Out-of-State Shippers in Texas Get a Break on Excise Taxes – Until Now
January 26th, 2012
Texas recently sent an updated Direct Shipper’s Report (form C-240) along with a letter to Out-of-State Winery Direct Shippers, alerting the licensees of a change in the tax rate to be paid on wine sent to Texas residents from out-of-state. Until now, Texas has only required out-of-state direct shippers to pay $0.204 per gallon on all wine shipped. The taxes on vinous liquors listed on the revised form are equal to the taxes paid by in-state wineries and are as follows:
- Wine with an ABV of 14% or less – $0.204/gallon
- Wine with an ABV over 14% – $0.408/gallon
- Sparkling wine – $0.516/gallon
The updated rates are in effect for the current quarter (December – February), and the next payment is due on March 15th.
Texas Form C-240
New Jersey Poised to Open Up For Direct Shipping
January 11th, 2012
Late Monday night, in the final action of a marathon legislative session that closed out the year, the New Jersey Assembly passed S3172, a bill that, among other things, opens up the state for direct-to-consumer shipments. If signed by Governor Chris Christie as expected, it will allow wineries producing up to 250,000 gallons of wine annually to apply for licenses to ship wine directly to New Jersey consumers.
The bill also allows for both in- and out-of-state winery self-distribution and tasting rooms, two issues that New Jersey was compelled to address due to a 2010 lawsuit (Freeman v. Corzine) that ruled the state was acting unconstitutionally by allowing in-state wineries to sell wine through distribution methods unavailable to out-of-state wineries.
Direct Shipping Details:
Once S3172 is signed by the Governor, New Jersey, a state that has prohibited direct wine shipments, will join 38 other states in allowing limited amounts of wine to be shipped to its residents. The bill gives licensed Farm and Plenary wineries the ability to ship, and allows out-of-state wineries producing less than 250,000 gallons per year to apply for an “Out-of-State Winery License”. The fee for the Out-of-State Winery License is one of the most expensive direct shipping licenses in the country at $938 per year (the same annual fee paid by in-state wineries). All licensed wineries may ship up to twelve nine-liter cases to a New Jersey consumer per year. Sales and excise taxes must be paid.
Self-Distribution Details:
For an additional fee, New Jersey Farm, Plenary, and Out-of-State Winery licensees may self-distribute (sell wine directly to New Jersey retailers). After recent amendments to the bill, however, wineries are restricted from shipping to retailers via common carrier. It is yet unclear what this means for the self-distribution privilege, specifically for wineries that are not in close proximity to the state. The additional fee for self-distribution ranges from $100 to $1000 per year, depending on the production volume of the winery.
Tasting Room Details:
S3172 will allow out-of-state wineries to operate tasting rooms within New Jersey. Out-of-state wineries may operate up to 16 tasting rooms, while in-state wineries may operate up to 15 tasting rooms in addition to their licensed premise; Farm, Plenary, and Out-of-State Winery licensees must pay a $250 fee for each tasting room location. New Jersey wineries are currently able to operate tasting rooms and joint tasting rooms. The bill, however, removes the ability for wineries to operate joint tasting rooms, which is a disadvantage for out-of-state wineries.
The opening of New Jersey to direct wine shipments is a major accomplishment and will open up one of the last significant marketplaces that prohibit direct shipment of wine. Both New Jersey and out-of-state wineries are expected to benefit from the change in the law, as well as New Jersey wine consumers. If signed by the Governor, the law would go into effect on the first day of the fourth month following enactment (May 1, if enacted in January). When specific regulations concerning license applications and reporting are issued, ShipCompliant will notify its clients and the industry.
Wine Sales and Distribution 2012 – A Look Forward
January 9th, 2012
In looking forward to what 2012 might bring the world of wine compliance and regulation, it is instructive to first look back at 2011. One thing we’ve learned after eight years in the world of wine compliance is that once movements gain momentum, it’s hard to slow them down.
