Kentucky On-Site Requirement Invalidated, but Questions Remain
December 31st, 2008
On December 24th, the US Court of Appeals for the Sixth Circuit affirmed, in the Cherry Hill case, the judgment of the district court, invalidating the on-site purchase requirement.
The district court ruled, pursuant to the Supreme Court’s decision in Granholm v. Heald, 544 U.S. 460 (2005), that the in-person purchase requirement in portions of Kentucky’s statutory scheme discriminated against interstate commerce by limiting the ability of out-of-state small farm wineries to sell and ship wine to Kentucky consumers.
Although this decision sets an important precedent, especially in light of a contradictory decision in Indiana, several questions remain unresolved. Despite the justifiably positive news in the press, direct shipping to Kentucky seems unlikely in the near term.
The biggest obstacle is the fact that the common carriers (FedEx and UPS) have not approved the state of Kentucky for direct shipping. Among other reasons for not yet opening up the Bluegrass State, the carriers are not thrilled about dealing with the 53 Dry and 16 Moist counties.
Furthermore, in spite of the recent victory in Massachusetts where the 30,000 gallon capacity cap was declared unconstitutional, the Cherry Hill challenge of the 50,000 gallon capacity cap in Kentucky was not successful. So, even if the carriers approved Kentucky for shipping, only “small farm” wineries would be eligible for a permit.
Corbin Houchins provided great analysis of the original district court ruling two years ago, and I recommend revisiting that post for more information on Cherry Hill. He highlighted an additional question about the two case “per visit” limit, and how that would apply given the unconstitutionality of the on-site visit requirement.
Happy Holidays
December 23rd, 2008
Happy Holidays from the ShipCompliant Team! Thank you so much for your continued support. This picture was taken recently from the rooftop of our office in Boulder, CO.
-Jim, Pawel, Luke, Jane, Kim, Manzi, Elizabeth, Barclay, Kent, Michael, Jason, Jeff, Trent, Sarah, David, Mike, Colin, Ryan and Robb (not pictured: Mackenzie and Jamie)
Tips for Making End of Year Reporting Easier
December 23rd, 2008
Scrooge asks: Do you have tracking numbers for all 2008 Missouri shipments? Are you ready with your TTB IDs for the products you shipped into New York? Are you aware of Wisconsin’s new electronic filing requirement? If so, will you go with the manual Free File of the XML file submission? Did all of your holiday orders ship in 2008, or will some get pushed to January?
Each year, January is a perfect storm of reporting with up to 79 different submissions for monthly, quarterly and annual tax and shipping reports, 50% more than a more typical monthly load of 53. This January brings up to 21 new (or significantly more complex) reports over last January, depending on the number of states (and cities) to which you ship. Some of these reports require extensive information that is not typically stored on an individual order basis and must be collected and tied to each shipment.
We put together a page full of tips and tricks for completing your end of year reporting as painlessly as possible. Click here to read our 5 Tips for Making End-of-Year Direct Shipping Reporting Easier.
Up and Running (So Far)
December 19th, 2008
Happily for the plaintiffs, Judge Zobel’s final judgment in Family Winemakers of California v. Jenkins took the path that seemed most likely from the tone and content of her memorandum and order of 19 November 2008 and leveled up. The judgment entered 18 December 2008 orders the state “to permit wineries of all sizes to apply for licenses under Mass. Gen. Laws ch. 138, § 19F(b),” which does not contain the § 19F(a) disqualification of wineries that have sold to a Massachusetts wholesaler within six months of applying for the license, formerly applicable to all 30,000-gallon-and-over wineries. In her November opinion, the judge had noted that the “choice” to use direct shipment only after abandoning all sales through wholesalers for six months was, in effect, prohibition.
Final judgment does not settle the issue of a possible stay of the injunction pending appeal. The state has 30 days from entry of the judgment to file notice of appeal, which would be a prerequisite to moving for a stay in the trial court and, if unsuccessful there, in the Court of Appeals.
