07.23.2018  
 

How Supreme Court Ruling Affects Wineries

States can now tax shipments from out-of-state if they don't already

 
by Jim Gordon
 
“hertz“
 
Percents indicate volume share of market. Most legal ship-to states already charge sales tax on wine but two of the top 10, Florida and Colorado, currently do not.

San Rafael, Calif.—A U.S. Supreme Court decision earlier this summer gives states the option to collect sales taxes from online retailers, which is expected to create a new compliance and financial hurdle for many ecommerce sellers who have gotten used to a free ride.

The ruling in Wayfair vs. South Dakota on June 21 will apply to wineries’ out of state shipments in addition to deliveries from Amazon, Wal-Mart, Staples and Nordstrom, to name a few of the biggest online retailers. Wineries, however, have little to worry about immediately.

“To be honest I think the wine industry is a little ahead of the game because we’ve been paying sales taxes already,” said Steve Gross, vice president of state relations for California’s Wine Institute. “We don’t see it as the kind of sea change that it is for many other retailers.”

No physical presence required

The ruling is a victory for states, which can now tax catalog and web-based retailers in states where they don’t have a physical presence or “nexus.” Gross said each state now has the opportunity to review its laws and decide if and how to amend them via legislation to add sales taxes.

Wineries, being licensed alcohol sellers already, have long been required to get permits, file reports and pay excise and sales taxes in many states. But the Supreme Court decision means that several states that have not required sales taxes in the past may now add them.

Alaska, Colorado, Florida, Iowa, Minnesota, Missouri and the District of Columbia currently don’t collect state sales taxes from licensed direct-to-consumer wine shippers, although four of these states do collect excise taxes. Florida and Colorado are among the top 10 destination states for DtC shipments, accounting for 8% of shipments nationwide, according to Wines Vines Analytics and ShipCompliant by Sovos.

Alex Koral is the expert on the topic at ShipCompliant by Sovos, a firm that helps wineries comply with all laws and regulations when sending wine DtC across state lines. “At present, none of these states have yet indicated how they’ll respond to the Wayfair decision,” Koral said, “but if they were to amend their nexus laws to go after remote sellers, then wineries would be as impacted as any other seller.”

State excise taxes range from $.20 per gallon in Texas and California up to $2.25 in Florida and $2.50 in Alaska. Koral estimated that state and local sales taxes combined vary from about 4% to 12%. Wineries may also be affected if states that currently only levy state sales tax on DtC shipments start allowing city or other local sales taxes to be added, a move that Koral said would open up a “wild west scenario.”

Big sellers holding their breath

None of the seven states affected in the wine DtC realm has announced what it intends to do in light of the Wayfair decision. For online retailing in general, many of the big sellers are holding their breath. Koral said, “It’s like the rock has been thrown into the pond, and we’re waiting for the shock to send ripples outward. It’s going to rock the whole ecommerce world and wineries are part of that world.”

Amazon itself has already been collecting taxes for the past few years, Koral said, on sales that originate with Amazon. But a large portion of Amazon sales are done by sell-through businesses that use the Amazon platform, and those companies are not necessarily collecting sales taxes.
“A lot of the impact will be on those sell-through entities, but some states such as Washington and Pennsylvania have already said that Amazon is the seller and needs to pay the tax.”

Since consumers pays the tax — the seller just collects it and remits it — the tax is not much of a financial burden on small sellers in Koral’s view, but the burden is handling the books, records and tax administration, all tasks that ShipCompliant and its parent company Sovos do for clients in various industries.

He said the South Dakota-based Wayfair decision removed the old definition of nexus. The rule was that a state can’t tax a seller if it doesn’t have a physical presence in the state such as a store, inventory, etc.
The Supreme Court remanded the question back to South Dakota to review its laws “without physical presence being a commanding standard.” He said the court was clear that South Dakota’s rule that out of state companies conducting fewer than 200 transactions or $100,000 in sales need not pay taxes would probably be reasonable and can continue.

The effect on sales tax is immediate in South Dakota, but since wineries already pay sales tax there, it’s not a change. At Wine Institute, Gross said that wineries will get plenty of advance notice if new states start to levy sales taxes on wine because that requires legislation and legislation is a relatively slow and transparent process.

He noted that Wine Institute members with questions about taxes and regulations state by state can use the organization’s tax tool on the Members Only Website members.wineinstitute.org or contact the state regulations department at 415 356 7530.
 



 

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