Update to Consumer Wine Shipping Laws

Potential opening of Massachusetts and Pennsylvania among upcoming legislation summarized at Direct 2014 conference

by Paul Franson
Source: Wine Institute
Napa, Calif.—Though sponsor ShipCompliant’s goal is to insulate wineries from the Byzantine laws that govern direct shipping to consumers in various states, some of the most interesting sessions at the May 8-9 Direct 2014 conference were sessions covering updated laws and conditions.

Steve Gross, vice president of state relations for the Wine Institute, which lobbies for California wineries (and de facto for the whole industry) provided an update about legislative and agency actions across the United States.

He noted that consumers in 41 states representing 90% of the U.S. population now can receive wine directly from wineries, and Gross predicts that number may rise to 95% this year, should Pennsylvania and Massachusetts open up.

He also addressed the difficulty of opening the last five states to direct shipping. “Don’t hold your breath” for Alabama and Mississippi. And as for Utah, he vowed, “I’m not going to wait for Utah to open to retire!” after more than 25 years in the effort.

Gross also noted that when winery direct consumer sales started to be talked about in “billions” instead of “millions,” the opponents—primarily wines and spirits wholesalers, and increasingly beer wholesalers and wine retailers—started paying attention. The value of DtC shipments in the 12 months ending March 31 was $1.6 billion, according to the Wines & Vines/ShipCompliant model.

He said that the recent data from the model show the huge success of DtC, “but there are consequences.” These include:

• Scrutiny of reporting by shippers and carriers.
• Scrutiny of the role of fulfillment houses.
• Scrutiny of the role of other third-party providers.
• Scrutiny of retailer direct shipments.
• Renewed attention to potential use of winery capacity caps.

He added that opponents of DtC shipping are using confusion about third-party providers from Amazon to UPS and The Wall Street Journal wine club to undermine DtC systems.


    An update from California

    Lori Ajax, chief deputy director of the California Alcoholic Beverage Control department, provided an update of new and pending legislation that could affect wine companies.

    The new laws aren’t particularly significant for most wineries.

    Amended section 25503.4 of section AB 636 of the Business & Professions Code allows winegrowers and wine importers appearing at winemakers’ instructional events for consumers to sign bottles and other items for consumers provided events are held at a retailer’s licensed premises.

    However, the consumer can’t be required to buy any alcoholic beverages to get a signature. He or she can bring in a bottle from home.

    Similar exceptions were passed last year for wine, beer and spirits producers at promotional events at off-sale retail locations. However, there are differences:

    Amended section 23357 of AB 779 of the Business & Professions Code lets large beer manufacturers (type 01) produce cider (apple wine) and perry (pear wine), but they cannot offer retail sales or tasting. This bill was instigated by Anheuser-Busch. Previously, only wine manufacturers (license 02) could make these fruit wines.

    Finally, amended section 23356.2 of AB 1425 allows home beer or wine to be donated to a nonprofit organization and used at fundraising events for the benefit of the nonprofit organization.

    The donated beer and wine may be sold by the nonprofit organization only for consumption at the fundraising event and only under a license issued by ABC to the nonprofit organization.

    The beer or wine must be labeled for that use, though Ajax admits this may conflict with Federal statutes.

    Meanwhile, pending legislation would amend Section 23399.4 of AB 2488 would expands current sales at certified farmers’ markets to include tastings. Only one licensee could pour at a market, and the tasting area must be separated from the rest of the market.

    She also noted that the ABC issues 70 different license types, and almost 86,000 have been issued. Most are for retail sales, but they include:

    4,966 winegrower licenses
    371 small beer manufacturers (under 60,000 barrels per year)
    34 large beer manufacturers
    94 distilled spirits manufacturers
    41 brandy manufacturers

    She noted that the fastest growing category was distilled spirits manufacturers.

    Ajax also demonstrated the wealth of information available to the public via the agency website, abc.ca.gov.


Much of this confusion involves third-party providers. “Typically a ‘third-party provider’ is a non-licensed entity providing service to a winery to facilitate their shipments to a consumer,” Gross said. The Wine Institute’s position is that they are like ads, not selling the wine, which is done by wineries.

He especially warned, “No one else can ‘hold’ the licenses to allow you to ship into another state unless you are selling the wine to them and they hold a retail license.”

Also, in general only wineries (license 02) in California can ship to consumers in other states. Retailers including 17/20 “virtual wineries” are retailers to other states.

Out-of-state wine retailer shipments are allowed in 14 states and the District of Columbia: Alaska, California, Idaho, Louisiana, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oregon, Virginia, West Virginia and Wyoming.

Also, 19 of the 41 DtC shipping states and the District of Columbia now require common-carrier licenses for DtC: Connecticut, Indiana, Iowa, Kansas, Maryland, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Texas, Vermont, Virginia and West Virginia.