By R. Corbin Houchins, Attorney at Law
Utah Allows Shipment of Wine? Well, Not Exactly
December 18th, 2008
In one of the most regulated and restricted states in the US, residents may now special-order alcohol online. The Utah Department of Alcoholic Beverage Control (DABC) announced that Utah residents may use an online Special Order Form to purchase alcohol that is otherwise unavailable in the State’s liquor stores. The alcohol would then be shipped to a DABC store location of the buyer’s choosing for pickup. Available since September of this year, the system was relatively unknown until recently due to limited exposure.
Residents of Utah may special order from any licensed vendor located in the United States, which includes producers, authorized agents, and wholesalers, among others. For Utahns ordering international products, they must order the product from a licensed US importer. All vendors, of domestic and international products alike, must be registered with the DABC. There is no cost associated with registration. For more information about what type of vendor to order from and how to register as a vendor refer to the website.
After deciding on the product and vendor from whom to purchase, the ordering process is very straightforward. Some important information required for ordering includes the product name, size and vintage and also the specific DABC store location and date desired for pickup. When ordering, Utahns should keep in mind that vendors may not ship products individually and be prepared to order by-the-case. Also, applicable sales taxes (state and local) are paid by the consumer.
Although the order form takes a relatively short amount of time to fill out, delivery takes much, much longer. The buyers should expect delivery 45 days after the DABC receives the price quotation, at the earliest. This is due, in part, to the custom nature of each order.
The fact that Utah, a heavily controlled state, created an easy-to-use order form for residents to purchase almost any alcoholic beverage available in the US (albeit with a lengthy transaction completion time line) is an acknowledgement of the importance of consumer access and choice. However, it is very important to note that the new special order form does not allow direct shipments to Utah residents because the products may only be picked up at a DABC store.
The Return of the Florida Wine Shipping Bill
December 12th, 2008
Wineries and consumers have enjoyed relatively unrestricted wine shipping into Florida since 2006. This could change if direct shipping legislation is passed this year. Florida is gearing up for another legislative session and direct wine shipment legislation is on the docket, once again. The Florida Senate’s regular session will convene on March 3rd, but an agreeable bill relating to direct wine shipments has already been filed with the Florida Senate. SB 0272, authored by Senator Paula Dockery, would allow for the direct shipment of wine by permitted wineries; retailers are not addressed in this bill. The bill is reportedly based off of the wine industry’s “model” direct shipping bill, which allows wineries to ship to residents with reasonable restrictions. This means that there are no proposed production volume caps (unlike the bills that were being considered last year). However, it is still possible that competing direct shipping bills may be filed before the legislative sessions begin. According to the Family Winemakers of California, “Wholesalers have been meeting, but there [is] no word yet on their approach to the 2009 session. Based on the past three years it isn’t unreasonable to expect them to oppose the bills supported by the wine industry and attempt to impose a production cap despite FWC’s recent court victory in Massachusetts.”
Some of the requirements that would be set forth if SB 0272 makes its way into law include: $100 annual fee, bond, per bottle volume limit, age verification, special shipping label, monthly reporting, excise tax, and sales tax (local taxes apply).
Hope Rests in Senate as Michigan House Passes Ban on Retail to Consumer Direct Shipments
December 11th, 2008
Michigan House Bill 6644 passed with 97 Yeas and 9 Nays on December 4, 2008. If passed by the Senate, HB 6644 would ban all retailers, in-state and out-of-state, from direct shipping wine to Michigan residents. In the last days of Michigan’s current legislative session, expected to adjourn soon, the failure or passage of this bill will either give new life to or end Michigan retail direct shipping.
Less than three months ago, Michigan Federal District Court Judge Denise Hood ruled unconstitutional a Michigan law that allowed in-state retailers to direct ship to consumers while denying out-of-state retailers the same right. However, before out-of-state retailers could even fancy direct shipping wine, Governor Granholm, the Michigan Beer and Wine Wholesalers Association (BWWA), and the Michigan Liquor Control Commission (LCC) filed an appeal, effectively suspending all attempts to open up the Michigan wine market in conformity with Judge Hood’s ruling. In the two short months following the stay from the appeal, Representatives Barbara Farrah and Chris Ward introduced HB 6644 to stop all retailers from competing with wholesalers.
