Archive for July, 2006
Confusion about Indiana
July 27th, 2006
We have had a number of people ask about the direct shipping status in Indiana. Most will say something like “Indiana is now available for direct shipping”. Well, not really. Technically, Indiana passed House Bill 1016 in March, allowing for direct shipping. However, there are severe restrictions that effectively make Indiana prohibited. Wineries can theoretically obtain a $100 permit to direct ship into Indiana if they sell less than 500,000 gallons Indiana and the Indiana consumer makes an initial onsite visit to the winery and provides the following
(A) Name, telephone number, Indiana address, or consumer’s Indiana business address.
(B) Proof of age by a state issued driver’s license or state issued identification card showing the consumer to be at least twenty-one (21) years of age.
(C) A verified statement, made under penalties for perjury, that the consumer satisfies the requirements of subdivisions (1) through (3)
and the winery does not have a wholesaler in the state of Indiana and the winery pays excise, sales, and use taxes monthly and (this is the real kicker)
Sec. 14. A consumer may not receive more than two hundred sixteen (216) liters of wine in total from one (1) or more direct wine sellers in a calendar year.
So, if an Indiana consumer receives 24 cases in a calendar year from other wineries and you ship that consumer 1 bottle, you could be in violation of this rule. We are still awaiting the final rules from the Indiana Alcohol and Tobacco Commission. Needless to say, wineries are not shipping to Indiana and lawsuits are ongoing. In fact, FedEx and UPS will not ship there anyway.
Let’s hope Indiana figures out a way to make it less restrictive, especially regarding the 24 case per individual rule across all wineries. In the meantime, Indiana consumers are out of luck.
Compliance Seminar Wrap Up
July 23rd, 2006
We held our first annual users conference and direct shipping compliance seminar on Friday, July 14th. A big thank you to Steve, Pam, Jim, Brent and Jeff for speaking at the event and bringing terrific value to the attendees.
We ran a few surveys prior to and after the seminar. Click here to see more information on the event. If you are interested in attending any of our future compliance events, please drop us a line!
An Exchange on Central Warehousing
July 10th, 2006
A reader reports a recent email from the Oregon Liquor Control Commission (OLCC) that begins, “[Y]our statement that [central warehousing] is not directly prohibited by law is not correct. There are several statutes that provide the basis for this prohibition.” That assertion could as well have been directed to me, as in a previous posting I classified Oregon as a state where the prohibition is based on policy, not statutory necessity.
The basis of the prohibition matters, because the time and resources required for a change differ greatly. Regulatory policies can change at the stroke of a pen (although it usually requires lobbying and a bit of luck to move agencies off their initial positions). Statutory rules, especially those favoring wholesalers, are likely to change only after an expensive and protracted lawsuit.
Listed below are the OLCC emailer’s justifications for prohibiting central warehousing, coupled with commentary. The dialog is important, because we can expect similar arguments in other states, varying in detail because of textual differences among statutes.
1. OLCC: “A retail off-premises licensee may not conduct the activities relating to central wholesaling . . . because that license does not include the necessary privileges of importing, storing, transporting or distributing of alcoholic beverages; it only allows the sale of alcohol.” That interpretation is required because other license statutes specifically allow manufacturers and wholesalers to “store” wine. COMMENT: Interestingly, the agency recasts warehousing as “wholesaling,” though of course no sale takes place. The argument seems to be that because a central retail warehouse involves “transporting” or, in a broad sense, “distributing,” it represents a license privilege that exists only if explicitly stated. However, numerous things done by retail licensees without regulatory objection are not listed in the retail license statute, including storing wine and other items in the back room. (The retail license statute does not authorize use of computers, or even electricity, but agencies typically do not object to unauthorized conduct of that type because it does not resemble an activity for which a non-retail license exists.) The argument that everything not expressly permitted is forbidden derives from the early Repeal days, when governments began relaxing total Prohibition bit by bit. More recent cases may narrow the distinction between liquor and other goods, making more room for the counter-theory that governmental permission to engage in a business includes all the ancillary activities needed to conduct it efficiently, if they are not expressly prohibited. In any event, basing a prohibition on absence of express permission looks very much like a statutory interpretation that the agency could, without fear of violating the law, reverse if it chose to.