The past year demonstrated the continuation of certain trends and the emergence of another that we believe will carry forward in 2012. The trend of more states opening their borders to the direct shipment of wine from other states continued steadily. Maryland and New Mexico both opened their borders to permit-based direct-to-consumer shipping in 2011, a continuation of a movement toward regulated consumer access to wine that began in 2005 with the Granholm v. Heald Supreme Court decision. Tennessee also saw a change in their law in 2011 that made the entire state “wet” for direct shipments from wineries.
The past 12 months also saw an increase in new “Third Party Providers” that help wineries market their products to a broader collection of consumers. Either as flash sites, wine product advertisements, or multi-offer marketplaces, these new entries into the wine market were helped along by a new California Department of Alcoholic Beverage Control (ABC) Advisory that set down specific rules as to how suppliers and non-licensed Third Party Providers can work together compliantly.
Finally, 2011 demonstrated that various forms of privatization of the sale and distribution of wine and spirits in control states are an important trend to watch. The passage of Initiative 1183 in Washington State that took the sale and distribution of spirits out of the hands of the Washington Liquor Control Board was the most tangible example of the privatization trend.
What To Expect in 2012
Direct-To-Consumer Shipping
Winery-to-Consumer shipping laws will continue to be modernized in those now few states that continue to prohibit interstate shipping. We expect New Jersey, the most important wine consuming state currently outlawing interstate shipments, to pass legislation allowing some form of direct shipments to consumers. Currently, a bill working its way through the legislature would allow all wineries making up to 250,000 gallons annually to obtain a direct shipment permit. The capacity cap of 250,000 gallons will be a point of concern, but wineries should expect passage and should be prepared to ship to New Jersy consumers in 212. The bill, which has passed the senate, is expected to be voted on in the assembly before the close of session tomorrow, January 10th.
Massachusetts too has seen a number of direct shipment bills introduced over the past couple of years, but none have found their way to the Governor’s desk. Recently, however, Governor Deval Patrick put a spotlight back on the issue by saying in a radio interview that he would sign legislation that permitted direct-to-consumer wine shipments. 2012 may be the year that Massachusetts finally opens to direct-to-consumer shipping.
Finally, Pennsylvania, traditionally one of the states where alcohol sales and distribution is most tightly controlled, may see a move to allow direct-to-consumer shipping. As talk continues in that state to privatize wine sale and distribution, there has also been much talk and the introduction of bills to “modernize” the PLCB, including allowing direct-to-consumer shipping, opening up a state with big consumer potential for wineries.
Modernized Marketing
Digital marketing in the wine industry has been behind the curve due primarily to the massive amount of regulations that govern the industry on a federal and state level. It’s unlikely that the wine industry will see significant deregulation. However, it appears that some clarity is coming to the issues that have historically deterred modern marketing methods.
Late in 2011 the California ABC issued an “Advisory” that spelled out the conditions under which non-licensed Third Party Providers (TPPs) and suppliers must arrange their relationships in order to work together. In a nutshell, the California ABC made clear that wineries and other licensed suppliers must always be in control of the transaction from approving each transaction to controlling the flow of funds. (Read our blog post that explains these new rules). While adhering to the new California ABC rules can be a complex task and require very specific actions and programming on the part of licensed suppliers and non-licensed TPPs such as flash sites and community buying sites, we believe this new clarity represents an important development for suppliers and marketers that will yield interesting developments in 2012
We expect to see a rise in the number of TPPs. In addition, we expect other states to follow California’s lead in issuing rules and regulations for how licensees and non-licensed marketers can work together to help market wine to consumers in innovative ways.
Privatization
With Washington State paving the way in the realm of privatization of sales and distribution with the passage of Initiative 1183 in November, we predict the privatization trend to regain momentum in 2012. Most eyes are on Pennsylvania where serious discussions are underway concerning the privatization of the sale and distribution of wine in that highly controlled state. Virginia too has seen discussions in the past years concerning the merits of reforming its alcohol control system. Meanwhile, in Michigan a task force has been empowered to look at updating its alcohol beverage laws.