The bill sponsors did little to hide their true objective in expediting the bill through Michigan’s Legislature. In its Legislative Analysis, the Committee on Regulatory Reform, which recommended the bill, repeatedly declares the need to protect the three-tier distribution system, citing how well it has served Michigan businesses and residents for 75 years. Among the other arguments in favor of the bill, the committee points to the supposed “untold amounts of revenue” that would be lost due to the lack of a “legal framework to license these out-of-state retail liquor establishments and to collect the same excise taxes and sales and use taxes levied on Michigan retailers and suppliers.” This argument assumes that the Michigan LCC is incapable of establishing new administrative procedures in the face of change, a reflection of an antiquated administration and not the feasibility of implementing new regulations. The bill sponsors, arguing arduously for the protection of the three-tier system, seem to overlook the very functional winery direct to consumer shipping market in Michigan which has had a regulatory system in place since April 2006. The SWRA proposes that the same rules and paperwork with which the Michigan LCC regulates direct shipping wineries can realistically be applied to retailers, thus increasing tax revenue, a straightforward process that the Michigan LCC and BWWA fail to acknowledge.
As expected, the Michigan LCC and the Michigan BWWA support the bill while the Michigan Restaurant Association (MRA) opposes it. The MRA recognizes that if the bill were to pass, members who hold retail beer and wine licenses would also be banned from serving those beverages at catered events, an important part of their business services.
Despite the disheartening speed and overwhelming majority with which the Michigan House passed the bill—it took three legislative days to go from introduction to vote—there are indications that the same will not occur in the Senate. Retailers interested in shipping wine to Michigan residents have ridden a roller coaster of legislation changes for several years; but the fate of retailer direct shipments could be set for the foreseeable future before the New Year rings in.
One Less Dry Town in New Hampshire
December 9th, 2008
Wineries with a valid direct-to-consumer shipping permit may now ship to consumers in Landaff, New Hampshire. The city of Landaff voted to end its status as a dry town effective immediately. Four dry cities remain in New Hampshire: Brookfield, Ellsworth, Monroe and Sharon. Wineries are prohibited from shipping wine to consumers in dry regions in New Hampshire. More information about shipping wine directly to New Hampshire consumers can be found by visiting the Wine Institute website.
Annie Bones, State Relations - Wine Institute
Wine Distribution Notes - Release 30
December 5th, 2008
Release 30 of Notes on Wine Distribution by R. Corbin Houchins is now available for viewing or downloading.
The Notes provide thoughtful insight on the state of direct shipping rules and valuable information on current litigation and legislation for each of the United States (plus DC), with changes from the preceding release indicated by highlighted headings. Some highlighted segments in the new release:
Direct Shipment by Retailers
Volume Caps
Family Winemakers of California v. Jenkins in Massachusetts
Siesta Village Market, LLC. v. Granholm in Michigan
As always, the most recent version of the notes is available on the ShipCompliant Blog, so check regularly for updates.
Face-to-Face Enforced in Indiana
December 4th, 2008
The Indiana Alcohol and Tobacco Commission is now enforcing the statutory citation concerning the initial face-to-face transaction requirement in Section 7.1-3-26-6. The face-to-face requirement originally became effective on July 1, 2006, but was later stayed by the Court on August 24, 2007. However, the stay has expired and it is recommended that direct shippers comply with face-to-face requirement. Indiana consumers may only receive off-site shipments if they have visited the winery and completed an on-site transaction. Indiana consumers who have not completed a face-to-face transaction with the direct shipper are no longer eligible to receive wine shipments. Additional information about direct-to-consumer shipping regulations can be found by visiting http://www.wineinstitute.org/initiatives/stateshippinglaws and clicking on the state of Indiana.
Annie Bones, State Relations - Wine Institute
An Unfortunate Direct Shipping License Clarification in Texas
December 4th, 2008
Wineries applying for a Texas Direct Wine Shipper’s Permit or renewing their existing permit must now pay a surcharge of $160 in addition to the $75 annual permit fee. Currently the Direct Shipper’s permit is renewed annually. However, beginning January 1, 2009 all Direct Shipper licenses will be valid for two years. Applicants will have to pay license fees and surcharges for 2 years totaling $470 when applying for a permit in 2009. The Texas Alcohol Beverage Commission added significant surcharges to a wide range of licenses affecting both in-state and out-of-state applicants.