2. OLCC: “[T]he tied house provisions in ORS 471.394 preclude a retail licensee from owning or having an interest in a wholesale licensee.” COMMENT: No one is talking about a wholesale license. There is no tied house prohibition against a retailer’s having an interest in itself. The agency seems to say that moving inventory around among stores is so much like distributing that they would require the company doing it to have a wholesaling license, which of course could not be issued because of the tied house laws. Again, an interpretation that is not compelled by statute.
3. OLCC: “[A] retailer may not receive deliveries of wine or beer at a central warehouse because ORS 471.305 prohibits a wholesale malt beverage and wine licensee or a brewery licensee from delivering to other than a licensed premises.” COMMENT: A central warehouse is not necessarily unlicensed. A leading model for legal central warehousing is to combine the facility with a retail store, in effect just another retail outlet, but with a large “back room” from which goods can be moved to sister stores as need be.
4. OLCC: “ORS 471.404 provides that only a wholesale licensee may import alcoholic beverages into Oregon. Therefore a retailer’s warehouse may not import alcohol directly from out of state manufacturers.” COMMENT: Importation is not directly at issue in the central warehousing debate, because the state opposes internal distribution by retailers even if the importation is handled by a wholesale licensee. However, importation is on the table in Granholm-based litigation. Oregon wineries can sell directly to retail licensees. If the recently announced suit against the OLCC follows Costco’s application of Granholm, Oregon will be put to a choice of ending direct distribution by its own wineries or allowing retailers to import directly, because of a Commerce Clause prohibition against discriminating against interstate commerce relative to in-state sales by the same class of supplier. Whether or not that happens, central warehousing remains a separate issue, because large chain retailers and consumers would benefit from it even without direct distribution from out of state.
Costco-Granholm battle lines forming in Ohio
July 9th, 2006
Ohio wineries selling to state residents operate under a mandatory 33.3% markup system, whether distributing directly or through a wholesaler.
Under past law, wineries outside the state could not sell to Ohio consumers at all. To comply with Granholm, the state accepted a consent decree permitting consumers to purchase directly from out-of-state wineries, beginning in July 2005. The decree makes no provision for minimum markups, and shipments are authorized so long as the parties comply with pre-existing § 4307.08 of the statutes and § 4301:1-1-23 of the regulations and use the new form at www.liquorcontrol.ohio.gov/1516pdf.pdf.
Although the Commerce Clause may not prohibit Ohio’s treating interstate commerce more favorably than local commerce (the reverse of local protectionism condemned by Granholm), the current system could be interpreted as favoring in-state wineries by shielding them from local price competition. More immediately significant is the political problem arising from competitive pricing by out-of-state sellers, to the detriment of Ohio wholesalers and retailers.
Governor Taft’s response has been to propose legislation applying the mandatory markup to out-of-state sellers. A rival proposal would limit all direct selling to wineries producing no more than 150,000 gallons annually. State legislative hearings are likely this fall.
Both proposals raise significant legal issues. Minimum markups were invalidated under federal antitrust law in Costco, a result consistent with earlier cases in Kentucky and Kansas. Volume caps are problematic, with court challenges now in early stages. Invalidity under Granholm is possible, if a court finds the threshold, which is typically just above the largest home state winery, a de facto discrimination against interstate commerce relative to local commerce. Otherwise, the law will be evaluated under an “unreasonable burden” test, in which the regulatory interest of the state is weighed against disadvantage to out-of-state sellers, with a less certain outcome than in cases of outright protectionist discrimination.
ShipCompliant Users Conference & Compliance Seminar – July 14
July 7th, 2006
Six88 Solutions is presenting a direct shipping compliance seminar in conjunction with its first annual ShipCompliant users conference. Due to generous sponsorship from FedEx and ChoicePoint, this event is now open to non-customers and is free of charge. The seminar will focus on the realities of enforcement and feature speakers such as Steve Gross (Wine Institute), Pam Madson (WA State Liquor Control Board) and executives from FedEx’s wine program.
Pam Madson is an interesting addition to the panel since she played a role in crafting WA’s recent direct shipping and self-distribution statutes. She will also be playing a hand in developing the enforcement policy for those laws. This is a terrific opportunity to get an insiders view into the nascent self-distribution aspect of direct shipping.
As mentioned above, registration is open to all and free of charge. We are excited to have the chance to meet many of our loyal customers & blog readers in person, so please register now. BTW, we also look forward to seeing you at WITS on July 18th!