This slow moving trend toward privatization, if it continues and gains more momentum, could lead to significant changes in the area of wine sales and distribution and the compliance measures that suppliers must undertake.
Federal Action on Wine Sales and Distribution
In early 2011, with the introduction of H.R. 1161 (read our series on the CARE Act here) in the House of Representatives, it looked like supporters of federal legislation that would give states greater control over how they can regulate alcohol and overcome judicial rulings that have put limits on state powers, would push hard to see this bill passed. Yet, H.R. 1161 garnered fewer supporters in the House than a similar bill, H.R. 5034, gained in 2010. Furthermore, no hearing was held in the House Judiciary Committee on H.R. 1161 and no Senate sponsor was introduced.
This bill, opposed by all supplier organizations and by retailers, has another year to gain more support and move through the legislative process. Most in the industry are taking a wait and see attitude on H.R. 1161 to determine its fate, but it seems unlikely that the bill will move on to President Obama’s desk in 2012.
Finally, federal legislation is moving forward concerning the United States Postal Services, and it could have long-term effects on the wine industry. The new bill moving forward is the 21st Century Postal Service Act 2011. If enacted as currently written it would allow the United States Postal Service to deliver wine to consumers and compete with Federal Express and United Parcel Service.
As always, ShipCompliant will continue to watch the political and regulatory landscape throughout the coming year and will work to keep you up-to-date on important changes that impact your ability to market and sell wine.
Happy New Year
December 30th, 2011
From your compliance partners in Boulder and Napa, may your new year bring you fewer forms to file and more orders to fill!
- The ShipCompliant Crew (from left to right): Timothy Clayton, Mike Liedtke, Sarah Werner, Andy Grauch, Jim Agger, Robb Dye, Eddie Ermoian, David Dango, Kent Nowlin, Chris Kalmbach, Patrick Barratt, Pawel Smolarkiewicz, Jamie Jimenez, Lisa Bookwalter, Alex Umbhau, Jeff Carroll, Betsy Hansen, Mike Taylor, Luke Eckenroth, Mark Hayes, April Capil, Colin Neilson, Barclay Bates, Mackenzie Latham, Sam Sexson, Michelle Few, Emily Sheehan, Michael Pritchard, Jason Eckenroth
Understanding the California ABC’s New Advisory for Wineries and Third Party Providers
November 1st, 2011
The proliferation of “Third Party Providers” (TPP) within the wine industry has been significant over the past two years. Known otherwise as “Third Party Marketers”, “Third Party Advertising Agents” and “Marketing Agents”, they represent a new sales channel for suppliers whether in the form of “flash sales” or multiple product offer websites.
However, anybody that has operated as a TPP in California has done so under a great deal of uncertainty ever since the issuance by the California Department of Alcoholic Beverage Control (ABC) of an advisory in June 2009 that questioned the degree to which TPPs and wineries utilizing their services were acting in accordance with the laws and regulations of California. Most of that has changed with a new advisory letter issued today by the California ABC that provides clear guidance on how wineries and TPPs can work together.
This article lays out the key concepts every licensed seller (wineries and wine retailers) should understand and adhere to in order to work with non-licensed TPPs in a compliant fashion. We see this new advisory by the California ABC as a critical new document that will have a big impact for wine suppliers, consumers, and advertisers alike.
KEY CRITERIA FOR LICENSED SELLERS WORKING WITH THIRD PARTY PROVIDERS
Criteria #1: Placement & Pricing
What the Advisory says: “all sales transactions involving Third Party Providers must ultimately be conducted by and under the control of a licensee. This includes decisions concerning the selection of alcoholic beverages to advertise or offer for sale, the pricing of those beverages, and the ultimate acceptance and fulfillment of the sales transaction.”