Annie Bones, State Relations - Wine Institute
A Battle Well-Picked and Well-Fought
November 23rd, 2008
David does best when he can choose the right Goliath.
The Massachusetts volume cap on direct shipment, invalidated last week in Family Winemakers of Calif. v. Jenkins, was a good choice to challenge for at least three reasons. First, there was gold in the legislative record: a sponsor described the bill as “giving an inherent advantage indirectly to the local wineries,” and the cap was openly and carefully calibrated to fall just above anticipated production of the state’s largest winery. Second, the structure of the statutes permitted excising the cap without damaging the state’s basic regulatory system. Third, the statute had the additional feature of requiring wineries to choose between direct shipment and use of local wholesalers, permitting the suit to take a swipe at another dubious restriction deployed by three-tier defenders, with or without a volume cap.
Judge Zobel’s opinion proceeds from her observation that Granholm forbids both direct and indirect ways of subjecting out-of-state wineries, but not local ones, to mandatory use of a local middle tier. Granholm, however, follows precedent in drawing a distinction between state laws that openly (or “facially”) discriminate against interstate commerce and those that pursue some legitimate purpose with only an incidental disproportionate burden on interstate commerce. Courts apply a more stringent test of nearly automatic invalidity to the former, but for the latter give a state more latitude to balance its own objectives against the federal interest in free interstate trade.
Most of the court’s analysis is devoted to showing how the state law came about, which boiled down to a compromise between direct shipment proponents, who wanted a “straight” winery shipment law without a cap, and the wholesalers, who wanted no direct shipment. The middle ground was direct shipment for wineries defined as small, wherever located. If there were no more to it than that, the law could be regarded as facially neutral and therefore vulnerable only if its incidental adverse effect on interstate commerce outweighed whatever benefit the state sought in enacting the statute.
There was a great deal more to it, because the legislative history revealed an intent to set the cap so that no Massachusetts winery would fail to be categorized as small, leaving the producers of most wine sold in interstate commerce deemed large. Judicial principles governing the choice between the strict test , which applies to facially discriminatory statutes, and the more state-friendly balancing test applicable to incidentally discriminatory statutes, contain the interesting wrinkle that a statute whose purpose is shown to be protectionist is treated as facially discriminatory, even if its bare text does not reveal the discrimination. Thus, the intention revealed in legislative history put the Massachusetts statutes in the strict scrutiny category, which would require the state to prove that an important public policy objective could not have been met in any reasonable non-discriminatory way.
According to the state, its objective was to bring the blessings of direct shipment to small producers throughout the nation. Judge Zobel could not see how cutting out the larger wineries served that objective at all, and therefore flunked the statute under both the strict test for facial discrimination and the easier balancing test for upholding incidental discriminatory effects.
Invalidating the statute without requiring a finding of facial discrimination makes the case far more important in other states, where plaintiffs may not be so lucky as to find evidence of discriminatory intent leaping from the legislative record. It also makes the decision itself more robust on appeal, when the state and wholesalers argue that the sponsor’s statements quoted in the opinion were taken out of the context of a true benign intent.
Family Winemakers is also useful to pro-trade advocates in two less direct ways. (1) It explicitly rejects the defendants’ argument that the large wineries were not shut out of direct shipment because wineries of any size that had not sold wine to a wholesaler for six months could ship directly to consumers. While it might seem self-evident that forcing wineries of substantial size to abandon use of wholesalers as a precondition to using direct shipment is, in effect, denying them direct shipment privileges, in future litigation it’s much better to be able to point to a judge’s saying so. (2) In gauging effect on interstate commerce, it put the focus on the large volume of wine excluded or burdened by the statute, rather than (as the state urged) on the small number of producers who are responsible for it. That follows logically from judicial precedent, but again it’s advantageous to have it spelled out in a reported case.
Judge Zobel’s opinion is clear and impressively supported by citations to precedent, aided on both counts by the remarkably well-researched and well-argued case presented by the plaintiffs, but the suit is, of course, not yet over. The state and wholesalers will presumably move for reconsideration, which, in view of the forcefulness of the opinion, represents a dim hope for defendants. Other skirmishes may be more substantial.
