The 5-4 ruling clears the way for supermarkets and warehouse retailers such as Costco and Wal-Mart to begin selling bourbon, vodka and other spirits beginning Friday.
Opponents had filed suit, arguing that it violates state rules requiring initiatives to address only one subject because it included a provision to set aside $10 million for public safety.
The state Supreme Court ruled against the challenge saying the disputed "portion of I-1183's ballot title is not palpably misleading or false."
The ruling added that the court will not void a law duly enacted by voters based upon "the technical significance of a word, where it can hardly be contended that anyone was likely to be deceived."
The entire measure would have been nullified if the court had determined that voters would have rejected the initiative without the public safety provision.
Michael Subit, attorney for the plaintiffs, expressed disappointment with the ruling and said he hopes it doesn't set a precedent for the integrity of the initiative process.
Subit filed suit in December on behalf of the Washington Association for Substance Abuse and Violence Prevention, the landlord to a state-owned liquor store in Cowlitz County and two Red Apple stores in Kitsap County.
Subit said initiative sponsors "pulled a fast one," tricking voters into unwittingly supporting hundreds of millions of dollars in new taxes.
The measure imposed an additional 10 percent distributor fee and a 17 percent retail fee on spirits to reimburse the state and local governments for millions of dollars in lost revenue.
"And if the initiative sponsors -- powerful corporations -- can do it, it's something lawmakers in Olympia can do," Subit said.
Nearly 20 states control the retail or wholesale liquor business. Some, such as Iowa and West Virginia, have relinquished partial control in recent years, but Washington will be the first in that group to abandon the liquor business entirely.
Four justices dissented in two separate opinions.
In an opinion signed by three justices, Justice Charles K. Wiggins wrote that the measure imposes new taxes and contains a $10 million earmark that has nothing to do with liquor.
"An initiative can impose new taxes, but the ballot title cannot misleadingly imply that it does not," Wiggins wrote.
He also wrote that state law likewise precludes combining a substantive liquor privatization law with an earmark that has no rational relation to liquor privatization and may have been included only to win votes.
"This initiative would violate the constitution if our legislature had passed it, and it is equally unconstitutional as an initiative of the people," Wiggins wrote.
In a separate dissenting opinion, Justice Tom Chambers concurred with the majority that there is a "rational unity" between liquor regulation and public safety. But he ultimately agreed with the dissenters that the initiative was unconstitutional because the title failed to mention a new tax.
Under the new law, a business must have at least 10,000 square feet of retail space to be able to apply for a license to sell hard liquor. However, existing contract liquor stores are grandfathered in. Also, those who bought a state-owned store through a May auction also are exempt from the requirement.
The new law bars sales of hard liquor between the hours of 2 a.m. and 6 a.m. which leaves 20 hours a day in which it can be bought -- far more than available now.
What privatization means for prices is unclear. Absent state control, retailers can charge what they want and it appears the price of most bottles of booze will be higher starting Friday.
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