a small-batch still in one's home are no greater than those associated with home brewing beer and wine. While some risks exist, they are largely exaggerated by Prohibition-era lore and are best alleviated through education, regulation, and access to basic information. Further, allowing home distillation through a personal-use exemption from federal excise taxes may foster industry growth rather than stunt it.

This Note proceeds in four parts. Part I provides a historical perspective on the United States' liquor laws and some basics about alcohol and the distillation process. Part II discusses how the home-brewing industry's success foreshadows home distillation's economic potential. Part III explains why the current ban on home distillation violates the Constitution's Commerce and Equal Protection Clauses and exceeds the TTB's legislative authority. Part IV outlines a legislative proposal permitting home distillation for personal consumption.

1. ALCOHOL BASICS AND U.S. LIQUOR LAWS

   The goals of alcohol regulation are public safety and the collection of tax revenue, (9) but questions surrounding the priority of these goals remain. Why does the federal government treat fermented drinks, like beer and wine, differently from (and with more preference than) distilled spirits, like vodka and whiskey? (10) Is alcohol consumed in beer less dangerous than alcohol consumed in gin? (11) Do federal excise taxes actually achieve the behavior modification sought? (12)

   When people drink alcoholic beverages they are consuming ethyl alcohol, or ethanol. Ethanol is the chemical compound C2H6O, pure and simple. (13) Ethanol is produced only through fermentation, while the process of distillation, by itself, makes nothing. (14) Through cycles of evaporation and condensation, distillation separates the ethanol from other impurities in the fermented mixture. (15) This process effectively concentrates the ethanol and creates what are legally known as "distilled spirits" (16)--beverages that contain more than twenty-four percent ethanol by volume. Regardless, whether people prefer budget-friendly options such as Ripple (17) or high-end palate pleasers such as The Glenlivet, (18) they are consuming the same ethanol.

   Many people view "hard liquor" as distinct from, and more evil than, beer and wine. (19) But the higher percentage of alcohol in distilled spirits does not cause people to become more intoxicated than if they consumed beer or wine. Only the volume of the alcohol consumed matters. (20) The percentage of alcohol within the drink--whether five percent as in a beer or twenty to forty percent as in some distilled spirits--makes no difference. The intoxicating chemical is the same, and only the amount of impurities varies between the beverages.

   Alcohol is alcohol, and it is intoxicating in all forms. So why allow private citizens to brew beer and wine to create alcohol from fruit while categorically banning home distillation? Not surprisingly, the reason is money. The real difference between these various alcoholic mixtures is their respective rates of taxation. (21) Compare the tax rate imposed on beer ($0.58 per gallon) and wine (less than $2 per gallon) with distilled spirits at a substantial $13.50 per "proof gallon." (22) For a gallon of 100-proof ethanol, the federal government takes $27.00 immediately upon production--almost three times the amount for the exact same amount of ethanol in beer. (23) Thus, the federal government has a greater interest, literally, in monitoring the production of distilled spirits than monitoring the production of beer or wine. But profit margins alone should not dictate tax policy, especially in light of such a longstanding and culturally significant product and trade. (24)

   1. Colonial America and Free Distilling

      From the very first settlements until the tail end of the eighteenth century, Americans were free to brew their own beer and distill their own spirits. (25)

      Americans drank beer, cider, wine, and liquor--nearly anything they could get their hands on. (26) People drank in the morning with the birds, at the 11:00 a.m. "grog time" and the 4:00 p.m. "grog time," and had several "stiffeners" in the afternoon. (27) People feared water more than alcoholic drinks. (28) While drinking in all forms was hugely popular, the public's taste eventually shifted from beer to distilled spirits for several reasons: (1) distilled spirits made more economic sense; (2) the raw ingredients were readily available; (3) it kept longer; and (4) could be more easily transported. (29) Before the American Revolution, rum was the Colonists' drink of choice. (30) But as molasses became scarce and expensive, and as trade routes opened up into Appalachia, American tastes quickly shifted to grain-based whisky. (31)

      Of the many circumstances that bred early Americans' preference for frequent drinking, the most obvious is that nothing stopped them. They could brew their own beer, make their own wine, and certainly distill almost everything possible. (32) There simply was no federal law regulating alcohol production until 1791, when then Secretary of the Treasury Alexander Hamilton pushed for and secured an excise on alcohol to help repay the debt incurred during the Revolution. (33) The fact that no federal alcohol regulation existed until the government needed funds suggests that behavior modification ("corrective" taxation) and public safety concerns are not primary motivations for the tax impositions. (34) While it is not surprising that excise taxes are imposed for revenue generation, it is important. If there is no appreciable impact on revenues, the only remaining logical ground for distinguishing between beer and spirits must be public safety aims. And in the absence of any proof that beer is somehow safer than liquor, the ban on home distillation makes little sense.

      Given the significance of alcohol in Colonial Pennsylvania, both socially and economically, Pennsylvanians strongly resisted the tax, culminating in the "Whiskey Rebellion." (35) Although the Excise Act of 1791 "established [the] constitutional right to impose an excise, [and displayed the federal government's] power to enforce such a...