What we have so far is an order granting judgment to the plaintiffs and identifying the statutes whose enforcement will be affected by the permanent injunction to be entered. The defendants will surely have much to say about how the injunction should be worded and whether it will be effective during the almost inevitable appeal.
It is important to note that the opinion of the court recognizes, as it must, that the state has the right simply to take the direct shipment statute containing the volume cap (§ 19F) off the books altogether, with the result of shutting down direct shipment for all wineries –i.e., level down. In their original complaint, plaintiffs had asked for a declaration that challenged statutes, including § 19F, were unconstitutional and an injunction against their enforcement. That left some uncertainty whether, in case the court agreed on unconstitutionality, it might grant the wish by invalidating § 19F altogether, leaving no winery with direct shipment, because of the general ban in §§ 2 and 18 on importation or transportation without specific dispensation.
In the summary judgment motion just granted, plaintiffs asked the court to enjoin enforcement of §§ 2, 18 and 19F “against any out-of-state winery engaged in direct shipping to consumers, regardless of the winery’s total annual production or affiliation with a Massachusetts wholesaler.” The court included all three statutes in its memorandum order, a clear indication that the final judgment and permanent injunction will level up by keeping the permissive and licensing parts of 19F in force and enjoining only denial of direct shipment privileges to larger wineries (including those that sell to Massachusetts wholesalers).
Less certain is the issue of a stay on appeal, which the court has discretion to grant or deny. The tenor of the opinion suggests that Judge Zobel will be reluctant to delay the effect of allowing larger wineries to use both wholesalers and direct shipment, though we can expect arguments from defendants that it will ruinously disrupt the orderly regulation of beverage alcohol in the Commonwealth. Moreover, denial of a stay in the district court does not mean the appellants would fail to obtain a stay from the Court of Appeals, which could take a couple of years to decide the case. Ultimately, the legislature can always take another cut at protecting wholesaler interests while appeals are going on, potentially rendering the ruling moot.
Even with questions about when it will become effective and the inability to predict with certainty what an appellate court or legislative assembly will do, Family Winemakers will ripple through all litigation dealing with indirect discrimination against interstate commerce. For pro-trade advocates, that’s cause to celebrate.
Wisconsin Liquor Reporting: Reciprocal (9 months) + Electronic Filing (3 months)
November 21st, 2008
Effective October 1st, 2008, Wisconsin requires electronic filing for reporting shipments of wine into Wisconsin. According to Wisconsin, filing and paying taxes online is more accurate, more certain, and means better business. And, as we’ve discussed previously, it’s also green and convenient. Direct shippers must file their first excise tax report as a permitted Wine Direct Shipper electronically, and are required to file the “Wisconsin Distilled Spirits, Cider, and Wine Tax Return” (AB-130) and the “Wisconsin Winery and Direct Shipper Schedule” (AB-135). The first quarterly return includes shipments made from October 1st, 2008 through December 31st, 2008, and is due before January 15th, 2009. Also, wineries that ship to Wisconsin wholesalers must file the “Wisconsin Distilled Spirits, Cider, and Wine Tax Return” (AB-130) and the “Wisconsin Liquor Tax Multiple Schedule” (AB-131). Shipments to Wisconsin wholesalers must be filed monthly (also due by the 15th of the month), again, beginning October 1st, 2008.
There are two methods for filing the Wine Tax Return and all related schedules, electronically:
1) The Free-File filing application is available to anyone who has a Wisconsin Liquor Tax Permit Number, and you don’t have to set up a special account to start using it. Free-file will save all your data, so you can work on it as you ship orders, save it, and come back to it later. Entering the schedule information (e.g. the name of the recipient, how much wine they received) will automatically calculate the tax form. You can watch a detailed training video for more complete information on how to report using the Free File format. It’s about a half of an hour in length, and is very thorough. I had the best luck viewing the video in internet explorer. Payment options for Free-file include Electronic Funds Transfer (EFT), or a payment voucher, which you can print out and then mail in with your payment to the Wisconsin Department of Revenue. If you decide to pay your taxes via Electronic Funds Transfer (EFT), it takes about a week to process your registration, so don’t wait until the last minute. For more information about EFT payments, you can visit the Wisconsin EFT web page, or call (608) 264-9918.