Legislative update for 2014
Two big states could finally allow direct shipping.

Pennsylvania, a control state, could adopt DtC shipping either as a part of proposed privatization and modernization, or as a freestanding bill. For now, only Pennsylvania farm wineries can ship; a few out-of-state wineries have registered as farm wineries.

California’s Wine Institute is working to get the tax rate below Pennsylvania’s existing proposed 18% Johnstown flood tax, which is designed to pay for the 1936 flood, plus 6% sales tax. Gross estimates it could be 12% to 18%.

In Massachusetts, carriers won’t deliver wine due to licensing requirements. Lobbying continues in Massachusetts, where former New England Patriots quarterback Drew Bledsoe, who owns a winery in Oregon, has been an effective (and registered) lobbyist. For the first time, DtC shipping legislation has been included in a budget bill, which makes it more likely to pass. Gross thinks we could have results soon.

In New Jersey, efforts to pass legislation to remove the 250,000-case capacity cap and fix the tax nexus issue for wineries were deferred to 2014 because of the elections in 2013, but this year has seen political turmoil once again. (Read more about New Jersey below.)

Bills have been introduced in most of the remaining states, but only Delaware seems likely to adopt one. In Oklahoma, for example, alcohol laws are embedded in the state constitution, which makes changes very challenging. Carriers won’t deliver in Kentucky.

Gross said that the next step for DtC efforts, other than the existing states, include:

• Continuing to try and open new states and protect existing states
• Continuing to “improve” existing shipping laws:
• Remove on-site and capacity caps
• Remove onerous paperwork requirements
• Simplify reporting and frequency of reports
• Streamline permitting and registration procedures
• Work with carriers and states to insure reporting procedures work

He pointed out that ShipCompliant is taking steps to assist with the latter four problems.

The labyrinth of New Jersey law
Carrie Bonnington, a lawyer at Pillsbury Winthrop Shaw Pittman in Sacramento, Calif., went through the presentation by New Jersey ABC director Michael Halfacre, who broke his arm and couldn’t appear at Direct 2014.

New Jersey ranks fourth nationally in per-capita consumption of wine, so it is an attractive market, but it has quirks.

Two such idiosyncrasies are that it allows direct shipping to retailers, but not by common carrier. You have to deliver yourself or ship in a truck with no other wine.

And it allows wineries including those outside the state to establish 16 tasting/sales rooms in the state, typically at BYOB restaurants; the state allows very few restaurants wine and spirits licenses.

These provisions complicate direct shipping to consumers, and the Wine Institute is trying to separate them from DtC legislation. The state also has a winery size cap for DtC.

Gross points out that loosening the laws helped nearby Maryland collect millions in taxes, and New Jersey could do the same.

North Dakota’s model direct shipping laws
In contrast with New Jersey, North Dakota has model laws and even allows out-of-state retailers to ship to consumers. It also allows streamlined sales tax reports and payment.

Anne Hutchison spoke on behalf of the North Dakota office of the State Tax Commissioner and is also the elected president of the National Conference of State Liquor Administrators. She encouraged attendees to join the group’s next conference June 16-20 in San Antonio, Texas. Attendance does not require joining the organization but simply paying conference fees.

Legislative update for 2013
Two states passed new DtC laws in 2013: Arkansas and Montana. Gross noted that the Montana law follows recommendations, while he called the Arkansas law “flawed.”

Arkansas passed a new $25 permit program in 2013, but it is limited to on-site winery sales, a huge limitation. It also limits consumers to one case per person per calendar quarter, and wineries must collect excise and 6.5% state sales tax. The law requires adult signature stickers; both FedEx and UPS meet that requirement.

Montana’s new permit program replaced an unworkable “connoisseurs license” in 2013. It requires a $50 “endorsement” fee. Registration as a foreign winery is required if the winery is not already in the state wholesale system, but no fee is required. The limit is 18 cases per consumer per year, and the winery has to collect excise tax, although there is no state sales tax in Montana.

Nebraska and North Dakota also made changes in their laws.

Nebraska requires a $500 permit, and wineries can ship one case per month per consumer. Wineries must collect excise and sales tax (the latter also on freight). A list of labels must be submitted with the application. It also adopted new reporting and tax payments, and the winery must notify its distributor of its intent to ship directly to customers.

North Dakota adopted a $50 permit with a limit of three cases per consumer per month, and excise and sales tax must be collected. Wine must be shipped from winery-licensed premise or a designated “logistics shipper;” wineries must designate their shippers. As of now, FedEx is not shipping into North Dakota.

And finally, he reminded wineries, “No state allows individuals to ship wine to its residents legally," in spite of claims by some retail shippers in various wine regions.



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