Best Practice: When engaging a TPP, the licensed seller should monitor how their products are being represented, and should also communicate to the TPP an allowable price (or price range) for advertisement to the consumer. Sellers should also communicate to the TPP the states in which they are licensed to ship so the TPP can filter products by the consumer’s state and also show the list of available states for each seller.
Criteria #2: Transparency
What the Advisory says: “The licensee responsible for the sale must be clearly identified and must ultimately control the transaction, including any decisions concerning acceptance or rejection of such orders.”
Best Practice: TPPs should clearly show to the consumer, prior to checkout, the name of the licensee for the transaction. For example, “This product is sold and shipped by Winery A, Sonoma, CA”. The licensee name should also be presented to the consumer on any generated consumer invoices.
Criteria #3: Acceptance
What the Advisory says: “The licensee responsible for the sale must be clearly identified and must ultimately control the transaction, including any decisions concerning acceptance or rejection of such orders.”
Best Practice: A good mechanism for ensuring acceptance is a batch email that is sent out on a periodic (daily or semi-daily, for example) basis. The email would contain the order request information and details, and the seller would have the opportunity to reject or accept the orders by responding to the email, or clicking on an accept/reject button. If a comprehensive compliance check has already been run against the seller’s shipping license, then the seller would likely not have many reasons to reject the requests.
Criteria #4: Fulfillment
What the Advisory says: “Licensees must also be responsible for, and must control, the fulfillment of orders and the shipment of alcoholic beverages from the licensees’ licensed premises or other authorized shipping point (such as a licensed public warehouse).”
Best Practice: Following the acceptance process, the seller then provides instructions for releasing the order to fulfillment. Licensees should ensure that the wine is shipped either from their licensed premise, or a licensed warehouse. The wine is then shipped, and a shipping notification is sent back to both the seller and the TPP. Following shipping notification, payment is captured.
Criteria # 5: Payment and Disbursement
What the Advisory says: “The control of funds from a transaction involving the sale of alcoholic beverages constitutes a significant degree of control over a licensed business. As such, while a Third Party Provider may act as an agent for the licensee in the collection of funds (such as receiving credit card information and securing payment authorization), the full amount collected must be handled in a manner that gives the licensee control over the ultimate distribution of funds. This means that the Third Party Provider cannot independently collect the funds, retain its fee, and pass the balance on to the licensee. The Third Party Provider should pass all funds collected from the consumer to the licensee conducting the sale, and that licensee should thereafter pay the Third Party Provider for services rendered.”
Best Practice: At the time of transaction, payment is authorized, but not captured. Following shipment notification, payment is captured, and funds settle either directly to the seller, or into a trust account that is controlled by the seller. The funds can then be disbursed to the parties (for advertising fees, fulfillment fees, technology fees, etc.) from the control of the licensed seller.
The new criteria for licensees working with TPPs is a paradigm shift that will work its way through the industry over the next few months. However, we believe that as licensed sellers and TPPs understand the change and put in to place mechanisms to insure they are operating compliantly, the new rules will help both TPPs and licensed sellers operate with certainty, at least in California.
It is important to understand that this new criteria only applies to licensees in California. However, California’s regulatory system often acts as a benchmark for regulators in other states and we will be watching closely to see how other states react to this collaborative effort between the ABC and the working group of industry experts it established to provide recommendations on the issue of TPPs in California. It should be noted that this new CA ABC advisory was issued today in the midst of a meeting of the National Conference of State Liquor Administrators (NCSLA) meeting in San Francisco. So, regulators in most states are now well aware of the new California advisory and the process they used to come to the solution.
In the end, what’s important for licensees working with TPPs to understand is that it is the licensed seller (the winery or retailer) that is ultimately responsible for the actions of the Third Party Provider, which makes it in the best interests of the licensee to be sure the TPP understands these new rules and that they are in compliance with them.