2) The Liquor Tax File Transmission filing method is a quick and painless way to submit your tax return. You won’t have to hand-enter all of your data, which can save you a lot time. And just the same as Free-file, you don’t have to set up a special account, so you can begin using it immediately. This filing method does need some initial development, as it requires the creation of an XML file. If you are computer savvy, you can create this file yourself, or, if not, you could have someone that is computer savvy create it for you (ShipCompliant will provide this service to its clients, in case you were wondering). After you have saved the XML file to your computer, just upload the file using Wisconsin’s file transfer application, and wait for an immediate confirmation of receipt. The Electronic Funds Transfer (EFT) payment option is available for this filing method.
Last but not least, for those direct shippers that shipped wine to Wisconsin consumers under the old reciprocity statutes (California wineries only), don’t forget that the “Annual Reciprocal Wine Shipment Report” must be filed for shipments made from January 1, 2008 through September 30th, 2008 (and don’t forget the required dates of birth for both purchaser and recipient). This form can be submitted in paper format. Because the “Annual Reciprocal Wine Shipment Report” only includes shipments through September, it can be submitted now, or anytime before January 31st, 2009.
Family Winemakers Court Win is Big for the Industry
November 20th, 2008
On November 19th, 2008, Judge Rya W. Zobel, in the case of Family Winemakers of California v. Jenkins, allowed the plaintiffs’ motion for summary judgment, concluding that Massachusetts General Laws chapter 138, section 19F:
… has a discriminatory effect on interstate commerce because as a practical matter it prevents the direct shipment of 98% of out-of-state wine to consumers but permits all wineries in Massachusetts to sell directly to consumers, retailers and wholesalers.
Therefore, the Massachusetts statute in practice prevents direct shipment of approximately 98% of out-of-state wine while allowing 100% of Massachusetts wineries to sell direct. This clearly confers disproportionate benefits on both Massachusetts wineries and wholesalers.
In the decision, Judge Zobel provided a fascinating account of the history of what became Massachusetts House Bill No. 4498. She details the original lobbying from wholesalers, pleas from in-state wineries, negotiation in the Massachusetts House and Senate, passage of the bill on November 17th, 2005, veto by then-Governor Mitt Romney, and finally an override by the Legislature on February 15th, 2006. The detailed account sheds light on a fact that we known all along - that the 30,000 gallon capacity cap was set conveniently above the production capacity of the largest winery in Massachusetts (24,000 gallons). This cap was designed to allow the Massachusetts wineries to ship directly to consumers, while simultaneously protecting Massachusetts wholesalers by prohibiting out-of-state medium and large wineries from doing the same.
The wine distribution system is shaped like an hourglass, in that there are a large number of producers (the top) and a large number of consumers (the bottom), but significantly fewer wholesalers (the middle). This structure has the effect of giving wholesalers greater bargaining power with both wineries and retailers in states where it is mandatory to have a wholesaler. Generally wholesalers prefer to carry a larger volume of a particular wine, rather than an equivalent volume of several wines, because it is more profitable for a wholesaler to warehouse, manage and sell a single
wine. Many wineries produce both specialty wines in small quantities and higher volume wines. It is rare for a winery producing approximately 30,000 gallons per year to have all of its wines represented by a wholesaler.
Family Winemakers of California put out a press release immediately yesterday, hailing the decision as a win for the industry. Paul Kronenberg, president of Family Winemakers of California, was quoted as saying “State laws that protect and perpetuate wholesaler monopolies at the expense of wineries seeking market opportunities and consumers seeking a wider choice in wine, run counter to the concept of free trade within the nation”. Tracy Genesen, lead attorney on the case from Kirkland & Ellis, said “The decision tracks Granholm, since ‘allowing States to discriminate against out-of-state wine invites a multiplication of preferential trade areas destructive of the very purpose of the Commerce Clause.” Kenneth Starr of Kirkland & Ellis explained that “Freedom to conduct commerce across state boundaries without undue restrictions was a fundamental principle of the framers of the Constitution”.
Free the Grapes! also published a press release yesterday, highlighting the case as a big loss for efforts by wholesalers to ban “legal, regulated wine shipping”. “Today’s ruling in Family Winemakers v. Jenkins strikes a blow to the wholesalers’ campaign by declaring that Massachusetts’ restrictions on winery-to-consumer shipments are unconstitutional”.
This is a big win for the industry. We applaud Family Winemakers of California, Coalition for Free Trade, Kirkland & Ellis, and everyone else involved for all of their hard work in fighting this long battle. The ruling will certainly have ripple effects not only in Massachusetts, but also Ohio, Arizona, and many other states as current and future examples of such non-facial discrimination will be questioned, challenged, and overturned.
We’ll keep you posted as this story develops. The immediate effects in Massachusetts are unknown at this time (see our post “Why Can’t I Have a Boston Wine Party?” from June, 2007). Common carrier restrictions will need to be clarified before any out-of-state shipping can commence. Stay tuned for more information and analysis…
Road-Trippin’: Self-Distribution in Oklahoma May Be Too Far Out of the Way for Some
November 14th, 2008
On November 4, 2008, Oklahoma voters passed State Question 743 (SQ 743) by approximately a four to one margin. The referendum opened self-distribution for in-state and out-of-state wineries to distribute to retailers and restaurants in the state of Oklahoma, with some restrictions. Self-distribution in Oklahoma is now more accessible to wineries across the country.
In-state wineries are the major beneficiaries of SQ 743. In 2000, a voter referendum approved self-distribution for in-state wineries, only to be struck down as unconstitutional in a 2006 district court decision, due to its bias against out-of-state wineries. Since then, in-state wineries have had to adhere to pre-2000 referendum laws, which require the use of the three-tier system to get products on the shelves and on the menu. But with the overwhelming approval of SQ 743 on November 4, 2008, in-state wineries that produce under 10,000 gallons annually are now able to forgo the middleman and self-distribute directly to retailers and restaurants. However, the relative ease with which in-state wineries may self-distribute is not mirrored for out-of-state wineries.
The new constitutional provision set forth by SQ 743 has also increased access to Oklahoma retailers and restaurants for out-of-state wineries, but with obvious obstacles. While out-of-state wineries can legally distribute to Oklahoma retailers and restaurants, they must own or lease the vehicles used to transport the wines. In addition, use of common or private carriers is prohibited. These delivery restrictions apply to both in-state and out-of-state wineries, but limit out-of-state wineries to a greater degree. These restrictions are not unfamiliar to one of the legislators who sponsored the bill. The Journal Record found that Representative Danny Morgan “questioned if it would be cost effective for an out-of-state winery to drive a few thousand gallons of wine all the way to Oklahoma,” an indication that those who initiated the bill knew of the barriers it would create for out-of-state wineries.
Although State Question 743 opens doors previously locked for both out-of-state and in-state wineries, a clause, stating, “If any part of this measure is found to be unconstitutional, no winemaker could sell wine directly to retail package stores or restaurants in Oklahoma” would shut and bolt those doors yet again. Tom Wark made the suggestion that wholesalers may very well utilize this clause by arguing that it is discriminatory, which would once again take away the right to self-distribute. This clause, in addition to the hoops that must be jumped through in order for a winery to self-distribute according to this referendum, adds to the complicated and uncertain situation of shipping wine to Oklahoma. State Question 743 is a step toward opening up self-distribution in Oklahoma. However, there is much to be improved upon, not least the indirect restrictions placed on out-of-state wineries.
The WSLCB Announces Online Tax Reporting and Payment System
November 3rd, 2008
Washington State Liquor Control Board (WSLCB) just made filing monthly summary tax reports and paying taxes a little easier by providing an online tax filing option for wineries shipping to consumers and retailers in Washington. The WSLCB encourages wineries to use their Online Tax Reporting and Payment System which saves time and simplifies the tax reporting and payment process. Users can access the system 24 hours a day, view previously filed reports online and confirm tax payments have been made.
Eligible users should contact the WSLCB Beer and Wine Tax Unit at beerwinetaxes@liq.wa.gov or (360) 664-1721 for account information. The system can be accessed by visiting the WSLCB website at www.liq.wa.gov.
Annie Bones, State Relations - Wine Institute
Mark Your Calendar Because Idaho Won’t: Direct Shipper Permit Renewal
October 31st, 2008
This is a reminder that Idaho Direct Shipping Permit holders must submit a renewal form before the expiration date of their current permit (Direct Shipping Permits expire a year after the date of issue). Idaho does not send out renewal notices, thus it is the responsibility of the permit holder to obtain and submit the renewal form. You can find the form on the main page of the Idaho Alcohol Beverage Control under the name “Idaho Direct Shipper Renewal Form.” A $25 renewal fee and, if you are an out-of-state direct shipper, a certified copy of your state winery license must be submitted with the form. Also, a contact person’s e-mail address is required to complete the renewal application.
There is good news regarding Idaho’s bond requirement for some direct shippers. Direct shippers may request to have their bond requirement removed after one year. However, in order to qualify, the direct shipper must have an impeccable record of compliance and submit a letter of request to the Idaho Tax Commission.
Appeals Court Calls for More Facts in Challenge to Tennessee On-site Law
October 27th, 2008
The October 24th decision of the Sixth Circuit Court of Appeals in Jelovsek v. Bredesen has been widely reported as upholding face-to-face on-site purchase requirements for winery sales to consumers. There is, however, an interesting disconnect between what the district court said when it dismissed the complaint and what the appellate court said in partly affirming the dismissal.
In March 2007 the district court judge upheld a statutory scheme he understood as an exception to the otherwise mandatory three-tier system, allowing Tennessee residents to buy wine at a Tennessee winery that used a certain proportion of Tennessee fruit and to transport the purchase in quantities of up to three gallons, while limiting transportation of out-of-state wine purchases to one gallon. The circuit judge, speaking for a three-judge appellate court, clearly upheld laws requiring both in-state and out-of-state wineries to use Tennessee’s three-tier system and clearly reversed the district court’s upholding the exception. The appellate opinion does not, however, say that Tennessee may continue allowing Tennessee wineries to sell at their premises to consumers so long as the transportation quantities are equalized.
What the opinion appears to leave open is the fundamental question in the lawsuit: whether Tennessee can prohibit direct shipment to its residents by out-of-state wineries while allowing in-state wineries to sell out of their tasting rooms. The first line of attack on that proposition is that on-premises sale requirements, though literally neutral, so obviously favor nearby wineries over more distant ones that they should be analyzed as facially discriminatory against interstate commerce, putting the burden on the state to demonstrate that the differential is indispensable for carrying out a legitimate state objective. The second line is that, even if we read on-site requirements as facially neutral, the harm to interstate commerce from the difference in access to the market outweighs any benefit the differential may confer on the state; under that analysis, the plaintiffs, rather than the state, have the burden of factual proof. The main line of defense is that the differential is a mere “accident of geography” without Commerce Clause significance. Lower courts in other cases have disagreed on which view is correct.
The Sixth Circuit held that discrimination in favor of Tennessee wineries would have to end and noted that good arguments in principle exist for leveling up and for leveling down. In the absence of a sufficient record for choosing one or the other, it remanded the case to the district court for further proceedings. The opinion provides no instructions on how much change would be required to achieve a level playing field if the district court decides to extend equivalent benefits to out-of-state wineries, rather than reduce privileges of in-state wineries. Thus, it looks as if the plaintiffs have an opportunity on remand to provide support for their proposition that leveling up requires allowing direct shipment.
Direct Shipping Online Seminar: Last Chance to Register
October 15th, 2008
This is a quick reminder that we will hold an online direct shipping seminar for wineries tomorrow (October 16th) at 10am PT. Over 550 people have registered for this event so far. Click the button below to register for this FREE event.
October 16th Online Direct Shipping Seminar
Hold the Toasts in Michigan
October 13th, 2008
On October 6th, 2008, the judgment in Siesta Village Markets LLC v. Granholm was stayed by agreement of the parties, to give the state time to appeal and, if the appeal is taken, to leave the current law in force for the duration of the appellate process. It seems almost certain the defendants will appeal.
That means the law in Michigan has not yet changed and, depending on the outcome on appeal, may not change as contemplated by the district court opinion. Reports that Wine.com will begin shipping in reliance on the original judgment appear premature.
